Halcygen to Acquire Subsidiary of Hospira Australia

HalcyGen Pharmaceuticals has entered into an agreement with Hospira Australia, to acquire all the outstanding shares in Mayne Pharma International (MPI) – one of the businesses that Hospira purchased when it acquired Mayne Pharma in 2007 - for US$15.0 million and an “Earnings Sharing Arrangement”.

The former has decided to acquire MPI to:

- Acquire the manufacturing rights for SUBA-Itraconazole and associated financial benefits;

- Acquire SUBA-Itraconazole marketing rights in Australia and New Zealand; and

- Acquire royalty streams that may have been payable to MPI in the event that manufacturing was not undertaken at MPI.

The acquisition also provides HalcyGen with a significant product portfolio and pipeline. HalcyGen obtains ownership of several key pharmaceuticals currently licensed to pharmaceutical partners worldwide, in particular Doryx (an improved doxycycline enteric coated formulation), licensed to Warner Chilcott in the US.

Through MPI’s portfolio of pharmaceutical drug sales, the Company is expected to show revenues of $63.2 million for calendar year 2009 and an EBITDA of US$31.2 million for this same period. Following the acquisition, HalcyGen expects to report sales in excess of $42.2 million for the financial year 2010.

The “Earnings Sharing Arrangement” allows Hospira to receive a percentage of gross sales dependent on the achievement of gross sales in excess of certain target threshold levels by MPI. The “Earn Out” is capped on an annual basis over a six-year period.

The acquisition includes land (approximately 30 acres) situated in Salisbury, South Australia; associated buildings, inventory, plant and equipment; employees, customer contracts and relationships; as well as an intellectual property portfolio.

The acquisition is largely non-dilutive for HalcyGen, being implemented through a loan from National Australia Bank (NAB) of US$10.0 million to be repaid within 2 years from profits and further supplemented by a US$9.0 million two-tranche placement of shares to be underwritten by Patersons Securities, at US$0.20 per share. The second tranche of the placement will be subject to shareholder approval.

The company will also offer existing shareholders the opportunity to participate in a Share Placement Plan (SPP) at the same price of US$0.20 per share. The record date for the SPP will be October 7, 2009. The SPP will be subject to shareholder approval and is also to be underwritten by Patersons Securities to US$4.5 million.

At the completion of both offerings, HalcyGen will have raised at least US$11.0 million and will have issued at least 55 million additional shares.

The transaction is due to close in late October.