Lidak Pharmaceuticals, looking to fill gaps in its product pipeline,signed a non-binding letter of intent to acquire Biofor Inc., a rationaldrug design subsidiary of Scherer Healthcare Inc.

No cash would change hands in the deal. Lidak, of La Jolla,. Calif.,would issue up to $10 million worth of its common stock to Scherer,which earlier this year failed in its takeover bid of cash-rich ProCyteCorp.

Eighty percent of the Lidak stock (NASDAQ:LDAKA) would beissued up-front, with any lock-up period to be determined, said BruceNuss, Lidak's vice president and chief financial officer. Theremaining 20 percent would be held in escrow, and could be returnedto Lidak within two years or made available to Scherer at that time,depending on certain conditions being met.

On Dec. 31, Lidak reported having about $15 million in cash andequivalents and 28.6 million shares outstanding. Its stock closedunchanged Monday at $3.63. Nuss said the stock would be sold atmarket price at the time of closing. At $3.63, Atlanta-based Schererwould get a maximum of 2.75 million Lidak shares, or about 8.5percent of those that would be outstanding.

Lidak's lead product Lidakol (n-docosonal 10 percent cream) is inPhase III trials for oral herpes. The company also has a preclinicalcancer vaccine program called a large multivalent immunogen (LMI)involving tumor antigen-coated beads that enhance the ability ofcytotoxic T lymphocytes to attack living cells of like origin.

"We are interested in finding new technologies to expand ourpipeline," Nuss said. "We've been trying to identify opportunitiesthat are affordable and can be done with a stock deal."

Nuss said the deal still is in preliminary stages, and Lidak will be ableto assess the worth of Biofor after due diligence on both the businessand scientific sides.

Biofor, of Waverly, Pa., was started in 1986 with funding fromScherer. Its lead technology was called CASE (Computer AutomatedStructure Evaluation), and now is called MCAAD, or MultiCASEAssisted Drug Design.

The technology, licensed from Case Western Reserve University inCleveland, uses a knowledge base of compounds with knownactivities to generate biophores, which are molecule fragments likepharmacophores but enhanced with modulators to boost or inhibitactivity.

Robert Naismith, president and CEO of Biofor, said the companypays a $200,000 annual license fee for rights to the technology,which has been enhanced over the years to include the ability toconsider the three-dimensional aspects of a fragment as well ascontain routines that consider metabolites.

"I believe Biofor, being associated with Lidak, has a greater upside inbiopharmaceuticals because of the filling out of our company," inthat Lidak has regulatory, clinical and business developmentexpertise that Biofor lacks, Naismith said. "Since we've existed,we've always been scientists trying to advance molecules throughpreclinical development."

He said that Lidak also may be in a better position financially tosupport work at Biofor, which has 18 employees, eight of whom havePh.D.s. Biofor has anti-inflammatory and anti-fungal products inpreclinical development, and is working on synthesis of compoundsfor respiratory disease and atherosclerosis.

Scherer, which made a heated attempt to buy Kirkland, Wash.-basedProCyte and acquire its $40 million or so in cash, has been strugglingsince the takeover was thwarted. The idea was that ProCyte, Bioforand a third company involved in the proposed merger, DermaSciences Inc., of Old Forge, Pa., would be the development arm ofScherer.

But Scherer presumably now will be content to get into thebiotechnology arena solely through its holding in Lidak. Schererofficials did not return phone calls from BioWorld on Monday. n

-- Jim Shrine

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