Results from Somatogen Inc.'s two Phase II studies withits recombinant human hemoglobin product, which isbeing tested as a blood substitute, were impressiveenough for the company's partner, Eli Lilly & Co., tomake a $7 million equity investment and to startadditional trials ahead of schedule.

Lilly, of Indianapolis, was slated to purchase $10 millionworth of Somatogen stock next March as part of a June1994, $60 million agreement with the Boulder, Colo.-based company. The alliance was formed to developSomatogen's rHb1.1, a recombinant human hemoglobinmolecule, as an alternative to blood transfusions duringsurgery. The product has been given the brand nameOptroTM.

Instead of waiting until March 1996, Somatogenspokeswoman Nanita Woolhiser said, Lilly will make 70percent of the $10 million equity investment aftercompletion of Somatogen's follow-on offering of 2.5million shares, which were registered with the Securitiesand Exchange Commission Monday. Lilly also has agreedto pay 15 percent above the per share offering price for its$7 million purchase.

Woolhiser said the remaining $3 million equityinvestment that was due March 1996 will be combinedwith another $4 million in equity milestones to be paid atan undetermined date.

In addition, the two companies said they will beginbroader Phase II studies of rHb1.1 in early 1996 togenerate efficacy data.

The recently completed Phase II studies tested doseescalation and safety in patients undergoing surgery.Woolhiser said the trials showed that OptroTM did notcause any "clinically significant adverse side effects."

The completion of the early Phase II trials also triggered a$2 million equity purchase of 82,000 Somatogen sharesby Lilly. The investment, added to stock bought by Lillyat the start of the 1994 collaboration, gives thepharmaceutical company a 12.4 percent stake inSomatogen.

In one of the completed Phase II trials, OptroTM wasadministered to patients who experienced acute bloodloss during surgery to restore blood volume and oxygen.In the second study, OptroTM was used to maintain bloodand oxygen levels in patients whose own blood waswithdrawn and was to be reinfused following theoperations. In both studies the 33 patients whoparticipated were undergoing elective surgery.

The collaboration with Lilly gives it exclusivemanufacturing and development rights to OptroTMthroughout most of the world. In North America Lilly andSomatogen will share rights on a 50-50 basis. Somatogenwill receive royalties for potential sales in markets whereLilly has exclusive rights. Sweden-based Pharmacia ABhas marketing rights to OptroTM in Scandinavia.

In Somatogen's prospectus for the 2.5 million sharefollow-on offering, the company said that as of June 30,1995, it had $38 million in cash and a net loss for theprevious 12 months of $17 million.

Based on the $23.25 closing price Monday ofSomatogen's stock (NASDAQ:SMTG), the companywould raise more than $58 million through the sale of 2.5million shares. Somatogen's stock ended the day down 25cents. Following the public offering, Somatogen wouldhave about 21.6 million shares outstanding.

Underwriters for Somatogen's public offering areMontgomery Securities, of San Francisco, andDonaldson, Lufkin & Jenrette Securities Corp. andLehman Brothers Inc., both of New York. n

-- Charles Craig

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