ANNUAL REPORT 2002
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CHANGING GEARS
FOR THE FUTURE
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Dear Fellow Shareholders: Shortly after I began as Biopure's CEO in mid 2002, we realized the tremendous achievement of
filing our electronic biologic license application (BLA) for Hemopure® with the U.S. Food and Drug Administration. It was
incredibly exciting to see more than 500,000 pages of clinical and preclinical data, chemistry, manufacturing and controls data,
and supporting materials make its way down to Washington, D.C. on July 31st. By my "mid-term", the FDA had accepted the
application for review—an unprecedented event for a hemoglobin-based oxygen therapeutic. We anticipate that the agency will
complete its review of our BLA by mid 2003.
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The FDA's acceptance of our U.S. marketing application marked our fourth significant regulatory achievement—the previous three
being the approvals of Oxyglobin® in the United States and the European Union for veterinary use and the approval of Hemopure
in South Africa for human use. Competitive products have not achieved any regulatory approvals. Biopure's unique accomplishment,
in what has historically been one of the most difficult areas of science and medicine, reflects the tremendous efforts of the
company's co-founder Carl Rausch and its talented and truly dedicated employees. It is an honor to work with them.
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Thomas A. Moore
President and Chief Executive Officer
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As the agency's evaluation of our BLA progresses, we at Biopure are "changing gears". We have now turned to the challenge of our
future and the commercialization of this revolutionary, first-in-class product.
Our preparations for the future traverse every part of the organization. In manufacturing, we expanded our annual production
capacity up to 75,000 Hemopure units, and installed the equipment necessary to reach a 100,000-unit capacity. While the plant
shutdown associated with this expansion resulted in a temporary reduction in Oxyglobin-related revenues in the short term, it was
essential to making Biopure a viable commercial company over the long term.
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We now have the largest validated manufacturing capacity in the world for a hemoglobin-based oxygen therapeutic.
Making our product in large quantities at the lowest possible cost is paramount to our future success. To improve
our efficiency and prepare for the construction of a 500,000-unit plant in Sumter, S.C., we've restructured managerial
responsibilities and created a new department that groups our engineering, process development and quality control
disciplines. These changes will serve us well as we evolve from research and development to a fully commercialized,
pharmaceutical manufacturing company. We've signed the Sumter lease agreement and anticipate the financial closing
will be completed by Spring 2003.
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BUSINESS STRATEGY
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Successfully launch Hemopure under an orthopedic surgery indication in the United States
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Clinically develop Hemopure for trauma, ischemia, and adjunctive cancer therapy indications
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Increase production capacity and lower production costs to reach profitability no later than fiscal 2006
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Strengthen cash position through strategic alliances and/or sales of equity and debt securities
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CHANGING GEARS
FOR THE FUTURE
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We're also working to expand Hemopure's clinical use beyond the treatment of acutely anemic surgical patients. Our first clinical
priority is to demonstrate the product's utility in stabilizing trauma patients in the emergency room and the pre-hospital, or
ambulance, setting. Our extensive preclinical work in animals and a limited sample of trauma-related surgeries in our Phase III
clinical trial database strongly support the pursuit of this indication.
In September 2002 the U.S. Department of the Army awarded Biopure a research grant to fund a Phase II trauma trial of Hemopure,
and we expect to receive further Army funding for trauma research in 2003.* We have been working with the Army, Navy
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and Air Force to field a clinical program that, withadditional support from the Department of Defense, will meet both civilian and
military needs. We expect to begin trauma trials this year in the United States and South Africa.
Finally, we're completing the U.S. marketing plan for the introduction of Hemopure under our proposed orthopedic surgery
indication. This initial U.S. market is more than adequate to absorb our projected production capacity over the next
three years, but it will not develop overnight. Hemopure represents a new treatment approach, and the introduction of
any change in surgical procedures requires a carefully executed marketing and education program.
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*Grant DAMD17-02-1-0697. The U.S. Army Medical Research Acquisition Activity, 820 Chandler Street, Fort Detrick MD 21702-5014
is the awarding and administering acquisition office.
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CHANGING GEARS
FOR THE FUTURE
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The basic need for Hemopure is clear. Many patients refuse blood transfusions on religious grounds, are alloimmunized,
or simply prefer to avoid allogeneic blood transfusions. Media coverage of emerging infectious agents and blood handling
errors will only increase this population. Meanwhile, blood-intensive medical procedures are likely to increase sharply
as the baby boomer generation ages.
In addition, according to the National Blood Data Resource Center the percentage of hospitals canceling elective surgeries
due to blood shortages increased from 7.4 percent in 1999 to 12.7 percent in 2001.
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Our plan is to introduce Hemopure into a market already receptive to blood avoidance techniques: orthopedic surgeries
are among the most sensitive to blood shortage issues, and orthopedics is a leading specialty in the practice of
allogeneic blood avoidance techniques such as autologous donation, cell salvage, and the use of erythropoietin.
Enabling confident usage of Hemopure in the orthopedic field could also lead to broader acceptance in other potential
applications: our next targeted indication is trauma, and an estimated 35 percent of orthopedic surgeons specialize
in trauma surgery.
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SOUTH AFRICA EXPERIENCE In South Africa, where Hemopure is approved for use in acutely anemic surgical patients,
we have established a wholly-owned subsidiary under the name Biopure South Africa Ltd. Commercial sales have been delayed
as we are learning how to best introduce the product to medical providers and payors. As part of this process, we've
transitioned our medical education program from group seminars to a hospital-by-hospital approach where a product
specialist team conducts in-house training.
The information we're obtaining about how doctors perceive and use Hemopure is extremely valuable in refining the
marketing model for the United States and Europe. In addition, clinical use
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of the product in South Africa in surgical patients suggests that, with additional research, we may be able to define and document
advantages in healing and recovery—key therapeutic benefits regardless of the availability or lack of availability
of allogeneic blood.
The practical experience we have gained in South Africa to date and will obtain in the future provides a unique
competitive advantage that cannot be overemphasized. In the coming year, we will start realizing product sales and
see the beginnings of an active scientific exchange program where South African doctors will share their clinical
experiences using Hemopure with the medical community worldwide.
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CHANGING GEARS
FOR THE FUTURE
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ACCELERATING OUR PROGRESS During 2002, we succeeded in our primary objective of filing our BLA for Hemopure and
gaining FDA acceptance for its review. However, in almost every other respect our plans moved more slowly than expected.
The slow pace of our progress, and investor awareness of the historical difficulties in securing regulatory approval for
an oxygen therapeutic, undoubtedly contributed to the decline in Biopure's market valuation. We do not believe the
current stock price represents the company's inherent value today, never mind its potential future value, and we are
dedicated to accelerating our progress and realizing value for all our shareholders.
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During 2003, we'll grow our organization with new faces and new structure, and we'll start building the necessary
manufacturing capacity to produce our products at prices and in quantities that will provide substantial profitability.
We'll work to establish alliances that generate significant shareholder benefit without risking our intellectual
property. We'll also begin clinically developing Hemopure for trauma applications, and we plan to start at least one
clinical trial in cancer (adjunctive use with radiation and/or chemotherapy) and/or ischemia (reduced blood circulation).
But most of all, we'll maintain our focus on becoming a fully commercialized company that successfully markets
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the world's first oxygen therapeutics for human and veterinary use in the United States and abroad.
I cannot close without addressing our independent auditors' "going concern" note in the enclosed Form 10-K. In my opinion,
we have more than adequate access to the resources needed to develop, manufacture and market our products long-term. When
the Board of Directors views the company as undervalued, we will reduce cash on hand to limit dilution and protect
shareholder value. Until we reach our projected profitability in 2006, we plan to fund operations through a combination
of sales revenues, strategic alliances and licensing agreements, as well as sales of equity and debt securities.
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On behalf of Biopure, I thank all of our shareholders for your support. I also thank my fellow employees for your
dedication in making this tremendous medical advance a commercial reality. Together we can make 2003 the company's
breakthrough year!
Sincerely,
Thomas A. Moore
President and Chief Executive Officer, Biopure Corporation
February 4, 2003
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