Subject: Somatogen and Blood Substitute
Date: Published: 8/9/91 (81 lines)
Source: Wall Street Journal. Copyright Dow Jones & Co. Inc.

    OTC Focus:
    Nasdaq Composite Index Gains 0.38%,
    Ignoring Declines at Other Exchanges
    ----
    By Anne Newman and David Pettit
    Staff Reporters of The Wall Street Journal

    NEW YORK -- Over-the-counter stocks generally gained
 ground, but investors dealt a setback to some of the market's
 recent public stars, including Somatogen, an early-stage
 biotechnology company.
    Somatogen slid 1 to 26 1/4, but is still more than 38%
 above its Aug. 1 offering price of $19 a share.  The
 successful initial public offering of the Boulder, Colo.,
 company has rejuvenated demand for biotechnology stock
 offerings lately.  Earlier, investors' appetites for the risky
 young companies had cooled after Regeneron Pharmaceuticals
 fell below half its April offering price.
    Meanwhile, other over-the-counter stocks shrugged off the
 losses of larger stocks traded on the major exchanges and
 rose for the third consecutive session.  But the gains weren't
 broad-based.
    The Nasdaq Composite Index rose 1.93 to 509.39, a 0.38%
 advance, compared with a 0.42% drop in the Dow Jones
 Industrial Average and a 0.24% loss in the New York Stock
 Exchange Composite Index.  OTC gainers barely outnumbered
 decliners 956 to 900, as 141 stocks climbed to new highs and
 31 fell to new lows.  OTC volume fell to 161.6 million shares
 from 177.3 million Wednesday.
    Somatogen, which is developing a synthetic blood using
 human hemoglobin produced by genetically engineered bacteria,
 has a total market value of $193.3 million at yesterday's
 closing price of 26 1/4.  That's a bit rich, say several
 institutional investors, for a company with some stiff
 competition that hasn't yet begun testing its product on
 humans.  Most young new biotechnology stocks, including
 bellwether Amgen, have dropped below their offering prices
 before successfully marketing a product.
    "You can buy them later at a cheaper price and still make
 money" after studies on humans have begun and the company is
 much further along the long road to commercial success, says
 one portfolio manager, who asked not to be named.
    Somatogen hopes to begin studies on a small group of
 people this fall, but there's no assurance of success:
 Early-stage trials of two blood substitute products developed
 by other companies were recently halted because of safety
 concerns.  Making safe and pure blood substitutes remains a
 key challenge to developers of synthetic blood, says Col.
 John Hess, chief of blood research at the U. S. Army's
 Letterman Institute for Research in San Francisco.
    But the potential demand is enormous for long-lasting
 synthetic blood free of viruses such as AIDS and hepatitis.
 "The Army sent 120,000 pints around the world this spring"
 during Operation Desert Storm, Col.  Hess said, "and most of
 it had a shelf life of six weeks."
    Somatogen's biggest challenge is whether "they can make
 enough of it cheaply enough," says James McCamant, editor of
 the Medical Technology Stock Letter in Berkeley, Calif.
 Somatogen, however, has yet to build the manufacturing
 facility needed to produce huge quantities of the synthetic
 blood.  It will use some of the proceeds from its offering to
 acquire a site for the facility.
    Some big investors say they're willing to take an early
 risk on the company because of its potential:  Somatogen
 estimates a potential $5 billion world-wide annual market for
 blood substitutes used in surgery.  That was enough to entice
 Barry Feirstein, growth-stock manager for Equitable Capital
 Management Corp. in New York, to risk a small amount of his
 $840 million under management on Somatogen shares after they
 soared in first-day trading.  "It's extremely risky," he says.
 "It may go to zero, or it may go to a few hundred dollars.  If
 the drug proves to be safe, this could be huge."

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