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"Blood is still the best possible thing to have in your veins." - Woody Allen

Don't tell that to Erna Fodor, though.

Three years ago, the 57-year-old Toronto housewife was rushed to Hamilton General Hospital with second- and third-degree burns to 35 per cent of her body after a camping accident.

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She was unconscious and near death. On religious grounds, her family refused a blood transfusion needed during surgery to remove the burned skin. Instead, they accepted treatment with an experimental blood substitute product called Hemolink to boost Ms. Fodor's dangerously low hemoglobin - a protein in blood that carries oxygen to tissues.

"From what everyone has told me, it did something to help save my life," Mrs. Fodor recalls.

Her surgeon agrees. "[Hemolink]did everything we asked in terms of a blood substitute and oxygen carrier, without any meaningful side effects," said Brian Egier, who was involved in a successful clinical trial with Hemolink in 1999.

So much for anecdotal praise.

For all intents and purposes, Hemolink flat-lined last week in a clinical breakdown that industry observers suggest will likely bring down the curtain on a $300-million research program by Toronto drug developer Hemosol Inc. to turn Hemolink into a replacement for blood transfusions during elective surgery and possibly trauma.

While safety and efficacy results of a U.S. study with cardiac bypass patients have yet to be tallied, Hemosol has acknowledged a higher incidence of heart tissue damage in patients in the Hemolink group than in the control group. But it has no idea what caused the imbalance between the two groups or whether Hemolink was responsible.

In five earlier clinical trials with a total of 475 patients, of which 275 received Hemolink, the oxygen therapeutic "demonstrated promising activity and a reasonable side-effect profile … a basis for its continued development," said interim chief executive officer Lee Hartwell.

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But investors aren't convinced.

In March, when Hemosol suspended the cardiac and another orthopedic trial because of safety concerns, its market value plunged two-thirds to $23-million from $600-million three years ago, prompting several analysts to drop coverage as the shares hovered at the company's projected breakup value.

Yesterday, U.S. institutional investors unleashed a wave of speculative buying in Hemosol's volatile stock as volume on the Toronto and Nasdaq stock exchanges soared to 12.2 million shares. The shares jumped 27 cents or 38 per cent to 98 cents on the TSX.

Asked if Hemolink is still a viable product, one investment banker, who asked to remain anonymous, said "the safety issue could be the final nail in the coffin."

Once considered one of Canada's most promising biotech companies, Hemosol's own survival now hangs in the balance. Ninety of 140 employees have been laid off, CEO John Kennedy died this month and, unless the company can sell assets or attract new investors, its final $10-million of cash will be gone by the end of the year.

"Running out of cash is even more pressing than the safety issue," said Sprott Securities Inc. analyst David Dean.

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"They can't raise money unless they have the full safety workup and they can't get the full safety workup unless they find some money," he said. "Whatever solution they find to buy time will have to be very creative."

The hunt for a safe and effective substitute for red blood cells has been elusive.

Scientists for decades have tried to formulate a viral-free oxygen carrier that doesn't need to be cross-matched and has a shelf life of at least a year, compared with 42 days for donated blood. But side effects - most notably elevated blood pressure and emergency room deaths in a late 1990s clinical trial of a blood substitute owned by Baxter International Inc. - have plagued the sector's credibility.

Hemosol has been at it since 1986 when the company licensed the initial Hemolink technology from Canada's Department of Defence, which, like the U.S. Army, had hoped to develop a battlefield replacement for fresh blood.

To make Hemolink, Hemosol separates hemoglobin from outdated blood, rendering it chemically useless and potentially toxic to the kidneys. It then undergoes extensive purification and a chemical reaction to glue hemoglobin molecules together with a so-called "cross-linker" to restore their oxygen-carrying properties.

To test it in the operating room, several units of a patient's blood are removed and replaced with Hemolink. During surgery, patients typically would receive some additional Hemolink, their own blood and then donated blood, if necessary. Hemolink measures its efficacy by the reduction in the use of donated blood.

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"What turned me off Hemosol was the [early stage]clinical trials, because in my view, there were too many side effects to be successful in the long run," said Robert Winslow, a medical consultant to Hemosol in the early 1990s, who turned down an offer to join the company.

A company spokesman said Hemolink has been "improved and modified" since the early 1990s.

Many researchers now suspect that hypertension associated with blood substitutes is caused by hemoglobin binding with nitric oxide in the blood, which constricts blood vessels. But there is another school of thought that hypertension is not entirely due to nitric oxide binding, said Harvey Klein, who runs the transfusion medicine department of the National Institutes of Health in Bethesda, Md.

"It has always concerned me that we haven't quite understood the physiology of the hypertension," he said. "Even though the effect is relatively mild, what I'm concerned about is what that means in terms of what these products are doing. In Hemosol's case, for example, there was possible evidence of cardiac toxicity."

Adds Dr. Winslow, who ran the U.S. Army's early research at the Presidio in San Francisco and now has his own blood-substitute company in San Diego: "Every cell in the body is bathed in blood and every cell needs oxygen. A blood substitute has to work or the body reacts in ways that are not fully understood."

Notwithstanding Hemosol's latest setback, things began going downhill for the Mississauga company two years ago when the U.S. Food and Drug Administration moved the goal posts for marketing approval of Hemolink.

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Among other things, the agency put the brakes on a final premarketing cardiac study that was already under way, forced the company to begin testing high-risk heart patients and raised the total number of patients needed for approval to 900 from 700. The protocol changes to the clinical program were so extensive that Hemosol was forced to redo two mid-stage surgical trials in the United States with cardiac and orthopedic patients before advancing to a final pivotal study.

At the same time, regulators in Canada and Britain were reviewing a marketing application from Hemosol based on final cardiac and orthopedic trials in those countries.

The trials, while confirming that Hemolink was safe, also generated efficacy results that were below expectations because patients were low-to-medium risk and didn't bleed excessively, often negating the need for transfusions in both the treatment and control groups.

Health Canada rejected Hemolink in March, 2002. The British file is still open.

Nevertheless, Hemosol used the positive Canadian and British test results as a stepping stone to raise $110-million in early 2001 to finance construction of a $90-million plant outside of Toronto to manufacture 300,000 units of Hemolink a year.

Mr. Hartwell said the financing was only possible because a manufacturing plant would assure the company became profitable soon after regulatory approval and the plant had to be built in tandem with the clinical program.

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While Sprott analyst Mr. Dean supported Hemosol's decision to build the plant, he now says Hemosol's survival is in jeopardy. "If survival hinges on selling the plant, Hemosol has to consider it."

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