After a closer look at their merger with Repligen Corp., MedcoResearch Inc. officials decided their original proposal to swap $51.5million worth of their stock for Repligen's outstanding shares was toogenerous and they are revising their offer downward.

Roger Blevins, Medco's chief operating officer, said Fridaynegotiations are under way to reach an acquisition price "materiallybelow" that agreed upon in the companies' nonbinding May 22 letterof intent to merge.

Blevins said Medco withdrew its original offer after conducting"legal and financial due diligence" on Repligen and discovering"items," which he characterized as "not in the public domain," thatdecreased the value of the company.

Among those items, Blevins noted, are Repligen contracts andpartnerships as well as estimates of the cash it will have at the closeof the deal.

"We are still satisfied with Repligen's science and technology and weare even more comfortable with the opportunities and progress thathave been made," Blevins said.

Medco's motivation in aligning itself with Repligen was expansioninto biotechnology drug development with the Cambridge, Mass.-based company's pipeline of six products. Medco, of ResearchTriangle Park, N.C., has two products on the market. Adenocard is atreatment for supraventricular tachycardia and Adenoscan is a cardiacimaging agent.

Blevins would not estimate how far Medco's offer will fall, but saidhis company wants to complete the merger. The original proposalwas expected to close by mid-July. Blevins said no deadline was setfor reaching a new agreement.

Repligen sought the deal to bolster its dwindling cash reserves. In thepast year, the company has restructured twice, laid off 145 employeesand discontinued two research programs.

But Repligen's chief financial officer, Avery Catlin, said Fridaydelays in completing a merger with Medco will not result in changesin daily operations, programs or personnel in the immediate future.

"We have enough cash for at least 12 months of operation," Catlinsaid, adding that Repligen is committed to working out an agreementwith Medco. Repligen's restructuring in February, he said, wasdesigned to reduce the company's burn rate to $1 million per month.

Catlin disputed Medco's suggestion that it uncovered some surprisesduring perusal of Repligen's legal and financial documents.

"We would contend all those things were in the public domain," hesaid. Catlin declined to discuss specific points of contention.

Under terms of the May 22 agreement, Medco was to issue about$51.5 million in stock for Repligen's 15.3 million outstanding shares.Based on Medco's trading price of about $15 per share prior toannouncement of the deal, Medco would have issued about 3.4million shares and Repligen stockholders would have owned aboutone-third of Medco.

Repligen's per share price was at $1.50 the day before the proposeddeal was disclosed. The company Friday released its financial figuresfor the quarter ending March 31. It reported $15.3 million in cash.

Medco, which said it had $40 million at the close of the fiscal quarterMarch 31, anticipated having a combined $50 million in cashfollowing the merger.

Medco (AMEX:MRE) closed Friday at $13.75, up 50 cents. Repligen(NASDAQ:RGEN) was off 12 cents to $2. n

-- Charles Craig

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