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Substitute strategy

Biopure switches direction on blood product in bid to right itself

After spending 20 years and more than $450 million to develop the world's first blood substitute, Biopure Corp. is changing gears and switching the medical condition for which it is seeking approval of Hemopure.

Biopure wants to use Hemopure to help heart attack patients instead of orthopedic surgery patients. In the biotechnology world, that's as if Red Sox left fielder Manny Ramirez decided to play shortstop.

''I've been trying to convince them over the last four years to do something in this area," said Biopure's new chief executive, Zafiris G. Zafirelis, in his first interview since taking the helm on June 23. ''Now, I have the chance to get all the credit -- or the blame for it."

Executing the new medical strategy is only one of several monumental challenges for the Cambridge company in its race to develop the first blood substitute for humans. Zafirelis has to raise funds before Biopure runs out of money in about 10 weeks. He has to mend the firm's relationship with the Food and Drug Administration, which continues to raise concerns about Hemopure. He has to deal with likely charges from the Securities and Exchange Commission that the company and several of its former executives misled investors.

He also has to calm concerns that the discovery of mad cow disease in US herds might somehow compromise Hemopure's safety; Hemopure is derived from cow's blood. And he has to convince shareholders that the switch to cardiology isn't a desperate move that will lead to another series of disappointments.

''I would not have joined Biopure if I thought it would be a failure," said the returning Zafirelis, 59. He had left the company in 1992 to become chief executive of another biotech firm.

The strategic change underscores the risks for companies developing advanced medical treatments. Biotechnology companies typically incur years of losses before they win approval for a product that generates revenues. Biopure, founded in 1984, is an extreme example. Its only revenue-generating product is a veterinary version of Hemopure to treat anemia in dogs, of which $4 million was sold in fiscal 2003.

''Clinically oriented companies consume a lot of money in a hurry," said Mark Edwards, managing director of Recombinant Capital, a Walnut Creek, Calif., firm that compiles information about biotechnology deals.

Biotechnology firms that have gone public in the past year have spent an average of $100 million since inception, he said, a fraction of what Biopure has spent. Biopure first sold shares to the public in 1999. The stock reached a record $49.37 in March 2000. It has traded below $1 since May.

Biopure's tailspin has been one of the great disappointments of the Massachusetts biotechnology industry. In 2002, the company stood on the verge of solving one of medicine's pervasive problems: providing a substitute for donated blood.

Biopure's solution involved isolating hemoglobin -- the chemical that binds with oxygen -- from cow's blood. Hemopure showed many benefits compared to real blood: a three-year shelf life, ability to be used by patients of any blood type, and freedom from diseases and pathogens that could be transmitted by human blood.

Cofounder and then-chief executive Carl W. Rausch promoted the company's FDA application, impending construction of a large-scale manufacturing plant in South Carolina, and the start of Hemopure sales in South Africa, where the blood substitute had been approved.

But a year later, the FDA application remained unfiled, ground hadn't been broken for the South Carolina plant, and the company hadn't yet sold a single unit of Hemopure in South Africa, citing disputes with its distributor and the challenges of training doctors to use the novel material.

Biopure's problems worsened last fall. The company told investors a letter from the FDA indicated Hemopure was one step closer to approval, and its shares soared. But the company later disclosed the agency had 30 pages of questions about the application to use Hemopure to treat anemia in orthopedic patients, such as those undergoing hip-replacement operations.

Then, in December, the SEC weighed in, saying it would likely charge the company with civil violations. Biopure has said the possible charges were related to its failure to tell investors the FDA had blocked planned trials for another potential application of Hemopure, treating trauma patients.

Zafirelis acknowledged that Biopure had gotten itself in trouble with its communications to investors. ''The situation the company finds itself in is a result of saying too much or too little," he said.

But he is convinced Hemopure can help cardiac patients, a belief that developed when he was running two cardiac device companies, MedQuest Products Inc. of Salt Lake City, and CardiacAssist Inc. of Pittsburgh.

When he rejoined Biopure, Zafirelis recruited a panel of prominent cardiologists to advise the company on its new strategy. ''These doctors have seen the results we have with Hemopure and they believe this product has a place in the treatment with ischemia," he said, referring to a shortage of oxygen supply to the heart muscle.

Already, the company has a trial underway in Europe in which doctors are administering Hemopure to patients undergoing angioplasty or cardiac stent implantation.

Still, one of the doctors on Biopure's new panel said new animal trials might be necessary before the company can proceed with human trials in the United States.

''There would have to be some animal data that was compelling that the FDA could say looks good and the product is ready for a phase 1 trial," said Dr. Howard A. Cohen, professor of medicine at the Cardiovascular Institute at the University of Pittsburgh Medical Center.

Despite the focus on heart attack patients and other cardiac patients, Zafirelis said there's still hope Hemopure might be approved for orthopedic surgery patients. He said the company will answer FDA questions and that the effort to win approval is ''not dead." But he acknowledged that winning approval for cardiac conditions is ultimately ''a much better proposition for the company."

Since October, Biopure has reduced its payroll to 70 employees from 250. Despite a series of private placements of its shares, Biopure said it will need an additional $7.5 million to operate from September through the end of the year.

But the drop in Biopure's share price has made financing more difficult. If Biopure were to raise funds through a private placement of shares, it would have to issue many more shares, diluting the value of stock held by existing shareholders.

Zafirelis said he was confident the firm would secure additional financing.

''We have a number of options," he said. ''Ultimately, it's about the cost of money." As to the impact of the financing on existing shareholders, he said: ''I will do my utmost to minimize any dilution. The shareholders have suffered enough."

Jeffrey Krasner can be reached at krasner@globe.com, Ross Kerber at kerber@globe.com. 

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