Alpha 1 Biomedicals Inc. and a new company formed byThe Castle Group Ltd. are proposing a type of reversemerger in which Alpha 1 would be the survivingcompany but would own a minority stake.

The companies said Wednesday they have a letter ofintent for the merger of the new company, MicroBio Inc.,into Alpha 1, of Bethesda, Md. Alpha 1, struggling sincelast year's failed clinical trial of its lead candidate, wasunable to secure financing for its new program from othersources.

MicroBio was formed by the biotechnology venture firmto acquire technology, and is in the late stages ofnegotiations for the acquisition of a license to a productalready in human trials, said Steve Kanzer, managingdirector of New York-based The Castle Group andpresident of MicroBio.

The Castle Group would fund the merged company withbetween $5 million and $10 million, and would be issued24 million to 39 million shares of Alpha 1 (OTC:ALBM)stock. Kanzer said the amount of stock issued toMicroBio shareholders would depend on the amount offunding provided.

Alpha 1 has about 9 million shares outstanding. Itsshareholders would own between 19 and 27 percent ofthe merged company. Alpha 1's stock closed Wednesdayat 51 cents per share, up 3 cents.

"We recognized that the compound we're licensing andthe compound Alpha 1 is developing [thymosin beta 4]have a lot in common," Kanzer told BioWorld Today."We thought it was a good fit." Kanzer would notdisclose the product MicroBio intends to license, norwhat stage of development it's in. He said, however, thatthe synergy of the two products relates to theirdevelopment strategy.

"Alpha 1 has a very good, proven management team thatwe like," Kanzer said. "As of now they have a narrowportfolio, which they're interested in expanding, and wehave a very good product in human clinical trials already,but with no management team.".

Alpha 1 Biomedicals was set back in April 1994 when itsU.S. Phase III trial of thymosin alpha 1 for chronichepatitis B failed to show efficacy vs. placebo. Thecompany later sold most of the rights to the product toSciClone Pharmaceuticals Inc., of San Mateo, Calif.,which already had licensed certain rights.

Thymosin beta 4, based on a peptide from thymic extract,affects the polymerization of actin, Alpha 1 said. Excesspolymerized actin has been linked to disorders such ascystic fibrosis, sepsis, asthma and chronic bronchitis. Aninvestigational new drug application to begin humanclinical trials is expected to be filed in the next sixmonths, with the lead indication being cystic fibrosis, R.J.Lanham, Alpha 1's vice president and chief financialofficer, told BioWorld Today.

Lanham said Alpha 1 had about $2.3 million in cash atthe end of June, enough to get into the fourth quarter ofthis year. He said the company sought financing from avariety of sources before The Castle Group came in withits offer.

Alpha 1, with five employees, also has a 50/50 jointventure _ called Viral Technologies Inc. _ with Cel-SciCorp., of Alexandria, Va. Viral Technologies isdeveloping an AIDS vaccine. But Alpha 1 has said itwants to sell its interest in Viral Technologies, andintends to discontinue its funding obligations after Sept.30, 1995.

The completion of the merger is contingent upon at least$5 million in financing and the approval of Alpha 1shareholders. They hope to conclude a definitiveagreement by Nov. 1, 1995, and close the transaction inthe first quarter of 1996. n

-- Jim Shrine Staff Writer

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