Arcturus Board Sues Ex-CEO, Alleges Deceit, in Prelude to Proxy Fight

Yammer Grand Opening -- board room

The board that fired Arcturus Therapeutics co-founder and CEO Joseph E. Payne earlier this year unleashed a new broadside this week in the ongoing battle for control of the San Diego-based RNA drug developer.

In a lawsuit filed Tuesday (see below) and in an open letter to shareholders issued Wednesday, the Arcturus (NASDAQ: [[ticker:ARCT]]) board ­says a pattern of alleged misconduct, deceit, and failed leadership by Payne led to his termination on January 25. The allegations include attempting to give Arcturus assets to a friend’s biotech company for free, and operating a side business on company time.

Payne, who remains the company’s largest shareholder with a 13.7 percent stake, told Xconomy Wednesday afternoon, “You notice these guys have a pattern of disparagement,” but otherwise declined to comment. The ex-CEO said he wanted to consult with his lawyers before saying anything more.

The Arcturus lawsuit, filed against Payne in San Diego Superior Court, comes in advance of a proxy battle that is expected to play out at a shareholders meeting set for May 7 in San Diego. Meanwhile, Payne also has filed a lawsuit against Arcturus, but declined to provide details.

Shareholders of record (as of April 9) will be asked to vote for two competing sets of proposals.  One from Arcturus is asking shareholders to immediately remove Payne from the company’s board of directors—in effect endorsing the incumbent board and its moves against Payne. The ex-CEO, meanwhile, is asking shareholders to immediately remove incumbent directors Stuart Collinson, Craig Willett, Daniel Geffken, and David Shapiro, and elect in their place Peter Farrell (the ResMed founder and former CEO), Magda Marquet (the Althea Technologies co-founder), Andrew Sassine, and James Barlow.

Payne and Padmanabh “Pad” Chivukula, who was Arcturus’s chief scientific officer and COO, founded Arcturus in 2013 to advance a new approach to the development of RNA drugs for infectious disease, cystic fibrosis, nonalcoholic steatohepatitis (NASH), and rare liver diseases.

Arcturus founders (2016 Arcturus photo used with permission)
Arcturus Therapeutics co-founders Padmanabh “Pad” Chivukula (left) and Joseph E. Payne (2016 Arcturus photo used with permission)

According to the board’s lawsuit, Payne “demonstrated a general lack of care and ignorance of his responsibilities” throughout his tenure as Arcturus president and CEO.

But the real hostilities erupted last fall, as the privately held biotech, which had just a handful of employees, reached a reverse merger agreement with 

Pages: Page 1, Page 2

Author: Bruce V. Bigelow

In Memoriam: Our dear friend Bruce V. Bigelow passed away on June 29, 2018. He was the editor of Xconomy San Diego from 2008 to 2018. Read more about his life and work here. Bruce Bigelow joined Xconomy from the business desk of the San Diego Union-Tribune. He was a member of the team of reporters who were awarded the 2006 Pulitzer Prize in National Reporting for uncovering bribes paid to San Diego Republican Rep. Randy “Duke” Cunningham in exchange for special legislation earmarks. He also shared a 2006 award for enterprise reporting from the Society of Business Editors and Writers for “In Harm’s Way,” an article about the extraordinary casualty rate among employees working in Iraq for San Diego’s Titan Corp. He has written extensively about the 2002 corporate accounting scandal at software goliath Peregrine Systems. He also was a Gerald Loeb Award finalist and National Headline Award winner for “The Toymaker,” a 14-part chronicle of a San Diego start-up company. He takes special satisfaction, though, that the series was included in the library for nonfiction narrative journalism at the Nieman Foundation for Journalism at Harvard University. Bigelow graduated from U.C. Berkeley in 1977 with a degree in English Literature and from the Columbia University Graduate School of Journalism in 1979. Before joining the Union-Tribune in 1990, he worked for the Associated Press in Los Angeles and The Kansas City Times.