The Andromeda affair, in which an Israeli company is being accused of forging clinical trial results for its juvenile diabetes drug, continues to make headlines. Clal Biotechnology Industries Ltd. (TASE: CBI), which owned nearly 100% of the company before it was sold to US company Hyperion in June, announced yesterday that it had been sent a request for approval of a NIS 127 million class action suit for violation of the duty to disclose under the Securities Law. The party filing the request is a private investor who lost NIS 24,000 on the company.
The investor alleges that any report by Clal Biotech referring to Andromeda's "successful trial" or to the value of the company was misleading, even though all these reports by Clal Biotech included a disclaimer saying, "Andromeda reported to the company that…," and it could therefore be claimed that the wording of the report was not misleading.
The request raises a more important legal point: whether Clal Biotech, as the controlling shareholder in Andromeda, whose managers were on Andromeda's board of directors, should have checked the trial data more thoroughly. As of now, at least, Hyperion has not directly accused Clal Biotech of fraud, mentioning only "certain Andromeda employees" in this context.
"Remote system of management
The Clal Biotech share was down a further 7.9% today, completing a 52% plunge since Hyperion's unilateral announcement of a halt in development of the drug, received on Monday afternoon. Clal Biotech has lost NIS 544 million in market cap to date.
A market source told "Globes" today, "I don't believe that people at Clal Biotech, managed by Ruben Krupik, are capable of consciously living with the knowledge that the results were falsified. At the same time, their behavior as investors is considered rather remote, meaning that they relied on management, and did not always check every particular of what they were told, even though they were the leading investor."
A statement like this could help Clal Biotech in the claim filed today and in a potential claim by Hyperion, but the question arises of whether such a style of management allows the investment company to protect itself against similar events in other companies.
Mori Arkin, an investor in multiple biomedical segments who often invests in biotechnology companies together with Clal Biotech (he is the former owner of Agis, sold to Perrigo for $900 million), said today, "There is no need for us to rebuke ourselves too much - neither the Israeli company nor the biomedical industry as a whole. The acquiring company, Hyperion, is not a large company. The data had these weaknesses from the beginning, and large companies probably realized it. If Hyperion overlooked weak points in the data, it's their mistake, not that of the other side, and it's not nice to make such unilateral accusations. It's the court's job to do that after a claim, and it's not acceptable to lash out and damage the reputation of various parties."
Published by Globes [online], Israel business news - www.globes-online.com - on September 10, 2014
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