FARGO - A medical company here is accused of making a mistake that cost at least $20 million to fix.

A California pharmaceutical company alleges that Fargo-based Clinical Supplies Management bungled the clinical trial of a cancer-treatment drug between 2010 and 2012.

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The alleged blunder is the subject of a federal lawsuit that is slowly making its way to a jury trial, with millions of dollars in damages potentially at stake.

Peregrine Pharmaceuticals, based in Tustin, Calif., argues it was the victim of fraud, negligence and concealment on the part of CSM, which was hired by Peregrine to oversee the trial of a drug called bavituximab.

CSM oversaw the packaging and delivery of the drug during a Phase II clinical trial, according to court documents. The Fargo firm’s job was to distribute bavituximab and a placebo to separate patient groups, according to Peregrine’s lawsuit, filed in September 2012 in U.S. District Court for the Central District of California.

Rather than following the proper protocol, CSM allegedly gave the placebo and the drug to the wrong patient groups, a mistake that, when publicly acknowledged by Peregrine, sent its stock plummeting.

In court documents, CSM denied any wrongdoing, saying, “Peregrine consented to and approved the alleged acts for which it now complains.”

Representatives and attorneys for Peregrine and CSM did not respond to repeated requests for comment in the past week.

‘Major discrepancies’

In early September 2012, with the Phase II trial underway, Peregrine released excellent preliminary results, saying that its drug doubled the median survival time of lung cancer patients. Peregrine’s shares quickly soared 36 percent.

Later that same month, it all came crashing down. The blame, according to Peregrine, falls on CSM.

On Sept. 24, Peregrine announced it had discovered “major discrepancies” in the way a third-party contractor handled the trial. Peregrine’s stock dropped 80 percent. The company’s market value on the Friday before the news broke was $561 million. On Monday, when it announced the study was flawed, its value fell to $121 million in one day, a loss of about $440 million.

Peregrine’s complaint says CSM was hired in March 2010 to package, label and distribute vials used in the trial of bavituximab. The trial was to be randomized and double-blinded: Peregrine would not have direct knowledge of which of the 121 patients tested would receive bavituximab, and which would receive a placebo. The trial’s goal was to lengthen the lives of patients afflicted with non-small cell lung cancer.

Three phases of clinical trials are required before the Food and Drug Administration will approve a drug for marketing in the U.S. The Phase II trial is generally when the drug is given to patients afflicted with a disease or condition to see if it is effective, according to the FDA. Other patients receive a placebo.

CSM’s job was to carefully distribute a total of 8,000 vials to three distinct groups of patients, the complaint says. Group A would receive chemotherapy and a placebo; group B would receive chemotherapy and a small dose of bavituximab; and group C would receive chemotherapy plus a large amount of bavituximab.

But CSM mixed up the vials for the A and B groups, Peregrine’s complaint says, jeopardizing the validity of the study.

It wasn’t until after Sept. 7, 2012, when Peregrine announced that survival times doubled for the patients who received bavituximab, that Peregrine says it began to discover CSM’s blunder.

Alleged damages

CSM’s alleged switch of the A and B groups cost Peregrine severely, the latter says.

Peregrine says the mistake forced it to budget an extra $20 million to add 200 patients to its Phase III trial of the drug. It also says the value of the drug has declined, were it to sell the drug to a larger company.

Peregrine accuses CSM of breach of contract, negligence, negligence per se, negligent misrepresentation/concealment and constructive fraud.

The question of why CSM would swap the A and B groups is not answered in the complaint. But Peregrine argues that a CSM project manager “secretly decided for herself to deviate” from the agreed-upon method of conducting the study. She then concealed her decision, Peregrine alleges.

The two companies have sparred over how much CSM, if it loses, might have to pay Peregrine. Judge Jesus Bernal concluded in July that damages are limited for three of the charges but not the others.

Peregrine, meanwhile, has gone ahead with its study of bavituximab, which could also treat pancreatic cancer. Peregrine says it completed its Phase II study by merging the A and B groups and comparing those, combined, to the C group. It reported a 60 percent improvement for median overall survival of patients who received the drug. In December 2013, it began enrolling patients for a Phase III trial.

Despite moving forward with the study, the company has not seen its stock rise to previous levels. At its height in September 2012, Peregrine stock traded at $5.39 a share. It’s now worth $1.28. The drug maker’s market value on Friday was about $258 million, still about $300 million less than it was worth right before it announced the problems with its testing.

A jury trial in the case is set for Oct. 20.