LAKE OSWEGO, Ore. — Computerized Thermal Imaging Inc. in court papers has accused its former president of tampering with results of its breast cancer detection system's clinical trials.
The company also said in the suit, filed in August, that David Packer misled shareholders about its application to the Food and Drug Administration seeking approval of the device.
Packer, who quit in March after four years as president and chief operating officer, filed a suit accusing the company of failing to pay all of an agreed separation package. The company's admissions in its counter-suit may encourage suits by investors that could lead to criminal charges against the company, experts say.
"It sounds like this is going to be a massive, self-inflicted wound," said John Coffee, Adolf A. Berle professor at Columbia University Law School.
Computerized Thermal's allegations of wrongdoing were made in court papers filed in Utah state court in August. The company's headquarters, formerly in Layton, are in Lake Oswego. The company has a manufacturing facility in Ogden.
The company's charges against Packer don't diminish its responsibility, say legal experts. "A company is responsible for the statements made by its senior officers," said Alan Bromberg, securities law professor at Southern Methodist University and co-author of "Securities Fraud and Commodities Fraud," a six-volume reference work.
The company said Packer repeatedly misled shareholders, beginning in 1999, about when its fifth and final application module, containing the breast cancer detection system's clinical trial results, would be submitted to complete its FDA application. In the end, the submission was made in June 2001.
The company said Packer told investors in late 1999 or early 2000 the FDA would approve the fifth module "by late summer of 2000." The FDA hasn't yet announced approval of the module.
The detection system, intended for use as an adjunct to mammography, seeks to identify malignant tumors by mapping the breast's temperature patterns.
CTI also alleged Packer "withheld 272 cases from the Module 5 clinical trial information, which could potentially jeopardize approval of Module 5 by the FDA." The clinical trial involved using the company's system to scan 2,400 women, according to the company's Internet site.
Analyst Ira Loss of Washington Analysis said the omissions will likely cause the FDA to investigate the entire clinical trial. "The company is correct that the viability of their application is placed in jeopardy by the selective exclusion of certain patient records," he said.
An FDA spokeswoman declined comment, citing agency policy.
"Due to Packer's misrepresentations, CTI has been forced to expend considerable funds to belatedly submit Module 5 and risks denial of approval as a result of Packer's non-disclosed misconduct in omitting certain cases from the submission," Computerized Thermal Imaging said in the court documents.
In a written reply to questions from Bloomberg News, company attorney Carl Schoeppl said "CTI never, at any time, withheld such information from the FDA." He also denied that CTI withheld material information from shareholders or the public.
Because of Packer's conduct, "the company submitted Module 5 of the PMA to the FDA with cases that had complete clinical trial information, and those which did not," he wrote.
In responding to the company's lawsuit, Packer said CTI was aware of his actions when it signed his separation agreement in March.
"CTI knew of the falsity of any alleged misrepresentation regarding the submission of Module 5," said Packer. He added that delays in filing the module occurred before March. "CTI did not rely on any false statements made by Packer well before the execution of the separation agreement," he told the court.
Bromberg said the company should have told shareholders of the developments that were filed with the court.
"All this information, much of which appears to be material, was not disclosed to shareholders. Thus the company has potential liability to shareholders under the securities laws," said Bromberg.
John Brenna replaced Packer as president and chief operating officer on March 8, after Richard Secord replaced founder David Johnston as chairman and chief executive on Sept. 27, 2000.
For the year ended June 30, the company's net loss almost tripled to $26.1 million, or 32 cents a share from $8.9 million, or 13 cents the prior year. Revenue more than doubled to $673,782 from $329,283.