Hyperion and Clal call off their lawyers after botched buyout deal

Hyperion Therapeutics ($HPTX), which argues it was tricked into signing a $570 million deal for an Israeli biotech, has reached a ceasefire with the seller over a diabetes drug with a checkered past.

The saga began last spring when Hyperion agreed to pay Clal Biotechnology $20 million up front and up to $550 million in milestones in exchange for Andromeda Biotech, developer of a Phase III diabetes treatment called DiaPep277. Everything came unraveled by September, however, as Hyperion discovered that the drug's existing late-stage data had some major holes, accusing Andromeda staffers of tampering with trial results and taking up legal arms to get some of its cash back.

Now the two have reached an agreement under which Clal will hand over $2.5 million and Hyperion will promise to complete an ongoing Phase III trial of the drug for an estimated $10.5 million. Once the study is complete, an independent committee with members from Hyperion, Clal and the Weizmann Institute of Science's Yeda will pore over its results. At that point, Clal will have the option to buy Andromeda back for $3.5 million, agreeing to fork over up to $36.5 million more in milestone payments. If the Israeli company chooses not to reacquire its former seedling, the rights to DiaPep277 will revert to Yeda.

Hyperion will have sunk about $40 million into Andromeda by the time the trial concludes, and so the best case for the American biotech is a simple refund. If Clal walks away from the deal, Hyperion will have nothing to show for the months and millions expended on DiaPep277.

The drug, an immune intervention treatment for the orphan indication of new-onset Type 1 diabetes, was once partnered with Teva ($TEVA) before Clal paid $72 million to reacquire exclusive rights in February. The Israeli company at the time talked up negotiations with an unnamed U.S. company that turned out to be Hyperion, whose CEO, Donald Stansel, called the Andromeda acquisition a "transformative event" upon signing the deal in April.

- read the announcement

Read more on