By Mary Welch

Cangene Corp. will acquire Hyal Pharmaceutical Corp. in a deal worth about $1.6 million.

Cangene offered to buy all of Hyal's 31.8 shares of common stock for 5 cents (C$0.08) each and to provide interim funding of up to $234,000 (C$349,000) on a secured basis. The deal should close around Sept. 20.

Hyal, based in Mississauga, Ontario, already had agreed to be acquired by SkyePharma plc, of London in a deal under which SkyePharma offered to pay shareholders 5 cents per share if Hyal's lead product, Solarase, got FDA approval by Dec. 31, 2000.

In addition, SkyePharma agreed to pay Hyal's debt, which consists of $5 million outstanding in 12 percent subordinated debentures. SkyePharma would have settled that debt in two payments of its common stock. The first payment, of $4.1 million, would have been due at the transaction's closing; the second, of $688,096, would be paid if Solarase receives FDA approval by the end of 2000. (See BioWorld Today, May 20, 1999, p. 1.)

"This is a takeover," said a Hyal spokeswoman who chose not to be identified. "While we had an agreement with SkyePharma, we weren't able to solicit other offers. But Cangene's was an unsolicited offer and it was a better deal. The board is under an obligation to entertain offers that bring more to the shareholders.

"Cangene offered us 8 cents Canadian for each share and it wasn't based on Solarase being approved. It was straight cash," she added.

Consummation of the deal is dependent on a number of conditions, including the entering of an agreement between Cangene and the debenture holders for the repayment of Hyal's 12 percent subordinated debentures.

"We really can't talk about this or why we are interested in Hyal," said Jean Compton, manager of investor relations for Cangene, of Winnipeg, Manitoba. "We are still in negotiations with some of the parties."

Cangene, one of Canada's largest biotechnology companies, uses patented manufacturing processes to produce plasma-derived and recombinant therapeutic proteins.

Solarase is a topical gel used to treat actinic keratosis, a pre-cancerous skin condition caused by overexposure to the sun. Approved in six countries, the drug was accepted for review by the FDA in December. A SkyePharma official had estimated Solarase could generate $48 million in total European and U.S. sales.

In addition to Solarase, Hyal has two other compounds in clinical trials: HYAL AT-2101, a topical treatment for pain, and HYAL-2201, an intravenous formulation for moderate to severe pain.

"We don't know what will happen to the other products in our pipeline," the Hyal spokeswoman said.

In the first quarter of 1999, Hyal reported a net loss of C$1.2 million, compared with a net loss of C$3.2 million for the same period in 1998. In its news release on the quarterly data, dated June 2, the company said that in mid-May, it had exhausted its operating funds and could not pay the outstanding principal amount of $5 million on the subordinated debenture due April 16. Rather than face liquidation with the probability of shareholders realizing no value, the company entered into its agreement with SkyePharma.

Hyal's stock (NASDAQ:HYALF) closed Wednesday at $0.09, down 5 cents. Cangene's stock (TSE:CNJ) closed unchanged at $5.00.