Hyperion Therapeutics has scuttled development of its lead product, the experimental drug DiaPep277® it acquired when it bought Andromeda Biotech in June for up-to-$570 million, alleging that Phase III clinical trial data for the type 1 diabetes treatment had been falsified.

Hyperion said in a statement yesterday that some Andromeda employees “engaged in serious misconduct, including collusion with a third-party biostatistics firm in Israel to improperly receive un-blinded DIA-AID 1 trial data and to use such data in order to manipulate the analyses to obtain a favorable result.”

DIA-AID 1 is a Phase III clinical trial in which DiaPep277 was assessed in 456 adults and adolescents newly-diagnosed with type 1 diabetes, who were recruited and treated with the drug for two years. The trial was conducted at 40 sites in Europe, Israel, and South Africa. The study (NCT00615264) was completed as of July 2013, according to ClinicalTrials.Gov.

Trial results for DIA-AID 1 were reported to be successful, with Andromeda saying that patients treated with DiaPep277 experiences significantly preserved beta-cell function as determined by levels of C-peptide. A higher proportion of treated patients were better metabolically controlled compared to patients on placebo and experienced fewer hypoglycemic events, Andromeda also reported. A two-year extension study was also said to have produced positive results.

However, addressing analysts yesterday, Donald J. Santel, Hyperion’s president and CEO, said the trumpeted results left out data from 34 patients excluded in violation of study entry criteria, and that when their data was added back during a final primary efficacy analysis after the close of its acquisition of Andromeda, “the apparent treatment effect of DiaPep was lost.

“We thought this was a curious result in light of the fact that Andromeda claimed these patients were excluded on a blinded basis to arrive at the M.I.T.T. (modified intent to treat). They said so in the final study report, other regulatory submissions, a per-reviewed publication of the study results, and in all their conversations with us,” Saltel said.

“When we asked questions about this result, we encountered increasing resistance from Andromeda to share relevant information,” he added.

DiaPep277 is a peptide derived from the human heat shock protein 60 that modulates the immune system to prevent the destruction of insulin producing cells in the pancreas. DiaPep277 is designed to protect the internal production of insulin in patients newly diagnosed with type 1 diabetes, by stopping the immune destruction of insulin-producing beta-cells in the pancreas through stimulation of regulatory responses, without causing immunological suppression.

“DiaPep was designed to modulate the immunological attack on pancreatic beta cells, a mechanism that several companies had attempted previously, with little success,” Cowen & Co analyst Phil Nadeau said in a note to investors reported by Reuters.

DiaPep277 is still under study in another trial, DIA-AID 2, designed as a second confirmatory Phase III study to obtain marketing approval in the U.S. and Europe. Andromeda said the study—which is being conducted at more than 100 medical centers worldwide—has completed patient recruitment, with the study expected to be completed by the end of this year.

“Additional evidence indicates that the biostatistics firm and certain Andromeda employees continued the improper practice of sharing and examining un-blinded data from the ongoing DIA-AID 2 trial. All of these acts were concealed from Hyperion and others,” Hyperion added.

The company said DIA-AID 2 will be carried out to its completion “because the data may still yield useful insights into the natural history of Type 1 diabetes.” The clinical program for DiaPep277 will be closed out following the completion of DIA-AID 2, which is anticipated to occur in the first quarter of 2015, Santel told analysts.

Hyperion said it has suspended the employees suspected of falsifying the data, has informed authorities, “and continues to investigate in order to explore its legal options.” The misconduct was not carried out by Hyperion employees, the company added.

“This new information leaves us with no viable regulatory path forward,” stated Santel. “We're shocked and disheartened at the serious misconduct and deceit by the implicated Andromeda employees, both before and after the close of our transaction.

The company projected it would record a non-cash impairment charge of between $25 million and $55 million associated with termination of DiaPep277.

Hyperion acquired Andromeda from Clal Biotechnology Industries for $20 million cash upfront—$12.5 million in cash and nearly $7.85 million in stock—as well as up-to-$550 million in payments tied to milestones.

In a filing this morning with the Tel Aviv Stock Exchange, Clal said it had “no further information [since Hyperion] did not give any notice to the company in this regard,” according to a translation of the Hebrew statement via Google Translate. Andromeda was expected to comment further in a conference call with analysts scheduled for this morning after deadline.

In a note to investors also reported on by Reuters, analysts from Leerink retained their outperform rating on Hyperion, citing the company’s Ravicti, a treatment approved last year and marketed for urea cycle disorders (UCD), and its pipeline: “We view the profitable Ravicti base business as strong and continue to view Hepatic Encephalopathy as an ability to at least double peak sales potential over the long term.”

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