Andromeda trial failure spells likely end of company

pharmaceuticals

Clal Biotechnology's share price fell 20% following publication of the juvenile diabetes treatment results.

The latest chapter in the story of biomedical company Andromeda was revealed today, and it is not a positive one. The company's advanced clinical trial of DiaPep277, the drug it developed for treatment of juvenile diabetes, was a failure. Clal Biotechnology Industries Ltd. (TASE: CBI), Andromeda's former parent company, controlled by Len Blavatnik, reported the result to the Tel Aviv Stock Exchange (TASE), because it has an option to buy the company back from US company Hyperion.

This option is still valid, although, given the negative trial results, Clal Biotechnology appears unlikely to exercise it. In its report yesterday, Clal Biotechnology noted that initial results had been obtained from the trial indicating that the main target had not been achieved. The report added that Clal Biotechnology would evaluate the trial data and make a decision about exercising its option by September 30. The Clal Biotechnology share price plunged 20% in trading following the report. Clal Biotechnology, managed by CEO Ruben Krupik, who recently announced his intention to resign, has a NIS 390 million market cap.

Clal Biotechnology is a holding company in life sciences and medical technology. Its main portfolio companies are Gamida Cell, MediWound Ltd. (Nasdaq:MDWD), and CureTech. The Phase III trial of Andromeda's drug was conducted after the drug already appeared to be a hopeless case with no future. The history of DiaPep277 began when Clal Biotechnology and Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) owned the rights to the drug, after Teva invested tens of millions of dollars in its development over the years. In 2014, however, Teva decided to waive its rights, and sold them back to Clal Biotechnology. Several days later, it appeared that Clal Biotechnology had made the deal of a lifetime, when it announced that Andromeda had been sold to Hyperion in a deal that could have amounted to $570 million, while the immediate proceeds for Clal Biotechnology were $20 million in cash.

Several months later, after Clal Biotechnology had already recognized a NIS 482 million profit on the sale, Hyperion stunned Clal Biotechnology and the entire market by unilaterally announced the cancellation of the deal and accusing Andromeda employees of slanting the clinical trial results. "I have never seen such fraud," Hyperion CEO Donald Santel said. Clal Biotechnology, which was very anxious about the damage to its reputation, countersued Hyperion. The parties eventually resumed their contacts, and Hyperion retracted its accusations of fraud, alleging "Good Clinical Practice violations" instead, and several months ago, another clinical trial of the drug financed by Hyperion was agreed, while Clal Biotechnology received an option to buy back Andromeda. While this was happening, Hyperion itself was sold, generating a capital gain for Clal Biotechnology, which received Hyperion shares in the Andromeda deal. An external committee examined the trial, which has now ended in failure.

Despite Clal Biotechnology's disappointment, it does not appear that the company has suffered financially from the deal. Before Hyperion entered the picture, Teva financed most of the development, while Hyperion footed the bill afterwards. It is estimated that over $100 million has been invested in the product, more than half by Hyperion. As a result of its agreement with Hyperion, Clal Biotechnology has even made a $20 million profit on the venture. At the same time, it is clear that after so many years of development, Clal Biotechnology would have preferred to see a successful product sold in the market, especially in view of the great potential in the market for treating juvenile diabetes. Beyond the financial aspect, it is clear that the Hyperion-Andromeda affair was embarrassing for Clal Biotechnology, and did not contribute to its reputation.

Clal Biotechnology's image has suffered, even if the company has never been accused of fraud. At the same time, Andromeda and DiaPep277 have always been featured in Clal Biotechnology's portfolio, which in retrospect has proven to be a problem. What will happen now to the product and the company's employees? As of now, Andromeda's employees are part of Hyperion, which was acquired by Horizon Pharma. Clal Biotechnology has an option to repurchase Andromeda, for which it paid $2.5 million, with the maximum amount to be paid to Hyperion being $36.5 million. In the current format, it appears that there is no justification for continuing development of the drug, but Clal Biotechnology will assess the complete statistical data from the trial, and decide what to do, and whether further investment is justified. It is possible, for example, that the data will indicate that the drug is more suitable for certain age groups.

Published by Globes [online], Israel business news - www.globes-online.com - on September 3, 2015

© Copyright of Globes Publisher Itonut (1983) Ltd. 2015

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