LAB Research, a Canadian company that provides preclinical contract research services to the pharmaceutical, biotechnology, agrochemical and petrochemical industries, has reached a settlement with its former parent Akela Pharma in a dispute over toxicology studies conducted with the latter’s lead compound, Fentanyl TAIFUN.

Under the terms of the settlement agreement, LAB Research and its insurer have paid out $2 million to settle all outstanding claims in the litigation initiated by Akela Pharma in October 2008. LAB Research has also issued to Akela 500,000 warrants with a strike price of $0.50 and an expiry date of 31 December 2010. The CRO has included an extraordinary charge, net of the insurer’s contribution, in its 2008 results to cover the settlement costs.

The settlement does not constitute any admission of liability for the disputed studies, LAB Research noted. The litigation arose from inhalation toxicology studies conducted by LAB Research Hungary with Fentanyl TAIFUN, a fast-acting treatment for breakthrough cancer pain, and rejected by the US Food and Drug Administration in January 2008 due to Good Laboratory Practice (GLP) deficiencies.

According to LAB Research, these deficiencies had been highlighted and addressed by the Hungarian unit in its final GLP report to Akela. The CRO also argued that the deficiencies should not alter the results of the toxicology studies. Nonetheless, in February 2008 LAB Research received a claim from Akela seeking cost recovery for the studies to the tune of $4.2 million and reserving the right to demand further damages.

Last June, LAB Research said it had received a revised demand letter from Akela re-affirming the latter’s intention to initiate legal proceedings against LAB Research Hungary over the rejected toxicology studies. AS well as reimbursement for the costs of the studies, which came to €2.74 million, Akela wanted payment for the costs of repeating the studies (estimated at US$5 million) and damages amounting to US$20 million for licensing fees that the company said it would have received from a potential partner.

Akela was also looking for damages associated with reduced market capitalisation and loss of rights under existing licences. At the time, LAB Research said it would vigorously contest any ensuing claims, adding that over the past year it had “proposed a series of initiatives aimed at addressing the highlighted deviations, which have to date all been rejected by the Client”.

LAB Research also contended that, under a contract signed with Akela at the time of the initial public offering that spun the CRO out from its former parent in August 2006, LAB Research could not be held liable for any incidental, indirect or consequential damages sustained by Akela; that the CRO’s liability was limited to the amount received for the toxicology studies; and that, even in the case of gross negligence, the liability could not exceed two times the amount paid for the work.