Eli Lilly and Company has agreed to pay $60 million to co-developSomatogen Inc.'s lead recombinant hemoglobin product, rHb1.1, foruse as a blood substitute.The agreement, announced Monday, gives Indianapolis-based Eli Lillya 13 percent interest in Somatogen, of Boulder, Colo. It involves a $20million stock purchase at $8.30 per share, $15 million in cash based onthe attainment of various milestones and another $25 million in clinicaland process development costs.The deal also gives Lilly exclusive manufacturing and developmentrights to Somatogen's rHb1.1 throughout the world, except in NorthAmerica and Scandinavia, where the two companies will share thoserights on a 50-50 basis. Somatogen will receive royalties for sales inareas where Lilly has exclusive rights.News of the deal pushed Somatogen's stock (NASDAQ: SMTG) up$2.75 to close at $9.50 Monday. Lilly's stock (NYSE:LLY) closed at$57.88, up $.75.Somatogen's rHb1.1 currently is in early Phase II trials in tests ofanesthetized surgical patients at the University of Utah. Those testsbegan last fall. The hemoglobin is designed to provide oxygentransport from the lungs to the tissues as an infection-free red bloodcell replacement for blood lost during surgery.Milestones controlling Lilly's $15 million cash investment include thesuccess of Phase II testing and subsequent trials. Somatogen is toreceive two-thirds of the $15 million at the conclusion of Phase IItrials, if Lilly decides to proceed with the relationship. Lilly also willbe responsible for manufacturing the product for use during Phase IIItrials.In addition, Somatogen officials said the agreement allows thecompany to avoid spending about $150 million to build newmanufacturing facilities, making the overall deal worth approximately$210 million to Somatogen. Lilly already has facilities to produce therecombinant hemoglobin.Charles Scoggin, Somatogen chairman and CEO, said the agreementwith Lilly reduces Somatogen's financial risk, enhances its opportunityto commercialize rHb1.1 and allows Somatogen to benefit from Lilly'sexpertise."We will be a co-promoting the product with Lilly in the biggestmarket in the world, North America, and we will be sharing profitsequally," Scoggin told BioWorld. He added that the deal also providesfor development of other products involving synthetic hemoglobin as acarrier molecule and a stimulant for red blood cells.Lilly Chairman and CEO Randall Tobias was not available forcomment. In a prepared statement, he said, "This collaborationaddresses an urgent, unmet medical need _ a safe source of humanhemoglobin for millions of critical-care patients who need bloodtransfusions each year."The main advantage in using recombinant hemoglobin, Somatogensaid, is that it avoids the risk of transmitting infectious diseases, such asAIDS and hepatitis, through transfusions of donated blood. It alsoeliminates the need to type and cross-match blood.In its Phase I clinical trials, Somatogen infused 76 patients with rHb1.1and results showed no serious adverse effects. There was no renalimpairment, the company reported, and mean values for hematologicmeasurements, hepatic enzyme functions and coagulation parameterswere normal. Gastrointestinal symptoms were reduced by commonpharmacological agents. Somatogen also said an increase in transientblood pressure, observed at higher doses, was not of clinicalconsequence.Other companies involved in developing blood substitutes are usinganimal- and human-based blood derivatives. Some are experimentingwith perfluoro carbons.Market analyst Richard Stover, of Stover Haley Burns, in Stamford,Conn., said the commercialization of animal- and human-basedderivatives is limited by the overall supply of outdated blood availableto produce them. Perfluoro carbons, he added, have raised concernsabout toxicity.Stover called the agreement between Lilly and Somatogen the mostsignificant alliance to date between a major pharmaceutical companyand a biotechnology company. With about 40 million units of redblood cells transfused worldwide each year, the potential market forblood substitutes is estimated at $3 billion. n

-- Charles Craig

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