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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED OCTOBER 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NUMBER 001-15167
BIOPURE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 04-2836871
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
11 HURLEY STREET, CAMBRIDGE, MA 02141
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (617) 234-6500
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $0.01 PAR VALUE PER SHARE
PREFERRED STOCK PURCHASE RIGHTS
(TITLE OF CLASS)
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. Yes [X] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
Based on the closing price on January 16, 2001, and assumptions relating to
the privately held non-voting Class B Common Stock, the aggregate market value
of the voting and non-voting common equity held by nonaffiliates of the
registrant was $542,959,875.
The number of shares outstanding of the registrant's Class A Common Stock
was 24,952,838 on January 16, 2001; the number of shares of the Class B Common
Stock was 117.7.
DOCUMENTS INCORPORATED BY REFERENCE
LOCATION IN FORM 10-K INCORPORATED DOCUMENT
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Part I Specifically identified portions of the registrant's
definitive proxy statement to be filed in connection with
the registrant's Annual Meeting to be held on April 4, 2001.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This report contains forward-looking statements concerning, among other things,
possible applications for marketing approval and other regulatory matters,
clinical trials, plans for the development of Hemopure and business strategies.
These forward-looking statements are identified by the use of such terms as
"intends," "expects," "plans," "estimates," "anticipates," "should" and
"believes."
These forward-looking statements involve risks and uncertainties. Actual results
may differ materially from those predicted by the forward-looking statements
because of various factors and possible events. Company risks include lack of
FDA or any other regulatory approval for our human product, the difficulty and
uncertainty in obtaining regulatory approval, uncertainty about future physician
and market acceptance of our product, our limited manufacturing capacity and
capital resources and our lack of commercial experience as a pharmaceutical
company. In addition, we are subject to industry risks such as: our industry is
highly regulated, keenly competitive and subject to uncertainty of pricing
because of controls on health care spending and uncertainty of third-party
reimbursement.
PART I
ITEM 1. BUSINESS
Biopure develops, manufactures and markets Oxygen Therapeutics(TM). Its products
are Hemopure, for human use, and Oxyglobin, for veterinary use. Biopure is
developing Hemopure as an alternative to red blood cell transfusions as well as
for use in the treatment of other critical care conditions. A Hemopure pivotal
Phase III clinical trial in the United States has completed patient enrollment
and follow-up. The data from that trial are being monitored and analyzed.
Consequently comments in this document about results from completed clinical
trials do not include the recently completed pivotal Phase III trial. In 1998,
following FDA approval, Biopure began selling Oxyglobin in the United States. In
December 1999, Biopure received approval to sell Oxyglobin in the countries of
the European Union, and it intends to begin selling the product in 2001.
SCIENTIFIC OVERVIEW
Oxygen is indispensable to the life of all human tissues. Hemoglobin, a protein
normally contained within red blood cells, is the molecule responsible for
carrying and releasing oxygen to the body's tissues. Hemoglobin's protein
structure is similar in many different animal species, including humans. Under
normal conditions, hemoglobin contained within red blood cells carries
approximately 98% of the body's oxygen and the remaining two percent is
dissolved in the plasma, or fluid part of the blood.
As the heart pumps blood, hemoglobin within the red blood cells takes up oxygen
in the lungs and carries it to various parts of the body. Blood travels through
progressively smaller blood vessels to the capillaries, some of which are so
narrow that red blood cells can only pass through them in single file. Most of
the oxygen release occurs in the capillaries. Blood then returns to the lungs to
reload the red blood cells with oxygen. Adequate blood pressure and red blood
cell counts are crucial to this process. Oxygen deprivation, even for several
minutes, can result in cell damage, organ dysfunction and, if prolonged, death.
The causes of inadequate tissue oxygenation generally can be classified into
three categories:
- - anemia -- insufficient hemoglobin. Blood loss from injury or surgery or
disorders that affect red blood cell production or maintenance, such as bone
marrow disease, can cause anemia;
- - ischemia -- inadequate red blood cell flow for tissue oxygenation. Obstructed
or constricted blood vessels can result in ischemia. Ischemia can lead to
stroke, heart attack or other organ or tissue dysfunction; and
- - cardiopulmonary failure -- impaired function of the heart or lungs. The
heart's inability to pump sufficient quantities of blood to meet the needs of
the tissues or the failure of the lungs to oxygenate blood adequately can
cause tissue damage.
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Biopure(R), Hemopure(R) and Oxyglobin(R) are registered trademarks of Biopure.
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A red blood cell transfusion is the standard therapy for anemia resulting from
blood loss. Sources of red blood cells for transfusions include stored supplies
of donated blood or of the recipient's own pre-donated blood. Health care
professionals also may use medications that stimulate red blood cell production
if anemia is anticipated, for example, as a result of planned surgery.
Red blood cell transfusions have certain risks and limitations. As HIV,
hepatitis and other diseases have infected the world's blood supply, the need
for a sterile blood product has become increasingly apparent. There is currently
no 100% effective method for detecting blood-borne diseases or for sterilizing
donated blood. As a result, the risk of disease transmission from donated blood
is an ongoing concern to physicians and patients, although less so than in the
past. Handling errors in typing and cross-matching blood, as well as the
inadvertent introduction of pathogens, can also result in significant medical
problems. Blood typing and handling requirements, particularly refrigeration,
limit the feasibility of red blood cell transfusions in pre-hospital emergency
treatment situations. Shortages of certain types of blood can occur due to
seasonal factors or disasters. Donated red blood cells are available for use in
transfusions for only 42 days after collection and this limitation affects the
ability to stockpile red blood cell supplies. Although freezing can extend the
life of red blood cells, the freezing and thawing processes require chemical
treatment of the red blood cells and reduce the efficacy of those red blood
cells. Finally, the longer red blood cells are stored, the longer it takes them
to reach their maximum oxygen-releasing capacity and the more they break down,
limiting their effectiveness in delivering oxygen. Red blood cells lose
approximately 75% of their immediate oxygen-releasing ability after eight days
of storage. Blood banks generally release the oldest stored blood first to
prevent outdating after 42 days.
Red blood cell transfusions generally are not effective for ischemic conditions
caused by blockage. In such situations, an obstructed or constricted blood
vessel that is too narrow to permit the normal passage of red blood cells can
prevent oxygen from reaching the body's tissues.
Similarly, red blood cell transfusions are generally not effective in overcoming
poor oxygenation due to impaired heart or lung function.
Existing alternatives to red blood cell transfusions are limited. In trauma
situations, victims may experience massive bleeding resulting in rapid loss of
blood volume and oxygen-carrying capacity. In an effort to stabilize trauma
patients, emergency caregivers typically administer commonly used intravenous
fluids, such as Ringer's lactate or saline. Ringer's lactate consists of water
and electrolytes and is generally administered to patients who have lost
substantial amounts of bodily fluids as a result of bleeding, vomiting or
diarrhea. Both Ringer's lactate and saline restore blood volume, but do not
carry oxygen.
For anemia in non-acute situations, there are currently two biological products
on the market. Both of these products are formulations of a protein called
erythropoietin. Erythropoietin stimulates the body's ability to produce its own
red blood cells. This stimulation is called an erythropoietic effect. In a
surgical setting, these products are administered in anticipation of blood loss
during surgery, thereby potentially reducing the need for red blood cell
transfusions. However, erythropoietin does not deliver oxygen to the body's
tissues and does not act as a blood volume expander. As a result, these products
are not effective in treating acute blood loss and are generally not used in
cases of unplanned surgeries or emergency need. In addition, the labels on these
products caution against their use in cardiac surgery patients.
BIOPURE'S OXYGENATION TECHNOLOGY
Biopure has two proprietary Oxygen Therapeutic products that are identical
except for their molecular size distributions. Biopure defines its products as
therapeutics because they remediate oxygen deprived tissues. One administers
these products intravenously. Biopure's products consist of hemoglobin that has
been extracted from bovine red blood cells, purified, chemically modified and
cross-linked for stability. The resulting hemoglobin solutions do not contain
red blood cells and are formulated in a balanced salt solution similar to
Ringer's lactate.
The average Hemopure molecule is less than 1/1000th the size of a red blood
cell. Once infused into a patient, the Hemopure molecules disperse throughout
the entire plasma space, including the area between and around
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red blood cells, and are in continuous contact with the blood vessel wall where
oxygen transport to tissues takes place.
Hemopure, by filling plasma with hemoglobin molecules, immediately turns the
plasma into an oxygen-delivering substance. Plasma containing Hemopure flows
everywhere that blood ordinarily flows and can also bypass partial blockages or
pass through constricted vessels that impede the normal passage of red blood
cells. Furthermore, introducing Hemopure into the bloodstream enables red blood
cells to release more oxygen to the tissues than they otherwise would. In
addition to delivering oxygen to tissues, Hemopure also acts as a blood volume
expander and may have an erythropoietic effect, supporting the body's ability to
produce red blood cells. Hemopure molecules hold the same amount of oxygen as
the hemoglobin molecules in red blood cells on a gram-for-gram basis. Hemopure
molecules, however, are chemically modified to have less affinity for oxygen
than red blood cells, enabling Hemopure to release oxygen to tissues more
efficiently than red blood cells. Human hemoglobin, unlike bovine hemoglobin,
depends on the action of 2,3 diphosphoglycerate, or 2,3 DPG, a substance found
in high concentrations only within the red blood cell, for optimal offloading,
or release, of oxygen to tissues. The 2,3 DPG breaks down rapidly in stored
blood causing red blood cells to lose approximately 75% of their ability to
immediately release oxygen after eight days of storage. The 2,3 DPG breakdown
reduces the oxygen offloading efficiency of transfused red blood cells until its
levels are restored. Transfused red blood cells can require hours to regain
their oxygen offloading capability. Biopure's bovine hemoglobin permits the
efficient offloading of oxygen in the absence of 2,3 DPG, thereby allowing
Hemopure to be at its optimal oxygen offloading effectiveness immediately upon
infusion.
Hemoglobin molecules in different species have demonstrated low antigenicity,
which means that they do not readily elicit an immune or allergic response.
Biopure has confirmed Hemopure's low antigenicity, as indicated by the absence
of certain effects, through in vitro and in vivo studies. No clinically
significant levels of antibodies were observed in any of Biopure's safety
trials, including one human study lasting more than a year with multiple doses.
The following chart lists Hemopure's characteristics in comparison to transfused
red blood cells:
CHARACTERISTIC HEMOPURE TRANSFUSED RED BLOOD CELLS
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Onset of action Immediate -- not 2,3 DPG- Initially limited -- 2,3 DPG-
dependent dependent
Oxygen affinity More efficient oxygen release to Less efficient oxygen release to
tissues tissues
Oxygen transport Red blood cells and plasma Red blood cells only
Risk of disease transmission Product purity maintained through Risk minimized by testing, donor
a reproducible and controllable selection and administration
manufacturing process that protocols and ongoing
complies with current Good surveillance for emerging
Manufacturing Practices; no pathogens; leukocyte exposure
leukocyte, or white blood cell,
exposure
Storage Room temperature; no loss of Refrigeration required; loss of
efficacy efficacy
Shelf life 36 months 42 days
Compatibility Universal Type-specific
Preparation Ready-to-use Requires typing and
cross-matching
Viscosity Low High
Raw material source Controlled Not controlled
Duration of action Maximum of 3 days Estimated 60 to 90 days
In addition to Hemopure's use as an alternative to red blood cell transfusions
in surgery, human clinical testing and preclinical studies suggest that Hemopure
also could be a readily available therapeutic with a broad range of potential
applications. These applications include the treatment of trauma, ischemic
conditions, including stroke and heart attack, and malignant hypoxic tumors.
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Hemopure has a 36-month shelf life at room temperature, is universally
compatible and can be stocked well in advance of anticipated use. Consequently,
when blood is not available, Hemopure could be used to maintain a patient until
the needed type and quantity of red blood cells arrive, until the patient can be
transported to a hospital or until a patient's body produces its own red blood
cells. Hemopure thus could be an effective Oxygen Bridge(TM) to a red blood cell
transfusion or to the body's ability to regenerate its own fresh red blood
cells. Hemopure may be particularly well suited for this Oxygen Bridge function
because the duration of action of a single infusion is about two to three days
with 50% of the Hemopure molecules retained in the circulatory system for 24 to
36 hours following administration. In clinical trial data, Biopure has observed
that the redosing of Hemopure over several days can prolong Hemopure's "Oxygen
Bridge" effect.
Transfused red blood cells, however, have some advantages when compared to
Hemopure. Transfused red blood cells have a longer duration of action and can
persist in the body for an estimated 60 to 90 days. Hemopure, on the other hand,
depending on the amount infused, can last between one and three days and may
require repeat administration. Biopure has also observed slight increases in
blood pressure and abdominal discomfort in Hemopure-infused patients. An
evaluation of all available clinical safety data is in progress. Fluctuations in
a patient's blood pressure can affect the manner in which health care
professionals, who are accustomed to transfusing red blood cells, manage a
patient's care. Furthermore, Hemopure may elicit an immune response in some
individuals, as do some other proteins. In addition, it is anticipated that the
cost of Hemopure will be significantly greater to the patient than the cost of
transfused red blood cells.
STRATEGY
Biopure intends to expand its leadership position in the development,
manufacture and marketing of Oxygen Therapeutics through the following strategy:
- - Develop and Commercialize Hemopure as an Alternative to Red Blood Cell
Transfusions. Biopure's advanced clinical trials have demonstrated
Hemopure's efficacy as an alternative to red blood cell transfusions in
certain surgical procedures. While Biopure does not anticipate that Hemopure
will replace all red blood cell transfusions, Biopure expects that Hemopure's
use in surgery will demonstrate Hemopure to be a safe and effective Oxygen
Therapeutic in a wide range of patients. Biopure filed for marketing approval
of Hemopure in South Africa in July 1999 and completed its U.S. pivotal Phase
III clinical trial in the United States in 2000.
- - Pursue Approvals of Hemopure for Additional Therapeutic
Applications. Biopure will seek regulatory approvals for the use of Hemopure
as an adjunct to red blood cell transfusions. In addition, because of its
special oxygen therapeutic characteristics, Biopure will seek to develop
Hemopure as a therapy for indications such as trauma, ischemic conditions,
including stroke and heart attack, and as an adjunct to therapy for malignant
hypoxic tumors. Observations from Biopure's completed clinical trials (not
including the recently completed pivotal Phase III trial, for which data
monitoring and auditing have not been completed) and the results of
preclinical studies and field reports support the use of Hemopure for these
conditions.
- - Increase Market Awareness for Hemopure. Biopure intends to increase market
awareness for Hemopure by identifying the issues and promoting standards
necessary for widespread acceptance of Oxygen Therapeutics by the medical
community.
- - Expand Market for Oxyglobin. Biopure will seek to broaden Oxyglobin's use to
other canine indications, other animal species and selected international
markets. In December 1999, Biopure received marketing approval in the
European Union for anemia in dogs, regardless of cause. Biopure will continue
advertising and educational initiatives to further penetrate U.S. veterinary
practices and intends to offer Oxyglobin in Europe in 2001.
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BIOPURE'S PRODUCTS
Biopure's two products are Oxygen Therapeutics. Hemopure is its product for
human use. Biopure expects to file a marketing application with the FDA for the
use of Hemopure as an alternative to red blood cell transfusions before, during
or after elective orthopedic surgery. The FDA and the European Medicines
Evaluation Agency have approved the use of Oxyglobin, Biopure's veterinary
product, for the treatment of anemia in dogs, regardless of cause. Oxyglobin is
marketed and sold to veterinary hospitals and to small animal veterinary
practices in the United States and will be offered in Europe beginning in 2001.
Biopure has tested Hemopure in clinical trials involving more than 1250 humans
and has tested Hemopure and Oxyglobin in 150 completed preclinical studies
involving animals from 10 species. On a "compassionate use" basis, Hemopure has
been administered as an Oxygen Bridge to more than 30 patients with life
threatening anemia when compatible red blood cells were unavailable or
unacceptable. Commercial sales of Oxyglobin have resulted in thousands of
administrations in animals.
HEMOPURE
Biopure is pursuing the development and approval of Hemopure both as an
alternative to red blood cell transfusions and as a therapeutic for indications
such as trauma, ischemic conditions, including stroke and heart attack and
malignant hypoxic tumors.
Red Blood Cell Transfusion Alternative
Biopure filed an application for human approval in South Africa in July 1999 for
Hemopure's use as an alternative to red blood cell transfusions for elective
surgery. Hemopure would serve as an alternative to a red blood cell transfusion
or as an Oxygen Bridge pending the acquisition or production by the body of
suitable red blood cells. Biopure does not expect Hemopure to replace all red
blood cell transfusions. However, Hemopure's oxygen-carrying properties, storage
and infusion advantages address many of the limitations associated with red
blood cell transfusions. The National Blood Data Resource Center, a subsidiary
of the American Association of Blood Banks, estimated that approximately 11.5
million units of red blood cells and whole blood, including the patient's own
previously donated blood, were transfused in the United States in 1997. In April
1999, the Health and Human Services Advisory Committee on Blood Safety and
Availability heard testimony projecting a shortage of up to 300,000 units of red
blood cells in the United States in the year 2000. In addition, it is believed
that new FDA donor deferral criteria restricting persons who were resident in
the United Kingdom during a specified time could increase this shortage to
almost 550,000 units.
Biopure's clinical trials have demonstrated Hemopure's efficacy as an
alternative to red blood cell transfusions in surgery patients as measured by
the elimination of red blood cell transfusions. In all of Biopure's advanced
clinical trials, Biopure evaluated Hemopure's efficacy as an Oxygen Therapeutic
by determining, within the context of a written set of guidelines known as a
protocol, the percentage of patients given Hemopure who did not require a
subsequent transfusion of red blood cells. In these trials, Hemopure was
administered only to patients who needed a red blood cell transfusion. Trial
design limited the amount of Hemopure that could be infused and the number of
post-operative days during which it could be infused. Despite these trial
limitations, Hemopure's clinical trials that have been completed and analyzed
demonstrate clinically significant elimination of red blood cell transfusions.
Elimination was deemed to occur if the patient did not require a subsequent red
blood cell transfusion. Elimination was deemed not to occur if the patient was
administered the maximum number of Hemopure units permitted by the particular
trial design and subsequently needed a red blood cell transfusion.
In 1998, the FDA agreed to a protocol with a primary endpoint of 35% elimination
for Biopure's U.S. pivotal Phase III clinical trial in orthopedic surgery
patients.
The following chart summarizes Biopure's advanced clinical trials that Biopure
will use for the initial applications for marketing approval of Hemopure as an
alternative to red blood cell transfusions. The column labeled "Results" for the
completed trials lists efficacy, or elimination of red blood cell transfusions,
results.
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Another endpoint of our pivotal Phase III trial is a safety profile in the
Hemopure group that is no worse than the control group. We have attained this
safety comparability standard in the completed trials listed below.
NO. OF TOTAL
DOSING: GRAMS PATIENTS/NO. OF
HEMOGLOBIN PATIENTS TREATED
TYPE OF SURGERY DEVELOPMENT STATUS (UNITS HEMOPURE) WITH HEMOPURE RESULTS
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Elective orthopedic U.S. pivotal Phase Up to 300 grams 693/ Pending analysis
surgery III trial (10 units) over 6 of results
days
Non-cardiac elective Phase III trial Up to 210 grams (7 160/83 43% elimination of
surgery (1998) completed in units) over 6 days red blood cell
Europe and South transfusions
Africa, the basis
for filing in
South Africa in
July 1999
Post cardio-pulmonary Phase II trial Up to 120 grams (4 98/50 34% elimination of
bypass surgery (1996) completed in the units) over 3 red blood cell
U.S.; supportive days, first dose transfusions
trial for the administered post-
South African July surgery
1999 filing
Aortic aneurysm Intraoperative Up to 150 grams (5 72/48 27% elimination of
reconstruction Phase II trial units) over 4 red blood cell
surgery (1996) completed in the days; first dose transfusions
U.S. and Europe; administered
supportive trial during surgery, if
for the South required
African July 1999
filing
U.S. Pivotal Phase III Orthopedic Surgery Trial. Biopure, with FDA agreement,
began a pivotal Phase III trial in the United States in March 1999 in elective
orthopedic surgery. Elective orthopedic surgery includes non-emergency surgery
involving bones and joints, including repair of orthopedic fractures in
stabilized patients. The primary objective of this trial is the avoidance of red
blood cell transfusions for six weeks after orthopedic surgery. Biopure designed
this randomized, red blood cell controlled, multi-center study to enroll a total
of 640 patients in the United States, Europe, Canada and South Africa, of whom
approximately one-half would be in the Hemopure treatment group and the other
half would receive red blood cells. Final enrollment was 693 patients,
randomized one-to-one. Up to 300 grams of hemoglobin, or ten units of Hemopure,
could be infused before, during or after surgery for a total of up to six
treatment days. The efficacy endpoint of this trial is the elimination of red
blood cell transfusions in 35% of the patients who receive Hemopure. Another
endpoint is a safety profile that is no worse than the control group. The data
from this trial are being monitored and audited, after which results will be
analyzed.
Non-U.S. Phase III Non-cardiac Surgery Trial. Biopure completed a Phase III
trial in Europe and South Africa in 1998 in non-cardiac surgery. Non-cardiac
surgery refers to surgery that does not involve the heart and can include
surgery of the digestive or urinary tract as well as orthopedic surgery. The
primary objective of this trial was the avoidance of red blood cell transfusions
for 28 days after non-cardiac surgery. This randomized, red blood cell
controlled, multi-center study enrolled 160 patients, 83 of whom were infused
with Hemopure. Up to 210 grams of hemoglobin, or seven units of Hemopure, were
permitted during a six-day treatment period. The trial resulted in the
clinically significant elimination of red blood cell transfusions in 43% of the
patients who received Hemopure.
U.S. Phase II Post Cardiopulmonary Bypass Surgery Trial. Human testing was
completed in 1997 in a double-blind, randomized, red blood cell controlled,
multi-center study in post cardiopulmonary bypass surgery patients. During
cardiopulmonary bypass surgery, patients are connected to a heart and lung
machine that replaces functions of the heart and lungs during surgery. The
primary objective of this trial was the avoidance of red blood cell transfusions
for 28 days after surgery. The study treated 98 patients, 50 of whom
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were infused with Hemopure. Up to 120 grams of hemoglobin, or four units of
Hemopure, were administered over a three-day treatment period following surgery.
The trial resulted in the clinically significant elimination of red blood cell
transfusions in 34% of the patients that received Hemopure. In this study, 100%
of the patients who received Hemopure did not require any red blood cells during
the day of surgery.
Additionally, Biopure observed that the hematocrit, or packed red blood cell
volume as a percentage of total blood volume, of the patients treated with
Hemopure recovered to a degree that was indistinguishable from the red blood
cell treated patients at both six and 28 days post-surgery. This observation
supports the potential use of Hemopure as an erythropoietic support.
U.S. Phase II Aortic Aneurysm Reconstruction Surgery Trial. In 1998, Biopure
completed a randomized, red blood cell controlled, multi-center trial in
abdominal aortic aneurysm reconstruction surgery. Aortic aneurysm reconstruction
surgery involves repairing a damaged segment of the aorta, the body's principal
artery. This study treated 72 patients, 48 of whom were infused with Hemopure.
The maximum dosage was 150 grams of hemoglobin, 30 grams more than the post
cardiopulmonary bypass trial. Usually aortic aneurysm reconstruction surgery
involves much more blood loss than post cardiopulmonary bypass surgery. In this
trial, Hemopure was used during the surgery in contrast to the post
cardiopulmonary bypass trial, where use began after surgery. The trial resulted
in the clinically significant elimination of red blood cell transfusions in 27%
of the patients that received Hemopure. The trial was reported in the Journal of
Vascular Surgery, February 2000 issue.
Trauma; Stabilized Trauma Trial
Biopure has observed a 100% elimination of red blood cell transfusions on the
day of surgery in cardiac patients infused with Hemopure. As a result, Biopure
believes that Hemopure could be infused at the site of an accident, potentially
extending the time that a trauma patient could be supported awaiting definitive
hospital care. Hemopure also acts as an expander of blood volume, a common
therapy used to stabilize trauma patients. As part of our approach to trauma,
Biopure is conducting a Phase II trial in non-cardiac surgery patients that
allows enrollment of consenting, stable trauma patients. This 60-patient trial
is being conducted at Brooke Army Medical Center and Wilford Hall Air Force
Hospital. In this controlled and randomized study, investigators dose with
Hemopure (or Ringer's lactate, the control treatment) based on the estimated
amount of blood the patient has lost. Endpoints include blood utilization and
safety. There have been no deaths in either group in this study. In this trial,
physicians are administering Hemopure to a maximum dose of 10 units or 300 grams
of hemoglobin. Biopure expects this trial to provide information useful in
designing a clinical development plan for trauma. Hemopure has been used on a
"compassionate use" basis in trauma patients. The design of pivotal trauma
trials will be complicated by heterogeneous patient populations and logistical
issues. Biopure has convened a panel of experts to advise in the design of a
trauma program.
In addition, preclinical animal model studies performed in academic and military
research laboratories have shown the benefit of using Hemopure in situations
involving severe trauma, hemorrhagic shock, hemorrhagic shock with tissue injury
and resuscitation from cardiac arrest resulting from severe hemorrhage.
Ischemia
The ability of Hemopure molecules to circumvent partial occlusions could
potentially benefit patients suffering from ischemic conditions by supplying
oxygen to tissues that are receiving inadequate numbers of red blood cells.
Inadequate tissue oxygenation due to partial vessel blockage or constriction can
cause heart attack, angina and transient ischemic attack, which is a precursor
to stroke. In these situations, treatment with red blood cell transfusions would
not be effective because red blood cells are too large to navigate around
blockages. Biopure has completed preclinical studies with results supporting
these potential indications. One preclinical study demonstrated that infusing
Hemopure before there is a blockage in a coronary artery leading to a heart
attack can limit potential damage to the heart. Although Hemopure would not
attack the root cause of the ischemia, such as a clot or plaque in the arteries,
it could help to maintain oxygenation and thereby sustain tissue pending a
correction of the blockage or could lessen the damage from ischemia if
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infused in time. In 1996, the American Heart Association reported that
approximately 900,000 people in the United States each year experience heart
attacks, of which approximately one quarter are fatal. In its 1999 Heart and
Stroke Statistical Update, the American Heart Association reported that
approximately 600,000 people suffer a new or recurrent stroke each year.
An abstract published in the The Journal of Trauma in January 2000 and presented
at the 30th Annual Scientific Meeting of the Western Trauma Association on March
1, 2000 described a preclinical study using a pre-hospital hemorrhagic shock
model designed to model what happens to humans after an accident. The study
demonstrates that small-volume resuscitation with Hemopure can restore and
sustain brain oxygenation, blood pressure and cardiac output following severe
hemorrhagic shock.
Cancer Therapy Adjunct
Radiation therapy and many types of chemotherapy depend on the adequate
oxygenation of tumors to kill cancer cells. Malignant cancer tumors, such as
breast, prostate and other solid tumors, are dense tumors which often outgrow
their blood supply, leaving much of the tumor without oxygen. Consequently, they
resist chemotherapy and radiation treatment. Biopure, in collaboration with the
Dana-Farber Cancer Institute in Boston, has developed a patented method for
oxygenating hypoxic, or oxygen deficient, tumor cells that could potentially
increase the tumor-killing effects of radiation and chemotherapy. Preclinical
studies have shown the feasibility of this application. In 1999, Biopure
initiated clinical development of this indication, specifically the treatment of
glioblastoma. Enrollment in a clinical trial of patients diagnosed with
glioblastoma began in 2000.
Plasma-Expanding Agent
After blood loss, health care professionals typically administer human serum
albumin, or HSA, or other volume expanding fluids to restore blood volume.
Adequate blood volume is necessary to maintain effective blood pressure and
heart rate. HSA is a naturally occurring protein that is part of the plasma.
Hemopure molecules are also proteins. Hemopure maintains the volume of blood in
a manner similar to HSA. In many patients suffering from severe blood loss,
Biopure believes that Hemopure would be preferable to currently available plasma
expanding agents, which do not carry or offload oxygen.
Hemodilution Agent
Acute normovolemic hemodilution, or ANH, is a technique that reduces the need
for donated blood. ANH refers to a practice where the patient donates one to
three units of blood immediately before surgery and is infused with a non-oxygen
plasma expander such as Ringer's lactate. The patient is then transfused with
his or her own blood during or after surgery. Biopure has administered Hemopure
in three clinical safety trials involving humans undergoing ANH. As an oxygen
carrier and a plasma-expanding agent, Hemopure could potentially temporarily
replace the oxygen-carrying support and volume lost from donating blood. Used in
this manner, Hemopure may enhance the safety of ANH or allow more units to be
safely withdrawn prior to surgery. Additionally, use of Hemopure in ANH
procedures would also allow for greater blood conservation, which could be
particularly valuable in times of shortages. At present, ANH is not widely used
in the United States but is more commonly used in Europe.
Erythropoietic Support
In Biopure's Phase II post-cardiopulmonary bypass clinical trial, which compared
the post-operative use of Hemopure to donated red blood cells in cardiac
surgery, the hematocrit, or packed red blood cell volume as a percentage of
total blood volume, was similar for both the Hemopure-infused and the control
patients on the sixth day following surgery. Both groups maintained this
similarity when measured again at a follow-up visit 28 days after surgery,
suggesting that Hemopure may support the regeneration of red blood cells. In
addition, in one "compassionate use" case, a patient with a critically low
hematocrit, who received Hemopure but not red blood cells, was stabilized for
several days and then was able to restore her hematocrit. As such, Hemopure
could potentially be used in conjunction with, or as an alternative to,
erythropoietin, a hormone
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that enhances the production of red blood cells. A preclinical study supports
the use of Hemopure as an erythropoietic agent. This study involved eight
conscious sheep, all of which underwent an exchange transfusion involving the
replacement of at least 95% of their blood with an early formulation of
Hemopure. Even with critically low hematocrits, these animals achieved stable
hemodynamics, demonstrated no clinical signs of distress and survived long term
with a rapid resynthesis of their red blood cells.
Oxyglobin
Oxyglobin is identical to Hemopure except for its molecular size distribution,
and has the same advantages over red blood cells as Hemopure. The FDA Center for
Veterinary Medicine approved Oxyglobin in January 1998 and the European
Medicines Evaluation Agency approved Oxyglobin in December 1999, in both cases
for the treatment of canine anemia, regardless of cause. Oxyglobin sales were
$3.1 million in fiscal 2000 and $2.7 million in fiscal 1999. Oxyglobin's
characteristics are well suited for use by small animal practitioners for
treatment of anemia and other critical care situations involving acute blood
loss. Acute blood loss often results from surgery, trauma, hemolysis,
gastrointestinal blood loss, which is most frequently a result of parasitism or
intestinal infection, urinary tract blood loss, iron deficiency and rodenticide
toxicity. Biopure estimates that there are at least 15,000 small animal
veterinary practices in the United States and another 4,000 mixed animal
practices treating small and large animals. Biopure believes that the average
veterinary practice treats only a small percentage of canine anemia cases with a
red blood cell transfusion. The remainder receive either cage rest or a
minimally effective treatment such as fluid administration, iron supplements,
nutritional supplements or inspired oxygen.
Biopure obtained FDA approval in fiscal 2000 to modify its product label to
allow for flexible dosing and to increase the product's shelf life to three
years. The original label specified a dose of 30 milliliters per kilogram of
animal patient weight. The new label permits a lower dosage range of 10 to 30
milliliters per kilogram. Biopure's strategy to increase the market for
Oxyglobin includes:
- - educating veterinarians on the range of uses for Oxyglobin and demonstrating
that using Oxyglobin represents better medical practice;
- - adding Japanese and other foreign approvals;
- - adding repeat dosing;
- - adding other applications;
- - offering a smaller package size; and
- - adding other species.
MANUFACTURING
Biopure uses proprietary and patented purification and polymerization processes
in the manufacture of its Oxygen Therapeutic products. Biopure's processes
comply with current good manufacturing practices established by the FDA and
comparable standards required in the European Union for veterinary products.
Biopure's scientific and engineering team has designed and built much of its
large-scale critical equipment. A proprietary computer software system operates
and monitors most aspects of this process. Biopure has produced both Hemopure
and Oxyglobin since 1991 and its facilities currently have the capacity to
produce 40,000 units of Hemopure or 140,000 units of Oxyglobin per year. Through
the installation of additional water supply and the completion of its automated
filling line, Biopure can attain capacity to produce 100,000 units of Hemopure
or 350,000 units of Oxyglobin per year in its current facilities. This capacity
can be used for any combination of Oxyglobin and Hemopure units.
Raw Material Source
Biopure's products consist of bovine hemoglobin that has been purified,
chemically modified and cross-linked for stability. Controlled herds of U.S.
cattle destined for meat processing provide the raw material used in Biopure's
products. Biopure monitors the source, health, location, feed consumption and
quality of the cattle
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to be used as a raw material source, a safety standard that is not and cannot be
established for donated human blood. Suppliers to Biopure contract to maintain
traceable records on animal origin, health, feed and care to assure the use of
known, healthy animals.
Raw Material Collection
At a high volume slaughterhouse, Biopure collects bovine whole blood into
individual presanitized containers and transports them to a separation facility.
Following blood collection, the animals pass U.S. Department of Agriculture, or
USDA, inspection for use as beef for human consumption. If an animal is not
approved for human consumption, Biopure also rejects the corresponding container
of whole blood. The USDA considers the United States to be free of pathogens
associated with "mad cow disease".
Safety
In addition to safety from bacterial and viral pathogens, such as those leading
to AIDS and hepatitis, Biopure's sourcing and manufacturing processes safeguard
humans from potential risks associated with diseases including transmissible
spongiform encephalopathies, more commonly known as the cause of diseases such
as "mad cow disease". Health and regulatory authorities have given guidance
directed at three factors to control these diseases: source of animals, nature
of tissue used and manufacturing process. Biopure complies with, and believes it
exceeds, all current guidelines regarding such risks for human pharmaceutical
products. Blood as a tissue generally has been found to have little or no
potential for transmitting transmissible spongiform encephalopathies. Bovine red
blood cells do not contain prions, the proteins necessary for transmissible
spongiform encephalopathies. Furthermore, Biopure's patented purification and
manufacturing process has been tested to demonstrate that the potential risk of
infectious disease transmission is insignificant.
Manufacturing Processes
A washing and a filtration process remove plasma proteins in the bovine blood.
Washed cells are next placed in a centrifuge that separates the red blood cells
from the rest of the blood. The hemoglobin is extracted from the red blood cells
and is then diafiltered to remove red blood cell wall debris and other
contaminants. The resulting material is a cell-free hemoglobin intermediate. A
semi-continuous purification process involving a high performance liquid
chromatography process purifies the hemoglobin intermediate. Next, the purified
hemoglobin is polymerized, or linked, by the addition of a cross-linking agent.
Polymerized and stabilized material is then fractionated and concentrated. The
final product is filtered into sterilized batch holding tanks until it is
sterile filled into bags.
MARKETING
Hemopure
Upon receipt of FDA approval, if granted, Biopure expects to market Hemopure to
physician practices and hospitals. It also believes that military customers will
be significant. Biopure recognizes that it is crucial to establish a core belief
among opinion leaders that Hemopure fills an important medical need and that
systematic development of opinion leader advocacy is necessary for capturing and
maintaining a leadership position. As part of this process, in 1998 Biopure
engaged a medical advisory board consisting of 13 leading physicians who
participated in an educational program and forum with Biopure. In February 2000
it hired a marketing vice president and, subsequently, a vice president of
international marketing. Biopure expects to reach anesthesiologists, surgeons,
oncologists, critical care and other physician-specialists through publications
and educational forums, such as seminars and presentations at meetings of
specialists.
Biopure will explore various means of selling Hemopure. Among other options,
Biopure may seek to enter into licensing or co-marketing agreements for parts or
all of the world in order to avail itself of the marketing expertise of one or
more seasoned pharmaceutical companies. Alternatively, it could engage
"contract" sales organizations from vendors, contract pharmaceutical companies
that supply sales services or recruit and train its own marketing and sales
force. Biopure has identified a distributor for sales in South Africa.
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Oxyglobin
Biopure began selling Oxyglobin in March 1998 to a discrete number of emergency
and specialty practices in the United States. Biopure began selling Oxyglobin
nationally in October 1998. Since October 1998 Biopure has sold approximately
66,000 units of Oxyglobin. Veterinarians report successful use of Oxyglobin in
critical care situations involving blood loss, destruction of red blood cells
and ineffective production of red blood cells. In December 1999, Biopure
received veterinary approval to market Oxyglobin to treat canine anemia in the
European Union.
Biopure sells Oxyglobin directly to veterinarians in the United States through
veterinary product distributors -- one national and eight regional. Orders are
then drop shipped by Biopure directly. Biopure coordinates marketing and
distribution activities through five full-time sales employees.
Marketing programs have included advertising, direct mail, educational seminars,
conference calls and attendance at trade shows. Biopure has established a core
group of veterinary practices that use the product regularly. These
veterinarians are effective advocates of the product when interacting with other
veterinarians. Biopure sponsors evening seminars featuring these veterinarians.
Most veterinarians who buy the product reserve its use for the most severe
clinical situations. In fiscal 2000, veterinarians paid an average of $128.32
per 15-gram hemoglobin unit.
COMPETITION
Hemopure will compete with traditional therapies and with other oxygen delivery
pharmaceuticals. Comparisons with traditional therapies, including red blood
cell transfusions, are described under "-- Scientific Overview," "-- Biopure's
Oxygenating Technology" and "-- Biopure's Products." Oxygen Therapeutics under
development fall into two categories:
- - hemoglobin-based oxygen carriers, including Hemopure and Oxyglobin, consist
of natural hemoglobin from a mammal or genetically engineered source that has
been modified to improve stability, efficacy and safety; and
- - perfluorocarbon emulsions are chemicals administered intravenously.
Perfluorocarbon emulsions are effective principally under conditions of high
oxygen partial pressure to assist in oxygen delivery by forcing dissolved
oxygen into the plasma space.
Biopure believes that the competitive factors for its Oxygen Therapeutics will
be efficacy, safety, ease of use and cost. Biopure believes that it has
significant advantages as compared to its competitors including:
- - patents covering its processes, its products and their uses;
- - large molecule size resulting in longer duration of action than most other
oxygen therapeutics under development;
- - long-term room temperature stability;
- - completed and operational large-scale manufacturing facility;
- - safe, ample, controlled inexpensive source of raw material;
- - FDA approval of Oxyglobin in January 1998 and usage by veterinarians; and
- - EMEA approval of Oxyglobin in December 1999.
Many of Biopure's competitors and potential competitors have significantly
greater financial and other resources to develop, manufacture and market their
products. Existing competitors in the development of hemoglobin-based
investigational products use outdated human red blood cells or bovine hemoglobin
as their raw material. Biopure is aware of two human hemoglobin-based products
currently in advanced clinical trials. Biopure believes that its use of bovine
red blood cells is an advantage over products made from outdated donated human
red blood cells because of the availability, abundance, ability to control
source, cost and relative safety of bovine red blood cells. However, the use of
bovine derived blood products may encounter
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resistance from physicians and patients. Among other things, public perceptions
about the risk of "mad cow disease" may affect market acceptance of Hemopure.
Biopure also believes that competitors may find it difficult to make or offer a
hemoglobin-based oxygen carrier product having the product characteristics of
Hemopure without infringing on one or more Biopure patents. In addition, the
relatively low viscosity of Hemopure is a potential advantage, particularly in
large doses, in permitting perfusion at low blood pressure.
Biopure is aware of one perfluorocarbon oxygen carrier in advanced clinical
trials. This product is a chemical fluid infused into the body. This chemical
attracts oxygen and takes it into the plasma. The patient needs an oxygen mask
for this process because perfluorocarbons require high oxygen environments in
order to be effective. The perfluorocarbon solution does not persist in the
body, so repeat dosing is necessary. These limitations may reduce the number of
potential applications for the product. As far as Biopure is aware, applications
pursued for this product do not include any of the applications Biopure might
pursue other than acute normovolemic hemodilution.
Biopure knows of no companies developing oxygen products intended to compete
with Oxyglobin in the veterinary market.
INTELLECTUAL PROPERTY
Patents, trademarks, trade secrets, technological know-how and other proprietary
rights are important to Biopure's business. Biopure actively seeks patent
protection both in the United States and abroad. Biopure filed its initial
patent in 1986 in the United States. Four U.S. patents have been issued from
this filing. These patents describe and claim ultra-pure semi-synthetic blood
substitutes and methods for their preparation.
In total, Biopure has 18 U.S. patents granted and nine applications pending
relating to its Oxygen Therapeutics. Biopure's granted U.S. patents relating to
Oxygen Therapeutics include:
- - two patents covering an ultra-purification process for hemoglobin solutions,
regardless of the source of hemoglobin, which expire in 2006 and 2014; two
patents covering the ultra-pure Oxygen Therapeutic solutions produced by this
process expiring in 2009; and one patent covering the chromatography
purification of the hemoglobin solution, expiring in 2015.
- - three patents regarding compositions having improved stability, of which two
expire in 2015 and the third expires in 2016, and one patent covering
processes for producing these compositions which expires in 2016;
- - one patent, which expires in 2015, covering improvements in preservation of
such hemoglobin solutions;
- - two patents, which expire in 2015 and 2016, covering improved methods for
separating polymerized from unpolymerized hemoglobin;
- - one patent, which expires in 2015, covering methods of oxygenating tissue
affected by inadequate red blood cell flow;
- - one patent, which expires in 2016, covering the removal of pathogens, if
present, from Biopure's source material; and
- - three patents, which expire in 2011, 2014 and 2015, covering methods for
treating tumors; and
- - one patent, which expires in 2010, covering a sample valve for sterile
processing.
Biopure also filed its original patent in Europe. Although granted, third
parties subsequently opposed Biopure's original European patent. As a result of
the opposition proceeding, the patent was revoked. However, Biopure filed an
appeal that reinstated the patent during the appeal and is awaiting a decision
on the appeal. In the opposition process, Biopure narrowed its claims. Despite
the narrowing, Biopure believes that these claims provide protection for
Biopure's existing process and products. Biopure further believes that a
narrowed European patent should be sustained. During the opposition proceeding,
some pre-existing patents and articles not presented to the United States Patent
Office during the prosecution of patents already issued in the United States
were presented to the European Patent Office by the opponents. These preexisting
patents and
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articles are not expected to affect claims of Biopure patents in the rest of the
world. Biopure also has other foreign patents and patent applications.
Biopure believes that it is not economically practicable to determine in advance
whether its products, product components, manufacturing processes or the uses
infringe the patent rights of others. It is likely that, from time to time,
Biopure will receive notices from others of claims or potential claims of
intellectual property infringement or Biopure may be called upon to defend a
customer, vendee or licensee against such third-party claims. Responding to
these kinds of claims, regardless of merit, could consume valuable time, result
in costly litigation or cause delays, all of which could harm Biopure's
business. Responding to these claims could also require Biopure to enter into
royalty or licensing agreements with the third parties claiming infringement.
Such royalty or licensing agreements, if available, may not be available on
terms acceptable to Biopure.
EMPLOYEES
As of January 11, 2001, Biopure employed 173 persons. Of its total work force,
113 employees are engaged in manufacturing and related manufacturing support
services, 21 are engaged in research and development activities, 10 are engaged
in sales and marketing, primarily veterinary, and 29 are engaged in support and
administrative activities. None of Biopure's employees are covered by a
collective bargaining agreement. Biopure believes its relations with its
employees are good.
GOVERNMENT REGULATION
New Drug or Biologic Approval for Human Use
Governmental authorities in the United States and other countries extensively
regulate the testing, manufacturing, labeling, advertising, promotion, export
and marketing, among other things, of Biopure's oxygen therapeutic products. Any
oxygen therapeutic product administered to human patients is regulated as a drug
or a biologic drug and requires regulatory approval before it may be
commercialized.
In the United States, Hemopure is regulated as a human biologic. The FDA will
require Biopure to file and obtain approval of a biologics license application
covering both Hemopure and the facility in which it is manufactured.
The steps required before approval of a biologic for marketing in the United
States generally include:
- - preclinical laboratory tests and animal tests;
- - the submission to the FDA of an Investigational New Drug, or IND, application
for human clinical testing, which must become effective before human clinical
trials may lawfully commence;
- - adequate and well-controlled human clinical trials to establish the safety
and efficacy of the product;
- - the submission to the FDA of a biologics license application;
- - FDA review of the biologics license application; and
- - satisfactory completion of an FDA inspection of the manufacturing facilities
at which the product is made to assess compliance with current good
manufacturing practices, which includes elaborate testing, control,
documentation and other quality assurance procedures.
The testing and approval process requires substantial time, effort and financial
resources. After approval is obtained, a supplemental approval is generally
required for each proposed new indication, often accompanied by data similar to
that submitted with the original biologics license application.
Preclinical studies include laboratory evaluation of the product and animal
studies to assess the safety and potential efficacy of the product. The results
of the preclinical studies, together with manufacturing information and
analytical data, are submitted to the FDA as part of the IND. The IND
automatically will become effective in 30 days unless the FDA, before that time,
raises concerns or questions and imposes a "clinical hold". In such a case, the
IND sponsor and the FDA must resolve any outstanding concerns before the trial
can proceed. Once trials have commenced, the FDA may stop the trials, or
particular types of trials,
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by imposing a clinical hold because of concerns about, for example, the safety
of the product being tested or the adequacy of the trial design.
Clinical trials involve the administration of investigational products to
healthy volunteers or patients under the supervision of a qualified principal
investigator consistent with an informed consent. An independent Institutional
Review Board, or IRB, or Ethics Committee must review and approve each clinical
trial at each institution at which the study will be conducted. The IRB or
Ethics Committee will consider, among other things, ethical factors, the safety
of human subjects and the possible liability of the institution.
Clinical trials typically are conducted in three sequential phases, but the
phases may overlap. In Phase I, the initial introduction of the drug into human
subjects, the drug is usually tested for safety or adverse effects, dosage
tolerance, absorption, metabolism, distribution, excretion and pharmacodynamics.
Phase II clinical trials usually involve studies in a limited patient population
to evaluate the efficacy of the drug for specific, targeted indications,
determine dosage tolerance and optimal dosage and identify possible adverse
effects and safety risks. Phase III clinical trials generally further evaluate
clinical efficacy and test further for safety within an expanded patient
population and at multiple clinical sites. Phase IV clinical trials are
conducted after approval to gain additional experience from the treatment of
patients in the intended therapeutic indication. If the FDA approves a product,
additional clinical trials may be necessary. A company may be able to use the
data from these clinical trials to meet all or part of any Phase IV clinical
trial requirement. These clinical trials are often referred to as Phase III/IV
post-approval clinical trials.
Biopure believes that its recently completed U.S. pivotal Phase III clinical
trial is consistent with the FDA's most recent guidance on the design and
efficacy and safety endpoints required for approval of products such as
Hemopure. However, the FDA could change its view or require a change in study
design, additional data or even further clinical trials prior to approval of
Hemopure.
The results of the preclinical studies and clinical trials, together with
detailed information on the manufacture and composition of the product, are
submitted to the FDA in the application requesting approval to market the
product. Before approving a Biologics License Application, the FDA will inspect
the facilities at which the product is manufactured and will not approve the
product unless the manufacturing facility is in compliance with current good
manufacturing practices. The FDA may delay approval of a Biologics License
Application if applicable regulatory criteria are not satisfied, require
additional testing or information, and/or require postmarketing testing and
surveillance to monitor safety, purity or potency of a product. It may also
limit the indicated uses for which an approval is given.
New Drug Approval for Veterinary Use
New drugs for companion animals must receive New Animal Drug Application, or
NADA, approval prior to marketing in the U.S. The requirements for approval are
similar to those for new human drugs. Obtaining NADA approval often requires
clinical field trials and the submission of an Investigational New Animal Drug
Application, which for non-food animals becomes effective upon acceptance for
filing.
Pervasive and Continuing Regulation
Any product approvals that are granted remain subject to continual FDA review,
and newly discovered or developed safety or efficacy data may result in
withdrawal of products from marketing. Moreover, if and when such approval is
obtained, the manufacture and marketing of Biopure's products remain subject to
extensive regulatory requirements administered by the FDA and other regulatory
bodies, 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. Biopure is subject to
inspection and market surveillance by the FDA for compliance with these
regulatory requirements. Failure to comply with the requirements can, among
other things, result in warning letters, product seizures, recalls, fines,
injunctions, suspensions or withdrawals of regulatory approvals, operating
restrictions and criminal prosecutions. Any such enforcement action could have a
material adverse effect on Biopure. Unanticipated changes in existing regulatory
requirements or the adoption of new requirements could also have a material
adverse effect on Biopure.
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Biopure also is subject to numerous federal, state and local laws relating to
such matters as safe working conditions, manufacturing practices, environmental
protection, fire hazard control and hazardous substance disposal.
Foreign Regulation
Biopure will be subject to a variety of regulations governing clinical trials
and sales of its products outside the United States. Biopure must obtain
approval of its products by the comparable non-U.S. regulatory authorities prior
to the commencement of product marketing in the country whether or not Biopure
has obtained FDA approval. The approval process varies from country to country
and the time needed to secure approval may be longer or shorter than that
required for FDA approval. The European Union requires approval of a Marketing
Authorization Application by the European Medicines Evaluation Agency. These
applications require the completion of extensive preclinical and clinical
studies and manufacturing and controls information.
Reimbursement
Biopure's ability to successfully commercialize its human product will depend in
significant part on the extent to which reimbursement of the cost of such
product and related treatment will be available from government health
administration authorities, private health insurers and other organizations.
Third-party payors are increasingly challenging the price of medical products
and services. Significant uncertainty exists as to the reimbursement status of
newly approved health care products, and there can be no assurance that adequate
third-party coverage will be available to enable Biopure to maintain price
levels sufficient for realization of an appropriate return on its investment in
product development. The public and the federal government have recently focused
significant attention on reforming the health care system in the United States.
A number of health care reform measures have been suggested, including price
controls on therapeutics. Public discussion of such measures is likely to
continue, and concerns about the potential effects of different possible
proposals have been reflected in the volatility of the stock prices of companies
in the health care and related industries.
ITEM 2. PROPERTIES
Biopure has manufacturing facilities in Pennsylvania for the collection and
separation of blood and in Cambridge, Massachusetts where processing is
completed. In connection with Biopure's application for marketing approval for
Oxyglobin, the FDA inspected these facilities and determined that they complied
with good manufacturing practices. The Medicines Control Agency, on behalf of
the European Medicines Evaluation Agency, inspected Biopure's facilities prior
to granting marketing approval for Oxyglobin.
Biopure manufactures separation materials in a 10,000 square foot plant in New
Hampshire. The current annual lease payment for this facility is $56,000. The
lease expires on March 31, 2005. Biopure has an option to extend this lease for
an additional five years.
Biopure leases two facilities for office and research space in Massachusetts.
One lease covers 24,000 square feet, and its current annual lease payment is
$239,000. This lease expires on December 31, 2007. Biopure has an option to
extend this lease for ten five-year periods, or an additional 50 years. The
other lease covers 7,000 square feet. This lease expires on August 31, 2001, and
lease payments through that date aggregate $162,000. Biopure does not have an
option to extend this lease. It leases 10,000 square feet of warehouse space in
Massachusetts. The current annual lease payment for this facility is $55,000.
The lease expires on September 30, 2001. Biopure has an option to extend this
lease for two five-year periods, or an additional ten years.
Biopure leases 32,000 square feet of manufacturing space under three leases in
Massachusetts. The current annual lease payments for these facilities is
$236,000. The leases expire on November 30, 2005. Biopure has an option to
extend these leases for four five-year periods, or an additional 20 years, with
an exclusive right to negotiate for an additional 25 years. Biopure also leases
18,000 square feet of manufacturing space in Pennsylvania. The current annual
payment for a ground lease for this facility is $21,000. The lease expires on
October 20, 2014. Biopure has an option to extend this lease for nine years.
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Biopure's current process is designed to be scalable, such that additional
capacity can be obtained by adding duplicate equipment and additional raw
material including power and water. Biopure is in the process of constructing a
1,700 square foot building abutting the existing research/manufacturing
building. This will facilitate the addition of utilities to maximize production
in Cambridge. However, due to space constraints Biopure is in the process of
selecting a new site for a large scale commercial plant to meet the anticipated
demand for Hemopure.
ITEM 3. LEGAL PROCEEDINGS
Biopure is a party to an action filed on July 18, 1990 in the United States
District Court for the District of Massachusetts under the caption Peter Fisher,
et al. v. William P. Trainor, et al. In this litigation, the plaintiffs alleged
breach of agreements by Biopure and against one another. Biopure is also a party
to a related action filed on November 8, 1990 in the United States District
Court for the District of Massachusetts under the caption Bio-Vita Ltd., et al.
v. Carl W. Rausch, et al.
Summary judgments were entered against the plaintiffs in both of these actions
in 1994. The plaintiffs appealed. One appeal filed in Bio-Vita Ltd., et al. v.
Carl W, Rausch, et al. was voluntarily dismissed. The other appeal was remanded
to the trial court for further findings based on lack of jurisdiction, and on
February 23, 2000, the United States District Court for the District of
Massachusetts reaffirmed entry of final judgment in favor of Biopure and found
on the jurisdiction issue that there is no reason to delay the appeal. The
matter is again on appeal. The remaining plaintiff is seeking $250.0 million in
damages. Biopure believes that the ultimate resolution of this matter will not
have a material adverse effect on its financial position or results of
operations.
In addition, proceedings in Europe are ongoing with regard to Biopure's European
patent. Biopure was granted a patent on April 1, 1992 by the European Patent
Office. Within the nine-month period from the grant date for the filing of
oppositions, six parties filed oppositions requesting that all of the claims of
this patent be revoked. Of these, three opposing parties remain: Baxter
International, Enzon, Inc. and Northfield Laboratories, Inc. Following oral
proceedings conducted by the Opposition Division at the European Patent Office
in November 1995, the Opposition Division revoked the patent. Biopure has
appealed this decision of the Opposition Division and is currently awaiting a
decision on its appeal. The appeal has the technical result of reinstating the
patent during the appeal process. Prior to filing its appeal papers, Biopure
narrowed its claims further to increase the probability of winning at the appeal
level. Biopure further believes that a narrowed patent should be sustained.
Future claims against Biopure may arise and, if they do, there can be no
assurance that they will be successfully defended.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
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EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of Biopure are as follows:
NAME AGE TITLE
- -------------------------------------- --- --------------------------------------
Carl W. Rausch........................ 52 Chairman and Chief Executive Officer
Paul A. Looney........................ 61 President
Maria S. Gawryl, Ph.D................. 47 Senior Vice President, Research and
Development
Edward E. Jacobs, Jr., M.D............ 60 Senior Vice President, Medical Affairs
Jane Kober............................ 57 Senior Vice President, General Counsel
and Secretary
Francis H. Murphy..................... 62 Chief Financial Officer
William A. Eudailey................... 56 Vice President, Marketing
Geoffrey J. Filbey.................... 57 Vice President, Engineering
Carolyn R. Fuchs...................... 48 Vice President, Human Resources
Alain Massot.......................... 54 Vice President, International
Marketing
Andrew W. Wright...................... 41 Vice President, Veterinary Products
CARL W. RAUSCH is a co-founder and has served as Chairman and Chief Executive
Officer of Biopure since 1984. From 1984 until July 1, 1999, Mr. Rausch was also
President of Biopure. Prior to Biopure's founding, Mr. Rausch was Vice
President, Preparative and Process, at Millipore Corporation. He holds an M.S.
degree in chemical engineering from Tufts University, an M.S. degree in chemical
engineering from the Massachusetts Institute of Technology and a B.S. degree in
chemical engineering from Tufts University.
PAUL A. LOONEY has been President of Biopure since 1999. From 1995 to 1999, Mr.
Looney was a consultant to various biotechnology companies. Between September
1993 and May 1995, Mr. Looney was the Chief Executive Officer, Chief Operating
Officer and President of Corning Costar Inc. Between 1987 and September 1993,
Mr. Looney was President of Costar Inc. Mr. Looney is a director of Biosphere
Medical, Inc.
MARIA S. GAWRYL, PH.D. has been Senior Vice President, Research and Development
of Biopure since 1999. From September 1990 to April 1999, she was Vice
President, Research and Development. Dr. Gawryl holds a Ph.D. in immunology from
the University of Connecticut. She did post-doctoral work at the University of
Connecticut Health Center and Rush Presbyterian, St. Luke's Medical Center. She
holds a B.S. degree in math and chemistry from Antioch College.
EDWARD E. JACOBS, JR., M.D. has been a Senior Vice President of Biopure since
1997. From April 1995 to 1997, he was Senior Medical Advisor of Biopure. Since
1988, he has been an Assistant Clinical Professor at Harvard Medical School. He
holds an M.D. degree from Harvard Medical School and a B.A. degree in philosophy
from Princeton University.
JANE KOBER has been Senior Vice President, General Counsel and Secretary of
Biopure since 1998. From June 1989 to April 1998, she was a partner in LeBoeuf,
Lamb, Greene & MacRae, L.L.P. Ms. Kober holds a J.D. degree from Case Western
Reserve University, an M.A. degree from the University of Chicago and a B.A. in
English from the Pennsylvania State University. She serves as a director of HTV
Industries, Inc.
FRANCIS H. MURPHY has been Chief Financial Officer of Biopure since 1999. Most
recently Mr. Murphy had been International Vice President and business manager
for Japan, Latin America and Asia Pacific for the Corning Science Products
Division of Corning Incorporated. He holds an M.B.A. degree from Boston
University and a B.S. degree in industrial engineering and a B.A. degree from
Rutgers University.
WILLIAM A. EUDAILEY became Vice President, Marketing, in February 2000. From
1996 through 1999, Mr. Eudailey was Vice President of Separations Business of
Corning Incorporated, and from 1995 to 1996 he was Vice President Worldwide
Marketing for the Science Products Division of Corning Incorporated. He holds a
Doctor of Pharmacy degree and a B.S. in pharmacy from the University of
Tennessee College of Pharmacy.
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GEOFFREY J. FILBEY joined Biopure in 1985 and has served as Vice President,
Engineering since 1995. Mr. Filbey holds a B.Sc. degree in engineering from the
City University in London, England.
CAROLYN R. FUCHS has served as Vice President, Human Resources since 1998. From
October 1996 to June 1998, she was an independent consultant. From May 1991 to
October 1996, she worked at National Medical Care. Ms. Fuchs holds an M.Ed.
degree in counseling and a B.S. degree in psychology from the University of
Massachusetts at Amherst.
ALAIN MASSOT joined Biopure as Vice President, International Marketing in August
2000. From 1995 to 2000, Mr. Massot was a consultant in international market
development to biotechnology and high technology companies. From 1993 to 1996,
Mr. Massot was Senior Vice President, International for PerSeptive Biosystems,
Inc. Mr. Massot holds an M.S. in chemical engineering from the Sorbonne
University and holds degrees in computer programming.
ANDREW W. WRIGHT has been Vice President, Veterinary Products of Biopure since
1996. From March 1992 to August 1996, Mr. Wright worked with IDEXX Laboratories,
Inc. where he held several management positions, including Director of Corporate
Development, Director of Marketing and Senior Product Manager. He holds an
M.B.A. degree from the University of Chicago and a B.A. degree in economics from
Carleton College.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) The Company's Class A Common Stock is traded in the over-the-counter market
and is quoted on the NASDAQ National Market under the trading symbol "BPUR".
The following table sets forth the high and low sale prices for the Class A
Common Stock for each of the quarters in the two years ended October 31, 2000,
as reported by the NASDAQ National Market beginning July 30, 1999, when the
Class A Common Stock was first traded. The quotations shown represent inter-
dealer prices without adjustments for retail markups, markdowns or commissions,
and may not necessarily reflect actual transactions.
HIGH LOW
------ ------
Year Ended October 31, 1999
Third Quarter (July 30 - 31)............................. $11.25 $ 9.75
Fourth Quarter........................................... 14.19 6.31
Year Ended October 31, 2000
First Quarter............................................ 54.50 9.00
Second Quarter........................................... 52.00 19.88
Third Quarter............................................ 29.88 15.56
Fourth Quarter........................................... 25.50 14.63
As of December 31, 2000 there were 474 holders of record of the Class A Common
Stock. The Company did not pay dividends on its Class A Common Stock during the
two fiscal years ended October 31, 2000 and does not plan to pay dividends on
its Class A Common Stock in the foreseeable future.
During the fourth quarter of fiscal year 2000 Biopure issued 176 shares of Class
A Common Stock not registered under the Securities Act of 1933. Proceeds were
$792 plus the surrender of warrants in "cashless" exercises. The stock was
issued in reliance on the exemption from registration under Section 4(2) under
the Securities Act of 1933 and representations from the acquirors.
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ITEM 6. SELECTED FINANCIAL DATA
Set forth below is the selected financial data for Biopure for the five fiscal
years ended October 31, 2000.
--------------------------------------------------------
FISCAL YEAR ENDED OCTOBER 31,
--------------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
In thousands, except per share data
STATEMENTS OF OPERATIONS DATA:
Total revenues...................... $ 3,063 $ 2,866 $ 1,131 $ -- $ 71
Cost of revenues.................... 4,778 6,814 1,543 -- --
-------- -------- -------- -------- --------
Gross profit (loss)................. (1,715) (3,948) (412) -- 71
Operating expenses:
Research and development.......... 26,378 24,166 22,950 23,494 18,924
Sales and marketing............... 2,463 2,922 2,444 694 --
General and administrative........ 9,878 5,266 4,660 2,920 3,506
-------- -------- -------- -------- --------
Total operating expenses............ 38,719 32,354 30,054 27,108 22,430
-------- -------- -------- -------- --------
Income (loss) from operations....... (40,434) (36,302) (30,466) (27,108) (22,359)
Total other income (expense)........ 4,356 772 419 (310) 765
-------- -------- -------- -------- --------
Net income (loss)................... (36,078) (35,530) (30,047) (27,418) (21,594)
Stock dividends on preferred
stock............................. -- (17,915) -- -- --
-------- -------- -------- -------- --------
Net loss applicable to common
stockholders...................... $(36,078) $(53,445) $(30,047) $(27,418) $(21,594)
======== ======== ======== ======== ========
Historical basic net income (loss)
per common share.................. $ (1.51) $ (3.61) $ (2.41) $ (2.23) $ (1.77)
Historical weighted-average common
shares outstanding................ 23,947 14,813 12,460 12,300 12,215
Pro forma basic net income (loss)
per common share.................. $ (2.62) $ (1.65)
Pro forma weighted-average common
shares outstanding................ 20,369 18,237
------------------------------------------------
AT OCTOBER 31,
------------------------------------------------
2000 1999 1998 1997 1996
-------- ------- ------- ------- -------
In thousands
BALANCE SHEET DATA:
Cash and cash equivalents....................... $ 88,828 $30,778 $ 6,063 $13,527 $12,772
Total current assets............................ 95,920 38,277 13,175 15,221 13,636
Working capital................................. 84,928 27,872 1,986 5,368 8,111
Net property and equipment...................... 25,061 27,447 29,606 27,408 29,438
Total assets.................................... 121,287 66,230 44,848 44,054 43,462
Long-term debt (including current portion)...... -- -- 6,000 8,000 9,000
Common stock to be repurchased.................. -- -- 6,300 6,300 --
Total stockholders' equity...................... 108,510 54,037 21,449 20,222 26,417
21
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of our financial condition and results of operations
should be read in conjunction with the Consolidated Financial Statements and the
related Notes included elsewhere in this report. This discussion contains
forward-looking statements that involve risks and uncertainties. Our actual
results may differ materially from those anticipated in these forward-looking
statements.
OVERVIEW
We are a leading developer, manufacturer and marketer of Oxygen Therapeutics.
Our Oxygen Therapeutics are pharmaceuticals that one administers intravenously
into the circulatory system to increase oxygen delivery to the body's tissues.
We have developed and manufacture, using a proprietary process and patented
technology, two hemoglobin-based oxygen carriers. A pivotal Phase III clinical
trial has been completed for Hemopure and is expected to be the basis for our
application to the FDA for market in approval in the United States. Oxyglobin,
for veterinary use, is the only hemoglobin-based oxygen carrier approved by the
FDA and the European Medicines Evaluation Agency.
Since inception, we have devoted substantially all of our resources to our
research and development programs and manufacturing. We have been dependent upon
funding from debt and equity financings, strategic corporate alliances,
licensing agreements and interest income. We have not been profitable since
inception and had an accumulated deficit of $286.4 million as of October 31,
2000. We expect to incur additional operating losses over the next several years
in connection with clinical trials, preparation of a marketing application for
Hemopure, pre-marketing expenditures for Hemopure, expanded marketing of
Oxyglobin and increases in production. We began generating revenue from the sale
of Oxyglobin in fiscal 1998.
RESULTS OF OPERATIONS
Fiscal Years Ended October 31, 2000 and 1999
Total revenues were $3.1 million in fiscal 2000, as compared to $2.9 million in
fiscal 1999, an increase of approximately 6.9%. Revenues in fiscal 2000 included
$3.1 million of Oxyglobin sales as compared to $2.8 million in fiscal 1999, an
increase of approximately 11.2%. Total revenues also reflect $5,000 and $117,000
in fiscal 2000 and 1999 respectively, from license and development activities,
grants and product sales unrelated to our oxygen therapeutic products.
Cost of revenues totaled $4.8 million in fiscal 2000, a decrease of $2.0 million
or 29.9% as compared to fiscal 1999. The decrease is due to improved yields and
lower production volumes for Oxyglobin than in fiscal 1999. Cost of revenues in
fiscal 2000 and 1999 reflects the direct costs associated with the production of
Oxyglobin and allocation of a portion of the fixed costs of the unused
production capacity. The remainder of these fixed costs and the direct costs of
production of clinical trial materials were allocated to research and
development.
Research and development expenses increased 9.2% to $26.4 million in fiscal 2000
from $24.2 million in fiscal 1999. The increase was due to the expenses
associated with the pivotal Phase III clinical trial activities for Hemopure and
an increase in the allocation of fixed costs of unused production capacity. The
increases were offset in part by decreases in the costs of clinical trial
samples and decreases in other research and development activities. We expect
that in the near-term, research and development expenses will remain stable as
we prepare our marketing application for Hemopure and continue our development
efforts with respect to potential uses for Hemopure.
Sales and marketing expenses decreased 15.7% to $2.5 million in fiscal 2000 from
$2.9 million in fiscal 1999. This decrease was primarily due to decreased
selling, advertising, marketing and distribution expenses compared to these
expenses related to the national product launch of Oxyglobin in 1999.
General and administrative expenses increased 87.6% to $9.9 million in fiscal
2000 from $5.3 million in fiscal 1999. This increase is primarily due to
non-cash compensation expense for stock options and warrants granted to certain
consultants and directors. This non-cash compensation, which amounted to $3.7
million in fiscal
22
23
2000, must be accounted for at fair value, per SFAS 123 and EITF 96-18, and be
amortized over the vesting period and revalued each quarter based on the closing
stock price. There was no such expense in fiscal 1999. Expenses for the
pre-marketing of Hemopure, directors and officers insurance and public and
investor relations activities also contributed to the increase.
Total other income consists primarily of interest income and other non-product
related income partially offset by interest expense and other non-operating
expenses. Total other income was $4.4 million in fiscal 2000 compared to
$772,000 in fiscal 1999. This increase of $3.6 million was primarily
attributable to interest income resulting from the increased cash balance of the
Company.
Historical basic net loss per common share for fiscal 2000 was $1.51, compared
to a historical basic net loss per common share of $3.61 and a pro forma basic
net loss per common share of $2.62 for the same period in 1999. The 1999
historical and pro forma basic net loss per common share include a one-time
charge of $1.21 and $0.88, respectively, associated with $17,915,000 in common
stock dividends issued to preferred stockholders. Shares outstanding used to
calculate historic basic amounts were 23,947,251 for 2000 and 14,813,045 for
1999; pro forma shares for 1999 were 20,368,860. Historical basic net loss per
share is computed based on the weighted-average number of common shares
outstanding during the period. Pro forma basic net loss per share is computed
using the weighted-average number of outstanding shares assuming conversion of
all convertible preferred shares into common shares at date of original
issuance.
Fiscal Years Ended October 31, 1999 and 1998
Total revenues were $2.9 million in fiscal 1999, as compared to $1.1 million in
fiscal 1998, an increase of approximately 153.4%. Revenues in fiscal 1999
included $2.8 million of Oxyglobin sales as compared to $942,000 in fiscal 1998,
an increase of approximately 191.8%. Product sales of Oxyglobin represent
approximately 95.9% of the Company's total revenues in fiscal 1999 as compared
to 83.3% in fiscal 1998. Oxyglobin sales commenced in mid-March 1998 to
emergency and specialty practices in the United States. We launched Oxyglobin
nationally in October 1998. Total revenues also reflect $117,000 and $189,000 in
fiscal 1999 and 1998 respectively, from license and development activities,
grants and product sales unrelated to our oxygen therapeutic products.
Cost of revenues totaled $6.8 million in fiscal 1999, an increase of $5.3
million or 341.6% as compared to fiscal 1998. We did not record any cost of
revenues in the first nine months of fiscal 1998. Cost of revenues in fiscal
1999 reflects the direct costs associated with the production of Oxyglobin and
allocation of a portion of the fixed costs of the unused production capacity.
The remainder of these fixed costs and the direct costs of production of
clinical trial materials were allocated to research and development.
Research and development expenses increased 5.3% to $24.2 million in fiscal 1999
from $23.0 million in fiscal 1998. The increase was primarily due to the
expenses associated with an increase in Phase III clinical trial activities for
Hemopure and an increase in other development efforts related to ongoing
research and development programs. Increases in research and development
expenses are offset to an extent by the reduction in the allocation of
manufacturing expenses previously charged against it. We expect that in the
near-term, research and development expenses will remain stable as we continue
our development efforts with respect to potential uses for Hemopure.
Sales and marketing expenses increased 19.6% to $2.9 million in fiscal 1999 from
$2.4 million in fiscal 1998. This increase was primarily due to increased sales
and marketing personnel, as well as selling, advertising, marketing and
distribution expenses related to the national product launch of Oxyglobin.
General and administrative expenses increased 13.0% to $5.3 million in fiscal
1999 from $4.7 million in fiscal 1998. This was attributable to increased
management personnel, in part attendant to Biopure's becoming publicly traded,
partially offset by decreased market research, public relations and other
consulting expenses.
Total other income (expense) consists primarily of interest income and other
non-product related income partially offset by interest expense and other
non-operating expenses. Total other income (expense) was income of $772,000 in
fiscal 1999 compared to $419,000 in fiscal 1998. This increase of $353,000 was
23
24
primarily attributable to a reduction in interest expense resulting from the
retirement of long term debt with proceeds utilized from the public offering.
Historical basic net loss per common share for fiscal 1999 was $3.61, compared
to $2.41 for the same period in 1998. The pro forma basic net loss per common
share for fiscal 1999 was $2.62, compared with $1.65 for the same period in
1998. The 1999 historical and pro forma basic net loss per common share include
a one-time charge of $1.21 and $0.88, respectively, associated with $17,915,000
in common stock dividends issued to preferred stockholders. Historical basic net
loss per share is computed based on the weighted-average number of common shares
outstanding during the period. Pro forma basic net loss per share is computed
using the weighted-average number of outstanding shares assuming conversion of
all convertible preferred shares into common shares at date of original
issuance.
LIQUIDITY AND CAPITAL RESOURCES
At October 31, 2000, we had current assets of $95.9 million, which consisted
primarily of $88.8 million in cash and cash equivalents, $2.7 million in net
inventory and $3.5 million held in an escrow account, by Biopure, as a
settlement payment by which we reacquired shares of class A common stock and
license rights. At October 31, 2000, current liabilities were $11.0 million. The
$88.8 million in cash and cash equivalents at October 31, 2000 is a net increase
of $58.0 million since October 31, 1999. The increase in cash and cash
equivalents is primarily attributable to $86.4 million in net proceeds from
sales of common stock offset by $27.1 million used in operations and $2.1
million invested in property and equipment.
We have financed operations from inception primarily through sales of equity
securities, development and license agreement payments, interest income and
debt. Our primary investment objective is preservation of principal and
currently we invest in high grade commercial paper. We have not been profitable
since inception and had an accumulated deficit of $286.4 million as of October
31, 2000. We will continue to generate losses for the foreseeable future. We
believe our current cash and cash equivalents should be sufficient to meet our
projected requirements until July 2002. Our cash requirements may vary
significantly from current projections. We will require additional financing for
the construction of a large-scale manufacturing facility. We will explore
opportunities to raise capital through equity offerings, the issuance of debt
securities, strategic alliances and other financing vehicles. However,
additional financing or strategic alliances may not be available when needed,
or, if available, may not be on favorable terms. Our forecast of the period of
time through which our financial resources would be adequate to support our
operations is forward-looking information and, as such, actual results may vary.
In March, 2000 the Company received $84.4 million of proceeds from a public
offering of 2,565,000 shares of class A common stock, at a price of $35.00 per
share, before estimated expenses of $620,000.
We plan to spend approximately $10.0 million on capital projects for our
existing facilities over the next two years. We will also need to construct
additional manufacturing facilities to attain annual capacity in excess of
100,000 units of Hemopure. We may incur additional costs in fiscal 2001 to begin
engineering and design work for these facilities.
As of October 31, 2000, we had net operating loss carryforwards of approximately
$171.0 million to offset future federal and state taxable income through 2020.
Due to the degree of uncertainty related to the ultimate realization of such
prior losses, no benefit has been recognized in our financial statements as of
October 31, 2000. Utilization of such losses in future years may be limited
under the change of stock ownership rules of the Internal Revenue Service.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities, which will be
effective for the Company in the first quarter of fiscal 2001. The adoption of
this standard is not expected to have a material effect on the Company's
financial position or operating results.
24
25
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101 (SAB 101), Revenue Recognition in Financial
Statements, which summarizes some of the staff's interpretations of the
application of generally accepted accounting principles to revenue recognition.
The Company is required to adopt SAB 101 beginning in the fourth quarter of
fiscal 2001 and does not believe the adoption of this new accounting standard
will have a material effect on its financial position or operating results.
ITEM 7A. 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
clinical trial and regulatory activities outside of the United States. The
Company invests its cash and cash equivalents in high-grade commercial paper and
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 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is submitted as a separate section of this report
commencing on Page F-1.
Schedules for which provision is made in the applicable accounting regulation of
the Securities and Exchange Commission are not required under the related
instructions or are inapplicable, and therefore have been omitted.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
25
26
PART III
The information required by Item 10 -- Directors and Executive Officers of the
Registrant; Item 11 -- Executive Compensation; Item 12 -- Security Ownership of
Certain Beneficial Owners and Management; and Item 13 -- Certain Relationships
and Related Transactions is incorporated into Part III of this Annual Report on
Form 10-K by reference to the Company's Proxy Statement for the Annual Meeting
of Stockholders scheduled to be held on April 4, 2001.
26
27
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) (1) and (2). The response to this portion of Item 14 is submitted as a
separate section of this report commencing on page F-1.
(a) (3) and (c). Exhibits (numbered in accordance with Item 601 of Regulation
S-K)
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION LOCATION
- ------- ----------- --------
3(i) Restated Certificate of Incorporation of Biopure ***
3(ii) By-laws of Biopure, as amended *
10.1 Purchase Agreement between Biopure and INPACO Corporation, *
dated August 28, 1997
10.2 Agreement between Biopure and Moyer Packing Company dated *
October 21, 1994
10.3 Agency Agreement between Biopure and The Butler Company *
dated March 29, 1999
10.4 Promissory Note dated July 31, 1995, from Carl Rausch in *
favor of Biopure in the amount of $1,009,772.01
10.5 Promissory Note dated July 31, 1995, from Maria Gawryl in *
favor of Biopure in the amount of $12,601.93
10.6 Amended and Restated Stock Purchase Agreement between #
Biopure and Geoffrey J. Filbey dated as of May 1, 1999
10.7 Promissory Note dated July 31, 1995, from Geoff Filbey in *
favor of Biopure in the amount of $47,707.30
10.8 Lease Agreement dated October 12, 1990, between Biopure and *
Tarvis Realty Trust
10.9 Lease Agreement dated May 23, 1997, between Biopure and *
Karpowicz Family Trust
10.10 Lease Agreement dated March 31, 1995, between Biopure and *
New England Innovations Corp
10.11 Lease Agreement dated April 29, 1994, between Biopure and *
Eleven Hurley Street Associates
10.12 Lease Agreement dated May 10, 1994, between Biopure and *
Tarvis Realty Trust
10.13 Lease Agreement dated August 23, 1994, between Biopure and *
Tarvis Realty Trust
10.14 Lease Agreement dated October 21, 1994, between Biopure and *
Moyer Packing Company
10.15 Deferred Compensation Agreement with Carl Rausch dated *
August 8, 1990, as amended December 12, 1995
10.16 1993 Incentive Compensation Plan *
10.17 1998 Stock Option Plan *
10.18 1999 Omnibus Securities and Incentive Plan *
10.19 Employment Agreement between Biopure and Daniel R. Davis *
dated December 3, 1998 and as amended and restated as of
June 24, 1999
10.20 Employment Agreement between Biopure Corporation and Paul A. *
Looney dated as of June 9, 1999
10.21 Employment Agreement Concerning Protection of Company *
Property and the Arbitration of Legal Disputes
10.22 Rights Agreement between Biopure and American Stock Transfer **
& Trust Company dated September 21, 1999
10.23 Amended and Restated 1999 Omnibus Securities and Incentive ***
Plan dated as of February 14, 2000
27
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EXHIBIT
NO. DESCRIPTION LOCATION
- ------- ----------- --------
10.24 Consulting Agreement between Biopure and William D. Hoffman, ***
M.D. dated February 17, 2000
10.25 Underwriting Agreement between Biopure and Underwriters ##
dated March 13, 2000
23.1 Consent of Independent Auditors #
24.1 Powers of Attorney #
99.1 Factors to Consider in Connection with Forward-Looking #
Statements
- ---------------
# Filed herewith.
## Previously filed as an exhibit to the Company's report on Form 10-Q for the
quarter ended April 29, 2000 and incorporated herein by reference thereto.
* Previously filed as an exhibit to the Company's Registration Statement on
Form S-1 (File No. 333-78829) and incorporated herein by reference thereto.
** Previously filed as an exhibit to the Company's Report on Form 8-A dated
November 4, 1999 and incorporated herein by reference thereto.
*** Previously filed as an exhibit to the Company's Registration Statement on
Form S-1 (File No. 333-30382) and incorporated herein by reference thereto.
28
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1994, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: January 29, 2001 BIOPURE CORPORATION
By: /s/ Francis H. Murphy
------------------------------------
Francis H. Murphy
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Carl W. Rausch* Chairman and Chief Executive January 29, 2001
- --------------------------------------------- Officer
Carl W. Rausch
/s/ David N. Judelson* Director, Vice Chairman January 29, 2001
- ---------------------------------------------
David N. Judelson
/s/ Paul A. Looney* Director, President January 29, 2001
- ---------------------------------------------
Paul A. Looney
/s/ Daniel P. Harrington* Director January 29, 2001
- ---------------------------------------------
Daniel P. Harrington
/s/ Stephen A. Kaplan* Director January 29, 2001
- ---------------------------------------------
Stephen A. Kaplan
/s/ C. Everett Koop, M.D.* Director January 29, 2001
- ---------------------------------------------
C. Everett Koop, M.D.
/s/ Charles A. Sanders, M.D.* Director January 29, 2001
- ---------------------------------------------
Charles A. Sanders, M.D.
/s/ Francis H. Murphy Chief Financial Officer January 29, 2001
- ---------------------------------------------
Francis H. Murphy
*By: /s/ Francis H. Murphy
- --------------------------------------------
Francis H. Murphy
Attorney-in-Fact
29
30
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Ernst & Young LLP, Independent Auditors........... F-2
Consolidated Balance Sheets at October 31, 2000 and October
31, 1999.................................................. F-3
Consolidated Statements of Operations for the Years Ended
October 31, 2000, 1999 and 1998........................... F-4
Consolidated Statements of Stockholders' Equity for the
Years Ended October 31, 2000, 1999 and 1998............... F-5
Consolidated Statements of Cash Flows for the Years Ended
October 31, 2000, 1999 and 1998........................... F-6
Notes to Consolidated Financial Statements.................. F-7
F-1
31
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Stockholders
Biopure Corporation
We have audited the accompanying consolidated balance sheets of Biopure
Corporation (the Company) as of October 31, 2000 and 1999, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended October 31, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Biopure
Corporation at October 31, 2000 and 1999, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
October 31, 2000, in conformity with accounting principles generally accepted in
the United States.
ERNST & YOUNG LLP
Boston, Massachusetts
December 11, 2000
F-2
32
BIOPURE CORPORATION
CONSOLIDATED BALANCE SHEETS
---------------------
OCTOBER 31,
---------------------
2000 1999
-------- ---------
In thousands, except share and per share data
ASSETS:
Current assets:
Cash and cash equivalents................................. $ 88,828 $ 30,778
Accounts receivable, less allowance of $40 and $65 at
October 31, 2000 and 1999, respectively................ 478 321
Inventory, net............................................ 2,726 3,182
Current portion of restricted cash........................ 3,508 3,508
Other current assets...................................... 380 488
-------- ---------
Total current assets................................... 95,920 38,277
Property and equipment:
Equipment................................................. 25,175 24,699
Leasehold improvements.................................... 13,681 13,567
Furniture and fixtures.................................... 1,140 1,100
Construction in progress.................................. 5,931 4,979
-------- ---------
45,927 44,345
Accumulated depreciation and amortization................. (20,866) (16,898)
-------- ---------
Net property and equipment.................................. 25,061 27,447
Investment in affiliate..................................... 66 101
Other assets................................................ 240 405
-------- ---------
Total assets........................................... $121,287 $ 66,230
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable.......................................... $ 1,764 $ 741
Accrued expenses.......................................... 9,228 9,664
-------- ---------
Total current liabilities.............................. 10,992 10,405
Deferred compensation....................................... 1,785 1,788
Commitments and contingencies............................... -- --
Stockholders' equity:
Preferred stock, $0.01 par value, 30,000,000 shares
authorized
Common stock:
Class A, $0.01 par value, 100,000,000 shares authorized,
24,937,995 and 22,280,867 shares issued and outstanding
at October 31, 2000 and 1999, respectively............. 249 223
Class B, $1.00 par value, 179 shares authorized, 117.7
shares issued and outstanding.......................... -- --
Capital in excess of par value............................ 372,149 282,054
Contributed capital....................................... 24,574 24,574
Notes receivable.......................................... (2,033) (2,463)
Accumulated deficit....................................... (286,429) (250,351)
-------- ---------
Total stockholders' equity............................. 108,510 54,037
-------- ---------
Total liabilities and stockholders' equity............. $121,287 $ 66,230
======== =========
See accompanying notes.
F-3
33
BIOPURE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
-----------------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------------------
2000 1999 1998
----------- ----------- -----------
In thousands, except share and per share data
Revenues:
Oxyglobin......................................... $ 3,058 $ 2,749 $ 942
Other............................................. 5 117 189
----------- ----------- -----------
Total revenues...................................... 3,063 2,866 1,131
Cost of revenues.................................... 4,778 6,814 1,543
----------- ----------- -----------
Gross profit (loss)................................. (1,715) (3,948) (412)
Operating expenses:
Research and development.......................... 26,378 24,166 22,950
Sales and marketing............................... 2,463 2,922 2,444
General and administration........................ 9,878 5,266 4,660
----------- ----------- -----------
Total operating expenses....................... 38,719 32,354 30,054
----------- ----------- -----------
Income (loss) from operations....................... (40,434) (36,302) (30,466)
Other income (expense):
Interest income................................... 4,424 1,041 1,417
Interest expense.................................. (68) (469) (799)
Other............................................. -- 200 (199)
----------- ----------- -----------
Total other income (expense)................... 4,356 772 419
----------- ----------- -----------
Net income (loss)................................... (36,078) (35,530) (30,047)
Stock dividends on preferred stock.................. -- (17,915) --
----------- ----------- -----------
Net loss applicable to common stockholders.......... $ (36,078) $ (53,445) $ (30,047)
=========== =========== ===========
Historical:
Basic net income (loss) per common share.......... $ (1.51) $ (3.61) $ (2.41)
=========== =========== ===========
Weighted-average shares used in computing basic
net income (loss) per common share............. 23,947,251 14,813,045 12,460,070
=========== =========== ===========
Pro forma (unaudited):
Pro forma basic net income (loss) per common
share.......................................... $ (2.62) $ (1.65)
=========== ===========
Weighted-average shares used in computing pro
forma basic net income (loss) per common
share.......................................... 20,368,860 18,236,894
=========== ===========
See accompanying notes.
F-4
34
BIOPURE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK
------------------------------------- CAPITAL IN
PREFERRED STOCK CLASS A CLASS B EXCESS
------------------- ------------------- --------------- OF PAR CONTRIBUTED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT VALUE CAPITAL
---------- ------ ---------- ------ ------ ------ ---------- -----------
In thousands, except share and per share data
Balance at October 31, 1997............ 2,473,914 $ 25 10,599,295 $106 117.7 $-- $166,069 $24,574
Exercise of stock options............ 27,783 68
Sale of preferred stock.............. 2,830,188 28 28,181
Sale of common stock................. 92,592 1 2,463
Common stock issued in exchange for
release of debt obligation......... 22,833 438
Equity compensation.................. 276
Accrued interest.....................
Net loss.............................
---------- ---- ---------- ---- ----- -- -------- -------
Balance at October 31, 1998............ 5,304,102 53 10,742,503 107 117.7 -- 197,495 24,574
Exercise of stock options............ 17,117 88
Sale of preferred stock.............. 2,610,264 26 30,099
Sale of common stock................. 3,500,000 35 37,667
Conversion of preferred stock to
common stock....................... (7,914,366) (79) 8,224,525 82 17,912
Stock repurchase adjustment.......... 300
Retirement of treasury stock......... (203,278) (1) (1,582)
Equity compensation.................. 75
Accrued interest.....................
Net loss.............................
---------- ---- ---------- ---- ----- -- -------- -------
Balance at October 31, 1999............ -- -- 22,280,867 223 117.7 -- 282,054 24,574
Exercise of stock options and
warrants........................... 92,128 577
Sale of common stock................. 2,565,000 26 83,725
Equity compensation.................. 3,681
Payment of discount plus interest on
"non-lapse" restricted shares...... 2,112
Payment of notes receivable from
shareholders.......................
Accrued interest.....................
Net loss.............................
---------- ---- ---------- ---- ----- -- -------- -------
Balance at October 31, 2000............ -- $ -- 24,937,995 $249 117.7 $-- $372,149 $24,574
========== ==== ========== ==== ===== == ======== =======
TOTAL
NOTES TREASURY ACCUMULATED STOCKHOLDERS'
RECEIVABLE STOCK DEFICIT EQUITY
---------- -------- ----------- -------------
In thousands, except share and per shar
Balance at October 31, 1997............ $(2,110) $(1,583) $(166,859) $ 20,222
Exercise of stock options............ 68
Sale of preferred stock.............. 28,209
Sale of common stock................. 2,464
Common stock issued in exchange for
release of debt obligation......... 438
Equity compensation.................. 276
Accrued interest..................... (181) (181)
Net loss............................. (30,047) (30,047)
------- ------- --------- --------
Balance at October 31, 1998............ (2,291) (1,583) (196,906) 21,449
Exercise of stock options............ 88
Sale of preferred stock.............. 30,125
Sale of common stock................. 37,702
Conversion of preferred stock to
common stock....................... 17,915
Stock repurchase adjustment.......... 300
Retirement of treasury stock......... 1,583 --
Equity compensation.................. 75
Accrued interest..................... (172) (172)
Net loss............................. (53,445) (53,445)
------- ------- --------- --------
Balance at October 31, 1999............ (2,463) -- (250,351) 54,037
Exercise of stock options and
warrants........................... 577
Sale of common stock................. 83,751
Equity compensation.................. 3,681
Payment of discount plus interest on
"non-lapse" restricted shares...... 2,112
Payment of notes receivable from
shareholders....................... 556 556
Accrued interest..................... (126) (126)
Net loss............................. (36,078) (36,078)
------- ------- --------- --------
Balance at October 31, 2000............ $(2,033) $ -- $(286,429) $108,510
======= ======= ========= ========
See accompanying notes.
F-5
35
BIOPURE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------
2000 1999 1998
-------- -------- --------
In thousands
OPERATING ACTIVITIES:
Net income (loss).......................................... $(36,078) $(35,530) $(30,047)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation............................................. 4,107 3,931 3,262
Disposition of obsolete fixed assets..................... 331 -- --
Equity compensation...................................... 3,681 75 276
Deferred compensation.................................... (3) (122) 231
Accrued interest on stockholders' notes receivable....... (126) (172) (181)
Equity in affiliate's operations......................... 35 30 35
Changes in assets and liabilities:
Inventories........................................... 456 (110) (3,072)
Accounts receivable................................... (157) 25 (346)
Other current assets.................................. 108 302 89
Accounts payable...................................... 1,023 (782) 441
Accrued expenses...................................... (436) 1,394 682
-------- -------- --------
Net cash used in operating activities............... (27,059) (30,959) (28,630)
INVESTING ACTIVITIES:
Purchase of property and equipment......................... (2,052) (1,772) (4,809)
Other assets............................................... 165 1,531 (341)
Restricted cash............................................ -- -- (2,425)
-------- -------- --------
Net cash used in investing activities............... (1,887) (241) (7,575)
FINANCING ACTIVITIES:
Net proceeds from sale of common stock..................... 83,751 37,702 2,464
Net proceeds from sale of preferred stock.................. -- 30,125 28,209
Payment of long-term debt.................................. -- (6,000) (2,000)
Repurchase of common stock................................. -- (6,000) --
Proceeds from exercise of stock options and warrants and
restricted stock......................................... 2,689 88 68
Payment of notes receivable from shareholders.............. 556 -- --
-------- -------- --------
Net cash provided by financing activities........... 86,996 55,915 28,741
-------- -------- --------
Increase (decrease) in cash and cash equivalents........... 58,050 24,715 (7,464)
Cash and cash equivalents at beginning of period........... 30,778 6,063 13,527
-------- -------- --------
Cash and cash equivalents at end of period................. $ 88,828 $ 30,778 $ 6,063
======== ======== ========
Interest paid.............................................. $ -- $ 435 $ 693
======== ======== ========
See accompanying notes.
F-6
36
BIOPURE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND ORGANIZATION
Biopure Corporation (the Company) develops, manufactures and markets Oxygen
Therapeutics(TM). Its products are Hemopure, for human use, and Oxyglobin, for
veterinary use. The Company is developing Hemopure as an alternative to red
blood cell transfusions as well as for use in the treatment of other critical
care conditions.
During 1998, the Company began selling Oxyglobin. Initially, sales were made on
a limited basis directly to emergency and specialty veterinary practices. In
October 1998, the Company began selling Oxyglobin nationwide through several
veterinary distributors, who purchase product for immediate and direct sale to
veterinary practices.
Costs of revenues include significant depreciation of production equipment and
other fixed and variable costs associated with the production of Oxyglobin. The
manufacturing process requires certain machinery to run on 24-hour cycles even
when production runs are not occurring. These costs are anticipated to be better
rationalized if demand and production increase.
Additionally, during 2000, the Company continued human clinical trials of its
Hemopure solution in the United States, Europe and South Africa. These clinical
trials are expensive and a significant cause of the Company's operating losses.
Although there cannot be any assurance that its Hemopure solution will be
approved by a country's regulatory authority, the trials to date have produced
satisfactory results, which have allowed the Company to continue clinical
progress.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements reflect the accounts of the Company and
its wholly-owned and majority-owned subsidiaries. All intercompany accounts and
transactions have been eliminated.
On June 24, 1999, the Board of Directors approved a two for three reverse stock
split of common shares which was effected in the form of a reverse stock
dividend on July 21, 1999. All common share and per common share amounts
included in the accompanying consolidated financial statements and notes thereto
have been retroactively restated to give effect to this reverse stock split.
Risks and Uncertainties
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Some of the Company's key materials used in production are obtained from sole
source suppliers. Although such materials are available from other suppliers,
the Company must test materials not previously used in order to assure the
materials meet the Company's requirements. In some of these cases, the change
would entail regulatory approval.
Cash and Cash Equivalents
The Company considers all liquid securities with original maturities of three
months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost (determined using the first-in,
first-out method) or market. Inventories are reviewed periodically during the
year for slow-moving, obsolete or off-grade status based on
F-7
37
sales activity, both projected and historical. Appropriate reserves are
established for any inventory that falls into these categories.
Property and Equipment
Property and equipment are recorded at cost and depreciated over the estimated
useful lives of the assets using the straight-line method. The estimated useful
lives of these assets are as follows:
Leasehold improvements................................... Life of the lease
Major equipment.......................................... 12 years
Equipment................................................ 5-7 years
Furniture and fixtures................................... 5 years
Computer equipment....................................... 3 years
Revenue Recognition
The Company recognizes revenue from product sales at the time of shipment. Other
revenues consist primarily of royalties from the sale of an enzyme material
previously licensed to a pharmaceutical company and a Small Business Innovative
Research grant offset by associated costs. The Company recognizes revenue from
royalties when earned upon sale of the licensed products.
Stock-Based Compensation
The Company grants stock options for a fixed number of shares, generally with an
exercise price equal to the market value of the shares at the date of grant, as
determined by the board of directors. The Company has elected to follow
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees (APB 25) and related interpretations, in accounting for its
stock-based compensation plans, rather than the alternative fair value
accounting method provided for under Financial Accounting Standards Board
Statement No. 123, Accounting for Stock-Based Compensation (SFAS 123), as this
alternative requires the use of option valuation models that were not developed
for use in valuing employee stock options. Under APB 25, when the exercise price
of options granted to employees under these plans equals the market price of the
underlying stock on the date of grant, no compensation expense is required
The Company applies SFAS 123 and EITF 96-18 Accounting for Equity Instruments
That Are Issued to Other than Employees for Acquiring, or in Conjunction with
Selling Goods or Services with respect to options issued to nonemployees.
Net Income (Loss) Per Share
Historical basic net income (loss) per share is computed based on the
weighted-average number of common shares outstanding during the period. Diluted
net income (loss) per share is computed based upon the weighted-average number
of common shares outstanding during the year, adjusted for the dilutive effect
of shares issuable upon the conversion of preferred stock outstanding and the
exercise of common stock options and warrants determined based upon average
market price of common stock for the period. Diluted net income (loss) per share
are not presented in the accompanying consolidated financial statements because
the Company had losses for all periods presented.
Unaudited Pro Forma Net Income (Loss) Per Common Share
The unaudited pro forma basic net income (loss) per common share is computed
using the weighted-average number of outstanding common shares assuming
conversion of all convertible preferred shares into common shares (at date of
original issuance), which occurred upon completion of the initial public
offering.
F-8
38
Calculation of Net Loss Per Share
-----------------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------------------
2000 1999 1998
----------- ----------- -----------
IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA
Historical:
Net income (loss)................................. $ (36,078) $ (35,530) $ (30,047)
Stock dividends on preferred stock................ -- (17,915) --
----------- ----------- -----------
Net income (loss) applicable to common
stockholders................................. $ (36,078) $ (53,445) $ (30,047)
=========== =========== ===========
Weighted-average number of common shares
outstanding.................................... 23,947,251 14,813,045 12,460,070
=========== =========== ===========
Basic net income (loss) per common share............ $ (1.51) $ (3.61) $ (2.41)
=========== =========== ===========
Pro forma (unaudited):
Weighted-average number of common shares:
Historical outstanding......................... 14,813,045 12,460,070
Issued upon assumed conversion of preferred
stock........................................ 5,555,815 5,776,824
----------- -----------
Total weighted-average number of common shares
used in computing basic pro forma net income
(loss) per common share........................ 20,368,860 18,236,894
=========== ===========
Basic pro forma net income (loss) per common
share.......................................... $ (2.62) $ (1.65)
=========== ===========
Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities, which will be
effective for the Company in the first quarter of fiscal 2001. The adoption of
this standard is not expected to have a material effect on the Company's
financial position or operating results.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101 (SAB 101), Revenue Recognition in Financial
Statements, which summarizes some of the staff's interpretations of the
application of generally accepted accounting principles to revenue recognition.
The Company is required to adopt SAB 101 beginning in the fourth quarter of
fiscal 2001 and does not believe that adoption of this new accounting standard
will have a material effect on its financial position or operating results.
3. TRANSACTIONS WITH RELATED PARTIES
At October 31, 2000, approximately 4% of the outstanding shares of Class A
Common Stock of Biopure were owned by two limited partnerships, Biopure
Associates Limited Partnership and Biopure Associates Limited Partnership II.
The primary purpose of these partnerships is to own shares of common stock of
the Company. The general partner of these partnerships is an officer of the
Company, and the limited partners include certain current and former employees,
officers, directors and consultants to the Company.
During 2000, 1999 and 1998, the Company made payments of approximately $314,000,
$270,000 and $344,000, respectively, to directors and consultants who have
ownership interests in the Company.
In August 1990, the Company made loans to certain directors and officers to
allow them to purchase Class A Common Stock. The principal and interest, for all
loans except the loan made to Mr. Rausch, was due on July 31, 2000 and will be
extended retroactive to August 1, 2000. The principal and interest on Mr.
Rausch's loan is due on July 31, 2003. The notes receivable, for all loans
except the loan made to Mr. Rausch, bear interest at the prime rate (9.50% at
October 31, 2000) and are included in stockholders' equity in the accompanying
consolidated financial statements. The loan for Mr. Rausch bears interest at a
fixed 4.71% rate.
F-9
39
4. INVENTORIES
Inventories consisted of the following:
----------------
OCTOBER 31,
----------------
2000 1999
------ ------
In thousands
Raw materials.......................................... $ 980 $ 690
Work-in-process........................................ 476 134
Finished goods......................................... 1,270 2,358
------ ------
$2,726 $3,182
====== ======
5. INVESTMENTS
The Company accounts for its investments in affiliated companies under the
equity method of accounting. In July 1994, the Company acquired a 50% general
partnership interest in Eleven Hurley Street Associates (EHSA), a real estate
partnership which owns the Company's principal office and research and
development facilities. The Company's lease with EHSA requires annual rental
payments of $239,000 through 2002 and $262,000 from 2003 through 2007. The
partnership's income was not significant for any of the periods presented. At
October 31, 2000 and 1999, the Company's proportionate share of EHSA's net
equity was approximately $66,000 and $101,000, respectively.
6. ACCRUED EXPENSES
Accrued expenses consisted of the following:
----------------
OCTOBER 31,
----------------
2000 1999
------ ------
In thousands
Settlement............................................. $3,508 $3,508
Phase III clinical trial............................... 2,897 2,925
Initial public offering................................ -- 619
Other.................................................. 2,823 2,612
------ ------
$9,228 $9,664
====== ======
7. DEFERRED COMPENSATION
The Company has a deferred compensation agreement with an officer/stockholder
requiring a base payment of $700,000 plus accrued interest of $783,000 at
October 31, 2000. In June 1999 the payment date was extended to July 31, 2003,
subject to certain conditions.
The Company has an Incentive Compensation Plan for all employees which provides
for discretionary deferred bonus awards annually. Commencing three years after
grant, awards are paid ratably over a five-year period. No grants were made in
2000 or 1999. Plan expenses were $160,000 in 1998.
8. STOCKHOLDERS' EQUITY
On March 24, 2000 the Company completed the follow-on offering of 2,565,000
shares of Class A Common Stock. The Company received proceeds of $84,388,000
before expenses of $620,000 and recorded an increase in stockholders' equity of
$83,768,000.
On August 4, 1999 the Company completed the initial public offering (IPO) of
3,500,000 shares of Class A Common Stock. The Company received proceeds of
$39,060,000 before expenses of $1,358,000 and recorded an increase in
stockholders' equity of $37,702,000.
F-10
40
Convertible Preferred Stock
The Series A Convertible Preferred Stock was convertible into Class A Common
Stock on a three and one-third for one basis, adjusted for certain events. The
Series A shares automatically converted at the time of the IPO.
The Series B Convertible Preferred Stock was convertible into Class A Common
Stock on a two-thirds for one basis, adjusted for certain events. The Series B
shares automatically converted at the time of the IPO.
The Series C Convertible Preferred Stock was convertible into Class A Common
Stock on a two-thirds for one basis, adjusted for certain events. The Series C
shares automatically converted at the time of the IPO.
On December 23, 1998, the Company sold 1,489,498 units at $12.00 per unit, each
consisting of one share of Series D Preferred Stock plus a warrant to purchase
1/15th of a share of Class A Common Stock. In connection with the issuance of
the Series D shares, warrants were issued to the placement agents to purchase
30,667 shares of Class A Common Stock and warrants were issued to the holders of
the Series B and Series C Convertible Preferred Stock to purchase 1/15th of a
share of Class A Common Stock for each share of Series B and Series C
Convertible Preferred Stock held by them. Warrants issued to the placement
agents and the preferred stockholders have an exercise price of $18.00 and
$12.00 per share, respectively. Warrants issued to the placement agents and the
preferred stockholders expire three years and four years, respectively, from the
date of the IPO. Net cash proceeds, after deducting approximately $930,000 in
commissions and expenses associated with the offering, were $16,946,000.
Subsequent to May 1, 1999, an additional 397,250 units of Series D Convertible
Preferred Stock were sold with aggregate net proceeds of $4,700,000.
Each share of Series D Convertible Preferred Stock was convertible into
two-thirds of a share of Class A Common Stock or such greater ratio so that
conversion resulted in a 35% annualized rate of return on the Series D original
offering price of $12 per share.
Upon closing of the IPO (see above), all shares of preferred stock converted
into shares of Class A Common Stock and reflected the two-for-three stock split.
In accordance with the provisions of EITF 98-5, for those units sold after May
20, 1999, the Company treated any shares of Class A Common Stock issued upon
conversion in excess of two-thirds of one share of Class A Common Stock for each
share of Series D Convertible Preferred Stock as a dividend for accounting
purposes. The Company recorded a dividend of $155,000 in the third quarter of
1999 for the 12,936 additional shares of Class A Common Stock issued. The
holders of the Series B Convertible Preferred Stock received an additional
280,000 shares in the aggregate upon conversion and the holders of the Series C
Convertible Preferred Stock received an additional 1,200,000 shares in the
aggregate upon conversion. The fair market value of such additional shares was,
for accounting purposes, treated as a dividend on such convertible preferred
stock in the quarter in which the offering and conversion occurred. The Company
recorded a dividend of $17,760,000 in the third quarter of 1999.
Common Stock
The Class B Common Stock is authorized for issuance only to P&U. The holder of
Class B Common Stock is not entitled to vote or receive dividends. The Class B
Common Stock is convertible into shares of Class A Common Stock according to a
formula that is based upon a future fair market value of the Class A Common
Stock and is dependent upon the Company achieving U.S. FDA approval for its
Hemopure solution.
Consistent with the P&U agreement, the number of shares of Class A Common Stock
to be issued in exchange for the Class B Common Stock will be determined based
upon an independent valuation of the Company, after FDA approval of the
Company's human Oxygen Therapeutic product, which valuation cannot exceed $3
billion. This valuation is then divided by 13,635,525 shares to arrive at a fair
value per share of Class A Common Stock. P&U's total investment in the Company,
$142.3 million, divided by such per share fair value of Class A Common Stock,
results in the number of shares of Class A Common Stock P&U will receive,
limited to a maximum of 1,272,119 shares.
F-11
41
Dividends
At this time, the Company does not intend to pay dividends.
Stock Accumulation Plan
In August 1990, the Company issued 1,606,000 shares of Class A Common Stock to
certain employees, officers, consultants and directors for $1.35 per share,
which was $4.05 per share less than the then fair market value, as determined by
the Company's Board of Directors, of $5.40 per share. This $4.05 per share
market value differential is associated with a permanent nonlapse restriction on
the value of the stock. Upon the repurchase by the Company or other investors,
the future value will be equal to the then-current fair market value less the
permanent discount of $4.05 per share, adjusted for an annual interest factor.
At May 1, 1999, the discount plus accrued interest per share was fixed at $7.92.
Contributed Capital
In accordance with the P&U strategic alliance discussed in Note 9 below, the
Company recorded as contributed capital research and development costs incurred
by P&U on behalf of the Company. Upon conversion of the Class B Common Stock,
the cumulative amount of contributed capital will be treated as consideration
for the Class A Common Stock issued in the conversion.
Stock Options and Warrants
The Company has two active stock option plans under which key employees,
directors and consultants may be granted options to purchase Class A Common
Stock at a price determined by the Board of Directors at the date of grant.
Under these plans and a previous plan, a majority of the options become
exercisable on a pro rata basis over a four-year period and expire ten years
from date of grant.
Presented below is a summary of transactions under the stock option plans during
2000, 1999 and 1998:
-------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-------------------------------------------------------------------
2000 1999 1998
--------------------- --------------------- -------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- --------- --------- --------- ------- ---------
Options outstanding at beginning
of year......................... 1,945,161 $13.84 546,634 $18.54 133,217 $14.94
Granted........................... 435,200 18.94 1,558,687 12.00 456,133 18.68
Exercised......................... (34,816) 11.90 (17,117) 5.19 (27,783) 2.42
Forfeited......................... (165,945) 12.65 (143,043) 12.48 (14,933) 20.58
--------- --------- -------
Options outstanding at end of
year............................ 2,179,600 $14.98 1,945,161 $13.84 546,634 $18.54
========= ========= =======
Options exercisable............... 748,000 192,680 89,350
========= ========= =======
During 1998, the Company granted 20,000 options with an exercise price of $5.40
to certain consultants to replace options that had expired in March 1996. The
exercise price of the new options is the same as the exercise price of the
expired options, and the new options are fully vested. The Company used an
estimated fair market value of its stock as determined by its Board of Directors
in order to determine the related expense to be recorded as a result of issuing
options to nonemployees. The Company recorded expense and increased capital in
excess of par value by $276,000.
F-12
42
The following table summarizes information about stock options outstanding at
October 31, 2000:
------------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ --------------------
WEIGHTED AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
CONTRACTUAL EXERCISE EXERCISE
EXERCISE PRICE SHARES LIFE (YRS.) PRICE SHARES PRICE
-------------- --------- ---------------- --------- ------- ---------
$ 5.40-$10.06.................... 54,666 8.5 $ 9.71 4,666 $ 6.00
$12.00-$13.50.................... 1,291,214 8.8 12.01 485,907 12.02
$16.69-$22.50.................... 783,720 8.1 18.92 257,427 19.83
$35.69.................... 50,000 9.3 35.69 -- --
--------- -------
2,179,600 8.5 $14.98 748,000 $14.67
========= =======
During 1998, the Company's 1988 stock option plan expired. In March 1998, the
Board of Directors approved the adoption of a 1998 stock option plan to provide
for the granting of options for up to 98,293 shares of Class A Common Stock, the
number of shares remaining in the expired 1988 plan. Options outstanding under
the Company's 1988 plan forfeited in future periods will be available for grant
under the new plan.
In June 1999, the Company established the 1999 Omnibus Securities and Incentive
Plan (the 1999 Plan), which provides for the granting of incentive stock
options, non-qualified stock options, restricted stock awards, deferred stock
awards, unrestricted stock awards, performance share awards, distribution
equivalent rights, or any combination of the foregoing to key management,
employees and directors. The maximum number of shares of Class A Common Stock
reserved for issuance under the 1999 Plan is 1,866,666.
At October 31, 2000, there were 248,061 shares available for future grants under
stock option plans.
One of the Company's vendors holds an option to acquire 88,000 shares of Class A
Common Stock. The exercise price of $12.50 per share is payable by the
contribution of certain property, equipment and facilities rights. The option
expires in November 2002.
In connection with the sale of Series C Convertible Preferred Stock in November
1997, the Company issued to the placement agent warrants to purchase 66,667
shares of Common Stock at a price per share equal to $12.00, adjusted for
certain events. The warrants expire three years from the date of the initial
public offering.
In November 1999, the Company granted 25,000 warrants to consultants at an
exercise price of $12.00 per share. The warrants vest immediately and expire
five years from the date of grant. The related compensation expense was recorded
on the grant date and was not significant.
Statement 123 Disclosures
The Company has adopted the disclosure provisions only of Statement 123. The
fair value of options and warrants granted was estimated at the date of grant
using the Black-Scholes option pricing model for 2000 and 1999, and the minimum
value method for 1998 with the following assumptions: risk-free interest rates
ranging from 5.49% to 6.32%; dividend yield of 0% and an expected life between
two and seven years. For 2000 and 1999 a volatility factor of the expected
market price of the Company's Common Stock of .80 was used. If the compensation
cost for options and warrants granted had been determined based on the fair
value of the options and warrants at the date of grant, the Statement 123 pro
forma net loss applicable to common stockholders for 2000, 1999 and 1998 would
have been $38,901,000, $55,854,000 and $30,712,000, respectively.
The Statement 123 pro forma net loss per share for 2000, 1999 and 1998 would
have been $(1.62), $(3.77)and $(2.46), respectively. Compensation expense under
Statement 123 for 2000, 1999 and 1998 is not representative of future expense,
as it includes one, two and three years of expense, respectively. In future
years, the effect of determining compensation cost using the fair value method
will include additional vesting and associated expense.
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43
The weighted-average fair value per option and warrant of options and warrants
granted during 2000, 1999 and 1998 was $13.89, $6.50 and $6.11, respectively.
Reserved Shares
At October 31, 2000, there were 4,335,743 shares of Class A Common Stock
reserved for issuance under the stock option plans, stock option agreements and
warrants and upon conversion of Class B Common Stock.
Rights Agreement
Effective September 24, 1999 each holder of Class A Common Stock received a
preferred stock purchase right for each share owned. The rights entitle the
holders to acquire preferred stock following an acquisition of more than 20% by
any person or group, if the board of directors does not redeem the rights. If
the rights are not redeemed, their exercise would cause substantial dilution to
the acquiring person or group.
9. CONTRACTS
The Company had a strategic alliance with P&U beginning in 1990. Under the
alliance agreement, P&U purchased $117,700,000 of Class B Common Stock in
increments based generally on the achievement of mutually agreed-upon progress
points or goals. Additionally, in exchange for the future issuance of Class A
Common Stock, as described in Note 8 above, P&U funded clinical development
undertaken by the Company and P&U for the Company's oxygen therapeutic products.
The Company's agreement with P&U was terminated in accordance with its terms in
July 1996.
10. EMPLOYEE BENEFIT PLAN
The Company has a defined contribution plan, the Biopure Corporation Capital
Accumulation Plan, qualified under the provisions of Internal Revenue Code
section 401(k). Employees are eligible for enrollment upon becoming employed and
for discretionary matching after one year of service. The Company's
discretionary contribution vests after a period of four years from the date of
employment. In 2000, 1999 and 1998, the Company contributed $225,000 $211,000,
and $163,000 respectively, to the plan.
11. INCOME TAXES
At October 31, 2000, the Company had available for the reduction of future
years' federal taxable income and income taxes, net operating loss carryforwards
of approximately $170,965,000, expiring from the year ended October 31, 2004
through 2020, along with research and development and investment tax credits of
approximately $6,408,000, expiring from the year ended October 31, 2000 through
2020. Since the Company has incurred only losses since inception and due to the
degree of uncertainty with respect to future profitability, the Company believes
at this time that it is more likely than not that sufficient taxable income will
not be earned to allow for realization of the tax loss and credit carryforwards
and other deferred tax assets. Accordingly, the tax benefit of these items has
been fully reserved.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant
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44
components of the Company's deferred tax assets and liabilities as of October
31, 2000 and 1999 were as follows:
--------------------
2000 1999
--------- -------
In thousands
Deferred tax assets:
Net operating loss carryforward....................... $ 65,586 $64,259
Capitalized research and development.................. 31,515 23,508
Accruals and reserves................................. 3,339 2,685
Tax credit carryforwards.............................. 6,408 5,897
--------- -------
Total deferred tax assets..................... 106,848 96,349
Deferred tax liabilities:
Depreciation.......................................... 2,035 2,797
--------- -------
Total deferred tax liabilities................ 2,035 2,797
--------- -------
Net deferred tax assets................................. 104,813 93,552
Valuation allowance for deferred tax assets............. (104,813) (93,552)
--------- -------
Net deferred tax assets................................. $ -- $ --
========= =======
In 2000, the valuation allowance increased by $11,261,000 due primarily to the
increase in net operating losses, capitalized research and development costs,
and research and development tax credits.
12. COMMITMENTS
In 1997, the Company entered into an agreement with B. Braun Melsungen A.G.
(Braun) to repurchase 2,013,956 shares of the Company's common stock for
$6,300,000. The agreement required the Company to place in escrow installment
payments of such purchase price equal to an annual amount of $1,000,000 plus
five percent of the Company's revenues from human product sales and license
fees, if any, in a certain European region. The Company received Braun's
agreement to delay the deposit of $1,000,000 due in August 1998 to February
1999. The aggregate repurchase amount of $6,300,000 (subsequently negotiated to
$6,000,000 as a result of accelerated repurchase) had to be funded by the year
2002. At any time, the stockholder could withdraw funds in escrow to complete
the repurchase in installments by simultaneous delivery out of escrow to the
Company of a pro rata portion of the stock. In December 1998, Braun withdrew all
funds from escrow to complete the repurchase of 319,683 shares of Class A Common
Stock. On August 5, 1999 the Company paid $4,000,000 in addition to the existing
balance of $1,000,000 in escrow and Braun withdrew all funds from escrow to
complete the repurchase of 1,694,273 shares of Class A Common Stock.
The agreement also requires the Company to pay Braun a royalty of two percent of
the Company's revenues from human product sales and license fees in a certain
European region. Payments must be made on a quarterly basis until such amounts
aggregate $7,500,000. In exchange for this royalty commitment, the rights to
manufacture and market specified products in Braun's territory were reacquired
by the Company.
Future minimum lease payments under operating leases for the Company's various
office, laboratory, warehouse and processing facilities, with terms of more than
one year at October 31, 2000 are as follows:
2001........................................................ $ 770,000
2002........................................................ 551,000
2003........................................................ 571,000
2004........................................................ 575,000
2005........................................................ 542,000
Thereafter.................................................. 776,000
----------
$3,785,000
==========
Rent expense was approximately $992,000, $1,035,000 and $803,000 in 2000, 1999
and 1998, respectively.
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45
13. LITIGATION
The Company is a party to litigation initially filed in 1990 arising from
certain joint venture agreements for development and distribution of product in
Central and South America. Summary judgments were entered against the two
plaintiffs in 1994. The plaintiffs each appealed the judgments; one of the
appeals was voluntarily dismissed. The other appeal was remanded to the trial
court for further findings based on lack of jurisdiction. The trial court made
the requisite findings in favor of the Company. The matter is again on appeal.
In connection with the summary judgments, the Company agreed to a settlement
with a third-party intervenor with claims against one of the plaintiffs. Final
payment of the settlement is subject to the outcome of the pending appeal;
however, the Company has provided for such settlement in the accompanying
financial statements. At October 31, 2000, the Company had $3,508,000 in escrow
in connection with this settlement and included this amount in current portion
of restricted cash. The settlement amount has been recorded as a current
obligation.
14. MAJOR CUSTOMERS
The Company received revenue from three unrelated parties in 2000 accounting for
a total of 45%, 16%, and 11% of total revenues. The Company received revenue
from five unrelated parties in 1999 accounting for a total of 25%, 15%, 12%,
12%, and 11% of total revenues. The Company did not have any major customers in
1998.
15. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of quarterly financial results:
4Q '00 3Q '00 2Q '00 1Q '00
------- ------- -------- --------
In thousands, except share and per share data
Statements of Operations Data:
Total revenues.................................... $ 920 $ 836 $ 710 $ 598
Gross profit (loss)............................... (352) (379) (392) (591)
Operating expenses:
Research & development....................... 3,747 6,229 8,143 8,259
Sales and marketing.......................... 698 617 569 579
General & administration..................... 3,501 1,529 1,736 3,112
------- ------- -------- --------
Total operating expenses................ 7,946 8,375 10,448 11,950
Income (loss) from operations..................... (8,298) (8,754) (10,840) (12,541)
Other income...................................... 1,502 1,563 933 358
------- ------- -------- --------
Net income (loss)................................. $(6,796) $(7,191) $ (9,907) $(12,183)
======= ======= ======== ========
Historical:
Basic net income (loss) per common share..... $ (0.27) $ (0.29) $ (0.42) $ (0.55)
Weighted-average shares used in computing
basic net income (loss) per common share... 24,937 24,933 23,580 22,282
General and administrative expenses include non-cash compensation expense for
stock options and warrants granted to certain consultants and directors. This
non-cash compensation must be accounted for at fair value, per SFAS 123 and EITF
96-18, and be amortized over the vesting period and revalued each quarter based
on the closing stock price. The quarterly expenses were $1,895,000, ($34,000),
$131,000 and $1,688,000 for the fourth, third, second and first quarters,
respectively.
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