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ITALIAN FIRM BUYS 25% STAKE IN CELLULAR PRODUCTS

Cellular Products Inc., the loss-plagued Buffalo biotechnology firm that has been searching for a partner to help sell its blood-testing kits, has agreed to sell a 25 percent stake in the company one of its Italian distributors.

Cellular Products, which has never turned a profit in seven years, has signed a letter of intent to sell nearly 4.5 million shares of its stock to Finsystems S.r.l., a Genoa, Italy-based firm that owns the Buffalo company's largest distributor.

The deal calls for Finsystems to pay $1.55 million, or about 36 cents a share, to acquire its stake in Cellular Products.

That price would be a substantial premium over the market value of Cellular Products stock, which was trading at 16 cents a share Wednesday.

Richard A. Montagna, Cellular Products' president, said the deal will give the company the cash infusion it needs to market its products and develop new ones.

"We should not have any major needs (for capital) from here," Montagna said.

"It's like a rebirth of our company," Montagna said. "We felt we needed one more shot in the arm."

Cellular Products has been looking for a merger or marketing partner for nearly a year and a half because it lacks the resources to compete in the national market against powerful and established firms like Abbott Laboratories.

In addition, an unending string of losses pushed Cellular Products into severe financial problems last year, virtually wiping out its cash reserves and forcing the company to fall behind on a series of debt payments.

"It was hard for us to buy even $20 worth of materials" because of the debt problems, Montagna said.

Since then, however, Montagna said the company's financial position has improved somewhat after it restructured some of its problem debts and installed new financial controls. While the company still is losing money, it had a positive cash gain of $30,184 during the first quarter, which was the first time in the company's history that has happened.

The deal, which Montagna said he hopes to finalize within a few weeks, gives Finsystems the option to increase its stake in Cellular Products to 50 percent at a cost of $1.55 million, if the local company meets certain operating targets. Cellular Products would issue another 4.5 million shares to allow Finsystems to obtain a 50 percent stake.

"Ultimately, they would like to have 50 percent of the company," Montagna said.

Finsystems currently owns a 55 percent stake in Medical Systems S.p.A., a Genoa-based distributor that accounts for about 15 percent of Cellular Products' sales. Medical Systems also accounts for most of the revenue that Cellular Products gets from the sale of its two blood-screening kits, which can detect the AIDS virus and a type of leukemia virus known as HTLV-1.

Although Cellular Products' previous marketing agreements with Eastman Kodak Co. and DuPont Co. failed, Montagna said he believes the relationship with Medical Systems will succeed because distributing diagnostic products is the Italian company's sole business.

Cellular Products will continue to focus on selling its blood-screening kits in Europe, while avoiding the more competitive U.S. market, Montagna said. The company also will continue to develop its biomedical research product lines.

Montagna said Medical Systems also is interested in having Cellular Products develop new products for the Italian company, which eventually could lead to the creation of a few new jobs. The company now has 21 full-time and part-time employees, down from 66 workers at the start of last year.

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