FSD Pharma Wins Multimillion Dollar Dispute Over Failed Drug Trial

FSD Pharma successfully countered a $4 million claim, but still had to cough up nearly half of that.

Toronto-based biopharmaceutical company FSD Pharma Inc. (Nasdaq: HUGE), which dabbles in psychedelic-based drugs after venturing out of cannabinoid molecules, scored what it views as a David-over-Goliath victory against a large contract research firm over an arbitration dispute, the company announced Wednesday.

The dispute began in January 2022, when Syneos Health (NASDAQ: SYNH) claimed that FSD Pharma owed them almost $4 million for a failed phase II FDA trial of a drug it developed that consists of a proprietary formulation of Palmitoylethanolamide, an endocannabinoid-like lipid mediator to help with certain regulatory functions in the body.

Syneos was supposed to get 350 patients from North America to take part in this trial, but the scope later expanded to include several South American countries, making a total of 35 sites (25 in North America and 10 in South America). Seven months in, the company hadn’t found a single patient. By the middle of May 2021, the project had less than 50. Because of this, FSD Pharma stopped the trial in August 2021.

FSD Pharma responded by disputing any owed payment to Syneos Health and countersued them for breach of contract — particularly for not holding up its end of the deal.

On May 19, 2023, a three-arbitrator panel sided with FSD Pharma, stating that Syneos Health had breached its contractual obligations. It found that Syneos Health’s patient enrollment performance was so inadequate, it would not have been commercially reasonable for FSD to continue funding the failing trial.

The panel did award Syneos Health around $1.7 million plus interest for some unpaid bills. The firm claims it was only because FSD Pharma’s old management team didn’t dispute these bills in time.

Notably, the awarded sum is less than half of what Syneos Health initially demanded and significantly lower than the proposed settlement offer. The panel also denied Syneos Health’s request for payment of attorneys’ fees and litigation expenses.

“The award shows how small and midsize pharma and biotech companies can fight back against CROs who take them for granted and seek to impose huge costs on them while failing to perform their end of the bargain,” FSD Pharma said in a statement.

A spokesperson for Syneos Health told Green Market Report in an email, “While many details of the arbitration are confidential, we are pleased with the ruling confirming that Syneos Health satisfied the contract’s commercially reasonable efforts standard and used ‘the required efforts to advance the project.'”

“Syneos Health received an award of nearly $3.5 million for services performed plus interest. We remain focused on executing our growth strategy and delivering on our combined clinical and commercial value proposition as we continue to build a leading biopharmaceutical solutions organization.”

FSD Pharma began looking for another trial study group earlier this year. The company wants to use its drug, FSD201, to treat chronic widespread musculoskeletal nociplastic pain associated with idiopathic mast cell activation syndrome.

According to the American Academy of Allergy, Asthma, and Immunology, MCAS is “a condition in which the patient experiences repeated episodes of the symptoms of anaphylaxis — allergic symptoms such as hives, swelling, low blood pressure, difficulty breathing and severe diarrhea. High levels of mast cell mediators are released during those episodes.”

Adam Jackson

Adam Jackson writes about the cannabis industry for the Green Market Report. He previously covered the Missouri Statehouse for the Columbia Missourian and has written for the Missouri Independent. He most recently covered retail, restaurants and other consumer companies for Bloomberg Business News. You can find him on Twitter at @adam_sjackson and email him at adam.jackson@crain.com.

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