The story of Andromeda's Type 1 diabetes treatment DiaPep277 seemed over and done with when last September, Hyperion, which had bought Andromeda, accused some of its employees of fraud in the analysis of the Phase III trial carried out on the drug. Hyperion announced at the time that it would not be possible to continue developing the drug, and that there was no point in submitting it to the regulatory authorities.
Hyperion's bombshell led to a plunge in the share price of Clal Biotech, Andromeda's previous owner, which was to have benefitted from substantial royalties from the product had it reached the market. Clal Biotech, run by CEO Ruben Krupik,sued Hyperion, but among all the possible outcomes of the lawsuit, few would have bet on continued development of the drug.
But in Israel's biomed industry the unbelievable is an everyday occurrence, for better or worse. Today, the two companies, Hyperion and Clal Biotech, announced that they had signed an agreement. In the wording of the agreement, Hyperion dramatically changes its description of what happened in the problematic trial, from fraud to 'Good Clinical Practice violations'. Such violations are certainly still a serious matter that can invalidate a trial, but there is a wide difference between that and fraud.
Clal Biotech has agree to halt its lawsuit against Hyperion, and an independent expert evaluator will examine all the data from the two multi-center trials carried out by Andromeda: the one on the basis of which the company was sold to Hyperion, which Hyperion sees as invalid, and the trial currently being carried out on the drug. Clal Biotech believes, on the basis of the evaluator's opinion, that if the trial results are good, it will be possible to submit the data from the first trial to the US Food and Drug Administration and its European counterpart, as the parties agree that the trial data are uncompromised, and that the problem lies in the statistical analysis of it.
Under the agreement, Hyperion, which has already invested about $40 million in the product, will finance the trial to completion to the tune of $10.5 million. Another $2 million will be allocated for the independent evaluator for statistical analysis of the results. If the results are good and Clal Biotech decides to proceed with the product, it will be able to buy back the rights for $3.5 million in Hyperion shares (which it holds because part of the original deal was paid in shares) and single-figure royalties from profits on sales of the drug if it comes to market, capped at $36.5 million.
Clal Biotech is paying $2.5 million for this option. The Weizmann Institute's Yeda technology transfer company and Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) were also involved in formulating the agreement. The drug was developed under Teva's supervision in the period in which the alleged breaches occurred. Teva will also be entitled to some royalties if the drug reaches the market.
Even if the results of the second trial are good, it is hard to say what the FDA and the European regulator will have to say about the whole affair. It is likely that, at the very least, another, completely clean trial will be required, if only to be on the safe side. The affair has caused considerable damage to the image of Clal Biotech and of Israel's biomed industry in general, and the fact that Hyperion has significantly moderated its description of 'the conduct', cannot repair the damage. Since the Andromeda affair broke, Clal Biotech has lost 58% of its value, mainly reflecting the loss of potential revenue from Andromeda, but also the damage to its image. All the same, this affair represents a further example of the surprising psychological robustness of the Israeli companies in the face of the pressures of the international market.
Clal Biotech could have given up on Andromeda completely and licked its wounds, or gone through with a protracted lawsuit against Hyperion, but it chose to cooperate with it, in a way that could (if not necessarily with a high degree of probability) save the drug. We saw just such a surprising comeback in the case of VBL, which returned to the market after its flotation was cancelled after it had already begun to be traded, and it is now traded at a good return over its offering price. Of course, the effort will only pay off for Clal Biotech (and the diabetes patients) if Andromeda's drug does eventually reach the market. The results of the second trial are expected by September at the latest.
The Andromeda employees who were employed by Hyperion after the acquisition have all been dismissed, but Hyperion is not suing them.
Published by Globes [online], Israel business news - www.globes-online.com - on February 17, 2015
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