Bio-Pharm Clinical Services Inc. and Affinity Biotech Inc.announced Thursday that they have signed a letter of intent tomerge.

Privately held Bio-Pharm, an 8-year-old clinical researchorganization, will merge into Affinity in a $50 milliontransaction involving both stock and a cash investment fromventure capital sources. Following the merger, drug-deliveryand formulation specialist Affinity (NASDAQ:AFBI) will operatethrough three divisions: Bio-Pharm Clinical Services, AffinityBiosciences (comprising Affinity's present operating assets) andAffinity Pharmaceutics.

Under the terms of the merger Affinity will issue 6.1 millionnew shares of its common stock to Bio-Pharm shareholders;currently outstanding options to purchase 111,226 shares ofBio-Pharm common stock will be converted into options topurchase 1.8 million shares of Affinity's common stock.

Affinity of Aston, Pa., has 5.4 million shares of common stockand options outstanding and warrants to purchase anadditional 943,113 shares of common stock. "On a fully dilutedbasis, and pricing the stock at $3.25 per share, Affinity isvalued at $21 million for the purposes of this merger,"explained Wayne Weisman, Affinity's executive vice president.

He added that Bio-Pharm has been valued at $25 million.Moreover, because three venture capital funds (which areexisting investors in either Affinity or Bio-Pharm) have agreedto invest $4 million in Bio-Pharm at or before the closing of themerger, the total value of the transaction "approximates $50million," Weisman told BioWorld. The equity securitiespurchased by the venture funds will be converted into anadditional 1.23 million shares of Affinity common stock.

The actual merger is subject to a number of conditions,including the approval of shareholders of both companies. Themerger should be finalized by March 31, 1994. The mergedcompany will be owned 55 percent by Bio-Pharm stockholdersand 45 percent by Affinity shareholders.

"The combination of Affinity and Bio-Pharm creates a productdevelopment company offering a wide range of services to thepharmaceutical and biotechnology industries. Affinity'sproprietary technologies and formulation expertise willimprove Bio-Pharm's ability to service its clients at an earlyproduct development stage," said Geraldine Henwood, who isnow president and chief executive officer of Bio-Pharm andwill be president and CEO of Affinity.

"Bio-Pharm's industry understanding and its ability to developproducts to a commercial endpoint will help Affinity find thefastest, most cost-effective route to commercializing productsfor its clients," she added.

Affinity Biotech's stock gained 63 cents a share on Thursday,closing at $3.75.

-- Jennifer Van Brunt Senior Editor

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