SOMATOGEN's $ 75 MIL. MANUFACTURING FACILITY FOR rHb 1.1

Executive Summary

SOMATOGEN's $ 75 MIL. MANUFACTURING FACILITY FOR rHb 1.1 recombinant human hemoglobin production must be constructed prior to the completion of Phase III trials for the product, the firm said in a preliminary prospectus for an initial public offering. Boulder, Colo.-based Somatogen Pharmaceuticals estimates that a minimum of $ 75 mil. will be required to build a production plant; a commercial fill and finish facility will cost an additional $ 15 mil., the firm projects. FDA approval for rHb 1.1 is contingent on conducting "a portion of the Phase III clinical trials using material produced in such a commercial manufacturing facility," the prospectus says. Somatogen has run a 20,000 sq. ft. pilot production plant since December, which should provide sufficient quantities of the product to conduct initial clinical trials. Improvements to "many phases" of the pilot production process will be necessary for commercial scale production, but no "fundamental technological breakthroughs" are required, the firm said. The initial public offering of 2 mil. shares at an estimated price of $ 18 per share is designed to fund operations for 12 months. Around $ 10 mil. of the estimated $ 32.9 mil. net proceeds from a successful offering may be used to begin construction of the commercial facility, slated for groundbreaking in 1992, the prospectus states. An IND for rHb 1.1 was filed in June, and Phase trials are expected to begin in the fall; the projected timetable will make rHb 1.1 the first recombinant human hemoglobin product to begin human clinical trials ("The Pink Sheet" May 27, T&G-12). Because rHb 1.1 will be given in much larger doses than most drugs, the clinical trials will be "rigorously regulated" and Somatogen will be required to "develop extremely sensitive analytical techniques" to demonstrate acceptable levels of purity, the firm said. The initial targeted application for Somatogen's blood substitute is the replacement of acute blood loss in surgery; transfusions now account for approximately 7.7 mil. units of red blood cells annually in the U.S. Because it is designed to eliminate the risk of blood-borne infectious diseases, rHb 1.1 also could be used in less acute situation where transfusions are now avoided. Another potential application is to deliver oxygen after strokes and heart attacks in conjunction with treatments such as TPA and streptokinase, Somatogen said. Kabi Pharmacia acquired Scandinavian rights to rHb 1.1 for $ 1.5 mil. and is committed to a $ 2 mil. milestone payment when rHb 1.1 human clinicals begin. A three-year contract with the U.S. Navy will provide up to $ 3.7 mil. for Somatogen's research into encapsulated recombinant hemoglobin for use as a human blood substitute with an extended half-life. Somatogen is discussing further collaborations with potential marketing and manufacturing partners. The Japanese drug company Eisai beneficially owns a 7.8% stake of Somatogen, which will drop to 5.7% after the offering. The Denver-based Centennial Fund III and American Healthcare Fund are the two largest shareholders, with 10.6% and 7.6%, respectively. There will be 7.4 mil. shares outstanding when the offering is completed. Six year-old Somatogen previously has raised $ 24.2 mil. through private placements.