The schism between Arcturus Therapeutics’ board and its former chief executive is now putting the company at risk of missing key financial reporting deadlines, and possibly even losing its stock listing.
The San Diego drug developer said late Monday that the typically routine step of ratifying the company’s auditor failed a shareholder vote. Arcturus (NASDAQ: ARCT) blamed the failure on Joseph Payne, who was fired as CEO on Feb. 1. Though Payne no longer works for Arcturus, he still owns 13.7 percent of the company’s shares and sits on its board of directors.
Arcturus says Payne and others who support him voted against appointing Ernst & Young to be the company’s auditor. That opposition came despite Payne’s support of Ernst & Young during a board meeting that occurred four days following his termination, according to the company. In a prepared statement, Arcturus characterized the Monday shareholder vote as a “personal vendetta by Joe who is upset that he was fired” by the board.
Arcturus added that failing to appoint an auditor means the company may miss the April 30 deadline to file its annual report with the Securities and Exchange Commission.
“A vote against the proposal today was a vote for disruption and uncertainty, as it leaves the Company in a potentially precarious situation with respect to meeting its public company reporting obligations,” Arcturus added in the statement. “It is this sort of self-interest and illogical, short-sighted behavior that, together with other disturbing behavior, led to the Board’s decision to fire Joe in the first place.”
Since Payne’s firing, he has been arguing his case through documents filed with regulators and outreach to fellow shareholders. In a letter to shareholders filed on Feb. 6, Payne’s attorneys contend that the steps the board took to remove him were improper and in violation of company policies. The letter says Payne’s ouster was orchestrated by the four other directors who are “trying to seize control of the company.” Arcturus’ executive chairman is Stuart Collinson, a partner at Forward Ventures and the chairman and CEO of Tioga Pharmaceuticals. The other board members are Daniel Geffken, David Shapiro, and Craig Willett. On Feb. 12, Payne called for a shareholder meeting to remove the current directors, except Payne, and appoint new ones.
In an e-mailed statement, Payne characterized the Monday shareholder vote as a clear signal of shareholder dissatisfaction. He said that the current board, formed following the reverse merger that gave Arcturus its Nasdaq listing, has made “significant material decisions recently that have impacted the stock price dramatically.” Payne is now backing four others to replace the current board.
Arcturus’ stock price held steady on Tuesday, hovering around $5.70 per share before closing at $5.65, down 0.88 percent.
Arcturus develops drugs based on RNA, a molecule that carries the genetic instructions that cells use to make proteins. Under Payne, Arcturus became a public company last fall through a reverse merger with Israel-based Alcobra. Payne’s tenure also saw the company begin a research collaboration with Janssen Pharmaceuticals, part of Johnson & Johnson (NYSE: JNJ). Arcturus’ lead drug, Lunar-OTC, was developed to treat a rare enzyme deficiency that leaves patients unable to control ammonia levels during digestion.
Arcturus is preparing to bring its lead drug into clinical trials. But the company must now do so without another top executive. On Feb. 11, Padmanabh Chivukula resigned his positions as chief scientific officer and chief operating officer. Chivukula also resigned his seat on the board.
Arcturus now says it is planning its own shareholder outreach ahead of a new shareholder vote on the auditor proposal. If an auditor is not appointed soon, Arcturus warns that the annual report won’t be filed on time, if at all. The company adds that failing to meet financial reporting requirements puts it at risk of losing its listing on the Nasdaq exchange.
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