DUBLIN – Evotec AG has entered the legal fray surrounding the extraordinary clinical data fraud reportedly perpetrated by employees of Andromeda Biotech Ltd., which the company's new owner, Hyperion Therapeutics Inc., uncovered earlier this month.

Although the full facts of the case have yet to be aired publicly, it already looks like one of the biggest-ever violations of business, clinical and scientific ethics to be perpetrated by a small biotechnology firm.

Hamburg, Germany-based Evotec has residual economic rights to the program at the center of the fiasco, Diapep277, a therapeutic vaccine for type 1 diabetes, arising out of its acquisition of Develogen AG in 2010. In 2007, the latter firm had sold its rights to Diapep277 to Yavne, Israel-based Andromeda, which the biotech investment firm Clal Biotechnology Industries Ltd. formed to develop the asset. Evotec inherited Develogen's rights to single-digit royalties and certain milestones arising from the product's commercialization. It will incur a noncash impairment of €8 million (US$10.3 million), relating to the book value of the asset.

On Sept. 8, Brisbane, Calif.-based Hyperion announced its decision to terminate development of Diapep277, following its detection of collusion between Andromeda staffers and a third-party biostatistics firm in Israel, which led to manipulation of data from two phase III studies, one ongoing and one completed, in order to achieve a favorable outcome.

Andromeda's alleged fraud started to unravel when Hyperion staffers began studying data from the completed trial, Dia-Aid-1, as part of their development of a statistical plan for the ongoing Dia-Aid-2 study.

Andromeda had excluded 34 patients from the data analysis, ostensibly because of violations of study entry criteria.

"Among other analyses conducted, when our team added those 34 patients back into the analysis, the "p" value eroded significantly, such that the treatment effect of Diapep was lost," Hyperion CEO Don Santel told investors on a recent conference call. "We thought that was a curious result in the light of the fact that Andromeda claimed these patients were excluded on a blinded basis to arrive at the modified intent-to-treat population. They said so in the final study report, other regulatory submissions, a peer-reviewed publication of the study result and all their conversations with us," he added. "When we asked questions about this result, we encountered increasing resistance from Andromeda to share relevant information."

Hyperion has suspended the Andromeda employees involved, notified the relevant authorities and begun to explore its legal options.

Evotec has decided to follow suit. "We've handed it over to external counsel. They will take the appropriate steps," Gabriele Hansen, Evotec's head of corporate communications and investor relations, told BioWorld Today. Evotec is pursuing its action independently. "We are not working with Hyperion," she said.

Andromeda is the target of Evotec's action, although its ability to offer any financial remedy must be questionable, given its structure as a single-asset play. Shortly after Hyperion issued its Sept. 8 statement, Andromeda's website stopped functioning, and its executives have not commented publicly on the case.

Hyperion's direct losses arising from the fraud will amount to $36.4 million to $39.4 million. It paid Andromeda's shareholders $12.5 million in cash up front, plus another $7.9 million in shares, and it paid over another $3 million for running costs. It has committed to completing the Dia-Aid-2 trial, as a service to the diabetes community. That will cost another $13 million to $16 million – expenses that it would have had to incur in any case if it had opted to terminate the trial immediately, Hyperion's chief financial officer Jeffrey Farrow said on the call.

The structure of its acquisition agreement has protected it from a much greater calamity. Most of the value of the acquisition deal is loaded onto the back end of the Diapep277 program. Clal, of Ramat Gan, Israel, stood to receive up to $120 million in regulatory and approval-based milestones and another $430 million in commercial milestones. Whether it finds itself on the hook for Hyperion's and Evotec's losses remains an open question for now.

Santel defended Hyperion's execution of the original purchase agreement. "Andromeda's coordinated effort to conceal and mislead thwarted our substantial due diligence process. Simply put, certain Andromeda employees actively and consistently lied to our team. We also believe their concealment misled the clinical investigators and advisers involved in the program," he said.

Hyperion's circle of advisers and contacts in the clinical community have all been shocked by the fraud, he added. "We have to realize this is an unprecedented level of deceit," Santel said. "No one has ever seen this."