Hyperion and Clal come to temporary terms over a $570M biotech boondoggle

Hyperion Therapeutics ($HPTX), which claims it was duped into a $570 million deal for an Israeli biotech, has reached a temporary agreement with the seller, calling off its lawyers for the moment while the two try to determine whether the drug at the heart of the acquisition has any future.

The story began in the 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, Hyperion and Clal have agreed to a temporary ceasefire that will bring all the facts to light on DiaPep277, which treats Type 1 diabetes. Under an interim deal, Hyperion will complete the ongoing second Phase III study of the drug on its own dime while Clal assembles an independent group to review the conduct and results of the trial. Once all the data is out in the open, that group will compare it with the earlier, allegedly doctored results and advise Clal on whether DiaPep277 has any regulatory path forward.

Hyperion and Clal have agreed not to press forward with any litigation while that process unfolds, setting a soft deadline of Oct. 31 for the interim review. That said, neither company has waived its right to legal action, and the end of the period could well find the two back in court.

Hyperion's shares have slipped nearly 10% since its DiaPep277 revelation, and the company has resigned to taking a $55 million impairment charge tied to the Andromeda deal.

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.

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