By Don Long

Eli Lilly and Co. apparently has pulled the plug on Optro, a product it was studying for development as a blood substitute in collaboration with Somatogen Inc.

Lilly, of Indianapolis, said Thursday it terminated the partnership with Somatogen, of Boulder, Colo., for Optro, which is a recombinant human hemoglobin molecule (rHb1.1) once touted as having a billion-dollar market potential.

Somatogen's stock (NASDAQ:SMTG) plummeted 35 percent, closing Thursday at $6, down $3.25.

Jim Kappel, spokesman for Lilly, told BioWorld Today the company ended its partnership with Somatogen based on "an overall assessment of opportunities resulting from the clinical trials, compared with other research initiatives. We decided to focus our resources another way."

That decision does not preclude any future partnership between the two firms, according to both Kappel and Somatogen's chairman, president and CEO, Andre de Bruin.

The door for future collaboration is "not completely shut," Kappel said, indicating joint research on the project could develop in other directions.

Calling the termination agreement a "technical" decision, Somatogen's de Bruin told BioWorld Today the two companies will discuss joint study of Optro's other indications and what he termed "new generations" of the recombinant technology developed over the past two years.

Meanwhile, whether or not Lilly remains a partner, de Bruin said Somatogen will continue with clinical studies of the product's use in cardiopulmonary bypass procedures. Enrollment in a Phase III study will be finished in the next few weeks, with completion of the trials by 1998, he said.

Those trials were given little chance for success by analyst Paul E. Kelly, of UBS Securities, in New York, who said Optro was "not viable as a blood substitute and that other potential uses of the agent are problematic." Additionally, Lilly's withdrawal "removes Somatogen's ability to manufacture Optro in commercial scale quantities," Kelly said.

Kevin Tang, an analyst with Alex. Brown & Sons in New York called Lilly's withdrawal from the project "a major negative event."

He said, "The major indication [for Optro] as a blood substitute is gone," but it may have "potential in other indications -- in very small doses."

As required in their agreement, Lilly must make "termination payments" to Somatogen. Those payments will total $14 million, de Bruin said, including an $8 million loan and $6 million in cash. But he said any renewed agreement could "modify" the terms of that payment.

The money from Lilly will give Somatogen a total of $54 million in cash, de Bruin said, with the company having a burn rate of approximately $1.5 million a month.

The partnership was struck in June 1994 when Lilly agreed to pay $60 million and obtained a 13 percent interest in Somatogen. Besides purchasing $20 million in stock, Lilly agreed to pay $15 million in cash with the attainment of various milestones, and another $25 million in clinical and process development costs (See BioWorld Today, June 28, 1994, p. 1.).

The deal gave Lilly exclusive manufacturing and development rights for the product worldwide, except in North America and Scandinavia, where the two companies would split those rights equally.

In 1995, results of Somatogen's two Phase II studies of rHb1.1 prompted Lilly to make an equity investment of $7 million and to begin additional trials ahead of schedule. At the time, the two companies announced plans to begin additional Phase II studies of Optro (See Bioworld Today, Sept. 19, 1995, p. 1.).

Side effects identified in various clinical trials are likely at the core of Lilly's decision to withdraw from the partnership, Kelly and Tang said. *