Alpha 1 Biomedicals Inc.'s disappointment over a problem indrug production was tempered somewhat by news that thecompany raised $7.3 million from the sale of 440,000 shares ofits common stock to a European investor.

Nonetheless, Alpha 1's stock (NASDAQ:ALBM) fell 22 percent($4.13) on Tuesday, closing at $14.38 a share in heavy tradingof nearly 1.7 million shares.

The company Alpha 1 contracted to manufacture bulk drug hashit a snag in the production process and is behind schedule.That means Alpha 1 won't be able to deliver the product,Thymosin alpha 1, to its licensee, SciClone Pharmaceuticals Inc.,on schedule. And that, in turn, will put SciClone behind on itslaunch of the product in Singapore.

This snowball effect only adds to the difficulties between thetwo companies, which are already engaged in arbitrationproceedings about the licensing and supply agreement onThymosin alpha 1.

In September, Alpha 1 of Bethesda, Md., lined up the Belgiancompany UCB Bioproducts S.A. to produce bulk Thymosin alpha1. The drug is chemically identical to the natural product, a 28-amino-acid hormone secreted by the thymus gland, explainedVincent Simmon, president and chief executive officer of Alpha1.

The manufacturing process that UCB has been using entailssolid-phase peptide synthesis, with which it has considerableexpertise, Simmon added. In fact, UCB has already beensuccessful in producing several batches of product for Alpha 1,according to Simmon, but has now run into a problem with thelast step in the purification procedure.

"They're getting half as much product as expected and itstaking twice as long," Simmon told BioWorld. Although heanticipates that UCB will iron out the snags, it still means theoverall process is going more slowly than anticipated.

SciClone had requested -- and indeed expected -- its firstshipment of Thymosin alpha 1 on Thursday. The San Mateo,Calif., company is getting ready to launch the product, calledZadaxin, in Singapore, where it was approved in September fortreating chronic hepatitis B infection. SciClone had projectedproduct launch for March 1994, explained Mark Culhane, thecompany's director of finance. But now that launch date has tobe pushed back.

Still, Culhane told BioWorld the delay will not have any long-term impact on SciClone's business, and the company stillanticipates that it will be able to launch Zadaxin in Singapore inthe first half of 1994. At this point, "SciClone's main objective isto obtain a supply of the product," Culhane said. And Alpha 1'sSimmon said his company can ultimately meet that need.

But the basic terms of the 1990 licensing agreement betweenSciClone and Alpha 1 are still a matter of dispute. According toAlpha 1, "the validity of SciClone's orders and the obligation ofAlpha 1 to meet those orders in accordance with the deliveryschedule established by SciClone currently is at issue in anarbitration proceeding between the two parties." And regardingthe snag in manufacturing, Alpha 1 said it believes "it isrelieved of its delivery obligations during such time as thedelay in deliveries is due to circumstances not within itscontrol."

However, if the arbitration goes against Alpha 1, the companycould end up giving SciClone an "exclusive, irrevocable, paid-upand royalty-free license for the manufacture, use and sale ofThymosin 1 alpha in (SciClone's) territory," Alpha 1 said.Arbitration proceedings are scheduled to start in the SanFrancisco Bay Area at the beginning of February.

SciClone's stock (NASDAQ:SCLN) didn't fare well on Tuesdayeither; it lost $1.13 per share on a volume of about 870,000shares, closing at $23.25.

On Tuesday Alpha 1 announced that it has raised slightly morethan $7.3 million from the sale of 440,000 shares of commonstock to a European investor at $16.66 a share. The investoralso received an option to purchase up to 440,000 additionalshares between April 1994 and June 1995 at a price thatwould be a slight discount to the average market price over atrading period immediately prior to the purchase, according tothe company.120893ALPHA1

-- Jennifer Van Brunt Senior Editor

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