A lawsuit filed earlier this month by Invivo Therapeutics Inc.in the U.S. District Court for Massachusetts is shedding new light on the status of Cambridge, Mass.-based company’s quest to cure paralysis.

InVivo, an early stage medical device company that’s working on treatments for severe spinal cord injuries using implantable polymers, has become something of a media darling, based on its high-profile board (which includes famed MIT scientist Robert Langer); the compelling story of CEO Frank Reynolds, who overcame a debilitating accident that left him partially paralyzed; and a hallmark primate study that showed rhesus monkeys running two weeks after having their spinal cords severed. Together Reynolds and the monkey video have managed to raise more than $4 million from a series of individual investors.

Reynolds was so confident of the success of InVivo that he said in April that a second primate study would likely lead to Food & Drug Administration approval by the end of this calendar year for human trials in the first quarter of 2010.

But the company sings a different tune in a lawsuit filed against Oregon Health & Science University, accusing OHSU of breach of contract, breach of good faith, fraud, fraudulent inducement, misrepresentation, unjust enrichment and unfair business practices.

InVivo contends that the research facility’s negligence cost it more than $500,000 and significantly derailed the company’s plans, to the point that the firm may be in serious jeopardy, according to court documents.

“As a result of OHSU’s actions, InVivo has and continues to suffer damages: (1) InVivo has lost all of the time, money, and resources that it dedicated to completing the studies at issue; (2) its spinal cord research has been derailed and, as a direct result, several potential investors have opted not to provide funding,” according to the documents.

Alexander Furey, a lawyer for the company, said it would have no comment on the lawsuit or its allegations. But according to the documents, the firm inked a $600,000 contract with OHSU, one of eight National Primate Research Centers in the United States, to complete its second primate study in early 2009. The contract stipulated that the research facility would provide 24 monkeys to participate in the trial, in return for an up-front payment of about $200,000.

A team of InVivo physicians would sever the monkeys’ spinal cords in surgical procedures, paralyzing them, and then implant the InVivo devices. Following close monitoring for 12 weeks, the animals would be euthanized for further examination.

Here the two sides diverge. InVivo contends that OHSU never provided the agreed-upon number of primates and that two of the monkeys had to be removed from the study, one due to a broken ankle and another from a staph infection. The problems left InVivo with just 15 monkeys to complete the trial, according to court filings.

And when the procedures were started in late February, OHSU halted the study after only seven operations due to “perceived bladder complications with the animals” and, because of the institution’s negligence, four monkey’s had to be euthanized when their infections worsened. OHSU then demanded a payment of $1.2 million to complete the animal trial and refused to give back any of the company’s surgical equipment unless InVivo paid them the remaining $400,000 due on the original contract, according to the lawsuit.

OHSU vigorously denied the allegations.

“We take issue with everything,” said spokesman Jim Newman, who supplied MassDevice with an Q&A sheet responding to each of InVivo’s contentions. The university claims it provided InVivo with the agreed-upon number of primates and that none suffered from a broken ankle. And, the institute claims, it was InVivo’s surgeons who decided to halt the surgeries after only seven procedures.

“Soon after the initial surgeries, it was discovered that the surgical impacts on the animals were more severe than what was predicted by the company’s staff,” according to OHSU’s retort. “The animals were supposed to retain use of one of their legs and maintain bladder function post-surgery. Instead, the animals lost function in both legs and also lost bladder control following surgery. As soon as OHSU’s staff became aware of these problems, they approached InVivo’s surgeons who were doing the surgeries. It was then that InVivo’s staff decided to stop the surgeries.”

Newman reiterated that OHSU is still owed about $400,000 from the original contract, adding that the institution stands behind its reputation. Newman would not reveal whether OHSU plans to file a counter-suit.

Repeated attempts to reach Frank Reynolds via email and phone were not returned. The company is requesting a jury trial.