Watch List for Tuesday 2-1-2005
Here's another company to keep your eye on, I don't believe it will stay at current prices very long.
There's one thing we can all agree on, that's home building is up. New neighborhoods are popping up like weeds. Turn on the TV and you see shows like Extreme Home Makeovers, and Trading Spaces. Americans love their homes and the gadgets that go into them.
LRCJ is a home entertainment and technology solutions provider that offers builders and homeowners a single source for their audio/video, home theater, security, computer and home automation needs. Through its company- own stores, LRCJ subsidiaries work directly with builders and homeowners, to design and install home technology solutions that fit the homeowner's lifestyle and budget.
Homes are advancing, and LRCJ is positioned to benefit from this growth. Home audio/video, security systems are now standard on new homes. LRCJ has completed its first acquisition, Syslync of Georgia (Georgia). The company plans to acquire 3 more locations in the next 4 months Georgia currently has annualized revenues of $500K and is expected to double its monthly revenue in the next 6 months. The three next acquisitions will add an additional $2.5 million in revenue.
TECHNICALS
LRCJ has only been trading since Nov, which makes it a candidate for high growth. A few weeks ago LRCJ had a run to the .20 level which is double it's current price. What this means and the investors who bought at that price will have to hold and wait until the price comes back. Volume is slowly picking back up.
RECENT NEWS
Lauraan Corporation Announces High-End Home Technology Partnership With Integrated Media PR Newswire (Fri, Jan 28)
Lauraan Corporation Announces High-End Home Technology Partnership With Integrated Media PR Newswire (Fri, Jan 21)
Lauraan Corporation Announces New Servicing and Builder Agreements PR Newswire (Fri, Jan 14)
Lauraan Corporation Announces Signing of Letter of Intent to Acquire Syslync of Texas PR Newswire (Thu, Dec 2)
Watch List for Tuesday 1-25-2005
I've been doing some research and have 2 companies I believe will do extremely well in the near term and throughout 2005: EMTK and MMFS.
The first one is EMTK. EMTK is a cell phone content provider. The simple fact is that just about everyone owns a cell phone, even most kids. As cell phones continue to advance everyday, they are becoming mini entertainment centers. Today many phones can play videos, take pictures and play mp3s. EMTK recently signed a deal with Motorola, read the news below.
EMTK provides unique applications that allows users to play video on their phones, this is truly the wave of the future and we are at ground zero with it. One of their owned websites
http://www.movefun.com has over 2000 MTV videos for download to the phone. EMTK provides applications in the entertainment, education, security, and chat areas. Check out all their services and products at
http://www.chltec.com/product.htm
EMTK's target audience is the Chinese market, which has over 1 billion people. As we all know, the Chinese cell phone market is far more advanced than of any other country, and is the largest in the world. China currently has about 320 million cell phone users, less than a third of their population. As you can see the market potential is outrageously big.
EMTK's stock had a huge run just a few weeks ago, and has retraced. I believe at the current low price, it will be an easy double in the near future, take a look at the chart here.
http://finance.yahoo.com/q/bc?s=EMTK.PK&t=3m&l=on&z=m&q=l&c=
Recent News:
E Mobile's CHL Signs Marketing and Distribution Agreement with YuLong Computer and Telecom, Inc, One of the Top 500 Fastest Growing Companies in Asia Business Wire (Mon 4:01pm)
E Mobile Continues Expansion of Its Content Portfolio Signing Hong Kong WenWei Publisher Business Wire (Tue, Jan 18)
Motorola Signs Technology Agreement with E Mobile's CHL Business Wire (Tue, Jan 11)
*********
The second company I believe will do well is MMFS, is a mortgage broker with offices in NY and FL, and making efforts to obtain licenses in every state by the end of 2005. There is one thing we can all agree on, that is the housing market has exploded over the last 3 years. Interest rates are still low and the loan business is still going strong. MMFS expects revenues to exceed $75 million for 2004, up from $42 million. Housing industry experts confidently look to the housing market to remain strong for years to come.
The director of MMFS will be featured on the Business Talk Radio Network twice this week, which has appox. 2.5 million listeners a day with 150 plus affiliates. You can listen to the show online at
http://www.americansceneradio.com With this many people listening to the show, I believe the stock price won't remain the same for long.
MMFS is in the process of acquiring Integrity Research, Inc. Integerity is an authorized Title Agent for Chicago Title Insurance Company. This acquisition is going to add to their bottom line and revenue stream.
The number of outstanding shares on MMFS is extremely low, which means this stock can really move. MMFS's stock price has come down quite a bit in the last month, which makes it a great turn around play.
Recent News:
MEM Financial Solutions, Inc. Announces Daniel J. Duffy to Air on the Steve Crowley's American Scene Show Business Wire (Mon 1:05pm)
MEM Financial Solutions, Inc. Updates Shareholders on Pending Acquisition of Integrity Research, Inc. Business Wire (Tue, Jan 18)
MEM Financial Solutions Announces Mr. Michael A. Angelo as its New Vice President. Business Wire (Mon, Dec 20
TMTA.
Transmeta's Fanless Digital Entertainment Center Initiative Gains Support from Microsoft SANTA CLARA, Calif. & LAS VEGAS--(BUSINESS WIRE)--Jan. 6, 2005--
Efficeon Powered Designs Optimized for Use with Microsoft Windows
XP Media Center Edition 2005
Transmeta Corporation (NASDAQ:
TMTA), the leader in efficient computing, today announced that its new fanless Digital Entertainment Center Initiative, including several new designs that take advantage of the high-performance and low heat characteristics of the Transmeta Efficeon(TM) processor, has gained Microsoft Corp.'s support and is suitable for use with Windows XP Media Center Edition 2005.
These new Digital Entertainment Center designs, powered by the Efficeon processor, are cost effective solutions with full support for Microsoft Windows XP Media Center Edition 2005. Consumers can be assured that the Efficeon processor meets or exceeds the performance requirements necessary for running Media Center Edition 2005. These new designs include recording and playback features and have the ability to manipulate multiple video and/or audio tracks simultaneously without losing valuable data or information.
"Transmeta's new designs enable the creation of ultra-quiet Media Center PCs," said Bill Mannion, Director of Windows XP Consumer Marketing at Microsoft. "This will hasten the adoption of the PC as the center of the home entertainment system, providing video and audio content on demand for use throughout the home."
"Transmeta is very excited to have Microsoft's support for our new Digital Entertainment Center Initiative, as we feel that Microsoft's involvement was a very important step in making this new initiative a success" said Arthur L. Swift, senior vice president of marketing at Transmeta. "Transmeta has been working in conjunction with Microsoft to ensure that the Efficeon processor takes full advantage of the new advances available in Windows XP Media Center Edition 2005."
Transmeta will be demonstrating several new Digital Entertainment Center designs with support from a wide variety of vendors at the CES Conference on January 6-9, 2004 at the Las Vegas Convention Center, Booth 36235 South Hall 4.
About Transmeta Corporation
Founded in 1995, Transmeta Corporation designs, develops and sells highly efficient x86-compatible software-based microprocessors that deliver a compelling balance of low power consumption, high performance, low cost and small size. Our products are valuable for diverse computing platforms demanding energy efficiency, low heat and x86 software compatibility. We also develop advanced power management technologies for controlling leakage and increasing power efficiency in semiconductor and computing devices. To learn more about Transmeta, visit www.transmeta.com.
Safe Harbor Statement
This release contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements speak only as of the date of this release, and we will not necessarily provide updates of our projections or other forward-looking statements. Investors are cautioned that such forward-looking statements are subject to many risks and uncertainties, and may differ materially or adversely from our actual results or future events. Important risk factors that could have material or adverse effects on our results include general economic and political conditions and specific conditions and volatility in the markets that we address, the rescheduling or cancellation of significant customer orders, market acceptance and adoption of our new products by our present and future customers and end users, difficulties in developing or manufacturing new and existing products in a timely and cost effective manner, our dependence on third parties for sourcing materials and providing manufacturing services, intense competition and competitive pressures, the ability to enter strategic collaborations or raise financing on satisfactory terms, the risks and costs inherent in any efforts that we may undertake under a modified business model, our ability to recognize significant licensing revenue in the future, patents and other intellectual property rights, and other risk factors. We urge investors to review our filings with the Securities and Exchange Commission, including our most recent reports on Forms 10-K, 10-Q and 8-K, which reports describe these and other important risk factors that could have an adverse effect on our results. We undertake no obligation to revise or update publicly any forward-looking statement for any reason.
Transmeta, Efficeon, AntiVirusNX, LongRun, LongRun2, Code Morphing and Crusoe are trademarks of Transmeta Corporation. All other product or service names mentioned herein are the trademarks of their respective owners.
Watchtower Approves HemoPure for Jehova
Watchtower Approves HemoPure for Jehovah's Witnesses Jehovah's Witnesses have long been known for their rejection of blood and blood-component transfusion, even when it is necessary to save life. In a remarkable change in policy, the Witnesses’ governing body announced in the June 15, 2000 issue of its official church publication The Watchtower, that members may now accept "fractions of any of the primary components" of blood. (Italics added) Previously, Witnesses who accepted a transfusion of blood fractions other than those found in plasma faced possible expulsion and enforced shunning by church members. This change in policy was particularly timely for one man. According to a September 24, 2000 article in the Sacramento Bee, a patient was recently transfused with Hemopure®, a highly purified oxygen-carrying hemoglobin solution made from fractionated bovine (cow) blood and manufactured by Biopure Corporation. To read the complete story, follow this link. Dorsey Griffith, a medical writer for the Bee, states that Gregory Brown, a representative from the Jehovah's Witnesses Hospital Liaison Committee, approved the use of the oxygen-carrying solution that was transfused into the patient, Jose Orduño. The article notes: “When Orduño woke up from his drug-induced slumber, about a month after the ordeal began, Angelica was there …His sister told him about the accident and how he almost died, and about the drug made from cow blood that had saved his life.” That approval of the use of hemoglobin marks a notable change in the Watchtower Society’s policy is readily seen from its own published statements: “Is it wrong to sustain life by administering a transfusion of blood or plasma or red cells or others of the component parts of the blood? Yes!...The prohibition includes "any blood at all." (Leviticus 3:17) - Blood, Medicine and the Law of God, 1961, pp. 13, 14
Biopure.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Forward Looking Statements and Risk Factors
The following discussion of our financial condition and results of operations should be read in conjunction with the Consolidated Financial Statements and the related Notes included elsewhere in this report and with the information contained elsewhere in this report under the captions "Forward Looking Statements" and "Risk Factors."
Overview
On June 23, 2004, the Company announced that its board of directors had appointed Zafiris G. Zafirelis as the new president and chief executive officer and a board member, restructured the executive management team, eliminated an additional 25 positions to further reduce costs, and decided upon a change in corporate strategy to focus on the development of Hemopure for a cardiovascular ischemia indication, while also supporting our collaborative research and development agreement with the U.S. Naval Medical Research Center for a potential trauma indication. To facilitate this transition, Zafirelis has formed an interim operating team that includes several experienced senior advisors and has established a Medical Advisory Board of seven doctors with specialties in cardiovascular research, interventional cardiology and cardiac care.
As described in Note 14 to the financial statements, the Company has received approximately $20.9 million, after expenses, from the sale of common stock and warrants since the end of fiscal 2004. We have also received $2.7 million from the exercise of warrants by investors. We believe that these funds, together with the Company's cash on hand at October 31, 2004, will be sufficient to fund operations through January 2006.
Significant additional capital will be required to fund our operations until such time, if ever, that the Company becomes profitable. We intend to seek additional capital through public or private sales of equity securities and, if appropriate, consider corporate collaborations for sharing development and commercialization costs. We also plan to continue to aggressively manage expenses. Since September 2003, we have reduced our workforce by more than two-thirds, from 246 employees at September 30, 2003 to 69 employees at October 31, 2004, and have significantly decreased marketing and manufacturing-related expenditures and deferred capital expenditures.
We expect that our activities and expenditures for fiscal 2005 will be associated primarily with developing Hemopure for a cardiovascular disease indication and for a trauma indication, replying to the FDA's safety and other questions posed by the FDA arising out of our previously submitted BLA to market Hemopure in the United States for an orthopedic surgery indication and working to stabilize and enhance our financial position by raising additional capital, explained above.
In June 2004, we received notice from the Nasdaq National Market (Nasdaq NM) that the daily minimum bid price of our Class A common stock fell, and remained, below $1.00 for 30 consecutive business days. As a result, we are out of compliance with the $1.00 minimum bid price for continued inclusion of our
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Class A common stock in the Nasdaq NM. On December 16, 2004 we received a notice from the Nasdaq NM providing the Company an additional 180 calendar days (until June 13, 2005) to regain compliance with the daily minimum bid price requirement for continued listing. To regain compliance, the bid price of our common stock must close at $1.00 per share or more for a minimum of 10 consecutive business days. If we do not regain compliance by June 13, 2005, we will be delisted unless we request a hearing.
A number of factors pose uncertainties in estimating the amount of funds we may need to sustain operations, including:
• The process of obtaining FDA marketing approval of Hemopure has risks of delays that make the ultimate development cost unpredictable. We are hopeful that we can respond to all issues the FDA has raised to date regarding our previously filed BLA for Hemopure for an orthopedic surgery indication, but since it is likely that we will need to conduct one or more additional human clinical trials, including a Phase 3 trial, before the FDA will consider approving Hemopure for any indication, we are evaluating all of our clinical and regulatory options. To that end, we are in the early stages of clinical development of Hemopure for indications in both trauma and cardiology. In Europe, a 45-patient Phase 2 clinical trial, assessing the safety of Hemopure in patients undergoing coronary angioplasty, has reached 69 percent enrollment. In South Africa, a 50-patient Phase 2 clinical trial, assessing the safety and tolerability of Hemopure in a hospital setting for emergency treatment of unstable patients who have significant blood loss as a result of blunt or penetrating trauma, has enrolled 10 patients.
• Although Hemopure is already approved for commercial sale in South Africa for the treatment of acutely anemic surgery patients, the product has not yet been offered for sale in South Africa. Since we obtained marketing approval for Hemopure in South Africa clinicians have treated more than 330 patients in South Africa with Hemopure units that we 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. We do not know when our first sales of Hemopure might occur in South Africa.
• As described in Note 13 to the financial statements, Biopure is a defendant in litigation, the outcomes of which are unknown. It is also the subject of an investigation by the Securities and Exchange Commission and has received a "Wells Notice" from the Commission staff. The outcomes and financial effects of these matters cannot be determined at this time, nor can any adverse effect they may have on the price of our common stock and our ability to raise capital from sales of equity or otherwise.
Critical Accounting Policies
The Company's significant accounting policies are described in the Notes to the accompanying consolidated financial statements. The application of our critical accounting policies is particularly important to the portrayal of the Company's financial position and results of operations. These critical accounting policies require the Company to make subjective judgments in determining estimates about the effect of matters that are inherently uncertain. The following critical accounting policies meet these characteristics and 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 and are reviewed periodically to identify expired units and units with a remaining life too short to be commercially viable based on projected and historical sales activity. Inventories are also subject to quality compliance investigations. Reserves are established for inventory that falls into these categories. The inventory of Hemopure finished goods represents those units the Company expects to sell in South Africa or to be used in pre-clinical and clinical studies, conducted by or on behalf of the United States Naval Medical Research Center (NMRC),
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for which we will be reimbursed. If the Company experiences future delays in sales in South Africa or in the use of Hemopure by the NMRC, we may have to reserve for additional units in the future.
Long-Lived Assets
SFAS 144 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Our investments in property and equipment, such as construction in progress and new facility construction; real property license rights related to the source, supply and initial processing of our major raw material; and the asset related to the expenditures for a planned manufacturing facility in South Carolina are the principal long-lived assets that could be subject to such a review.
Pursuant to SFAS 144, during the fourth quarter of fiscal 2004 we assessed our long-lived assets for potential impairment, with a particular emphasis on the asset related to a planned South Carolina manufacturing facility. As part of the review, we considered our 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 plan to ultimately build a new facility in South Carolina. Based upon this analysis, we determined that, while the delays in obtaining financing for this facility, delays in obtaining FDA approval for Hemopure and a change in our clinical focus are significant and therefore indicators of potential impairment, the sales resulting from an approval of Hemopure in a cardiac indication, if obtained, would, in our view, ultimately exceed our current manufacturing capability. Based upon FAS 144, using an estimated undiscounted cash flow of the proposed facility, we believe that, if we obtain FDA approval of Hemopure for a cardiac ischemia indication, our plan for the South Carolina manufacturing facility would still be viable, we should be able to finance the proposed facility in the future on commercially reasonable terms and we should be able to generate sufficient positive future cash flows to recover our investment in the facility. Therefore, we have determined that no impairment exists at October 31, 2004. However, should there be a change in circumstances with respect to the South Carolina manufacturing facility or other long-lived assets, such changes may result in our recording significant impairment charges in the future.
Revenue Recognition
The Company recognizes revenue from sales of Oxyglobin upon shipment, provided that there is evidence of a final arrangement, there are no uncertainties surrounding acceptance, collectibility is probable and the price is fixed. The Company sells Oxyglobin directly to veterinarians in the United States. The Company sells Oxyglobin to a distributor in the United Kingdom that sells the product in selected European countries through local veterinary distributors in Germany, France and the 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 monitors creditworthiness on a regular basis and believes collectibility of product revenues is reasonably assured at the time of sale. The Company recognizes revenue from the U.S. military upon invoicing for reimbursable expenses incurred in connection with developing Hemopure for a trauma indication. Amounts received for future inventory purchases, recorded as deferred revenue, will be recognized upon shipment. Although Hemopure is approved for commercial sale in South Africa for the treatment of acutely anemic surgery patients, the product has not yet been offered for sale. Until substantial transactions have occurred and circumstances of distribution, storage and dispensing at medical facilities are experienced, revenues from Hemopure that is sold for clinical use in South Africa or for use in third party sponsored clinical trials will not be recognized until the units are actually used.
Research and Development
Since its founding in 1984, Biopure has been primarily a research and development company focused on developing and obtaining U.S. regulatory approval of Hemopure, our oxygen therapeutic under development for human use. Our research and development expenses have been for basic research, product development,
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process development, pre-clinical studies, clinical trials and filing with the FDA a Hemopure BLA for an orthopedic surgery indication. 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 compared 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 FDA 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 to manufacture product for research and development activities will be expensed. In addition, we have fully reserved for any clinical trial material units planned for use in Company-sponsored projects.
Results of Operations
As the Company generates net losses, the key indicators of the losses are cost of revenues, research and development and other expenses consisting of sales and marketing and general and administrative. Inflation
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and changing prices have not had a significant impact on the Company's revenues or loss from operations in the three years ended October 31, 2004. For fiscal 2004, 2003 and 2002, these items were as follows:
2004 2003 2002
------------------------------- ------------------------------- -------------------------------
Percent Percent Percent
Amount of Total Costs Amount of Total Costs Amount of Total Costs
-------- ----------------- -------- ----------------- -------- -----------------
Revenues
Oxyglobin $ 2,376 - $ 4,019 - 1,989 -
Other 1,374 - - - - -
-------- ----------------- -------- ----------------- -------- -----------------
3,750 4,019 1,989
Cost of Revenues
Oxyglobin 4,327 9 % 6,898 14 % 3,044 6 %
Hemopure 14,449 32 % 14,007 27 % 4,447 9 %
-------- ----------------- -------- ----------------- -------- -----------------
Total Cost of Revenues 18,776 41 % 20,905 41 % 7,491 15 %
Research and Development 9,746 21 % 10,504 20 % 25,982 54 %
Sales and Marketing
Oxyglobin 806 2 % 2,652 5 % 1,936 4 %
Hemopure 1,447 3 % 3,795 8 % 1,002 2 %
-------- ----------------- -------- ----------------- -------- -----------------
Total Sales and Marketing 2,253 5 % 6,447 13 % 2,938 6 %
General and Administrative 14,807 33 % 13,475 26 % 12,235 25 %
-------- ----------------- -------- ----------------- -------- -----------------
Total Costs $ 45,582 100 % $ 51,331 100 % $ 48,646 100 %
Fiscal Years Ended October 31, 2004 and 2003
The Company's revenues consisted of sales of Oxyglobin and funds received from the U.S. Army, explained below. To reduce losses, Biopure enacted workforce and other cost reductions in October 2003 and in April and June 2004, significantly reduced sales, marketing and manufacturing expenditures, and is limiting Oxyglobin sales. As a result, the company expects substantially lower Oxyglobin sales for the foreseeable future than it had in fiscal 2003.
During fiscal 2004, Biopure received $2.54 million from past congressional appropriations administered by the U.S. Army to reimburse the company for certain trauma development expenses and to prepay for initial Hemopure units to be used in the NMRC's planned "RESUS" Phase 2/3 clinical trial in trauma patients with severe hemorrhagic shock (acute blood loss) in the out-of-hospital setting.(3) Of these funds, $1.36 million has been recorded as revenue in connection with research and development activities supporting the trauma program. The remaining $1.18 million has been recorded as deferred revenue and will be recorded as revenue as the Hemopure units are used in the clinical trial in trauma patients.
Cost of revenues includes costs of both Oxyglobin and Hemopure, the company's product for human use, although Hemopure was not offered for sale during fiscal 2003 or 2204. In May 2002, the Company started manufacturing Hemopure for future sale and therefore began charging unabsorbed fixed manufacturing costs to cost of revenues or to inventory (Hemopure) rather than to research and development.
Hemopure cost of revenues, consisting of the allocation of unabsorbed fixed manufacturing costs, increased in fiscal 2004 compared to fiscal 2003 primarily due to a $2,200,000 write-down of inventory. Because of uncertainties surrounding the start date of potential Hemopure sales in South Africa, in the fourth quarter Biopure reduced its sales forecast, increased its inventory reserve by $2,200,000 and charged this expense to cost of revenues. Excluding this inventory write-down, Hemopure cost of revenues decreased
(3) $5,102,900 is from Grant DAMD17-02-1-0697. The U.S. Army Medical Research Acquisition Activity, 820 Chandler Street, Fort Detrick MD 21702-5014, is the awarding and
administering acquisition office.
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$1,800,000 for the fiscal year compared to last year, primarily because of the workforce and other cost reductions.
Oxyglobin cost of revenues decreased primarily due to the decreased number of Oxyglobin units sold in fiscal 2004 as compared to fiscal 2003. Due to extensive fixed manufacturing costs, Biopure expects that costs to produce Oxyglobin together with selling costs will exceed Oxyglobin revenues until the company is able to significantly increase its manufacturing operations by generating substantial sales of Hemopure®, its product under development for human use.
Research and development expenses include engineering, pre-clinical studies, clinical trials, clinical trial materials and, through May 2002, an allocation of unabsorbed fixed costs of manufacturing. In the three years ended October 31, 2004, our research and development expenses have continued to be primarily for our one major project-the final phases of Hemopure development for use in patients undergoing surgery. A breakdown of our research and development expenses by major activity is as follows:
2004 2003 2002
-------- ---------- ---------
Phase 3 Orthopedic Surgery Trial $ - $ - $ 2,497
Pilot Manufacturing Plant Costs Included in Research
and Development - - 8,504
BLA Preparation and Support of Review Process 7,937 9,482 14,538
Cardiac Program 997 240 -
Trauma Program 681 226 -
Trauma Trial (South Africa) 130 - -
Other Projects 1 556 443
-------- ---------- ---------
Total $ 9,746 $ 10,504 $ 25,892
-------- ---------- ---------
Surgery/BLA Project
The completed Phase 3 Hemopure orthopedic surgery trial cost approximately $37,000,000 over the four years from protocol development to the final report on July 26, 2002. These trial costs include costs incurred at 46 hospitals, trial site monitoring, data management, regulatory consulting, statistical analysis, medical writing and clinical materials and supplies, as well as Company personnel engaged in these activities. Costs incurred in submitting the Hemopure BLA for an orthopedic surgery indication include Company personnel and payments to third parties for manufacturing process documentation, medical consultants, regulatory consultants, integrating the safety and efficacy databases for all clinical trials and pre-clinical studies. Research and development expenses continue to include amounts for support of the BLA review process, including responding to FDA inquiries. The FDA letter of July 30, 2003 consisted of questions and requests for extensive additional information. In addition, during a meeting with the FDA on January 6, 2004 regarding the BLA, the FDA said that it would also require the results of three animal preclinical studies previously requested for the trauma program to be submitted for its review of the BLA and to allow the Company to conduct any additional human clinical trials in the United States. The Company has submitted to the FDA the final report on one of the studies. The other two studies have been completed, and the final reports are being compiled by the study investigators. As described above, our primary strategic focus is now the development of Hemopure for cardiac disease and trauma indications. We cannot predict whether we ever will realize material cash inflows from a surgery indication.
Cardiovascular and Trauma Projects
Both the cardiovascular and the trauma projects are in early stages (i.e., safety clinical trials and preclinical animal studies). Total cardiovascular expenditures of $1.2 million as of October 31, 2004, consist of the costs of preparing and carrying out the ongoing Phase 2 clinical trial in Europe. Total trauma expenditures of $1.0 million as of October 31, 2004, consist of preparation costs primarily associated with protocol and study design. The costs of any additional clinical trials and preclinical studies that might be necessary cannot be
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estimated at the present time. If additional trials or preclinical studies are required, it cannot yet be determined when they will be completed, if at all. The risks and uncertainties associated with the early stage of planning and execution of these projects include, among other things, uncertainties about results that at any time could require us to abandon or greatly modify either project. Accordingly, we cannot estimate the period in which material net cash inflows for either of these two projects might commence, and we do not expect to obtain marketing approval earlier than 2007.
The decrease in research and development in fiscal 2004 as compared to fiscal 2003 was primarily due to lower salary, consulting and BLA related expenses. The decreases are partially offset by other increases in clinical and regulatory expenses, including preclinical animal studies, an ongoing Phase 2 clinical trial in Europe in coronary angioplasty patients, and activities associated with the development of a potential trauma indication. Most of the $1.36 million Army reimbursement recorded as revenue in the fourth fiscal quarter, as explained above, related to research and development activities performed and related expenses incurred during fiscal 2004, including the preclinical studies requested by the FDA in order for the Company to conduct additional human clinical trials. The Company expects research and development expenses to be similar in fiscal 2005 as we continue developing the cardiovascular and trauma indications for Hemopure.
Hemopure and Oxyglobin related sales and marketing expenses decreased in 2004 compared to 2003 primarily due to the reduction of staff and activities consistent with the Company's cost-cutting measures. Past Hemopure marketing activities were primarily related to market research and medical education activities. The Company expects Hemopure and Oxyglobin sales and marketing expenses to be significantly lower in fiscal 2005 than in fiscal 2004.
General and administrative expenses were $14.8 million in fiscal 2004 compared to $13.5 million in fiscal 2003. The increase in fiscal 2004 was mostly due to a $1.1 million increase in legal expenses, mostly associated with an investigation by the SEC and class action litigation, and a $407,000 increase in non-cash financing fees over fiscal 2003. The increases were partially offset by . . .
Biopure. NEW, IMPROVED BLOOD?
Thanks to an unprecedented number of blood donations across America in the wake of the World Trade Center and Pentagon attacks, U.S. blood reserves are in excellent shape--for now. But a blood shortage is still a real possibility as the military prepares for battles on foreign shores. Because donated blood must be kept refrigerated and goes bad after 42 days, it may not be available where it's most needed. ``Blood isn't something you can easily get to where the [military] action is,'' says Dr. Jeffrey D. Kerby, a laboratory director at Wilford Hall Medical Center at Lackland Air Force Base in Texas.
For the past two decades, the quest to develop a blood substitute has been pursued by tiny biotech startups and Big Pharma alike. Finally, potential winners are breaking out of the pack. On Aug. 28, Northfield Laboratories Inc. in Evanston, Ill., became the first company to file for Food & Drug Administration approval. Its product, PolyHeme, is derived from human blood. A second company, Biopure Corp. in Cambridge, Mass., said it will file for approval of Hemopure, derived from cow's blood, by the end of the year. And Alliance Pharmaceutical Corp. in San Diego is in the late stages of testing a chemical blood substitute, Oxygent. These products, though different in makeup, have similar crucial attributes: They are compatible with any blood type and stay fresh for a year or more.
The technological effort that went into these products cannot be underestimated. Scientists have found it extremely hard to replicate the ability of red blood cells to ferry life-giving oxygen through the body. Some early blood substitutes worked in animals but proved toxic in humans. Even the blood substitutes being readied now are not meant to permanently replace the real thing. Artificial blood circulates only for a matter of hours, sustaining patients until they can replenish their own blood or get access to donated supplies.
TOUGH SELL. Still, artificial blood could save thousands of lives each year--provided it reaches the market. The three leading U.S. players are tiny, unprofitable, and need millions of dollars to ramp up production. Plus, the FDA is sure to be a tough critic. ``This is not similar to any other product we've ever dealt with,'' says Dr. Abdu I. Alayash, who heads the FDA's program for blood research. ``It's going to take a great deal of time and effort to understand.''
Of the three contenders, Northfield is in the lead and is so sure that PolyHeme will pass muster with the FDA that it has applied for fast-track approval, which would guarantee it a decision within six months. The company extracts still-potent hemoglobin from outdated blood and chemically transforms it into a purified solution compatible with all blood types. Northfield is seeking approval to stop oxygen loss in traumas until the patient can receive real blood. ``It would eliminate the time required to test for compatibility and give the doctor more time to find the source of the bleeding,'' says President Steven A. Gould.
Despite those seeming advantages, Northfield has found it tough to recruit trial participants--few patients in emergency situations care to volunteer. That leaves some experts wondering if the FDA will demand more data. ``If you have an adverse reaction in 1 in 10,000 patients, that would be a concern,'' says Dr. Harvey G. Klein, chief of the National Institutes of Health's Transfusion Medicine Div. A small trial won't address that issue.
To reduce such hurdles, Northfield rival Biopure seeks approval for its Hemopure product only for use during orthopedic surgery, a much easier setting for recruiting volunteers. Hemopure is made by extracting hemoglobin from cow blood, then chemically modifying it in a 17-step process to make it compatible with humans. But Biopure must convince the FDA and the public that Hemopure won't transmit mad cow disease. The company uses only U.S.-bred cows and insists that its rigorous manufacturing method eliminates disease-causing agents. ``We just need to get people to understand that,'' says CEO Carl W. Rausch.
If he fails, mad cow worries could take a slice out of an already limited market. Orthopedic surgery represents just 15% of the potential $12 billion market for blood substitutes, analysts say. But given that Hemopure can stay fresh for three years without refrigeration, it would be ideal for emergency settings. Biopure will keep researching such uses, but it's years away from having enough data to satisfy the FDA.
BIG LOSSES. Alliance is in a similar bind. In January, the company halted a late-stage trial of Oxygent when some patients undergoing cardiac surgery suffered strokes. Oxygent is a milky mixture of chemicals designed to carry oxygen through the body. The company says that it was the method by which the concoction was injected and not the product itself that was faulty. It also believes that preexisting conditions common to heart patients, such as obesity and diabetes, may have made the study subjects more prone to strokes. To be safe, Alliance designed a new trial that focuses only on elective, noncardiac surgery. ``This needs to be tested in controlled, measurable settings, and that's hard to do in trauma,'' says Alliance CEO Duane J. Roth. The product won't be ready for FDA review until at least 2003.
All three companies are racing against time. Northfield has lost $5.4 million so far this year, and Biopure $29.4 million. Alliance, which is $31 million in the hole, will receive an $11 million infusion from marketing partner Baxter Healthcare Corp. this year but will have to scrape up considerably more if it wants to survive beyond 2002. ``This sector has experienced spectacular failures, and that will make raising funds even more difficult,'' says CIBC World Markets analyst Steven B. Gerber. In other words, despite the hopes for substitutes, blood drives won't become a thing of the past.
