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Payne Back in Charge at Arcturus Therapeutics

Once-ousted CEO Joseph Payne is back leading Arcturus Therapeutics. Even he saw a return as a longshot.

Payne was recently rehired following a months-long legal battle between him and Arcturus, culminating in a proxy fight. A settlement agreement announced May 29 saw the appointment of four Payne-backed board members, who voted to put him and another ousted executive back in control.

Initially, Payne was reluctant to mount a challenge.

President and CEO Joseph Payne

“I knew that the odds were very slim. Proxy fights with biotech companies do not happen very often. And when they do, typically the corporation wins, and wins handily,” said Payne during his first day back on the job.

Payne, who also co-founded the San Diego RNA medicines company in 2013, said a desire to see his work through provided motivation.

Arcturus fired him in early February, drawing a lawsuit several days later from Payne demanding his reinstatement, followed by Arcturus litigation against him in May. The settlement puts the legal matters to rest.

“At some point, there’s always a time where people need to come together and recognize the desires of shareholders,” Payne said. “We just wanted to make sure we came in line with shareholder wishes and came to an amicable resolution.”

Payne’s February lawsuit alleged that four board members — Stuart Collinson, Craig Willett, Daniel Geffken and David Shapiro — improperly seized control of the company. They ultimately resigned as part of the settlement.

A request to Shapiro for comment was not returned.

The settlement appointed Peter Farrell, Andrew Sassine, James Barlow and Magda Marquet to the five-member board, which includes Payne. In addition to Payne, the board voted to reinstate Pad Chivukula as chief operating officer and chief scientific officer.

In recent weeks, Payne presented his case and preferred board slate to shareholders, as disclosed in a public filing. Payne’s pitch included leveraging the experience of his preferred candidates. Farrell, for instance, is the founder and chairman of ResMed, a multibillion dollar San Diego-based company, and will act as Arcturus chairman.

“There was overwhelming support. It was very heartwarming considering the situation at the time,” Payne said. “I had no idea what the shareholders would say.”

The settlement preempted a June 25 meeting, in which shareholders were due to choose between dueling board candidates supported by Arcturus and Payne.

Payne was careful not to speak ill of the prior board so as not to run afoul of a disparagement clause in the settlement. Asked to respond to Arcturus’ March lawsuit alleging a questionable transfer of intellectual property to a business partner who heads another firm, Payne said shareholders heard him out.

“I can assure you my integrity is intact. That there’s nothing to be concerned of there,” he said.

Growing company legal bills, a final tally of which wasn’t available, played a role in ending the dispute, according to Payne. But, he added, the company has enough cash moving forward.

“From a runway perspective I know the company is in good shape,” Payne said.

While unwelcome, he said the proxy fight could strengthen Arcturus.

“Proxy fights make companies stronger. No one wishes for it. But the fruits of the process are that you galvanize the shareholders. You galvanize the employees. You galvanize the management team.”

Arcturus hit the public markets last year following a merger with Alcobra, previously based in Israel. The merger provided Arcturus with funding for research and development of treatments aimed at liver and infectious diseases.

The deal included establishing an Israeli holding company for operations in San Diego. On May 28, the Israeli District Court approved the settlement.

On May 30, the company’s stock was trading at $6.30 a share.

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