Mystery U.S. pharma company circles Andromeda and its PhIII diabetes drug

A couple of days ago, Israel's Andromeda Biotech bought back the worldwide rights to its Phase III diabetes therapy--DiaPep277 for Type 1 patients--from Teva for $72 million, to be paid on an installment plan based on future revenue. And today, Andromeda's parent company Clal says it's in talks with a U.S. pharma company to sell Andromeda and DiaPep277.

Clal is keeping the details to itself, but according to Reuters the company alerted the Israeli stock exchange it has signed a memorandum of understanding that it will sell Andromeda for an as-yet undisclosed upfront, milestones and a double-digit royalty. The talks are at an early stage and the statement raises some interesting questions, including whether Clal would like to get at least one more interested buyer to the bargaining table, before they sign a deal.

The prize here is DiaPep277, now in a late-stage study with 475 Type 1 diabetes patients. The therapy is a peptide derived from heat shock protein 60 that was initially discovered at the Weizmann Institute of Science by Professor Irun Cohen. It's designed to safeguard pancreatic cells which produce insulin, preventing an immune system attack and offering an innovative approach to treating the disease. And as Bloomberg reported a couple of years ago, the program came to the forefront after similar therapies at Eli Lilly ($LLY) and Johnson & Johnson ($JNJ)--both possible bidders for the company--had failed.

Type 1 diabetes develops early in life. And investigators have been zeroing in on freshly diagnosed patients who can still produce insulin, before the disease wreaks havoc on pancreatic cells. Back last summer Andromeda put out a release saying that one relatively small group of patients which had completed four years of therapy from diagnosis "demonstrated a better ability to secrete insulin as compared to patients who started treatment after a period of more than two years from diagnosis showing a relative treatment effect of 30%."

The Phase III study is slated to end by the end of this year, making this deal particularly timely. And given the proposed structure of the deal, with milestones included rather than a straight cash buyout, the total prize could easily be in the hundreds of millions of dollars. And if that happens, it's likely to raise questions why the troubled Teva ($TEVA), which reportedly invested $170 million in Andromeda, would go along so willingly at a discount price.

- here's the story from Reuters