<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark one)
X Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934. For the quarterly period ended
March 31, 1996.
Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934. For the transition period
from ____ to _____.
Commission File Number
0-19423
SOMATOGEN, INC.
(Exact name of registrant as specified in its charter)
Delaware 84-0991858
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2545 Central Ave., Boulder, CO 80301
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 440-9988
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $.001 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock $.001 par value 20,652,976
Class Outstanding at May 13, 1996
Somatogen, the Somatogen logo and Optro(TM) are trademarks of the
Company. All other brand names or trademarks appearing in this 10-Q
are the property of their respective holders.
<PAGE> 2
INDEX
SOMATOGEN, INC.
PART I. FINANCIAL INFORMATION PAGE NO.
Consolidated Balance Sheet -
March 31, 1996 and June 30, 1995...................... 3-4
Consolidated Statement of Operations-
for the three and nine-month periods ended March 31, 1996
and 1995 and the period from July 10, 1985 (inception) to
March 31, 1996........................................ 5
Consolidated Statement of Cash Flows -
for the nine-month periods ended March 31, 1996 and
1995 and the period from July 10, 1985 (inception) to
March 31, 1996........................................ 6-7
Notes to Consolidated Financial Statements................ 8-10
Management's Discussion and Analysis of Financial Condition
and Results of Operations............................. 11-16
PART II. OTHER INFORMATION............................... 17
SIGNATURES.................................................. 18
<PAGE> 3
PART I. FINANCIAL INFORMATION
SOMATOGEN, INC.
(A Corporation in the Development Stage)
CONSOLIDATED BALANCE SHEET
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
ASSETS March 31, June 30,
1996 1995
----------- ----------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents ........................ $26,181 $26,376
Short-term investments............................ 33,429 11,533
Receivable from Lilly............................. 1,558 1,130
Other receivables................................. 749 470
Prepaid expenses and other current assets......... 241 429
------- -------
Total current assets........................ 62,158 39,938
Property and equipment, at cost, net of
accumulated depreciation and amortization....... 3,615 3,885
Assets held for sale.................................. 6,817 7,407
Other assets.......................................... 924 650
------- -------
$73,514 $51,880
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 1,820 $ 1,463
Accrued payroll................................... 897 844
Payable to Lilly.................................. 1,888 100
Other accrued liabilities......................... 523 577
Current portion of long-term debt................. 401 777
Current portion of capital lease obligations...... 231 88
------- -------
Total current liabilities..................... 5,760 4,149
Long-term debt........................................ -- 200
Capital lease obligations, less current portion....... 13 170
------- -------
Total liabilities............................. 5,773 4,519
------- -------
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE> 4
SOMATOGEN, INC.
(A Corporation in the Development Stage)
CONSOLIDATED BALANCE SHEET (continued)
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
March 31, June 30,
1996 1995
----------- ----------
(unaudited)
<S> <C> <C>
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value, 10,000,000 shares
authorized at March 31, 1996,
no shares issued or outstanding............... -- --
Common stock, $.001 par value; 35,000,000 shares
authorized, 20,636,373 and 18,552,021 shares
issued and outstanding at March 31, 1996 and
June 30, 1995, respectively................... 21 18
Additional paid-in capital........................ 204,133 170,268
Deficit accumulated during the development stage.. (136,068) (122,925)
Deferred compensation related to grant of options. (345) --
-------- --------
Total stockholders' equity.................... 67,741 47,361
-------- --------
$ 73,514 $ 51,880
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE> 5
SOMATOGEN, INC.
(A Corporation in the Development Stage)
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three-months ended Nine-months ended Period From
March 31, March 31, July 10, 1995
-------------------- -------------------- (inception) to
1996 1995 1996 1995 March 31, 1996
---- ---- ---- ---- --------------
<S> <C> <C> <C> <C> <C>
Revenue:
Technology disclosure and license fees... $ -- $ -- $ -- $ -- $ 4,904
Research and development grants
and contracts........................ -- -- -- -- 1,684
-------- --------- --------- --------- --------
Total revenue.................... -- -- -- -- 6,588
-------- --------- --------- --------- --------
Operating expenses:
Research and development................. 5,199 4,641 14,559 14,070 96,062
Reimbursements from Lilly................ (1,548) (987) (4,081) (2,056) (8,203)
Reimbursements to Lilly.................. 1,497 -- 2,137 -- 2,237
-------- --------- --------- --------- --------
Research and development, net............ 5,148 3,654 12,615 12,014 90,096
General, administrative and marketing.... 1,043 1,004 3,029 3,329 26,646
Writedown of manufacturing
facility assets...................... -- -- -- -- 29,194
-------- --------- --------- --------- --------
Total operating expenses......... 6,191 4,658 15,644 15,343 145,936
-------- --------- --------- --------- --------
Operating loss........................... (6,191) (4,658) (15,644) (15,343) (139,348)
Interest and other income, net........... 807 570 2,501 1,653 8,198
-------- --------- --------- --------- --------
Loss from continuing operations.......... (5,384) (4,088) (13,143) (13,690) (131,150)
Discontinued operations:
Loss from operations of subsidiary....... -- -- -- -- (1,225)
Gain on sale of subsidiary............... -- -- -- -- 300
-------- --------- --------- -------- --------
Net loss................................. $ (5,384) $ (4,088) $ (13,143) $(13,690) $(132,075)
======== ========= ========= ======== ========
Net loss per share....................... $ (0.26) $ (0.22) $ (0.66) $ (0.75)
Shares used in calculating
per share data 20,630,000 18,404,000 19,977,000 18,185,000
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE> 6
SOMATOGEN, INC.
(A Corporation in the Development Stage)
CONSOLIDATED STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(In thousands - unaudited)
<TABLE>
<CAPTION>
Period from
Nine-months ended July 10, 1985
March 31, (inception) to
1996 1995 March 31, 1996
---- ---- --------------
<S> <C> <C> <C>
Cash flows provided by (used in) operating activities:
Net loss............................................... $(13,143) $(13,690) $(132,075)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization...................... 1,523 1,910 14,362
Stock compensation expense......................... 250 133 794
Writedown of manufacturing facility assets......... -- -- 29,194
Changes in assets and liabilities:
Receivables........................................ (707) (63) (2,145)
Prepaid expenses and other current assets.......... 188 (187) (216)
Other assets....................................... (331) (175) (1,488)
Accounts payable and accrued liabilities........... 2,144 (1,356) 5,279
Other, net......................................... (9) 6 322
-------- -------- --------
Net cash used in operating activities............ (10,085) (13,422) (85,973)
-------- -------- --------
Cash flows provided by (used in) investing activities:
Purchase of short-term investments..................... (64,357) (23,020) (246,595)
Proceeds from sale of short-term investments........... 42,461 39,252 213,166
Purchases of property and equipment.................... (1,192) (1,671) (21,438)
Proceeds from sale of property and equipment........... 595 1,375 2,402
Additions to deferred facility cost, net of transfers.. -- -- (4,216)
Additions to construction-in-progress.................. -- -- (18,956)
Equipment deposits..................................... -- -- (3,423)
Proceeds from sale of subsidiary....................... -- -- 431
-------- -------- ---------
Net cash provided by (used in)
investing activities............................. (22,493) 15,936 (78,629)
-------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE> 7
SOMATOGEN, INC.
(A Corporation in the Development Stage)
CONSOLIDATED STATEMENT OF CASH FLOWS (continued)
Increase (Decrease) in Cash and Cash Equivalents
(In thousands - unaudited)
<TABLE>
<CAPTION>
Period from
Nine-months ended July 10, 1985
March 31, (inception) to
1996 1995 March 31, 1996
---- ---- --------------
<S> <C> <C> <C>
Cash flows provided by (used in) financing activities:
Borrowings under lines of credit and bridge
financings......................................... -- -- 3,111
Repayments of lines of credit and bridge financings.... -- -- (3,111)
Proceeds from sale-leaseback........................... -- -- 2,574
Payments of capital lease obligations and long-
term debt.......................................... (890) (1,684) (9,822)
Proceeds from issuance of long-term debt............... -- -- 945
Net proceeds from issuance of stock and warrants....... 33,273 6,149 197,086
------- ------- -------
Net cash provided by financing activities.............. 32,383 4,465 190,783
------- ------- -------
Net increase (decrease) in cash and cash equivalents....... (195) 6,979 26,181
Cash and cash equivalents at beginning of period........... 26,376 27,634 --
------- ------- -------
Cash and cash equivalents at end of period................. $26,181 $34,613 $26,181
======= ======= =======
Supplemental disclosures of cash flow information:
Cash paid for interest................................. $ 98 $ 212 $ 2,367
Equipment held for sale transferred to net
property, plant and equipment...................... 16 -- 135
Capital lease obligations incurred for purchase
of property and equipment.......................... -- 535 5,318
Long-term debt obligations incurred for
purchase of land................................... -- -- 2,625
Deferred facility costs transferred to
construction-in-progress........................... -- -- 1,659
Equipment deposits transferred to net
property, plant and equipment...................... -- -- 3,423
Net property, plant and equipment transferred
to assets held for sale............................ -- -- 5,329
Deferred facility costs transferred to net
property, plant and equipment...................... -- -- 306
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE> 8
SOMATOGEN, INC.
(A Corporation in the Development Stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996
(Unaudited)
Note 1--STATEMENT OF ACCOUNTING PRESENTATION
In the opinion of the Company, the accompanying unaudited
consolidated financial statements include all adjustments (consisting
only of normal recurring accruals) necessary to fairly state the
Company's consolidated financial position as of March 31, 1996 and the
consolidated results of operations and of cash flows for the
three and nine-month periods ended March 31, 1996 and 1995, and for the
period from July 10, 1985 (inception) to March 31, 1996. The
accompanying consolidated financial statements should be read in
conjunction with the consolidated financial statements June 30, 1995.
The information set forth in the accompanying consolidated balance sheet
as of June 30, 1995, has been derived from the audited consolidated
balance sheet included in the Company's Annual Report on Form 10-K for
the year ended June 30, 1995.
Interim results are not necessarily indicative of the results for
the full year.
Note 2--CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid investments with original
maturities of three months or less when purchased to be cash
equivalents. The carrying values of the Company's cash equivalents and
short-term investments approximate their market values based on quoted
market prices. All cash equivalents and short term investments
are expected to be held to maturity.
<PAGE> 9
SOMATOGEN, INC.
Note 3--STRATEGIC ALLIANCE AND RESEARCH AND DEVELOPMENT ARRANGEMENT
In June 1994, the Company entered into a global strategic
alliance with Eli Lilly and Company ("Lilly") whereby Lilly will co-
develop Somatogen's lead human hemoglobin product, Optro, (the "Lilly
Alliance") and in September 1995, Somatogen and Lilly agreed to amend
certain terms of the Lilly Alliance. Under the terms of the
Lilly Alliance, Lilly is responsible for establishing manufacturing
facilities to supply Optro for Phase III clinical trials and for
global commercialization. In North America, the Company's expanded
Phase II and Phase III trials for Optro will be performed in
conjunction with Lilly's clinical and research groups, and Lilly and
Somatogen will co-promote the product, splitting the development costs
and sharing equally in the profits. Outside of North America, except
in Scandinavia, Lilly will be responsible for clinical development of
Optro and related costs, and will have exclusive marketing rights.
Lilly will pay Somatogen a royalty on Optro sales outside North
America. Lilly has invested $30,000,000 in exchange for Somatogen
common stock, including a $2,000,000 milestone equity investment in
Somatogen made on September 18, 1995, as a result of Somatogen's
completion of enrollment in its early Phase II clinical trials and a
$7,000,000 equity investment made on October 27, 1995 in conjunction
with Somatogen's October 18, 1995 public common stock offering. The
September 1995 amendment to the Lilly Alliance accelerated $7,000,000 of
the $10,000,000 equity investment which Lilly would have made in March
1996 if it determined at such time to proceed with the clinical
development and commercialization of Optro. In addition, the
amendment eliminated the March 1996 determination date and combined all
remaining milestone equity investments into a single $7,000,000
milestone equity investment to be made if the joint Somatogen-Lilly
steering committee for the alliance determines that certain conditions
have been met. The amendment also modified the termination provisions
of the alliance, which provide for payment of certain financial
consideration by Lilly to Somatogen in the event that the alliance is
terminated under certain circumstances. Pharmacia AB has the marketing
rights to Optro in Scandinavia under its 1991 agreement with
Somatogen.
<PAGE> 10
SOMATOGEN, INC.
In accordance with the terms of the Lilly Alliance, Somatogen
and Lilly share certain clinical development costs and, pursuant to the
September 1995 amendment, effective January 1, 1996 Somatogen and Lilly
began to share certain process improvement costs. Expense
reimbursements from Lilly and payable to Lilly are disclosed as a
separate component of research and development on the Consolidated
Statement of Operations.
Note 4.--NET LOSS PER SHARE
Net loss per share is computed using the weighted average number
of shares of common stock outstanding. Common equivalent shares from
stock options and warrants are excluded from the computation as their
effect is antidilutive.
Note 5.--STOCKHOLDERS' EQUITY
On September 18, 1995, in connection with the Company achieving
a clinical milestone pursuant to the Lilly Alliance, the Company sold to
Lilly a total of 82,521 shares of common stock at $24.24 per share for
total proceeds of $2,000,000.
On October 18, 1995, the Company sold a total of 1,400,000
shares of common stock to the public at $18.00 per share. After
deducting underwriting discounts and offering expenses, net proceeds
from the offering were approximately $23,468,000. On October 27, 1995,
Lilly purchased an additional 338,164 shares of common stock at $20.70
per share resulting in additional proceeds of $7,000,000 to the Company.
<PAGE> 11
SOMATOGEN, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Except for the historical information contained herein, the
following discussion contains forward-looking statements that involve
risks and uncertainties. The Company's actual results could differ
materially from those discussed here. Factors that could cause or
contribute to such differences include, but are not limited to, those
discussed in this section and those discussed in the Company's
Registration Statement on Form S-3 dated October 13, 1995 and Form
10-K for the year ended June 30, 1995.
RESULTS OF OPERATIONS
Revenue
The Company did not recognize any revenue for the three or
nine-months ended March 31, 1996 or 1995.
Operating Expenses
Total operating expenses increased by 33% to $6,191,000 during
the quarter ended March 31, 1996 from $4,658,000 for the comparable
period in the previous fiscal year. For the nine-months ended March 31,
1996, total operating expenses increased by 2% to $15,644,000 from
$15,343,000 for the comparable period in the previous fiscal year.
Net research and development expense for the quarter ended
March 31, 1996 increased by 29% to $5,148,000 from $3,654,000 for the
comparable period in the previous fiscal year. The Company's net
research and development expense increased by 5% for the nine-month
period ended March 31, 1996 to $12,615,000 from $12,014,000 for the
comparable period in fiscal 1995.
Excluding Lilly reimbursements, research and development expense
for the quarter ended March 31, 1996 increased by 12% to $5,199,000
from $4,641,000 for the comparable period in the previous fiscal year
and for the nine-months ended March 31, 1996, research and development
expense increased by 3% to $14,559,000 from $14,070,000 for the
comparable period in the previous fiscal year. These increases are
primarily a result of increased product and process development
expenditures, including preclinical trials.
<PAGE> 12
SOMATOGEN, INC.
For the quarter ended March 31, 1996, reimbursements from Lilly
increased by 57% to $1,548,000 from $987,000 for the comparable period
in the previous fiscal year. For the nine-months ended March 31, 1996,
reimbursements from Lilly increased by 98% to $4,081,000 from
$2,056,000 for the comparable period in the previous fiscal year.
The increases in reimbursements from Lilly are primarily a result of
increased reimbursable clinical development expenditures and from the
September 1995 amendment to the Lilly Alliance which provided that
certain process development expenditures would be reimbursable
beginning January 1, 1996.
Reimbursements to Lilly aggregated $1,497,000 and $2,137,000
for the three and nine-months ended March 31, 1996, respectively.
There were no reimbursements to Lilly in the comparable periods of
the previous fiscal year. Reimbursements to Lilly for the quarter
and nine-months ended March 31, 1996 result from the sharing of
clinical development costs and from sharing process development
costs which began January 1, 1996 pursuant to the September 1995
amendment to the Lilly Alliance.
Reimbursements attributable to the Lilly Alliance may vary
significantly from quarter to quarter.
General, administrative and marketing expense increased to
$1,043,000 for the quarter ended March 31, 1996 from $1,004,000 for
the comparable quarter in the previous fiscal year. For the nine-month
period ended March 31, 1996, general, administrative and marketing
expense decreased 9% to $3,029,000 from $3,329,000 for the comparable
period in fiscal 1995. This decrease is primarily due to non-recurring
expenses incurred in fiscal 1995 related to certain employment agreements.
For the remaining quarter in fiscal 1996, the Company expects general,
administrative and marketing expenses to remain at approximately the
same levels as those experienced for the quarter ended March 31, 1996.
Interest Income and Other, Net
Interest and other income increased to $807,000 for the quarter
ended March 31, 1996 from $570,000 for the quarter ended March 31, 1995
and to $2,501,000 for the nine-months ended March 31, 1996 from
$1,653,000 for the comparable period in fiscal 1995. The increase in
interest and other income for the quarter ended March 31, 1996 as
compared to the quarter ended March 31, 1995 is primarily a result
of increased investment balances. For the nine-months ended March 31,
1996 as compared to the comparable period of the prior year, the
increase is primarily a result of increased investment balances and from
other income generated by a retroactive adjustment to a research and
development contract of $235,000 and an insurance settlement resulting
of $102,000. Interest expense for the three and nine-months ended
March 31, 1996 and 1995 was primarily associated with equipment leasing
arrangements.
<PAGE> 13
SOMATOGEN, INC.
Net Loss
The net loss for the quarter ended March 31, 1996 was $5,384,000
(or $0.26 per share) compared to $4,088,000 (or $0.22 per share) for the
same period in fiscal 1995. For the nine-month periods ended
March 31, 1996 and 1995, the net loss totaled $13,143,000 (or $0.66
per share) and $13,690,000 (or $0.75 per share), respectively.
LIQUIDITY AND CAPITAL RESOURCES
Somatogen's operations to date have consumed substantial amounts
of cash. It is expected that negative cash flow from operations will
increase during the remainder of fiscal 1996 and in future years when
compared to the level experienced during the three and nine-month
periods ended March 31, 1996. Such increase is expected as
preclinical and clinical studies of new products are undertaken, as
clinical trials for Optro increase in scope and as additional product
and process improvement costs are incurred. Somatogen will need to
raise significant additional funds in order to fund the Company's future
operations and capital expenditures prior to commercialization of the
Company's products. The Company has relied primarily on public and
private offerings of equity and cost sharing and equity investments
pursuant to the Lilly Alliance to fund its operations and upon equipment
leasing arrangements to finance the acquisition of capital equipment for
the Company's laboratory and pilot manufacturing facilities.
At March 31, 1996 the Company had cash, cash equivalents and
short-term investments of $59,610,000. The Company's cash, cash
equivalents and short-term investments increased approximately
$21,701,000 during the nine-months ended March 31, 1996. This increase
is primarily a result of the proceeds received from the October 1995
public offering of common stock and the Lilly equity investments net of
the use of cash for operations.
<PAGE> 14
SOMATOGEN, INC.
On October 18, 1995, the Company sold 1,400,000 shares of common
stock to the public at a price per share of $18.00. The Company
received proceeds of approximately $23,468,000 after deducting
underwriting discounts and offering expenses. In conjunction with such
public offering, Lilly made a $7,000,000 equity investment in Somatogen
on October 27, 1995 purchasing an additional 338,164 shares of common
stock at a price per share of $20.70.
Under the terms of its agreement with Somatogen, Lilly has made
equity investments in Somatogen totaling $30,000,000, which includes the
$2,000,000 milestone equity investment made in September 1995 as a
result of Somatogen's completion of enrollment in its early Phase II
clinical trials and the $7,000,000 equity investment made in October
1995 in conjunction with Somatogen's public offering. The amendment
to the Lilly Alliance accelerated $7,000,000 of the $10,000,000 equity
investment which Lilly would have otherwise made in March 1996 if it
determined at such time to proceed with the clinical development and
commercialization of Optro. In addition, the amendment eliminates the
March 1996 determination date and combines all remaining milestone
equity investments into a single $7,000,000 milestone equity investment
to be made if the joint Somatogen-Lilly steering committee determines
that certain conditions have been met. Lilly will be responsible for
providing manufacturing facilities to supply Optro for Phase III
clinical trials and global commercialization thus eliminating the need
for Somatogen to build commercial scale manufacturing facilities for
Optro, which the Company estimates would have cost more than
$150,000,000.
In September 1992, the Company commenced construction of a
clinical manufacturing facility. The Company had also acquired land
for, and begun the design of, a larger commercial manufacturing
facility. In conjunction with entering into the Lilly Alliance, an
evaluation of the Company's future manufacturing requirements was
completed and construction of the clinical manufacturing facility was
discontinued. During the fourth quarter of fiscal 1994, the Company
recognized a non-recurring charge, which was principally non-cash,
associated with the writedown of its clinical and commercial
manufacturing assets of $29,200,000. The components of the charge
included approximately $21,000,000 for the clinical manufacturing
facility, $6,000,000 for related manufacturing equipment and $2,200,000
for engineering design costs for the proposed commercial manufacturing
facility.
<PAGE> 15
SOMATOGEN, INC.
Land and building related to manufacturing facilities and the
related manufacturing equipment aggregating $6,817,000 are classified in
Somatogen's balance sheet as assets held for sale. During the nine-
months ended March 31, 1996, the Company realized $595,000 in proceeds
from the sale of clinical manufacturing assets. The land purchased for
the commercial facility is financed with an installment note over a term
of four years with a 10% interest rate. The principal balance due on
this note as of March 31, 1996 is $401,000. The Company believes the
aggregate carrying value of all assets held for sale approximates the
assets' net realizable value; however, the Company continues to monitor
estimated realizable values on a quarterly basis. There can be no
assurances that the Company will realize the aggregate carrying value
of assets held for sale. To the extent that the Company is successful
in selling the land, the installment note will become due. Proceeds
from such asset sales are being used for general corporate purposes.
The Company historically has leased a significant portion of the
equipment used in its laboratory and pilot manufacturing facilities. As
of March 31, 1996, the Company had outstanding capital lease obligations
of $244,000. Additionally, the Company had aggregate future operating
lease obligations of approximately $1,839,000 at March 31, 1996. The
Company spent $1,192,000 during the nine-months ended March 31, 1996 for
the purchase of capital equipment and leasehold improvements.
The Company's near term operating requirements include increased
research and development expenditures, including costs related to
clinical trials and new product development and manufacturing. The
Company's capital spending program includes purchases of additional
equipment for its research and development laboratories and pilot
manufacturing facility. In subsequent fiscal years, the Company's
operating requirements are expected to include continuing increases in
research and development funding to cover the costs of manufacturing
process improvements, expanded clinical trials and new product
development, as well as general, administrative, marketing and
distribution expenses.
<PAGE> 16
SOMATOGEN, INC.
In order to meet its long-term financing requirements, the
Company may pursue a number of financing alternatives, including public
and/or private offerings of securities and additional strategic
alliances. However, there can be no assurance that the Company will be
able to raise additional financing from any of such sources, or that any
additional funding which may become available to the Company will be on
acceptable terms. The Company's ability to raise additional financing
may be dependent on many factors beyond the Company's control, including
the state of the capital markets and the rate of progress of the
Company's clinical trials. Any additional financing that the Company
may be able to obtain could result in substantial dilution to existing
stockholders. If adequate funds are not available, the Company will be
required to significantly curtail operations. Any such action could
impact the Company's research and development programs, including the
Company's clinical trial program. Any of these events could adversely
affect the Company's ability to commercialize its products.
Cash requirements for the Company may vary materially from those
now planned due to results of research and development, results of
clinical testing, changes in focus and direction of the Company's
research and development programs, manufacturing processes, competitive
and technological advances, the FDA regulatory process, changes
in the Company's marketing and distribution strategy and other factors.
<PAGE> 17
PART II. OTHER INFORMATION
SOMATOGEN, INC.
Item 6.--Exhibits and Reports on Form 8-K
a) Exhibits
None
b) Reports on Form 8-K
None
<PAGE> 18
SIGNATURES
SOMATOGEN, INC.
The financial information furnished herein has not been audited
by independent auditors; however, in the opinion of management all
adjustments necessary for a fair presentation for the three and nine-
month periods ended March 31, 1996 and 1995, have been included.
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Date: May 14, 1996 SOMATOGEN, INC.
Andre de Bruin
-------------------------
President and Chief Executive
Officer (Authorized Signatory)
Timothy D. Hoogheem
-------------------------
Vice President Finance, Chief
Financial Officer and Treasurer
(Principal Financial Officer)
Conrad A. McCarty
-------------------------
Corporate Controller
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM SOMATOGEN, INC.'S CONSOLIDATED BALANCE SHEET AS OF
MARCH 31, 1996 AND THE CONSOLIDATED STATEMENT OF OPERATIONS FOR
THE THREE AND NINE-MONTHS ENDED MARCH 31, 1996, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 26,181
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0
0
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</TABLE>
