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 September 30,
         1997.

   --  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., Suite FD 1, Boulder, CO             80301-2857
  (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                               20,873,220
         Class                                  Outstanding at October 22, 1997

There are a total of 11 pages included in this document.


Somatogen,  Inc., the Somatogen logo and Optro are tradenames  and/or trademarks
of the Company.  All other brand names or trademarks appearing in this Form 10-Q
are the property of their respective holders.


<PAGE> 2

                              SOMATOGEN, INC.
                                    INDEX







PART I.  FINANCIAL INFORMATION                                        PAGE NO.

  Consolidated Balance Sheet -
         September 30, 1997 and June 30, 1997                             3

  Consolidated Statement of Operations-
         for the three-month periods ended September 30, 1997
         and 1996 and the period from July 10, 1985 (inception) to
         September 30, 1997                                               4

  Consolidated Statement of Cash Flows -
         for the three-month periods ended September 30, 1997 and
         1996 and the period from July 10, 1985 (inception) to
         September 30, 1997                                               5

  Notes to Consolidated Financial Statements                              6

  Management's Discussion and Analysis of Financial Condition
         and Results of Operations                                       7-9

PART II. OTHER INFORMATION                                               10

SIGNATURES                                                               11





<PAGE> 3

                                SOMATOGEN, INC.
                     (A Corporation in the Development Stage)
                          CONSOLIDATED BALANCE SHEET
               (In thousands, except share and per share amounts)

                                     ASSETS
 <TABLE>
<CAPTION>
                                                                   September 30,         June 30,
                                                                        1997                1997
                                                                    ------------          -------
                                                                     (unaudited)
<S>                                                                 <C>                   <C>

Current assets:
     Cash and cash equivalents                                       $    13,400        $    24,868
     Short-term investments                                               26,982             19,158
     Other receivables                                                       530                483
     Prepaid expenses and other current assets                               513                382
                                                                     -----------        -----------
         Total current assets                                             41,425             44,891

Property and equipment, at cost, net of
       accumulated depreciation and amortization                           3,706              3,842
Assets held for sale                                                       5,787              5,942
Other assets, net                                                          1,368              1,356
                                                                     -----------        -----------
                                                                     $    52,286        $    56,031
                                                                     ===========        ===========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
     Accounts payable                                                $     1,300        $     1,363
     Accrued payroll                                                         761                543
     Other accrued liabilities                                               563                527
                                                                     -----------        -----------
        Total current liabilities                                          2,624              2,433
                                                                     -----------        -----------
Commitments and contingencies
Stockholders' equity:
     Preferred stock, $.001 par value, 10,000,000 shares
         authorized at September 30, 1997,
         no shares issued or outstanding                                    --                 --
     Common stock, $.001 par value; 35,000,000 shares
         authorized, 20,870,746 and 20,865,362 shares
         issued and outstanding at September 30, 1997 and
         June 30, 1997, respectively                                          21                 21
     Additional paid-in capital                                          205,662            205,652
     Deficit accumulated during the development stage                   (155,862)          (151,888)
     Deferred compensation related to grant of options                      (159)              (187)
                                                                     -----------        -----------
         Total stockholders' equity                                       49,662             53,598
                                                                     -----------        -----------
                                                                     $    52,286        $    56,031
                                                                     ===========        ===========

</TABLE>


                  See accompanying notes to consolidated financial statements.




<PAGE> 4


                                          SOMATOGEN, INC.
                            (A Corporation in the Development Stage)
                              CONSOLIDATED STATEMENT OF OPERATIONS
                        (In thousands, except share and per share amounts)
                                            (Unaudited)
<TABLE>
<CAPTION>

                                                                                                    Period from
                                                            Three-months ended                     July 10, 1985
                                                               September 30,                      (inception) to
                                                          1997                1996              September 30, 1997
                                                          ----                ----              ------------------
<S>                                                  <C>                <C>                     <C>

Revenue:
   Technology disclosure and license fees           $         --        $         --             $       4,904
   Research and development grants
       and contracts                                          --                  --                     1,684
                                                    ------------        ------------             -------------
         Total revenue                                        --                  --                     6,588
                                                    ------------        ------------             -------------
Operating expense:
   Research and development                                3,750               4,881                   125,081
   Reimbursements from Lilly                                  --              (1,669)                  (15,577)
   Reimbursements to Lilly                                    --                 840                     4,483
                                                     -----------        ------------             -------------
   Research and development, net                           3,750               4,052                   113,987
   General, administrative and marketing                     823               1,010                    32,195
   Writedown of manufacturing
       facility assets                                        --                  --                    29,194
                                                     -----------        ------------             -------------
         Total operating expense                           4,573               5,062                   175,376
                                                     -----------        ------------             -------------
   Operating loss                                         (4,573)             (5,062)                 (168,788)

   Interest and other income, net                            599                 685                    17,844
                                                     -----------        ------------             -------------

   Loss from continuing operations                        (3,974)             (4,377)                 (150,944)

Discontinued operations:
   Loss from operations of subsidiary                         --                  --                    (1,225)
   Gain on sale of subsidiary                                 --                  --                       300
                                                    ------------         -----------             -------------
   Net loss                                         $     (3,974)       $     (4,377)            $    (151,869)
                                                    ============         ===========             =============

   Net loss per share                               $      (0.19)       $      (0.21)
                                                    ============        ============
   Shares used in calculating
       per share data                                 20,871,000          20,703,000
                                                    ============        ============
</TABLE>

                 See accompanying notes to consolidated financial statements.



<PAGE> 5

                                           SOMATOGEN, INC.
                                (A Corporation in the Development Stage)
                                  CONSOLIDATED STATEMENT OF CASH FLOWS
                                      (In thousands - unaudited)

<TABLE>
<CAPTION>
                                                                                                      Period from
                                                                         Three-months ended          July 10, 1985
                                                                            September 30,           (inception) to
                                                                         1997           1996       September 30, 1997
                                                                         ----           ----       ------------------
<S>                                                               <C>             <C>              <C>

Cash flows provided by (used in) operating activities:
     Net loss                                                     $    (3,974)    $    (4,377)      $   (151,869)
     Adjustments to reconcile net loss to net cash
         used in operating activities:
         Depreciation and amortization                                    365             400             16,817
         Writedown of manufacturing facility assets                        --              --             29,194
         Other, net                                                        (1)             30              1,212
     Changes in assets and liabilities:
         Receivables                                                      (47)            459               (368)
         Prepaid expenses and other current assets                       (131)            151               (488)
         Accounts payable and accrued liabilities                         191            (466)             2,775
         Other, net                                                        --              --                335
                                                                  -----------     -----------       ------------
           Net cash used in operating activities                       (3,597)         (3,803)          (102,392)
                                                                  -----------     -----------       ------------

Cash flows provided by (used in) investing activities:
     Purchase of short-term investments                               (15,613)         (5,246)          (324,292)
     Proceeds from sale of short-term investments                       7,789          13,479            297,310
     Purchases of property and equipment                                 (154)           (272)           (23,665)
     Proceeds from sale of property and equipment                         145             102              3,455
     Additions to construction-in-progress                                 --              --            (18,956)
     Other, net                                                           (48)            (61)            (9,336)
                                                                  -----------     -----------       ------------
         Net cash provided by (used in) investing activities           (7,881)          8,002            (75,484)
                                                                  -----------     -----------       ------------
Cash flows provided by (used in) financing activities:
     Payments of capital lease obligations and long-
         term debt                                                         --             (80)           (10,467)
     Net proceeds from issuance of stock and warrants                      10              93            198,224
     Other                                                                 --              --              3,519
                                                                  -----------     -----------       ------------
     Net cash provided by financing activities                             10              13            191,276
                                                                  -----------     -----------       ------------
Net increase (decrease) in cash and cash equivalents                  (11,468)          4,212             13,400
Cash and cash equivalents at beginning of period                       24,868          29,541                 --
                                                                  -----------     -----------       ------------
Cash and cash equivalents at end of period                        $    13,400      $   33,753       $     13,400
                                                                  ===========     ===========       ============
Supplemental disclosures of cash flow information:
     Cash paid for interest                                       $         3      $        7       $      2,402
     Capital lease obligations incurred for purchase
         of property and equipment                                         --              --              5,318
     Equipment deposits transferred to net
         property, plant and equipment                                     --              --              3,423
     Net property, plant and equipment transferred
         to assets held for sale                                           --              --              9,541
</TABLE>

                See accompanying notes to consolidated financial statements.


<PAGE> 6


                                    SOMATOGEN, INC.
                      (A Corporation in the Development Stage)
                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                    September 30, 1997
                                       (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  September  30, 1997 and the  consolidated  results of
operations  and of cash flows for the  three-month  periods ended  September 30,
1997 and 1996,  and for the period from July 10, 1985  (inception)  to September
30, 1997. The accompanying  consolidated  financial statements should be read in
conjunction with the consolidated financial statements included in the Company's
Annual Report on Form 10-K for the year ended June 30, 1997. The information set
forth in the  accompanying  consolidated  balance sheet as of June 30, 1997, 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, 1997.

         Interim results are not  necessarily  indicative of the results for the
full year.


Note 2.  Strategic Alliance and Research and Development Arrangement

     In June 1994,  the Company  entered into a global  strategic  alliance (the
"Alliance")  with Eli Lilly and  Company  ("Lilly")  to  co-develop  Optro,  the
Company's lead development  compound. In March 1997, the Company received notice
of Lilly's decision to discontinue its  co-development of Optro. The termination
was effective  May 20, 1997, at which time all rights to Optro  reverted back to
the Company, except the marketing rights to Optro in Scandinavia which Pharmacia
& Upjohn Inc. received under its 1991 agreement with the Company.  In accordance
with the termination provision of the Alliance,  the Company received a one-time
termination  payment of $6,000,000 in May 1997 and in July 1997, the Company and
Lilly executed a revolving  credit agreement which provides that the Company may
borrow up to $8,000,000 from Lilly.

Note 3.  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.


<PAGE> 7

                               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  Annual  Report on Form 10-K for the year ended June
30, 1997.

     Since 1987,  Somatogen has been a development stage Company and has devoted
substantially  all of its efforts and  resources  to  research  and  development
related to its recombinant hemoglobin technology.  No revenue has been generated
by  Somatogen  to date from  commercial  product  sales,  and such sales are not
expected  to  commence  for  several  years,  if at all.  To  achieve  sustained
profitable  operations,  Somatogen must successfully develop,  obtain regulatory
approval for,  manufacture and market its products.  The time-frame necessary to
achieve market success for any individual  product is long and uncertain.  There
can be no assurance  that the Company will be able to achieve  profitability  at
all or on a sustained basis.

     For the period  from its  inception  to  September  30,  1997,  the Company
incurred a cumulative  net loss of  $151,869,000.  The Company  expects to incur
substantial and increasing  operating losses during the remainder of fiscal 1998
and  for  the  next  several  years  as  the  Company's  products  will  require
significant  additional research and development including extensive preclinical
and  clinical  testing,  before the Company will be able to apply for and obtain
approval from the FDA or corresponding  foreign  authorities for any indication,
if at all. There can be no assurance that the Company's research and development
efforts  will  be  successful,   that  any  of  the  Company's   products  under
development,  including  Optro,  will prove to be safe or  effective in clinical
trials,  that the Company will be able to obtain regulatory approval to sell any
products,  that the products can be  manufactured at an acceptable cost and with
appropriate  quality,  or that  any  products,  if and when  approved,  could be
successfully marketed.

Results of Operations

     Revenue

     The Company did not recognize any revenue for the three-month periods ended
September 30, 1997 or 1996.

     Operating Expenses

     Total operating  expense  decreased by 10% to $4,573,000 during the quarter
ended  September  30,  1997 from  $5,062,000  for the  comparable  period in the
previous fiscal year.

     Net research and  development  expense for the quarter ended  September 30,
1997 decreased by 7% to $3,750,000 from $4,052,000 for the comparable  period in
the previous fiscal year. The decrease in net research and  development  expense
was primarily due to lower personnel and laboratory  supply expenses,  partially
offset  by  an  increase  in  clinical  trial  expenditures  and a  decrease  in
reimbursements from Eli Lilly and Company ("Lilly").

<PAGE> 8

     General,  administrative and marketing expense decreased by 19% to $823,000
for the quarter ended  September  30, 1997 from  $1,010,000  for the  comparable
quarter in the previous  fiscal year.  This  decrease was  primarily a result of
decreases in personnel and consulting expenses.

     Interest and Other Income, Net

     Interest and other income, net decreased by 13% to $599,000 for the quarter
ended September 30, 1997 from $685,000 for the quarter ended September 30, 1996.
This decrease was primarily a result of decreased  average  investment  balances
partially  offset by higher  yields on U.S.  government  securities,  high grade
commercial paper and money market funds held by the Company.

     Net Loss

     The net loss for the quarter ended  September 30, 1997 was  $3,974,000  (or
$0.19 per share) compared to $4,377,000 (or $0.21 per share) for the same period
in fiscal 1997.

Liquidity and Capital Resources

     Somatogen's  operations to date have consumed  substantial amounts of cash.
Negative cash flow from  operations is expected to increase during the remainder
of fiscal 1998 compared to the levels  experienced during the three-month period
ended  September  30, 1997,  and to increase in  subsequent  fiscal years as the
clinical  studies for Optro increase in scope and the  preclinical  and clinical
studies of new products are undertaken. 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  strategic  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 September 30, 1997 the Company had cash, cash equivalents and short-term
investments of $40,382,000.  The Company's cash, cash equivalents and short-term
investments  decreased  approximately  $3,644,000 during the three-month  period
ended  September  30, 1997.  This  decrease was primarily a result of the use of
cash for operations.

     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  strategic  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> 9



     Land and  building  related to  manufacturing  facilities  and the  related
manufacturing  equipment  aggregating  $5,787,000  are classified in Somatogen's
balance  sheet as assets  held for sale.  During the  three-month  period  ended
September 30, 1997, the Company realized approximately $145,000 in proceeds from
the sale of assets held for sale.  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. 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 September 30,
1997,  the  Company  had  aggregate  future   operating  lease   obligations  of
approximately  $2,364,000.  The Company spent  $154,000  during the  three-month
period  ended  September  30,  1997 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 expanded  preclinical and
clinical studies, expenditures associated with commercial manufacturing, as well
as general, administrative, marketing and distribution expenses.

     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  strategic  alliances.  The Company is  currently
engaged in preliminary  discussions with potential strategic partners.  However,
there  can be no  assurance  that the  Company  will be able to  enter  into any
strategic  relationships  and/or  raise  additional  financing.  There can be no
assurance that any strategic  relationship which the Company may enter into will
be on terms favorable to the Company,  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> 10

                           PART II. OTHER INFORMATION


Item 6.  Exhibits and Reports on Form 8-K

         a)  Exhibits

             10.77    CB Commercial Real Estate Group, Inc. Exclusive
                      Right-to-Sell Listing Contract, dated September 17, 1997.
             27.1     Financial Data Schedule (submitted to the SEC only in
                      electronic format)



         b)  Reports on Form 8-K

             None


<PAGE> 11


                               SOMATOGEN, INC.
                                 SIGNATURES


     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-month  periods ended September
30, 1997 and 1996, 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:    October 27, 1997          SOMATOGEN, INC.


                                   Andre de Bruin
                                   Chairman of the Board, President
                                   and Chief Executive Officer
                                   (Authorized Signatory)



                                   Timothy D. Hoogheem
                                   Senior Vice President of Finance
                                   and Administration, Chief Financial
                                   Officer, Treasurer and Assistant Secretary
                                   (Principal Financial Officer)



                                   Conrad A. McCarty
                                   Corporate Controller
                                   (Principal Accounting Officer)