JERUSALEM, Oct 7 (Reuters) - Hyperion Therapeutics and Clal Biotechnology Industries said they agreed to resolve their dispute after Hyperion halted development of a diabetes drug it bought from Clal due to manipulation of trial data.

Hyperion had bought Israel's Andromeda Biotech - which is developing DiaPep277, a treatment for Type I diabetes that is undergoing a second advanced clinical study - from Clal for $12.5 million in June. The deal included milestone payments reaching $570 million.

But in September, U.S.-based Hyperion stopped the drug's development after discovering Andromeda's employees were engaged in "serious misconduct" that involved manipulating the trial to obtain a favourable result.

Israel's Clal subsequently sued Hyperion for $200 million in a U.S. court.

On Tuesday, Hyperion said it would allow Clal to evaluate whether there is any clinical efficacy and whether there is a potential regulatory path for DiaPep277 that a party other than Hyperion may wish to pursue.

Clal will appoint an independent party to assess the conduct of the study and any regulatory path for DiaPep277.

"Hyperion will not be obligated to take any action in response to the independent party's observations," the companies said in a statement.

At the same time, until Oct. 31 Hyperion and Clal have agreed not to take any additional legal steps.

(Reporting by Steven Scheer, editing by Louise Heavens)