Diagnostics firm Novacyt has reached a settlement with the UK health department after claims related to Covid-19 test kits.

The London-listed biotechnology firm saw shares dive in early trading after it confirmed it will pay out £5 million to the Department of Health and Social Care.

It said it agreed a commercial settlement for “all claims and counterclaims” related to recent High Court proceedings over allegations the tests were defective.

“The trial listed to begin this week will therefore not take place,” Novacyt said in a statement to shareholders.

“Neither party has made any admission of liability or wrongdoing in respect of the claim or counterclaim or otherwise.”

The Government had taken Novacyt and fellow firm Primer Design Ltd to court over Covid-19 kits they supplied during the pandemic.

The Department for Health and Social Care (DHSC) had sought a refund for thousands of “Exsig” Covid tests.

The Government alleged the firm supplied Covid-19 test kits which “failed at an unacceptable rate”.

The companies claimed the tests were effective and launched their own legal claim to recover an outstanding balance on the contract.

Shares in Novacyt were 15.9% lower at 58.7p after early trading on Tuesday.