Somatogen Inc. said Monday that its recombinant hemoglobinproduct, rHb1.1, cleared one hurdle in a Phase I clinical trialand was given the FDA's approval to move into a second part ofPhase I, where it will be tested in escalating dosages in healthysubjects.

Riding the coattails of good news from the clinical front, theBoulder, Colo.-based company also announced plans for asecondary stock offering of 2 million shares, which -- atSomatogen's closing stock price on Monday -- would raise agross amount of $63 million.

Somatogen's stock (NASDAQ:SMTG) closed Monday up $2.75 ashare at $31.50. The company went public last August at $19 ashare, netting $38 million from an IPO of 2 million shares.

"We resisted the temptation to go back with an offering whenthe market was frothy," Charles H. Scoggin, Somatogen'schairman, president and chief executive officer, said Monday."It's been our position to return when we had significant data."

If positive data continues to flow from the Phase I trials,Somatogen hopes to take rHb1.1 into Phase II trials by late thisyear or early 1993, Scoggin said.

He declined to forecast any further, but investment analystshave predicted that rHb1.1 -- given continued good clinicalresults -- could receive U.S. marketing approval by mid-1995.The recombinant hemoglobin is stabilized by a single aminoacid, glycine, that bridges the four subunits of the molecule.The interim report of Phase I data on rHb1.1 to the FDA wasplanned under the study's protocol.

The hemoglobin product is being initially studied as areplacement for blood lost after surgery, as an alternative toblood transfusions. Other therapeutic and diagnostic productsrelying on the company's proprietary recombinant hemoglobintechnology are being considered. The company said last monththat it discovered a method to use the hemoglobin product as adrug delivery vehicle for synthetic peptides, one that extendedtheir pharmacological activity.

The potential worldwide market for hemoglobin replacementproducts was estimated at $3.6 billion to $4.2 billion in a reportjust issued by First Boston analyst Jeffrey Swarz. "To be sure,there are other competitors in the artificial blood market, butSomatogen appears to be the only company that has productpurified, toxin-free, 100 percent human hemoglobin," he wrote.

Somatogen said that Phase I clinical trials, which started inFebruary, involve between 20 and 40 people. The study's twoclinical sites have not been disclosed by the company, althoughone is believed by some observers to be the University ofCalifornia, San Francisco, Medical Center.

All shares of the secondary offering are to be sold by thecompany, which said proceeds from the offering will be used toconstruct a clinical manufacturing facility and to design acommercial manufacturing facility, plus purchases involvingplant and equipment.

Lead underwriters for the secondary offering are Alex. Brown& Sons of Baltimore and Montgomery Securities of SanFrancisco.

Alliance Pharmaceutical Corp. in February started Phase Iclinical trials of its synthetic blood substitute, Oxygent HT.Other companies developing blood substitute products includeDNX Corp., Enzon Inc., Baxter Healthcare, Biopure Inc., BiosourceGenetics Corp., Biosynthetics, Hemosol and IGI Inc.

-- Ray Potter Senior Editor

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

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