SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

For the quarterly period ended January 31, 2004

For the transition period from                           to

Commission File Number 001-15167

BIOPURE CORPORATION

(617) 234-6500
(Registrant’s telephone number)

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

The number of shares outstanding of each of the issuer’s classes of common stock as of March 12, 2004 was:

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BIOPURE CORPORATION

INDEX TO FORM 10-Q

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

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BIOPURE CORPORATION

Condensed Consolidated Balance Sheets
(In thousands, except share and per share data)
(Unaudited)

Note: The balance sheet at October 31, 2003 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.

See accompanying notes.

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BIOPURE CORPORATION
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)

See accompanying notes.

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BIOPURE CORPORATION
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)

See accompanying notes.

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BIOPURE CORPORATION
Notes to Condensed Consolidated Financial Statements
January 31, 2004
(Unaudited)

1.		Basis of Presentation
		The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three month period ended January 31, 2004 are not necessarily indicative of the results that may be expected for the year ending October 31, 2004; however, the Company expects to incur a substantial loss for the year ended October 31, 2004.
		The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Biopure Netherlands, BV, Biopure South Africa, Pty, Ltd., Neuroblok Incorporated, Reperfusion Systems Incorporated, DeNovo Technologies Corporation and Biopure Overseas Holding Company. All intercompany accounts and transactions have been eliminated in consolidation.
		Reclassifications have been made to the prior period’s financial statements presented to conform to the current period’s presentation.
		These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K/A for the fiscal year ended October 31, 2003 filed with the SEC on January 30, 2004.
		The Company has financed operations from inception primarily through sales of equity securities, development and license agreement payments, interest income and debt. The Company has not been profitable since inception and had an accumulated deficit of $439,651,000 as of January 31, 2004. To remain a going concern, the Company will require significant funding. The Company expects to incur additional operating losses over the next several years seeking regulatory approvals, conducting clinical trials and marketing Hemopure. The Company is assessing opportunities to raise capital, and expects to continue financing operations until it is profitable through sales of securities, strategic alliances and other financing vehicles, if any, that might become available. However, there can be no assurance that any such additional financing will be available to the Company on terms that it deems acceptable, if at all. At January 31, 2004, the Company had $17,291,000 in cash and cash equivalents. Since January 31, 2004, the Company has raised approximately $5,000,000 in additional funding (See Note 7 Subsequent Events). The Company expects this funding, in addition to the cash and cash equivalents at January 31, 2004, to be sufficient to fund operations into September 2004 under the Company’s current operating plan.
2.		Net Loss per Share
		Basic net loss per common share is computed based on the weighted-average number of common shares outstanding during the period. Diluted net loss per common share is computed based upon the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of the Company’s common stock equivalents, including the shares issuable upon the conversion of Class B Common Stock outstanding and the exercise of common stock options and warrants determined based upon the average market price of common stock for the period. However, basic and diluted net loss per common share is computed the same for all periods presented as the Company had losses for all periods presented and, consequently, the effect of Class B Common Stock, options and warrants is anti-dilutive. Dilutive weighted average shares outstanding do not include 8,119,828 common-equivalent shares for the three months ended January 31, 2004 and 6,449,830 common-equivalent shares for the three months ended January 31, 2003 as their effect would have been anti-dilutive.
3.		Stock Based Compensation
		The Company applies the intrinsic value method pursuant to Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations, in accounting for its stock-based compensation plans. Accordingly, no

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BIOPURE CORPORATION
Notes to Condensed Consolidated Financial Statements
January 31, 2004
(Unaudited)
(continued)

compensation expense has been recognized for stock-based awards to employees. The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure, an amendment of FASB Statement No. 123” (SFAS No. 148). Had compensation expense for the Company’s stock option plans been determined based on the fair value at the grant date for awards under these plans, consistent with the methodology prescribed under SFAS No. 148, the Company’s net loss and net loss per share would have approximated the pro forma amounts indicated below:

The weighted average fair value of each stock option included in the preceding pro forma amounts was estimated using the Black-Scholes option-pricing model and is amortized over the vesting period of the underlying options. The assumptions used to calculate the SFAS No. 148 pro forma disclosure and the weighted average information are as follows:

4.		Inventories
		Inventories are valued at the lower of cost (determined using the first-in, first-out method) or market. Inventories were as follows:

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BIOPURE CORPORATION
Notes to Condensed Consolidated Financial Statements
January 31, 2004
(Unaudited)
(continued)

5.		Accrued Expenses and Cost Reduction Plan
		Accrued expenses consisted of the following:

		On October 31, 2003 the Company announced a cost reduction plan to decrease its ongoing cash burn. Under the plan, the Company terminated 72 employees. The employees terminated were primarily employees from the Company’s manufacturing division. During the fiscal year ended October 31, 2003 in accordance with SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” the Company recorded within General and Administrative expense a charge of $875,000 related to this reduction in force. The charge recorded represented primarily severance costs and fees for outplacement services. During the first fiscal quarter of 2004, the Company paid approximately $768,000 of these costs. The remaining balance of $107,000 will be paid over the next 5 months.
6.		Commitments
		Guarantee
		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 facility. The Company accounts for its investment in EHSA under the equity method of accounting. In the event EHSA became insolvent or was unable to pay its obligations, the Company, as a general partner, would be liable for all partnership obligations. EHSA’s liabilities as of January 31, 2004 consist of a promissory note to a bank with a balance of $1,102,077. The note accrues interest at 8.63% and matures on January 30, 2006. As of January 31, 2004, the maximum potential amount of future payments the Company would be required to make under its guarantee would be $1,278,000. The note is secured by the office and research and development facility which the Company believes has fair value sufficient to satisfy the current promissory note balance. Biopure currently leases this facility from EHSA for $262,000 annually under an operating lease expiring in December 2007 that is included as an operating lease commitment in our Annual Report on Form 10-K for the fiscal year ended October 31, 2002.
		Sumter Realty
		In December 2001, the Company signed an amended letter of intent with Sumter Realty Group, LLC for the construction and financing of a manufacturing plant in South Carolina, which is designed to produce 500,000 Hemopure units per year and expected to cost approximately $120,000,000. Under the letter of intent the financing would be in the form of a capital lease.
		The terms of any new lease, as outlined in the letter of intent, would be: (i) lease payments to start at substantial completion of the facility; (ii) annual lease payments of $13,750,000 per year for the first two years; and (iii) lease payments of $17,158,000 per year for the balance of a 240-month term. The Company would own the facility at the end of the lease term. The Company is

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BIOPURE CORPORATION
Notes to Condensed Consolidated Financial Statements
January 31, 2004
(Unaudited)
(continued)

		committed to pay a finder’s fee, of approximately 2 percent of the net amount financed, to CB Richard Ellis, a real estate consulting firm, when financing for the facility is completed if financing is provided through Sumter Realty Group or any of its principals. However, there is no assurance that the Company will be able to obtain financing under the terms set forth in the letter of intent.
		As of January 31, 2004, $14,348,000 has been included in property, plant and equipment and $9,847,000 in long-term debt reflecting capital costs to date for the engineering and design costs of the planned manufacturing facility, as well as for permits and acquisition of land. No additional expenditures will be incurred until a financing proposal has been accepted and a closing schedule has been developed.
		We examined our long-lived assets for potential impairment, with a particular emphasis on the asset related to the planned South Carolina manufacturing facility. As part of our review, we considered lack of financing for this facility to date, the potential timing of construction activities, the extent to which the asset is site specific, and our ongoing commitment to ultimately build our new facility in South Carolina. Based upon our analysis, we determined that while the delays in obtaining financing for this facility and FDA approval are significant and therefore indicators of potential impairment, we believe our plan for the South Carolina manufacturing facility is still valid and we fully expect we will be able to finance it on commercially reasonable terms in the future. Therefore, we determined that no impairment exists at January 31, 2004.
		Research Agreement
		On March 4, 2003, the Company entered into a Cooperative Research and Development Agreement (CRADA) with the United States Naval Medical Research Center (NMRC). The intent of the CRADA is to support a pivotal, randomized, standard therapy controlled clinical trial of Hemopure in the out-of-hospital setting in the resuscitation of patients with severe hemorrhagic shock (acute blood loss). Under the terms of the CRADA, the NMRC will contribute $4,000,000 and the Company is committed to contribute $8,753,000, exclusive of Biopure employee costs and expenses, through 2006. These amounts are estimates based upon a preliminary assessment of the current trial protocol. Completion of this pivotal trauma trial is contingent upon both parties securing the required funding. The CRADA has been modified to grant the Naval Medical Research Center primary responsibility for the design and conduct of the trial, which will require a separate investigational new drug application (IND) and the FDA’s agreement to the proposed study design.
7.		Subsequent Events
		On February 19, 2004, the Company announced it had adjusted its operating plan to reduce expenses and conserve cash while it works to achieve FDA approval of Hemopure. Under the plan, the Company terminated 55 employees, primarily from the Company’s manufacturing division. This workforce reduction will take effect in mid to late April. This reduction in force, in addition to other cost reductions is intended to reduce the company’s ongoing cash burn rate by approximately $8.0 million annually. The company expects to save approximately $3.0 million during the remainder of fiscal 2004, offset by approximately $1.5 million in additional anticipated expenses for the FDA response activities, described below, which will be charged to research and development.
		On February 20, 2004, the Company raised approximately $5,000,000 in net proceeds from the sale of 3,333,333 shares of common stock and warrants to purchase an aggregate of 833,333 shares of its Class A Common Stock at an exercise price of $2.50 per share. On February 26, 2004, the Company issued an additional 343,168 shares as a purchase price adjustment to the February 20 transaction and will incur a non-cash charge of approximately $467,000 in the second fiscal quarter of 2004 in connection with this issuance.

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BIOPURE CORPORATION
Notes to Condensed Consolidated Financial Statements
January 31, 2004
(Unaudited)
(continued)

		On February 24, 2004 the Company announced the resignation of Thomas A. Moore from his positions as President, Chief Executive Officer and a member of the Board of Directors, effective immediately. Francis H. Murphy, the Company’s Senior Vice President of Engineering and Process Technology and former Chief Financial Officer, is serving as interim CEO until Mr. Moore’s replacement is named.
8.		Recently Issued Accounting Standards
		In May 2003, the Financial Accounting Standard Board (“FASB”) issued SFAS No. 150, “Accounting for Certain Instruments with Characteristics of both Liabilities and Equity” (“SFAS 150”), which establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Company’s adoption of the initial recognition and initial measurement provisions of SFAS 150, effective June 1, 2003, did not have an impact on the Company’s results of operations or financial position.
		In January 2003, the FASB issued FIN No. 46, “Consolidation of Variable Interest Entities,” to expand upon and strengthen existing accounting guidance that addresses when a company should include in its financial statements the assets, liabilities and activities of another entity; in December 2003 FASB issued a revision to FIN 46(FIN46R). Until now, one company generally has included another entity in its consolidated financial statements only if it controlled the entity through voting interests. FIN No. 46 changes that by requiring a variable interest entity, as defined, to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns or both. FIN No. 46 also requires disclosures about variable interest entities that the company is not required to consolidate but in which it has a significant variable interest. In October 2003, the FASB issued Proposed Interpretation of FIN No. 46, which would require consolidation of variable interest entities created before February 1, 2003 for financial statements issued for the first reporting period ending after December 15, 2003. Certain of the disclosure requirements apply in all financial statements issued after January 31, 2003, regardless of when the variable interest entity was established. The Company believes the adoption of FIN 46 will not have a material adverse impact on its overall financial position or results of operations. See Note 6 for additional information.
9.		Litigation
		SEC Investigation. During the fourth quarter of fiscal 2003, the Company was notified of a confidential investigation by the Securities and Exchange Commission (SEC). On December 22, 2003, the Company, its former Chief Executive Officer and its former Senior Vice President, Regulatory and Operations, received “Wells Notices” from the staff of the SEC stating the staff’s preliminary determination to recommend that the SEC bring a civil injunctive proceeding against the Company and the individuals. Biopure and the individuals responded in writing to the notices on January 9, 2004. The staff is continuing to gather information.
		Biopure believes the notices relate to Company disclosures concerning communications with the FDA about a clinical hold imposed on a clinical study protocol the Company submitted to the agency in March 2003 and the status of the Company’s BLA. In March 2003, the Company filed a proposed protocol for a Phase II clinical trial in trauma patients in a hospital setting. The FDA put the protocol and its related investigational new drug application (IND) on “clinical hold,” meaning the trial could not begin as proposed. The FDA cited safety concerns based on a preliminary review of data from the Company’s Phase III clinical trial in patients undergoing orthopedic surgery. After the Company responded in two written submissions, the clinical hold was reasserted twice in writing, most recently on July 30, 2003. The Company did not disclose the clinical hold because the Company did not consider correspondence with the agency about data interpretation in the development of a protocol to be material, notwithstanding the references to data in the BLA. The staff’s investigation also concerns the Company’s disclosures concerning the FDA’s review of the BLA, after receipt of the complete response letter dated July 30, 2003. The Company has been cooperating throughout the investigation with the SEC staff. At this time, the Company cannot estimate what impact, if any, this inquiry may have on its financial position or results of operations.

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BIOPURE CORPORATION
Notes to Condensed Consolidated Financial Statements
January 31, 2004
(Unaudited)
(continued)

		Litigation.
		Biopure, its former Chief Executive Officer, its Chief Technology Officer and its Chief Financial Officer were named as defendants in a number of similar, purported class action complaints, filed between December 30, 2003 and January 28, 2004 (the “complaints”), in the U.S. District Court for the District of Massachusetts (the “Court”) by alleged purchasers of Biopure’s common stock. The complaints claim that Biopure violated the federal securities laws by publicly disseminating materially false and misleading statements regarding the status of its biologic license application pending with the U.S. Food and Drug Administration and of its trauma development program, resulting in the artificial inflation of Biopure’s common stock price during the purported class period. The complaints do not specify the amount of alleged damages plaintiffs seek to recover. The complaints set forth varying class periods but generally focus on March 2003 through December 24, 2003. The defendants believe that the complaints are without merit and intend to defend the actions vigorously. At this time, the Company cannot estimate what impact, if any, these cases may have on its financial position or results of operations.
		The seven board members of Biopure’s Board of Directors, including its former Chief Executive Officer, now a former board member, were named as defendants in two shareholder derivative actions filed on January 26, 2004 and January 29, 2004 in the same Court. The Company is named as a defendant, even though in a derivative action any award is for the benefit of the Company, not individual stockholders. The complaints allege in derivative actions brought by shareholders on behalf of the Company that the individual directors breached fiduciary duties in connection with the same disclosures set forth in the purported securities class action complaints. The complaints do not specify the amount of the alleged damages plaintiffs seek to recover. At this time, the Company cannot estimate what impact, if any, these cases may have on its financial position or results of operations.
		The Company is a defendant in a case filed on or about June 16, 2003, by plaintiff Steelhead Investments, Ltd. The complaint alleges that the Company breached a contract with the plaintiff by giving insufficient notice and failing to give notice of offerings of common stock and warrants by the Company in March and April 2003. The complaint states that the plaintiff has suffered monetary damages in an amount to be determined, but not less than $15.5 million. On September 5, 2003, the Company filed an Amended Answer, Counterclaims, and Third Party Compliant that denied the material allegations of the complaint, asserted defenses, and brought counterclaims against the plaintiff and an affiliate for fraud and other misconduct in connection with execution and performance of the contract described in the complaint. On September 24, 2003, plaintiff and its affiliate filed a motion to dismiss the counterclaims. On October 2, 2003, plaintiff filed an amended complaint that asserts the same claims for breach of contract against the Company that were asserted in the original complaint filed on June 16, 2003. In addition to those claims, the amended complaint asserts tort claims against Thomas A. Moore, former President and Chief Executive Officer of Biopure; David N. Judelson, Vice Chairman of Biopure’s Board of Directors; and HTV Industries, Inc., a company affiliated with one of Biopure’s directors. Plaintiff alleges that Moore, Judelson, and HTV intentionally interfered with plaintiff’s contractual rights and caused Biopure to breach the contract. On November 12, 2003, the Company and the individual defendants filed an answer denying the material allegations of the amended complaint and interposing defenses. The Company re-asserted its counterclaims and third party claims against plaintiff and its affiliate described above. On January 26, 2004, the court denied the plaintiff’s motion to dismiss the counterclaims and third-party claims in its entirety. The Company and the individual defendants intend to defend this case vigorously. At this time, the Company cannot estimate what impact this case may have on it. However, the Company believes resolution of this case will not have a material adverse impact on its overall financial position or results of operations.

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BIOPURE CORPORATION
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
January 31, 2004

Cautionary Statement Regarding Forward-Looking Information

The following discussion of our financial condition and results of operations should be read in conjunction with the Condensed Consolidated Financial Statements and the related Notes included elsewhere in this report. The content of this report does not necessarily reflect the position or the policy of the Government or the Department of Defense, and no official endorsement should be inferred. Except for strictly historical information contained herein, matters discussed in this report constitute forward-looking statements. When used herein, the words “expects,” “estimates,” “intends,” “plans,” “should,” “anticipates” and similar expressions are intended to identify such forward-looking statements. Actual results could differ materially from those set forth in the forward-looking statements. There can be no assurance that Biopure will be able to commercially develop Hemopure, that necessary regulatory approvals will be obtained, that anticipated milestones will be met in the expected timetable, that any clinical trials will be successful, or that any approved product will attain market acceptance and be manufactured and sold in the quantities anticipated. Actual results may differ from those projected in forward-looking statements due to risks and uncertainties that exist in the Company’s operations and business environment. These risks include, without limitation, the availability of sufficient financing to support operations, the Company’s stage of product development, history of operating losses, accumulated deficit, and uncertainties and possible delays related to clinical trials and regulatory approvals, possible healthcare reform, manufacturing capability, market acceptance and competition. In light of the substantial risks and uncertainties inherent in all future projections, the inclusion of forward-looking statements in this report should not be regarded as representations by the Company that the objectives or plans of the Company will be achieved. The Company undertakes no obligation to release publicly the results of revisions to these forward-looking statements to reflect events or circumstances after the date hereof. Reference is made in particular to the risk factors and the discussions set forth below in this report under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Overview

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 equity financings, strategic alliances, interest income and debt. We have not been profitable since inception and had an accumulated deficit of $440 million as of January 31, 2004. We expect to incur additional operating losses over the next several years seeking regulatory approvals, conducting clinical trials and marketing Hemopure. We began generating revenue from the sale of Oxyglobin in fiscal 1998, but these sales are not profitable because the fixed and variable manufacturing costs allocated to producing Oxyglobin exceed the corresponding revenues.

We believe our cash and cash equivalents, as of January 31, 2004, in addition to the cash raised on February 20, 2004 (See Liquidity and Capital Resources) to be sufficient to fund our operations into September 2004. Under this plan, our activities and expenditures for the balance of fiscal 2004 will be associated primarily with maintaining our manufacturing capability, our activities in replying to the FDA’s complete response letter for our Hemopure biologics license application (BLA), conducting FDA-requested preclinical animal studies and continuing clinical development of Hemopure. Because the Company’s funds on hand at January 31, 2004 and forecasted sales are insufficient to fund our operations into fiscal 2005, the audit report of Ernst & Young LLP, the Company’s independent auditor, on our fiscal 2003 financial statements includes a going concern modification, which states that the Company’s recurring losses from operations and the current lack of sufficient funds to sustain its operations through the end of fiscal 2004 raise substantial doubt about our ability to continue as a going concern.

A number of factors pose uncertainties in estimating the amount of funds we may need to sustain operations:

As described in Note 9 to the financial statements, Biopure is a defendant in litigation, the outcomes of which are unknown. It is also the subject of an investigation by the Securities and Exchange Commission and has received a “Wells Notice” from the Commission staff. The outcomes and financial effects of these matters cannot be determined at this time, nor can any adverse effect they may have on the price of our common stock and our ability to raise capital from sales of equity.

The process of obtaining U.S. marketing approval for a first indication for Hemopure also has risks of delays that make the ultimate development cost unpredictable.

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BIOPURE CORPORATION
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
January 31, 2004
(continued)

We may decide to or be required to do additional clinical investigation before the FDA will grant marketing approval. Even a small clinical trial would have the effect of delaying regulatory approval to market the product in the United States.

Our one major research and development project continues to be developing Hemopure for a surgery indication. We monitor our spending on trauma and other programs, but none has yet to become substantial in aggregate or annual spending.

Although Hemopure is approved for commercial sale in South Africa, the product has not yet been offered for sale. Surgeons continue to administer Hemopure units that we had previously provided without charge. We gave notice to our exclusive distributor in South Africa that we were terminating our distribution agreement according to its terms and intend, following completion of a termination arrangement with the former distributor, to market through a wholly-owned subsidiary. We cannot predict when our first sales might occur.

On October 30, 2003, the Company announced a cost reduction plan to decrease its ongoing cash burn. Under the plan, the Company terminated 72 employees. The employees terminated were primarily employees from the Company’s manufacturing division. On February 19, 2004 the Company announced that it will reduce its workforce by an additional 55 employees (See Note 7, Subsequent Events). This reduction and other cost cutting measures are expected to reduce manufacturing and marketing expenses. The workforce reduction will take effect in mid to late April 2004. The Company is considering additional measures to reduce its cash burn, but significant additional capital will be required to fund the Company’s operations until the Company becomes profitable. The Company is assessing opportunities to raise capital, and expects to continue financing operations until we are profitable through sales of securities, strategic alliances and other financing vehicles, if any, that might become available.

Critical Accounting Policies

The Company’s significant accounting policies are described in the Notes to the Consolidated Financial Statements, as disclosed in our Form 10-K/A for the fiscal year ended October 31, 2003. The application of our critical accounting policies is particularly important to the accurate portrayal of the Company’s financial position and results of operations. These critical accounting policies require the Company to make subjective judgements in determining estimates about the effect of matters that are inherently uncertain. The following critical accounting policies are considered most significant:

Inventories

Inventories are stated at the lower of cost (determined using the first-in, first-out method) or market. Inventories consist of raw material, work-in-process and Hemopure and Oxyglobin finished goods. Both Oxyglobin and Hemopure have a shelf life of 3 years from the date of manufacture. Inventories of these products are reviewed periodically to identify expired units and units with a remaining life too short to be commercially viable based on projected and historical sales activity. Inventories are also subject to quality compliance investigations. Reserves are established for inventory that falls into these categories.

Long-Lived Assets

SFAS 144 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Our investments in property and equipment, such as construction in progress and new facility construction; real property license rights related to the source, supply and initial processing of our major raw material; and the asset related to the expenditures for a planned manufacturing facility in South Carolina. Pursuant to SFAS 144, during the first quarter we assessed our long-lived assets for potential impairment, with a particular emphasis on the asset related to the planned South Carolina manufacturing facility. As part of our review, we considered lack of financing for this facility to date, the potential timing of construction activities, the extent to which the asset is site specific, and our ongoing commitment to ultimately build our new facility in South Carolina. Based upon our analysis we believe that, while the delays in obtaining financing for this facility and FDA approval are significant and therefore indicators of potential impairment, we believe our plan for the South Carolina manufacturing facility is

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BIOPURE CORPORATION
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
January 31, 2004
(continued)

still valid and we fully expect we will be able to finance it on commercially reasonable terms in the future. Therefore, we determined that no impairment exists at January 31, 2004.

Revenue Recognition

The Company recognizes revenue from sales of Oxyglobin upon shipment provided that there is evidence of a final arrangement, there are no uncertainties surrounding acceptance, collectibility is probable and the price is fixed. The Company sells Oxyglobin to veterinarians in the United States through veterinary product distributors, who purchase product for immediate and direct resale to veterinary practices. The Company sells Oxyglobin to a distributor in the United Kingdom that sells product in selected European countries through local veterinary distributors in Germany, France and the UK. Collectibility is reasonably assured once pricing arrangements are established, as these agreements establish the distributor’s intent to pay. The Company’s customers do not have a right to return product. The Company and its distributors have an ongoing business relationship, and the Company monitors creditworthiness on a regular basis. The Company believes collectibility of product revenues is reasonably assured at the time of sale.

Research and Development

Since its founding in 1984, Biopure has been primarily a research and development company focused on developing Hemopure, our oxygen therapeutic for human use, and obtaining regulatory approval in the United States. Our research and development expenses have been devoted to basic research, product development, process development, pre-clinical studies, clinical trials and filing a Hemopure BLA with the FDA. In addition, our development expenses historically have included the design, construction, validation and maintenance of a large-scale pilot manufacturing plant in Cambridge, Massachusetts. The existing pilot plant was completed in 1995, expanded in 1998 and expanded again in 2002.

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

The only product made in our plant prior to 1998 was product for use in pre-clinical and clinical trials. As an offshoot of the research and development for Hemopure, Oxyglobin, a similar product, gained approval for veterinary use in 1998. This product was then produced for sale in the pilot manufacturing plant built and maintained for the development of Hemopure. Consequently, costs of production of Oxyglobin for sale and an allocation of overhead based on capacity used for Oxyglobin are charged to inventory and to cost of revenues. The remaining costs of the pilot plant continued to be included in research and development expenses through May 2002.

Beginning in May 2002, when we began to make Hemopure for sale under our regulatory approval in South Africa, the primary function of the pilot plant changed from support of the development of Hemopure to production of goods for sale. Since then, all costs of maintaining and operating the pilot plant have been charged to inventory and cost of revenues. Any actual future use of the facility for research and development activities will be expensed. In addition, clinical trial materials taken from inventory for use in research and development are charged to research and development.

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BIOPURE CORPORATION
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
January 31, 2004
(continued)

Results of Operations

As the Company generates net losses, the key drivers of the losses are cost of revenues, research and development and other expenses consisting of sales and marketing and general and administrative. Oxyglobin revenues are an offset to these expenses. For the first fiscal quarters of 2004 and 2003, these items were as follows:

Three months ended January 31, 2004 compared to three months ended January 31, 2003

Total revenues, consisting of sales of the company’s veterinary product Oxyglobin, were $750,000 for the first quarter of fiscal 2004 compared to $21,000 for the same period in 2003. During the first quarter of fiscal 2003, Oxyglobin sales were constrained by limited product availability resulting from a temporary shutdown of production during the expansion of the company’s manufacturing facilities in 2002. Oxyglobin shipments resumed in February 2003 after the U.S. Food and Drug Administration (FDA) completed its review of the validation data for the expanded facilities. For the first quarter of fiscal 2002, total revenues were $728,000. In our efforts to conserve cash, we are limiting manufacturing capacity and the amount of Oxyglobin we will be able to sell. As a result, we expect revenues for the fiscal year ending October 31, 2004 to be substantially lower than last fiscal year.

Cost of revenues was basically unchanged for the first quarter of fiscal 2004 compared to the same period in 2003. Cost of revenues includes costs of both Oxyglobin and Hemopure, the company’s product for human use, although Hemopure is not currently being offered for sale. Oxyglobin cost of revenues was $1,570,000 for the first quarter of fiscal 2004 compared to $733,000 for the same period in 2003. The increase for the quarter was primarily due to the increased number of Oxyglobin units sold in 2004. Due to fixed manufacturing costs, Biopure expects that costs to produce Oxyglobin will exceed Oxyglobin revenues until the company more fully utilizes its manufacturing capacity. Hemopure cost of revenues, consisting of the allocation of unabsorbed fixed manufacturing costs,

15

BIOPURE CORPORATION
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
January 31, 2004
(continued)

was $3,235,000 for the first quarter of fiscal 2004 compared to $4,115,000 for the same period in 2003. This decrease is primarily due to lower manufacturing costs resulting from the October 2003 workforce reduction. The workforce reductions of October 2003 and February 2004 will result in the total cost of revenues for fiscal 2004 being substantially lower than for fiscal 2003.

Research and development expenses include product and process development and engineering, pre-clinical studies, clinical trials and clinical trial materials. Our research and development expenses have continued to be primarily for our one major project—Hemopure development for use in patients undergoing surgery. A breakdown of our research and development expenses by major activity is as follows:

The completed Phase III orthopedic surgery trial cost approximately $37,000,000 over the four years from protocol development to the final report on July 26, 2002. These trial costs include costs incurred at 46 hospitals, trial site monitoring, data management, regulatory consulting, statistical analysis, medical writing and clinical materials and supplies as well as Company personnel engaged in these activities. Costs incurred in submitting the Hemopure BLA include Company personnel and payments to third parties for manufacturing process documentation, medical consultants, regulatory consultants, integrating the safety and efficacy databases for all clinical trials and pre-clinical studies. Research and development expenses continue to include amounts for support of the BLA review process including responding to FDA inquiries. If the FDA grants a marketing license for Hemopure, this major project will be substantially complete. However, the FDA complete response letter of July 30, 2003 consisted of requests for extensive additional information. In addition, during a meeting with the FDA on January 6, 2004 regarding the BLA, the FDA said that it would also require the results of three preclinical studies previously requested for the trauma program to be submitted for its review of the BLA and discussed a possible fourth animal study. The Company has now decided to conduct all four studies. After the Company submits to the FDA its formal written reply to the complete response letter, the Agency may then take up to six months from the date of Biopure’s reply to review and act on the BLA amendment based on FDA performance goals in the Prescription Drug User Fee Act (PDUFA III). It is currently unclear whether the results of the requested preclinical animal studies and the Company’s formal written reply to the complete response letter will be sufficient for FDA approval or whether additional information and additional human clinical trials will be required. Therefore, the timetable for obtaining FDA approval of Hemopure remains uncertain.

Regardless of when Hemopure is approved we do not anticipate that we will attain profitability until we are able to achieve economies of scale associated with a significant increase in our manufacturing capacity. There are substantial risks and uncertainties relating to whether and when we will obtain FDA approval for Hemopure, the timing of the construction of additional capacity and other factors that may affect our ability to generate a profit from our research and development of Hemopure.

Of the research and development expenses for the first quarter of fiscal 2004, $2,664,000 were for BLA support costs and the balance for various expenditures not allocable to any major project. In the corresponding quarter of fiscal 2003, expenditures included $2,232,000 for BLA filing preparation and the balance for various expenditures not allocable to any major project. Due to the extensive additional information the FDA has requested, the Company expects research and development expenses to continue at a higher rate than experienced last year.

16

BIOPURE CORPORATION
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
January 31, 2004
(continued)

Sales and Marketing expenses consist of Hemopure-related expenses and Oxyglobin-related expenses. Hemopure-related sales and marketing expenses were $395,000 for the first quarter of fiscal 2004, compared to $659,000 for the same period in 2003. This decrease is primarily due to the reduction of marketing and educational activities in fiscal 2004 consistent with the Company’s other cost-cutting measures. The Company anticipates that Hemopure and Oxyglobin-related sales and marketing expenses will be substantially lower in fiscal 2004 compared to fiscal 2003 because of cost-cutting. Oxyglobin-related sales and marketing expenses were $448,000 for the first quarter of fiscal 2004 compared to $357,000 for the same period in 2003. During the first quarter of fiscal 2003, sales were constrained by limited product availability, as explained above. During this time the company postponed certain sales activities until product shipments resumed in February 2003.

The increase in general and administrative expenses for the first quarter of fiscal 2004 compared to the same period in fiscal 2003 is primarily due to increased legal fees in fiscal 2004 related to a previously announced Securities and Exchange Commission investigation of the Company and to other legal matters.

Liquidity and Capital Resources

At January 31, 2004, we had $17,291,000 in cash and cash equivalents. We believe our cash and cash equivalents at January 31, 2004, and the approximately $5,000,000 raised since that time are sufficient to fund operations into September 2004 under the Company’s adjusted operating plan. To fund operations through December 31, 2004, we estimate that we will need to raise approximately $7,000,000. The fiscal 2004 planned capital expenditures of $1,2000,000 are included in the cash requirements identified above. We plan to spend approximately $1,100,000 for the remainder of fiscal 2004 on capital projects for our existing facilities. Our current operating plan does not budget for additional clinical trials that we may need for initial FDA approval of Hemopure, but does include our European Phase II clinical trial in angioplasty patients and a clinical trial anticipated to be done in hospitalized trauma patients in South Africa. To undertake any additional clinical trials, we would increase our rate of operating losses and funding requirements beginning in fiscal 2005.

Because the Company’s funds on hand at October 31, 2003 and forecast sales were not sufficient to fund our operations into fiscal 2005, the audit report of Ernst & Young LLP, the Company’s independent auditor, on our fiscal 2003 financial statements includes a going concern modification. For us to remain a going concern we will require significant funding. We continue to assess opportunities to raise capital. However, we do not know whether adequate additional financing will be available to the Company on terms that it deems acceptable, if at all. If Hemopure is approved by the FDA the Company’s revenue will be limited by manufacturing capacity, and the Company does not expect to become profitable unless it can achieve economies of scale by increasing that capacity.

We expect to continue financing our operations, until we are profitable, through sales of securities and joint venture, leasing or licensing arrangements, if available. We have not been profitable since inception and had an accumulated deficit of $439,651,000 as of January 31, 2004. We anticipate that we will continue to generate losses for the next several years.

Net cash used in operating activities went down $1,957,000 in the first fiscal quarter of 2004 compared to the corresponding period last year. Cash provided by inventories increased compared to last year due mostly to the lack of sales during the first fiscal quarter of 2003, mentioned above. Accounts payable used $650,000 less cash compared to last year mostly due to expenditures during the first fiscal quarter of 2003 associated with the proposed manufacturing facility in Sumter, South Carolina (See Note 6 – Guarantees) for which there are no comparable charges during the same period in fiscal 2004. Accrued expenses consumed $694,000 more cash during the first quarter of 2004 than in 2003 mostly due to severance payments made during the first fiscal quarter of 2004 (See Note 5 – Accrued Expenses and Cost Reduction Plan).

Recently Issued Accounting Standards

In May 2003, the Financial Accounting Standard Board (“FASB”) issued SFAS No. 150, “Accounting for Certain Instruments with Characteristics of both Liabilities and Equity” (“SFAS 150”), which establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Company’s adoption of the initial recognition and initial measurement provisions of SFAS 150, effective June 1, 2003, did not have an impact on the Company’s results of operations or financial position.

17

BIOPURE CORPORATION
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
January 31, 2004
(continued)

In January 2003, the FASB issued FIN No. 46, “Consolidation of Variable Interest Entities,” to expand upon and strengthen existing accounting guidance that addresses when a company should include in its financial statements the assets, liabilities and activities of another entity; in December 2003 FASB issued a revision to FIN 46(FIN46R). Until now, one company generally has included another entity in its consolidated financial statements only if it controlled the entity through voting interests. FIN No. 46 changes that by requiring a variable interest entity, as defined, to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns or both. FIN No. 46 also requires disclosures about variable interest entities that the company is not required to consolidate but in which it has a significant variable interest. In October 2003, the FASB issued Proposed Interpretation of FIN No. 46, which would require consolidation of variable interest entities created before February 1, 2003 for financial statements issued for the first reporting period ending after December 15, 2003. Certain of the disclosure requirements apply in all financial statements issued after January 31, 2003, regardless of when the variable interest entity was established. The Company believes the adoption of FIN 46 will not have a material adverse impact on its overall financial position or results of operations. See Note 6 for additional information.

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BIOPURE CORPORATION

January 31, 2004

Quantitative and Qualitative Disclosure About Market Risk

The Company currently does not have any foreign currency exchange risks, with the exception of negligible exchange fluctuations associated with expenses for marketing and regulatory activities outside of the United States. Biopure sells Oxyglobin to its European distributors in U.S. dollars and therefore our customers bear the risk of foreign currency exchange fluctuation. The Company 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.

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BIOPURE CORPORATION

January 31, 2004

Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures. Under the supervision and with the participation of our management, including our interim Chief Executive Officer and our Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of January 31, 2004. Based on this evaluation, our interim Chief Executive Officer and Chief Financial Officer concluded as of the evaluation date that our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

(b) Changes in Internal Control Over Financial Reporting. There have been no changes in our internal control over financial reporting (as defined under Rules 13a-15(f) or 15d-15(f) of the Exchange Act) during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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BIOPURE CORPORATION

Part II – Other Information
January 31, 2004

Item 1. Legal Proceedings

			SEC Investigation. During the fourth quarter of fiscal 2003, the Company was notified of a confidential investigation by the Securities and Exchange Commission (SEC). On December 22, 2003, the Company, its former Chief Executive Officer and its former Senior Vice President, Regulatory and Operations, received “Wells Notices” from the staff of the SEC stating the staff’s preliminary determination to recommend that the SEC bring a civil injunctive proceeding against the Company and the individuals. Biopure and the individuals responded in writing to the notices on January 9, 2004. The staff is continuing to gather information.
			Biopure believes the notices relate to Company disclosures concerning communications with the FDA about a clinical hold imposed on a clinical study protocol the Company submitted to the agency in March 2003 and the status of the Company’s BLA. In March 2003, the Company filed a proposed protocol for a Phase II clinical trial in trauma patients in a hospital setting. The FDA put the protocol and its related investigational new drug application (IND) on “clinical hold,” meaning the trial could not begin as proposed. The FDA cited safety concerns based on a preliminary review of data from the Company’s Phase III clinical trial in patients undergoing orthopedic surgery. After the Company responded in two written submissions, the clinical hold was reasserted twice in writing, most recently on July 30, 2003. The Company did not disclose the clinical hold because the Company did not consider correspondence with the agency about data interpretation in the development of a protocol to be material, notwithstanding the references to data in the BLA. The staff’s investigation also concerns the Company’s disclosures concerning the FDA’s review of the BLA, after receipt of the complete response letter dated July 30, 2003. The Company has been cooperating throughout the investigation with the SEC staff. At this time, the Company cannot estimate what impact, if any, this inquiry may have on its financial position or results of operations.
			Litigation. Biopure, its former Chief Executive Officer, its Chief Technology Officer and its Chief Financial Officer were named as defendants in a number of similar, purported class action complaints, filed between December 30, 2003 and January 28, 2004 (the “complaints”), in the U.S. District Court for the District of Massachusetts (the “Court”) by alleged purchasers of Biopure’s common stock. The complaints claim that Biopure violated the federal securities laws by publicly disseminating materially false and misleading statements regarding the status of its biologic license application pending with the U.S. Food and Drug Administration and of its trauma development program, resulting in the artificial inflation of Biopure’s common stock price during the purported class period. The complaints do not specify the amount of alleged damages plaintiffs seek to recover. The complaints set forth varying class periods but generally focus on March 2003 through December 24, 2003. The defendants believe that the complaints are without merit and intend to defend the actions vigorously. At this time, the Company cannot estimate what impact, if any, these cases may have on its financial position or results of operations.
			The seven board members of Biopure’s Board of Directors, including its former Chief Executive Officer, now a former board member, were named as defendants in two shareholder derivative actions filed on January 26, 2004 and January 29, 2004 in the same Court. The Company is named as a defendant, even though in a derivative action any award is for the benefit of the Company, not individual stockholders. The complaints allege in derivative actions brought by shareholders on behalf of the Company that the individual directors breached fiduciary duties in connection with the same disclosures set forth in the purported securities class action complaints. The complaints do not specify the amount of the alleged damages plaintiffs seek to recover. At this time, the Company cannot estimate what impact, if any, these cases may have on its financial position or results of operations.
			The Company is a defendant in a case filed on or about June 16, 2003, by plaintiff Steelhead Investments, Ltd. The complaint alleges that the Company breached a contract with the plaintiff by giving insufficient notice and failing to give notice of offerings of common stock and warrants by the Company in March and April 2003. The complaint states that the plaintiff has suffered monetary damages in an amount to be determined, but not less than $15.5 million. On September 5, 2003, the Company filed an Amended Answer, Counterclaims, and Third Party Compliant that denied the material allegations of the complaint, asserted defenses, and brought counterclaims against the plaintiff and an affiliate for fraud and other misconduct in connection with execution and performance of the contract described in the complaint. On September 24, 2003, plaintiff and its affiliate filed a motion to dismiss the counterclaims. On October 2, 2003, plaintiff filed an amended complaint that asserts the same claims for breach of contract against the Company that were asserted in the original complaint filed on June 16, 2003. In addition to those

21

BIOPURE CORPORATION

Part II – Other Information
January 31, 2004
(continued)

claims, the amended complaint asserts tort claims against Thomas A. Moore, former President and Chief Executive Officer of Biopure; David N. Judelson, Vice Chairman of Biopure’s Board of Directors; and HTV Industries, Inc., a company affiliated with one of Biopure’s directors. Plaintiff alleges that Moore, Judelson, and HTV intentionally interfered with plaintiff’s contractual rights and caused Biopure to breach the contract. On November 12, 2003, the Company and the individual defendants filed an answer denying the material allegations of the amended complaint and interposing defenses. The Company re-asserted its counterclaims and third party claims against plaintiff and its affiliate described above. On January 26, 2004, the court denied the motion to dismiss the counterclaims and third-party claims in its entirety. The Company and the individual defendants intend to defend this case vigorously. At this time, the Company cannot estimate what impact this case may have on it. However, the Company believes resolution of this case will not have a material adverse impact on its overall financial position or results of operations.

Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities.

None

Item 3. Defaults Upon Senior Securities

None

Item 4. Submission of Matters to a vote of Security Holders

None

22

BIOPURE CORPORATION

Part II – Other Information
January 31, 2004
(continued)

Item 5. Other Information

RISK FACTORS

     These risks and uncertainties are not the only ones we face. Others that we do not know about now, or that we do not now think are important, may impair our business or the trading price of our securities.

Company Risks

We May Not Be Able to Continue as a Going Concern, as Our Funds Are Only Sufficient to Fund Operations Into September 2004

     Ernst & Young LLP, our independent auditors, have included a going concern modification in their audit opinion on our consolidated financial statements for the fiscal year ended October 31, 2003, which states that “the Company’s recurring losses from operations and the current lack of sufficient funds to sustain its operations through the third quarter of fiscal 2004 raise substantial doubt about its ability to continue as a going concern.”

     We expect our cash position at January 31, 2004 and the additional funds raised in the beginning of the second fiscal quarter of 2004 to fund operations into September 2004 per our current operating plan. We are assessing our ability to raise additional capital through equity offerings, strategic alliances and other financing vehicles, but we cannot assure you that sufficient funds will be available to us on terms that we deem acceptable, if they are available at all. The inclusion of a going concern modification in Ernst & Young LLP’s audit opinion may materially and adversely affect our stock price and our ability to raise new capital.

     Our financial statements have been prepared on the basis of a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. We have not made any adjustments to our financial statements as a result of the going concern opinion. If we cannot continue as a going concern, we may have to liquidate our assets and we may receive significantly less than the values at which they are carried on our financial statements. Any shortfall in the proceeds from the liquidation of our assets would directly reduce the amounts that holders of our common stock could receive in liquidation.

Failure to Raise Additional Funds Will Affect the Development, Manufacture and Sale of Our Products

     The development and regulatory processes for obtaining approval to market Hemopure for its initial indication in the United States have been costly and are not yet complete. We require substantial working capital to develop, manufacture and sell our products and to finance our operations. We will need additional funding to maintain operations until such time, if ever, as we can generate positive cash flow. To reach that point, we must continue working on issues raised by the FDA about our BLA for Hemopure, including additional pre-clinical animal studies and any clinical trials that the FDA may request or we decide we need.

     As we continue to analyze our data and respond to the FDA’s complete response letter, we anticipate that we will also clarify whether we need to perform additional human clinical trials to obtain initial FDA approval, and if so, the parameters of such trials. We will need additional funding to continue operating until such time, if ever, as the FDA approves the BLA for Hemopure. Even if Hemopure is approved by the FDA, we cannot be profitable until we increase manufacturing capacity, for which we will require funding. We expect our cash position to fund operations into September 2004 per our current operating plan. We require an additional $7,000,000 to fund our planned operations through December 31, 2004.

If additional financing is not available when needed or is not available on acceptable terms, then we may be unable to develop products,

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BIOPURE CORPORATION

Part II – Other Information
January 31, 2004
(continued)

build manufacturing capacity or fulfill other important goals. A sustained period in which financing is not available could force us to go out of business.

If We Cannot Hire the Personnel We Need, Both Our Costs and Our Ability to Conduct Operations May Be Adversely Affected

     We have an interim Chief Executive Officer and do not have a senior regulatory employee. We need to recruit and retain personnel for these and other positions. To the extent that our ability to fund future operations depends on raising additional capital, our ability to recruit qualified personnel may be adversely affected. This means that we may need to rely on outside consultants who may be less cost-effective than employees.

If We Fail to Obtain FDA Approval, We Cannot Market Hemopure in the United States

     We will not be able to market Hemopure in the United States unless and until we receive FDA approval. We submitted to the FDA a biologics license application, or BLA, for approval to market Hemopure. On July 30, 2003, the FDA sent us a complete response letter, stating that the agency had completed its review of the BLA and requesting additional information. We are working on our responses to the FDA questions. The questions require considerable data gathering and analysis. We must rely on contractors to complete some of the work. We could be delayed in responding either by the contractors failure or inability to complete their tasks when we require or by other unanticipated delays or difficulties. Furthermore, the FDA may find that our responses to the letter and the results of preclinical animal studies the FDA has asked for do not address its safety and efficacy issues adequately. Thus, we may require one or more further human clinical trials prior to approval of Hemopure. Trials are expensive and time-consuming, as is the FDA review process, and we may not have the financial resources to fund any such trials and our operations until FDA approval. Despite all of our efforts, the FDA could refuse to grant a marketing authorization.

If We Fail to Obtain Regulatory Approvals in Foreign Jurisdictions, We Will Not Be Able to Market Hemopure Abroad

     We also intend to market our products in international markets, including Europe. We must obtain separate regulatory approvals in order to market our products in Europe and many other foreign jurisdictions. The regulatory approval processes differ among these jurisdictions. Approval in any one jurisdiction does not ensure approval in a different jurisdiction. As a result, obtaining foreign approvals will require additional expenditures and significant amounts of time.

We Cannot Expand Indications for Our Products Unless We Receive FDA Approval for Each Proposed Indication

     The FDA requires a separate approval for each proposed indication for the use of Hemopure in the United States. We have applied for an indication for Hemopure that would only involve its perioperative use in patients undergoing orthopedic surgery who are acutely anemic. If this application is approved, we expect to apply to expand Hemopure’s indications. To do so, we will have to design additional clinical trials, submit the trial designs to the FDA for review and complete those trials successfully. We cannot guarantee that the FDA will approve Hemopure for any indication. We can only promote Hemopure in the United States for indications that have been approved by the FDA. The FDA may require a label cautioning against Hemopure’s use for indications for which it has not been approved.

     The FDA has approved the use of our veterinary product, Oxyglobin, for the treatment of anemia in dogs, regardless of the cause of the anemia. Supplemental approvals are required to market Oxyglobin for any new indications or additional species. We cannot guarantee that we will receive such approvals.

If We Cannot Find Appropriate Marketing Partners, We May Not Be Able to Market and Distribute Hemopure Effectively

     Our success depends, in part, on our ability to market and distribute Hemopure effectively. We have no experience in the sale or marketing of medical products for humans. In the event that we obtain FDA approval of Hemopure, we will require assistance to distribute Hemopure effectively.

24

BIOPURE CORPORATION

Part II – Other Information
January 31, 2004
(continued)

We may choose initially to market Hemopure using an independent distributor. Any such distributor:

•

might not be successful in marketing Hemopure;

•

might, at its discretion, limit the amount and timing of resources it devotes to marketing Hemopure; and

•

might terminate its agreement with us and abandon our products at any time whether or not permitted by the applicable agreement.

     If we do not enter into a satisfactory distributorship agreement, we may not be successful in entering into alternative arrangements, whether seeking an alliance with a pharmaceutical company, or recruiting, training and retaining a marketing staff and sales force of our own.

If We Cannot Generate Adequate, Profitable Sales of Hemopure, We Will Not Be Successful

     To succeed as a company, we must develop Hemopure commercially and sell adequate quantities of Hemopure at a high enough price to generate a profit. We may not accomplish either of these objectives. To date, we have focused our efforts on developing our products, establishing their safety and efficacy and seeking marketing approval. Uncertainty exists regarding the potential size of the market for Hemopure and the price that we can charge for it. Additionally, the size of the market will be affected by the indication(s) for which Hemopure is approved and will be greatly reduced if reimbursement for the cost of Hemopure is not available from health insurance companies or government programs like Medicaid.

If We Cannot Obtain Market Acceptance of Hemopure, We Will Not Be Able to Generate Adequate, Profitable Sales

     Even if we succeed in obtaining marketing approval for Hemopure, a number of factors may affect future sales of our product. These factors include:

•

whether and how quickly physicians accept Hemopure as a cost-effective and therapeutic alternative to other products, in particular, donated human blood. It may take longer than we anticipate to obtain market acceptance; and

•

whether medical care providers or the public accept the use of a bovine-derived protein in transfusions, particularly in light of public perceptions in the United States, Europe and elsewhere about the risk of “mad cow disease.”

If We Fail to Comply with Good Manufacturing Practices, We May Not Be Able to Sell Our Products

     To obtain FDA approval to sell our products, we must demonstrate to the FDA that we can manufacture our products in compliance with the FDA’s good manufacturing practices, commonly known as GMPs. GMPs are stringent requirements that apply to all aspects of the manufacturing process. We are subject to FDA inspections at any time to determine whether we are in compliance with GMP requirements. If we fail to manufacture in compliance with GMPs, the FDA may refuse to approve our products or take other enforcement action with respect to products that we are distributing commercially.

Because the Manufacturing Process for Our Products Is Complicated and Time-Consuming, We May Experience Problems that Would Limit Our Ability to Manufacture and Sell Our Products

     As with any manufactured product, problems can occur during our production processes. These problems can result in increased production scrap, which can reduce operating margins. These problems could also require us to delay shipments, recall previously shipped product or be unable to supply product for a period of time, all of which could negatively impact our results of operations. Contamination or defects could result in a material recall in the future, which could adversely affect our results of operations.

25

BIOPURE CORPORATION

Part II – Other Information
January 31, 2004
(continued)

We Manufacture Our Products at a Single Location and, If We Were Unable to Utilize this Facility, We Would Not Be Able to Manufacture and Sell these Products for an Extended Period of Time

     We manufacture our products at a single location located in Massachusetts with ancillary facilities in Pennsylvania and New Hampshire. Damage to any of these manufacturing facilities due to fire, contamination, natural disaster, power loss, riots, unauthorized entry or other events could cause us to cease the manufacturing of our products. For example, if our Massachusetts manufacturing facility were destroyed, it could take approximately two years or more to rebuild and qualify it. In the reconstruction period, we would not be able to make our products and thus would have no sales following exhaustion of finished goods in inventory. A new facility would take longer to construct. A large manufacturing facility we propose to build in South Carolina is expected to take 30 to 36 months or more to build, qualify and obtain facility approval from the FDA.

We Are Dependent on Third Parties to Finance Expansion of Our Manufacturing Capacity, and Failure to Increase Manufacturing Capacity May Impair Hemopure’s Market Acceptance and Prevent Us from Achieving Profitability

     The construction of our proposed new manufacturing facility in Sumter, South Carolina is dependent upon financing from third parties. Groundbreaking for this facility has been significantly delayed and is likely to be delayed further as a result of delays in obtaining such financing. Third parties can be expected to be unwilling to commit to finance the facility so long as we do not have FDA approval to market Hemopure. We cannot assure you that sufficient financing for this facility will be available, or if available, will be on terms that are acceptable to us. The completion of this facility or the addition of comparable manufacturing capacity is a key milestone in our plan for future operations. The later the date of completion of additional manufacturing capacity, the more financing we will need for working capital.

We Will Face Risks, Including the Risk of Scale-Up of Our Processes, in Any New Construction, and in Turn Could Encounter Delays, Higher than Usual Rejects, Additional Reviews and Tests of Units Produced and Other Costs Attendant to an Inability to Manufacture Saleable Product

     We will need to construct additional manufacturing facilities to meet annual demand in excess of our current capacity. If Hemopure receives market acceptance, we may experience difficulty manufacturing enough of the product to meet demand. If we cannot manufacture sufficient quantities of Hemopure, we may not be able to operate profitably. In addition, if we cannot fill orders for Hemopure, customers might turn to alternative products and may choose not to use Hemopure even after we have addressed our capacity shortage.

Our Lack of Operating History Makes Evaluating Our Business Difficult

     Licensing fees, proceeds from the sales of equity securities and payments to fund our research and development activities comprise almost all of our funding to date. We have no operating history of selling our products in large quantities upon which to base an evaluation of our business and our prospects. Consequently, we have no experience on which to predict future commercial success.

We Have a History of Losses and Expect Future Losses

     We have had annual losses from operations since our inception in 1984. In the fiscal years ended October 31, 2001, 2002 and 2003, we had losses from operations of $52,957,000, $46,657,000 and $47,312,000, respectively, and we had an accumulated deficit of $439,651,000 as of January 31, 2004. We expect to continue to incur losses from operations until we are able to develop Hemopure commercially and generate a profit. We cannot ensure that we will ever be able to achieve profitable operations.

26

BIOPURE CORPORATION

Part II – Other Information
January 31, 2004
(continued)

If We Are Not Able to Protect Our Intellectual Property, Competition Could Force Us to Lower Our Prices, which Might Reduce Profitability

     We believe that our patents, trademarks and other intellectual property rights, including our proprietary know-how, will be important to our success. Our business position will depend, in part, upon our ability to defend our existing patents against infringement by third parties. We will need to obtain additional patents for our products, the processes utilized to make our products and our product uses. We cannot guarantee that our existing patents will protect us adequately from competition from similar products or that additional products or processes will achieve patent protection. In addition, third parties may successfully challenge our patents. We have not filed patent applications in every country. In certain countries, obtaining patents for our products, processes and uses may be difficult or impossible. Patents issued in regions other than the United States and Europe may be harder to enforce than, and may not provide the same protection as, patents obtained in the United States and Europe.

Failure to Avoid Infringement of Others’ Intellectual Property Rights Could Impair Our Ability to Manufacture and Market Our Products

     We cannot guarantee that our products and manufacturing process will be free of claims by third parties alleging that we have infringed their patents. Any such claim could be expensive and time-consuming to defend, and an adverse litigation result or a settlement of litigation could require us either to obtain a license from the complaining party or to change our manufacturing process. Either result could be expensive or result in a protracted plant shutdown, in turn adversely affecting our ability to make a profit.

     A third party could also allege that our products are used in a manner that violates a use patent. Such a claim, if valid, would also be expensive to defend, and either an adverse litigation result or a settlement could limit or preclude us from marketing our product for the patented use and, in turn, adversely affect our sales revenues.

Our Profitability Will Be Affected If We Incur Product Liability Claims in Excess of Our Insurance Coverage

     The testing and marketing of medical products, even after FDA approval, have an inherent risk of product liability. We maintain limited product liability insurance coverage in the total amount of $20,000,000. However, our profitability will be adversely affected by a successful product liability claim in excess of our insurance coverage. We cannot guarantee that product liability insurance will be available in the future or be available on reasonable terms.

Replacing Our Sole Source Suppliers for Key Materials Could Result in Unexpected Delays and Expenses

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

     We obtain bovine hemoglobin from one abattoir and from herds that are located in two states of the United States. We cannot predict the future effect, if any, on us of the recent discovery of “mad cow” disease in the United States. Any quarantine affecting herds that supply us or a shut down of the abattoir we source from could have a material adverse effect on us, as we would have to find, validate and obtain FDA approval of new sources of supply or new facilities.

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BIOPURE CORPORATION

Part II – Other Information
January 31, 2004
(continued)

Provisions of Our Restated Certificate of Incorporation and By-Laws Could Impair or Delay Shareholders’ Ability to Replace or Remove Our Management and Could Discourage Takeover Transactions that a Stockholder Might Consider to Be in Its Best Interest

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

•

Our restated Certificate of Incorporation does not permit stockholders to take action by written consent and provides for a classified Board of Directors, and our by-laws provide that stockholders who wish to bring business before an annual meeting of shareholders or to nominate candidates for election of directors at an annual meeting of stockholders must deliver advance notice of their proposals to us before the meeting. These provisions could make it more difficult for a party to replace our board of directors by requiring two annual stockholder meetings to replace a majority of the directors, making it impossible to remove or elect directors by written consent in lieu of a meeting and making it more difficult to introduce business at meetings.

•

Our shareholder rights plan may have the effect of discouraging any person or group that wishes to acquire more than 20% of our Class A Common Stock from doing so without obtaining our agreement to redeem the rights; if our agreement to redeem the rights is not obtained, the acquiring person or group would suffer substantial dilution.

Industry Risks

Intense Competition Could Harm Our Financial Performance

     The biotechnology and pharmaceutical industries are highly competitive. There are a number of companies, universities and research organizations actively engaged in research and development of products that may be similar to or alternatives to Hemopure.

     We are aware of at least two competitors that make periodic disclosures to the public; Northfield Laboratories Inc. and Hemosol Inc. are in advanced stages of developing hemoglobin-based oxygen carriers produced from expired human blood. Northfield’s product is in a Phase III clinical trial. Two privately held companies are conducting clinical trials of hemoglobin-based oxygen carriers in Europe. The products being developed by these companies are intended for use in humans and as such could compete, if approved by regulatory authorities, with Hemopure.

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

•

are conducting clinical trials of their products;

•

might have or be able to access substantially greater resources than we have and be better equipped to develop, manufacture and market their products;

•

may have their products approved for marketing prior to Hemopure; and

•

may develop superior technologies or products rendering our technology and products non-competitive or obsolete.

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BIOPURE CORPORATION

Part II – Other Information
January 31, 2004
(continued)

Stringent, Ongoing Government Regulation and Inspection of Our Products Could Lead to Delays in the Manufacture, Marketing and Sale of Our Products

     The FDA continues to review products even after they receive FDA approval. If and when the FDA approves Hemopure, its manufacture and marketing will be subject to ongoing regulation, including compliance with current good manufacturing practices, adverse event reporting requirements and the FDA’s general prohibitions against promoting products for unapproved or “off-label” uses. We are also subject to inspection and market surveillance by the FDA for compliance with these and other requirements. Any enforcement action resulting from failure, even by inadvertence, to comply with these requirements could affect the manufacture and marketing of Hemopure. In addition, the FDA could withdraw a previously approved product from the market upon receipt of newly discovered information. Furthermore, the FDA could require us to conduct additional, and potentially expensive, studies in areas outside our approved indications.

     We will be subject to a variety of regulations governing clinical trials and sales of our products outside the United States. Whether or not FDA approval has been obtained, we must secure approval of a product by the comparable non-U.S. regulatory authorities prior to the commencement of marketing of the product in a country. The approval process varies from country to country and the time needed to secure additional approvals may be longer than that required for FDA approval. These applications may require the completion of additional preclinical and clinical studies and disclosure of information relating to manufacturing and controls. Unanticipated changes in existing regulations or the adoption of new regulations could affect the manufacture and marketing of our products.

Health Care Reform and Controls on Health Care Spending May Limit the Price We Can Charge for Hemopure and the Amount We Can Sell

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

Uncertainty of Third-Party Reimbursement Could Affect Our Profitability

     Sales of medical products largely depend on the reimbursement of patients’ medical expenses by governmental health care programs and private health insurers. There is no guarantee that governmental health care programs or private health insurers will reimburse our sales of Hemopure, or permit us to sell our product at high enough prices to generate a profit.

Investment Risks

Potential for Dilution and Decline of the Price of Our Shares

     Our cash on hand is estimated to be sufficient to continue operations into September 2004 under our current operating plan. We will need additional funds to operate beyond this point and are assessing our ability to raise capital.

     Any additional sale of shares of our common stock are likely to have a dilutive effect on our existing stockholders. Subsequent sales of these shares in the open market could also have the effect of lowering our stock price, thereby increasing the number of shares we may need to issue in the future to raise the same dollar amount and consequently further diluting our outstanding shares. These future sales could also have an adverse effect on the market price of our shares and could result in additional dilution to the holders of our shares.

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BIOPURE CORPORATION

Part II – Other Information
January 31, 2004
(continued)

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

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

Potential for Adverse Effect of Litigation

     We received a “Wells Notice” from the Securities and Exchange Commission staff on December 22, 2003, indicating the staff’s preliminary determination to recommend that the SEC bring a civil injunctive proceeding against us. Following our announcement about those notices, a number of class action lawsuits were filed against us. We have responded to the “Wells Notice” in writing, but do not know what action, if any, the SEC staff may finally recommend. We believe the class action lawsuits are without merit, and we will defend against them vigorously. However, the uncertainty about the possible effect of these matters on our financial condition may adversely affect our stock price and our ability to raise capital through equity offerings. Two of our former officers also received Wells Notices at the same time and responded to them. Details about the SEC investigation and the class actions are contained in Note 9 to the consolidated financial statements included in this report. Another lawsuit against us, filed in June 2003 and described in Note 9 to the consolidated financial statements, could also have a material adverse effect if it results in a judgment against us or a settlement on unfavorable terms.

Shares Eligible for Future Sale May Cause the Market Price for Our Common Stock to Drop Significantly, Even If Our Business Is Doing Well

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

Our Stock Price Has Been and May Continue to Be Highly Volatile, which May Adversely Affect Holders of Our Stock and Our Ability to Raise Capital

     The trading price of our common stock has been and is likely to continue to be extremely volatile. During the period from November 1, 2001 through March 9, 2004, the trading price of our stock has ranged from a low of $1.26 per share (on February 24, 2004) to a high of $20.30 per share (on November 6, 2001). Our stock price and trading volume could be subject to wide fluctuations in response to a variety of factors, including the following:

•

FDA action or delays in FDA action on Hemopure or competitors’ products;

•

the outcome of litigation and threatened litigation referred in Item 1 of this report;

•

publicity regarding actual or potential medical results relating to products under development by us or our competitors;

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BIOPURE CORPORATION

Part II – Other Information
January 31, 2004
(continued)

•

actual or potential clinical trial results relating to products under development by us or our competitors;

•

delays in our testing and development schedules;

•

events or announcements relating to our relationships with others, including the status of potential transactions with investors, licensees and other parties;

•

announcements of technological innovations or new products by our competitors.

•

developments or disputes concerning patents or proprietary rights;

•

regulatory developments in the United States and foreign countries;

•

economic and other factors, as well as period-to-period fluctuations in our financial results; and

•

market conditions for pharmaceutical and biotechnology stocks;

     External factors may also adversely affect the market price for our common stock. Our common stock currently trades on The Nasdaq Stock Market. The price and liquidity of our common stock may be significantly affected by the overall trading activity and market factors on The Nasdaq Stock Market.

Item 6. Exhibits and Reports on Form 8-K

(a)

The exhibits are listed in the accompanying Exhibit Index.

			A report on Form 8-K was furnished on January 8, 2004, to report under Item 9 an update on the U.S. regulatory status of Hemopure.
			A report on Form 8-K was furnished on December 24, 2003, including the Company’s press release, to report under Item 9 the receipt of “Wells Notices” from the Securities and Exchange Commission.
			A report on Form 8-K was furnished on December 11, 2003, including the Company’s press release, to report under Item 12 its financial results for the year ended October 31, 2003.

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SIGNATURES

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

32

EXHIBIT INDEX

33