Somatix Therapy Corp., running short of cash, delayed a Phase IIItrial of its lead cancer vaccine and reduced its work force while itlooks for a corporate partner to continue development of theoncology program.

The Alameda, Calif., gene therapy company's fiscal year ended June30. It reported a net loss of $21 million and had $6.7 million in cash.

In documents filed with the Securities and Exchange Commission(SEC) Sept. 24, Somatix said it bolstered its immediate cash positionby raising $5 million through the sale of preferred stock. Thecompany has the option of selling up to $10 million in additionalpreferred shares over the next three years and it issued a warrant forthe purchase of another 650,000 shares. The preferred stock andwarrant are convertible to common shares at an undisclosed premiumto market price.

Somatix also stated in the documents it was delaying a Phase III trialof its autologous cancer vaccine and "significantly reducing" staffersassociated with the clinical development project.

Somatix's stock (NASDAQ:SOMA) closed Wednesday unchanged at$4.312. When it filed notice of the business changes with the SEClast week, its shares fell $0.1875 to $4.312. During the secondquarter of this calendar year, the stock hit a high of $9.75.

Company officials could not be reached for comment Wednesday.

The cash infusion and cost reduction programs are expected to giveSomatix enough financial resources to sustain operations until acorporate partner is found for the cancer vaccine development.Layoffs were expected to reduce the work force by 30.

Chief Financial Officer Mark Bagnall departed prior to thecompany's reshuffling to take a similar post with Progenitor Inc., ofColumbus, Ohio, in August. Progenitor is a subsidiary of InterneuronPharmaceuticals Inc., of Lexington, Mass.

Elizabeth Silverman, an analyst with Punk, Ziegel & Knoll in NewYork, said a cancer vaccine collaboration should be negotiated by theend of this year or in January 1997.

One possible partner apparently is Bristol-Myers Squibb Co., of NewYork, which entered a $20 million stock purchase agreement withSomatix in 1995 for a right of first offer to co-develop the cancervaccine.

Somatix is "revamping priorities," Silverman said, "and it's largelydriven by commercial realities. They have good science with the starsof gene therapy associated with the company. But the lead productisn't attracting the kinds of corporate partners they need."

The company's most advanced drug candidate is an autologousGVAX therapeutic vaccine for melanoma and renal cell carcinoma.Somatix has said data from several Phase I/II studies showed thevaccine generated antitumor responses at vaccination and moredistant metastatic sites.

In April 1996, the FDA approved protocols for a Phase III trial inmelanoma, triggering the second $10 million equity milestone fromBristol-Myers. Somatix received the first $10 million when the 1995deal was signed.

In February 1996, Somatix made a licensing proposal to Bristol-Myers for development of GVAX cancer vaccines. Following a 90-day evaluation period by Bristol-Myers, it asked for and received anextension to continue its review.

Under terms of the agreement, if Bristol-Myers rejects Somatix'sproposal, it can seek another partner, but cannot take less money forthe deal than Bristol-Myers was willing to pay.

Silverman said a drawback for pharmaceutical companies is thetreatment procedure for the autologous GVAX cancer vaccine.

Tumor cells are removed from a patient by a physician and sent toSomatix where they are modified with genes to secrete granulocytemacrophage colony stimulating factor (GM-CSF). The cells also areincreased in number and irradiated to neutralize the cancer. Thegenetically engineered cells are returned to the doctor and injectedback into the patient where the secreted protein stimulates an immuneresponse to attack the cancerous cells.

The complicated treatment, Silverman observed, has not beenembraced by drug companies that are most comfortable selling pillsor solution-filled vials.

So Somatix has developed a more simple, less costly product, calledallogeneic GVAX cancer vaccine, in which the therapeutic is derivedfrom tumor cell lines that are not patient specific and can bemanufactured on a large scale.

The company expects to file an investigational new drug applicationwith the FDA in the first quarter of 1997 to begin clinical trials inprostate cancer patients with the second-generation GVAX product.

Silverman suggested when Somatix signs up a corporate partner,development of an allogeneic GVAX cancer vaccine may takeprecedence over the autologous version.

Somatix is continuing Phase I/II studies of the autologous GVAXcancer vaccine, including a trial to determine dosage for the Phase IIImelanoma study.

In addition to cancer, Somatix's gene therapy programs target centralnervous system disorders, such as Parkinson's disease, and blood-related deficiencies.

Somatix's gene therapy research employs a range of technology todeliver genes, including retroviral, adenoviral and adeno-associatedviral vectors. The company also is studying use of hematopoieticstem cells and synthetic vectors, such as lipid-based systems. n

-- Charles Craig

(c) 1997 American Health Consultants. All rights reserved.