Ex-Exec Tampered With Test Results, Firm Alleges

Computerized Thermal Imaging Inc. has filed court papers accusing its former president of tampering with clinical-trial results of its breast cancer detection system.

The company also alleged 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 CTI of failing to pay all of an agreed separation package.

The company’s allegations against Packer don’t diminish its responsibility, legal experts said.

“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.

The company said Packer told investors in late 1999 or early 2000 that the FDA would approve the fifth module “by late summer of 2000.” The FDA hasn’t 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 that 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 Web site.

CTI’s allegations were made in court papers filed in Utah state court. The company has offices in Ogden, Utah, and Lake Oswego.

Analyst Ira Loss of Washington Analysis said the omissions probably will prompt 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,” Loss said.

An FDA spokeswoman declined to comment, citing agency policy.

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.

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.”

Bromberg said CTI 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,” he said.

John Brenna replaced Packer on March 8 after Richard Secord replaced founder David Johnston as chairman and chief executive 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. Its stock trades below $2 on the American Stock Exchange.