(FORTUNE Magazine) – For centuries, scientists have tinkered with finding a substitute for human blood. In 1667, Jean-Baptiste Denis, physician to Louis XIV of France, administered the first recorded human transfusion, injecting nine ounces of lamb's blood into a teenage boy. The English experimented on dogs, transfusing everything from urine to wine to milk, often with fatal results. Even Ovid touched on the idea 2000 years ago when he described how the witch Medea made Jason's father young again by replacing his blood with a magic brew.

Now, several companies say they are nearing the finish line in the race to produce a true stand-in for human blood. In the lead are Northfield Laboratories (NFLD, $9) of Evanston, Ill., and Biopure (BPUR, $12) of Cambridge, Mass. The winner could save countless lives and take the early lead in cornering an estimated $12-billion-a-year global market for artificial blood.

But watch out: First off, we're not talking about whole blood here. Neither product contains the platelets and plasma that are needed for clotting and to fight disease. Rather, they're designed to replace only the oxygen-carrying capabilities of red blood cells. What's more, the FDA recently dealt each firm a blow. In November it sent back Northfield's application for review of its blood substitute, demanding more information. And in December the federal agency lowered the boom on Biopure, requiring the firm to meet additional "facility and process validation requirements" before it could file its application. Both stocks tanked on the news. Representatives of Northfield and Biopure say the companies are working to meet the FDA's standards and are confident their products will eventually be approved.

The problem is that blood is an extraordinarily complicated substance to reproduce. Northfield is trying to crack the code with outdated human blood; Biopure with purified cow's blood. But it's a quest that has already defeated companies with much deeper pockets. Health-care giant Baxter International, for example, scrapped development of a blood substitute in 1998 when trauma patients in its final-stage trial died at a higher rate than patients in a control group.

For investors, however, the worries go beyond the science. Neither company is profitable. In their most recent fiscal years, Northfield lost $10 million, while Biopure lost $49 million. And the latter's shares face pressure from another bit of news. In January, Biopure CEO Carl Rausch said he intends to sell up to 10,000 shares a month over a one-year period, in keeping with the firm's new insider-selling program. It allows executives to buy and sell company stock as long as they enter into approved, predetermined trading plans. A Biopure spokesman says that the policy change is intended to facilitate financial planning, and that the total number of shares eligible for sale under this plan represents just 6% of Rausch's stake in the company.

No doubt the development of fake blood will be a milestone in the history of science and medicine. Whether any of these companies will reach that milestone is a different matter.

--David Stires