Somatogen Corp., which last week piloted a public stockoffering through some televised flak sent up by syndicatedfinancial columnist Dan Dorfman, is still feeling some of thedamage.

In an appearance on the cable television business news channelCNBC last Tuesday, Dorfman cited a hedge fund (East ShorePartners) in calling into question, among other things,Somatogen's prospects for successfully developing itsrecombinant hemoglobin product, rHb1.1

"He basically took a short position in our company," TimHoogheem, Somatogen's chief financial officer, said Monday.

Company officials discounted the criticism and took issue withseveral of Dorfman's opinions. "There's nothing negative comingout of the company," said another company spokesman.

Somatogen's stock (NASDAQ:SMTG) closed Monday down 75cents a share at $19. That was even with the offering price for2 million new shares sold last Wednesday and also the bottomrung of its 52-week price range. The stock has traded as highas $50.50 a share during the past year. When Somatogenannounced plans for the follow-on public offering in June, itsshares were trading at $31.50 a share and a 2 million-shareoffering held the prospect of raising more than $50 million forthe company.

Somatogen doesn't blame Dorfman entirely, partly because thestock closed at $22 a shared the day before the columnist'sviews were aired. "It was a very tough market we were in,"Hoogheem said.

So why did it decide to fly an offering into the teeth of such adifficult market?

"The reason we opted to continue with the offering at this pricewas to maintain the momentum of the clinical trials" and tostay on track in constructing manufacturing facilities,Hoogheem said.

Most of the roughly $35 million the offering is expected to raiseis to fund construction of the company's clinical manufacturingfacility (CMF). Somatogen aims to break ground on the facilitywithin four week and get into production in 1995, Hoogheemsaid. "There's a long schedule, and we felt it was in the interestof long-range shareholders to move ahead."

Dorfman's comments helped send Somatogen stock down $1.12a share last Tuesday to $20.88. That was followed by declinestotalling $1.63 on two successive days, sending the stock to$19.50 a share by last Thursday.

"The company's approach was to take the high road," Hoogheemsaid. "The best way to show that we're right is to demonstrateit in clinical trials." Data from Phase I trials of rHb1.1, due to becompleted near the end of the year, are expected to make thatcase. A Phase II trial is expected to start at about the sametime.

One result of the smaller offering price is that the company willlikely need to raise additional financing within a year,Hoogheem said. While another stock offering is possible, thecompany has another option in licensing additional overseasrights to rHb1.1. "We have not sold any marketing ormanufacturing rights except in Scandinavian countries," hesaid.

The hemoglobin replacement, which the company said couldget marketing approval by 1995, is being initially consideredas a replacement for blood lost during surgery.

Somatogen, which is now losing money at an annualized burnrate of $2 million, reported a cash position of more than $30million on June 30.

-- Ray Potter Senior Editor

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