Photos by KSS from Arcturus Corporate Presentation, HC Wainwright 2019 Global Life Sciences Investor Conference, Grosvenor House, Mayfair, London, April 2019. Graphics by Michael Wideman (Broken Arrow, OK).

In A Candid Interview with Managing Editor Allan Lee, Arcturus Co-Founder and CEO Joseph Payne Struts His Pugilist-with-Soul Stuff and Makes It Clear He’s One CEO to Watch. An Advocate Equally for Shareholders, Patients, Employees and the Advancement of Biotech. Bromance, Anyone?

SAN DIEGO- You might say that BioPub has been shadowing Arcturus CEO Joseph Payne since the early days of the fall 2018 NYC investor conference circuit….meetings like The MicroCap, like Rodman and Renshaw. At the time, Payne was a little on edge; he’d just won, definitively, a bruising, withering legal battle for control of the company he started; it’s a dark story that finds Payne blameless but subjected to gratuitous hell that we’ll not recount.

We were wowed by his presentations, animated and candid, and by the prepotency of the company’s science. Therapeutic mRNA was finally at hand, and superior in a plethora of ways to gene therapy, and Payne’s company appeared to have the best-of-breed incarnation of it. It was hard not to be excited….and hard to resist investing (we did….invest, that is, not resist).

No longer on edge, these days Payne is charmingly edgy, the passions in his message contagious. We’d long nagged him about sitting with us to do a formal interview….and he was always happy to oblige even though time wasn’t on our side. Payne has been a relentless, indelible denizen of the biotech investor circuit this year, and this has had us running into him and entourage regularly on a broad grid stretching from LA to London.

When we finally arranged to catch him at Arcturus HQ in San Diego in May 2019, we showed up at the appointed afternoon hour to find that fate had scuppered our plans. The office was suddenly awash in a gaggle of potential institutional investors and needed Payne’s undivided attention. We agreed to return two days later….though by that time KSS was TKO from a URI. Managing Editor Lee rose to the occasion, vectored into HQ, and captured a fine conversation with Payne. To know Payne is to grow quickly into a fan and into a person who enthuses and bubbles over about his management style.

Allan Lee

Since we last met in London, at HC Wainwright, any new updates on the partnering of the ornithine transcarbamylase program?

Joe Payne

Yeah, yeah. So we reassumed the rights, 100% global rights, a few months ago, to the ornithine transcarbamylase deficiency program or OTC deficiency and as a public company, we made that a public announcement. So shortly after that of course, there’s considerable interest and the reason why there’s a lot of interested parties in OTC deficiencies is because it’s the number one urea cycle disorder. Two of the top five most expensive drugs in America treat OTC deficiency. Horizon (Pharma) is an extraordinarily successful company and they only have 500 patients being treated for urea cycle disorders. They’re a $5 billion company and a lot of that valuation comes from their urea cycle disease franchise; the revenue for Horizon is like 200 million on just, 500 patients, so we’re talking over $400,000 per patient per year. They’re messaging that it could be growing because they’ve just got approval from the regulatory agencies for the treatment of younger children and infants. So why is this important is because Horizon’s doing a good job establishing and clearing out a path for commercialization for a superior approach, and that would be in a messenger RNA medicine, that builds a healthy normal ornithine transcarbamylase, rather than drugs that treat the downstream effects of this disease, which is an increased ammonia in the blood.

So right now, this disease is presently treated with ammonia scavengers and they’re very pricey, but they do not fix the disease itself. So these patients are on these expensive drugs, but they still need to be very cautious and what they eat, if they eat the wrong food, they could have hospitalization event, which is very serious…. they could die. So they’re very motivated patients that would like to have another option. In terms of the level of interest… who’s interested? Rare disease companies are interested, large pharma companies that have rare disease divisions are interested, folks that are specialized in rare liver diseases… In general, those who haven’t been interested in this disease previously, are now, because it’s a high-profile rare disease. It’s just a fantastic market to be participating in. So what does that mean for us? Well, we own 100% of it. There’s a lot of people, organizations, and really great companies that would be interested in this and we’ll see how these discussions go. But all I can say is that it’s proceeding very well exceeding all expectations and we’re very happy with the level of interest in in our lead program, our flagship asset.

Allan Lee

Terrific!

Any idea when the cystic fibrosis mRNA construct is ready to be in phase one? Do you have an update for that?

Joe Payne

I want to rephrase your question and in the following way. Let’s ask: What is your readiness for clinical use and human use of therapeutic messenger RNA? Well, there’s a lot of clinical programs right now for messenger RNA therapeutics for intra-muscular delivery, and intra-tumoral, delivery of messenger RNA. So this is for vaccine applications and a cancer vaccine application.

But intravenous applications of messenger RNA? There has not been a human injected with messenger RNA intravenously yet. We may be one of the first to do so and that’s exciting.

So why is that? Why has no human yet been the first? The reason is that there’s a higher quality of purity that’s required for messenger RNA therapeutics that are dosed directly into the bloodstream. So if you’re dosing into the muscle or into a tumor, if you have impurities in your product, that’s actually okay, because it could evoke an immune response and immune response for vaccine applications or for cancer could actually be a good thing.

But for intravenous applications, that can be very bad; you do NOT want any immuno-responsive activity in a systemically administered drug that’s injected and goes everywhere in the body. No way that can be good.

So the messenger RNA has to be very clean, and Arcturus has discovered and developed a proprietary purification process for our messenger RNA, which is great, because it allows us to achieve a purity that’s acceptable for intravenous applications. Now, the other thing that IV therapeutics requires is more…… more messenger is needed, so instead of a small single dose for a vaccine application, IV therapy requires larger doses, larger amounts, chronic dosing, and so you need larger amounts.

So just a couple of weeks ago, we shared through our corporate update, that we have completed a greater than 10 gram batch, a GMP grade batch of messenger RNA that’s suitable for intravenous applications. It was a significant enough batch size that it satisfies our inventory requirements, not only for the IND enabling studies, but also into the clinic. This is the largest batch that we’ve known of, the largest IV grade or intravenous grade messenger RNA ever made. Why is this important is for those investors that have invested in gene therapy? Well, that’s DNA medicine, DNA AS medicine, and it’s delivered with a viral vector or a virus with DNA as payload. This industry has had some serious hiccups and challenges with respect to DNA manufacturing, while in the mRNA space have not and that’s what’s exciting. It’s challenging for others in the space, but for us, we consider ourselves world leaders at intravenous quality messenger RNA material and manufacturing and we’ve identified the processes.

We have a proprietary manufacturing process to not only make the messenger RNA but to purify it and to formulate it into our LUNAR nanoparticle technology to make more than 10 grams of drug product. This is LUNAR formulated, and LUNAR is the name of our liquid-mediated delivery system, and our LUNAR-formulated drug product we’ve made as well. So we’re uniquely differentiating ourselves from the field in that we can not only design and optimize messenger RNA drugs, but we can synthesize the drug substance itself and manufacture it at intravenous quality and GMP grade quality and formulate it consistently and scalably and reproducibly, so this is a differentiating set of circumstances.

So going back to the original question, this is why we are that much closer to being ready for human testing. You need to establish, de-risk, and show reproducible, scalable manufacturing capability of the drug substance and the drug product. You need to show that the grade and the purity of this material is suitable and approvable by the FDA. They like our specifications; we’ve met with the regulatory agencies on both continents. They’ve had no issues with our specifications of our material.

Allan Lee

So how far are we away from the clinic?

Joe Payne

Very soon, very soon. So this is a near-term milestone, q4, the fourth quarter of this year… this is just a few months away. We could have one of the first investigational new drugs ever for intravenous messenger RNA. What was science fiction 20 years ago, is now a reality. We have shown that this works! Intravenous messenger RNA therapeutics work in mice, rats, dogs, pigs, hundreds of primates and now we’re ready. We’ve shown that we can scale it up, make enough of it, make it clean, and suitable inventory to support a commercial rare disease product. Now we’re ready to inject in humans and see things go to work; we’re knocking on wood and really hoping that that it works in humans as well, because if it does, we are going to be creating and building proteins naturally in humans.

The entire pharmaceutical industry, they knock down, they inhibit, they delete, they do not build anything. This is the first therapeutic of its kind to inject a patient with a drug that goes to a cell and starts to make and build life! Imagine the opportunity! It’s like proteins, enzymes, transporters, hormones, antibodies, whatever you make:  our entire person was built by messenger RNA. DNA doesn’t make anything, it’s just a blueprint. If the DNA is missing, the RNA is missing and the proteins not there and you’ve got disease. If the DNA is messed up, that gets you messed up RNA and messed up proteins, and you have a messed up disease. For these people that have mutated or missing DNA, this is what a genetic disease is. You’re missing something. If you’re missing something, it’s okay. There’s now a mechanism at the pioneering stages right now, where you can go in and build and replace what you are missing. That’s why messenger RNA therapeutics is extraordinarily exciting, because it has the ability to build life and we’re going to first show proof of concept by building a healthy normal ornithine transcarbamylase. I know it’s a mouthful, but it’s a very important enzyme for these rare disease folks that are suffering from ornithine transcarbamylase deficiency. And so we go in there and build them a new enzyme.

For cystic fibrosis, the same thing, but in that case, it’s in the lungs. These patients are missing a gene DNA, and therefore they’re missing the RNA and they’re missing the transporter. This transporter that maintains the salt balance in the lungs, if you’re missing the transporter, the salt is imbalanced and it produces phlegm and scarring and inflammation and fibrotic disease, and they can no longer breathe, and then they die unfortunately at young ages. So instead of dealing with all the drugs right now, which deal with the inflammation, the fibrotic disease, the swelling, the pain, why not just build the normal transporter that fixes it all and remove all of those issues and CURE the patient? Just like you and I, we make proteins, they degrade and go away, and then you keep making it naturally. So our drug is transient and people will have to breathe it once a week or inject it once a month. They go in, they make it and then ornithine transcarbamylase lasts for about a month. Then you get another injection and it lasts for about a month. It’s just an ideal concept commercially as well to have— it’s a multi dose ongoing therapeutic.

Allan Lee

Could you draw a product comparison with Moderna?

Joe Payne

Moderna’s a fantastic company. They’ve raised a ton of money and they’ve already established some really early exciting human data for intramuscular delivery of messenger RNA, and perhaps intratumoral delivery. So this is cancer vaccines, prophylactic infectious disease vaccines, they’re going to change the world in those areas as well. They do have some intravenous therapeutics that they’re developing as well and they’re in the same stage of development as Arcturus. Arcturus does not have  their 21 programs where 16 of them are these vaccines; that’s Moderna’s business strategy. Arcturus is more focused on intravenous and inhaled versions of messenger RNA and the reason we like those is we believe that directed therapy to those cell types will be very commercially valuable. The intravenous treatment goes to hepatocytes, which are in the liver, and hepatocyte biology and hepatocyte diseases are significant. The inhaled drugs are targeting bronchial epithelial cells and this is what we’ve shown very clearly—- that we can get into the cells and functionally, safely, and effectively deliver messenger RNA into those cells in animals. We haven’t done it in humans yet, but that is an extraordinarily valuable cell type if we can build life in bronchial epithelial cells in the lung. There is a laundry list of diseases we can go after in the lung, just like there’s a lot of exciting commercial opportunity for building life building stuff in hepatocytes.

What I mean by stuff and life: this is that what you and I are made of, transporters, hormones, receptors, antibodies, proteins, enzymes, all of these things that get built naturally. Again, if you’re missing the gene, you’re missing the RNA and you’re missing the protein so why not just give someone the messenger RNA molecule that builds what is missing? Why fool with the inadequacies of gene therapy and all its stark limitations?

Allan Lee

Few small cap pharmas have as many strategic partners as you guys do. I mean…..you’re the Who’s Who of partnering! Tell us about your partnership strategy and how you’re able to attract so many partners.

Joe Payne

So Arcturus is founded not by um…, well, OK. there’s nothing wrong with bankers and finance folks and business development people or business professionals…. but Arcturus was founded by scientists. Now, what does this mean? Well, it means that we have the ability to really drive innovation and drive the scientific strategy; it allows us to provide technology to pharma groups and we’re able to communicate it effectively and really help these pharma companies understand the value of the technology. So one of the key aspects to getting a pharmaceutical deal is to identify the right person in the company that can evaluate the technology and get excited about it, and then communicate it internally to the right business people at the pharmaceutical company to get a deal done. But a deal does not get done until you excite a scientist at a pharmaceutical company. So our technology gets people excited when they use it and see it. We we we get this technology into their hands for as little money as possible and then they evaluate it,  then they of course get hooked. They see how awesome it is and now the only way they can get it is if did they do a deal with us. So the secret to our dealmaking process is to get our technology into the right people’s hands, the right scientists, at these companies, because once they’re excited about it, a deal happens organically, it just does. The data drives the dealmaking process. So our success, again, is based upon the science, the data, getting our technology into the right people’s hands at these groups, because once that data is there, then you allow the data to drive the business dealing decision making process.

I think all of our deals came about in different ways. We started the company in an incubator that was sponsored by J&J called the JLABs, or Janssen labs. So our first pharmaceutical deals were with Johnson and Johnson, simply because we had exposure to J&J while being a company in their incubator. You know, we’d have conversations and we’d have opportunity to present to the J&J scientists. And then we allowed them to try our material and get excited about it. And then we did a deal for hepatitis B,

With J&J and that was a great deal because J&J is not only the number one company in the world for pharmaceuticals, but hepatitis B is the number one disease in the world, 300 million plus patients. So they partnered with this small biotech company called Arcturus to go after the number one disease in the world. The other deals came through attending the right scientific conferences, and then identifying the people that were interested in a particular area, like NASH for Takeda. We also attend conferences at JP Morgan and business development conferences called BIO, and this is an opportunity for the business teams to go through speed dating, and we get 20, 40, 60 meetings and of those, we select our top five or 10. As you know, there’s sincere interest in our technology from pharma and so that’s how we’ve got additional deals as well. So there’s direct sales, there’s indirect, there’s retail where people come to us…. we do a publication, or we do press release, and then people pick up the phone and call us. That’s how the Ultragenyx deal happened: they saw our primate data for messenger RNA. They reached out and said, “Hey, we saw your data, and we saw your press release, we’d like to chat.” So sometimes it’s easier than others and sometimes you have to just knock on a lot of doors, or make a lot of phone calls to get it done.

Allan Lee

You have certainly been going extremely fast. I mean, there are companies that we follow where for years…. they sort of you know marinade, really don’t do much. They sit idle. For you guys have to have executed so fast, you must have an amazing team. And I mean, okay, office size and location, right? What do you think? Like, what I mean is, how do you attract the best people and like, how do you guys just execute like, just so well, over and over?

Joe Payne

The culture at Arcturus is we hire people that are competent and likable. That’s the secret to success. We don’t have a complicated mission statement. We’re a competent, likable group. So that means we’re good at what we do and we’re likable. Competency I think is well defined; you’re very good at your job. We hire people that are exceptional. But in terms of likeability, we define that as positive, humble and approachable. So if you’re a positive person, you’re humble, even though you’re an exceptional candidate and very competent, you remain humble and you’re approachable. That means you can integrate into a team very effectively and that is where synergy and great ideas emerge…. you get them enough great minds together. That’s very powerful, but only if they’re humble, approachable, and positive people. If you have arrogance, or unapproachability, it’s just not going to be effective or synergistic. Idea creation and innovation only occurs when you get great people that are humble, approachable, and positive, all in one room, and then they share their ideas. it’s organic, it’s infectious and it becomes very powerful.

Allan Lee

Tell us about the beginnings of the company.

Joe Payne

Yeah, we were scientists, we are scientists. So Pad [Pad Chivukula, Ph.D] and I are the co-founders of the company. We’re scientists and we had a great career, we saved some money, but we’re not wealthy by any sense at all. But we put our entire life savings into this company, and it wasn’t very much, but it was enough for three months runway, that’s all we had. So we put our entire life savings into this and it was kind of crazy. I wouldn’t have done it again. Frankly, you have to be a little nuts…but in that three months, we discovered the LUNAR delivery technology. We evaluated it, we showed some investors the data and got them excited and we ended up getting a $1.3 million of seed round money. Then we collected more data and six months after that, we got another $6 million and then we captured the attention of pharma, we got enough data now enough time, enough runway with that money, to show the data, to share the data, to allow pharma to evaluate our technology, and then do a deal. And then after our first deal with J&J, it was, that was a breakthrough moment for us, because then it added more validation, and we could raise even more money.

Allan Lee

How much money have you guys raised in total to date?

Joe Payne

Depends what you mean by raising money, I’ll put it into two bins. There’s money that comes from our partners, we’ll call it strategic money, it’s non-dilutive and none of our strategic partners have bought any stock. So that’s dozens and dozens of millions of dollars, and then we raised $36 million, through a reverse merger to access the public markets to get onto the NASDAQ as a public company. So we raised that money dilutively, and we had a couple small rounds, like I mentioned: a seed round of dilution of 1.3 million, very small, yeah, and then a couple rounds in the $5 to $6 million range. In fact, before our transition to becoming a public company, 80% of our money came in non-dilutively from strategic partners….and that’s completely unique. No one does this. Okay, everyone raises a bunch of money, they collect data, and then hope to get a partnership and then go public. We didn’t have to raise a lot of money because we engaged pharma very early, and very efficiently and then we non-dilutively funded the company all the way up until we decided to do a non-traditional IPO because it’s faster and less expensive. We got $36 million of unhindered capital and debt-free capital from this reverse merger.

Allan Lee

You guys seem to be attracting institutions now too…

Joe Payne

Yeah. Ark Capital now owns close to 10% of the company. Ark Capital is just an extraordinarily successful, multi-billion dollar firm in New York. One of the reasons for their success is they identified a breakthrough technology, a company called Tesla, very early. And they have very affectionately called us the Tesla of biotech and the reason they’ve said that is because we are doing something different, that can transform not only the few companies, but the entire industry.

If we start building life, why in the world, are you going to be treating inflammation? Yeah, why are you going to be treating cholesterol? Let’s just pause and think about this for a second. Everyone here knows the stories of the marathon runner that dies of a heart attack, or the guy that smokes two packs a day, and yet he lives to 98. Okay, why do these people live so long? And yet, why does the guy that’s running keel over with a heart attack? Because it doesn’t matter… the environment can alter our life eight to 12 years, and we can change our behavior….but those influences have their limitations, OK? But our genetics dramatically change how long we live. You’re either scheduled to die when you’re one month old, or 120, has nothing to do whether you smoke or run. It’s all genetics, OK?

So you can you can change the your lifespan by triple digit years with genetic drugs, but not by changing your environment. Don’t get me wrong: I’m encouraging all your readers to exercise and not smoke and drink to excess,  and get all those good habits down right, because we want to live right and eat healthy and this is all great stuff, but you can also understand that instead of taking drugs that reduce cholesterol, why don’t you just add a gene? There’s people that eat whatever they want, and they have no problems with cholesterol. Poor schmucks like me, I have a cholesterol problem even though I did a triathlon, I don’t smoke and I don’t drink and I go into the doctor’s office and I’ve got bad cholesterol. It’s because I got crappy genes from my grandpa. No offense…I love the guy but he gave this to me and I’m missing stuff. This (the Arcturus approach) changes everything.

Allan Lee

What’s your runway right now in terms of cash?

Joe Payne

What we’ve disclosed previously was mid-2020, however, for those that are not familiar with financials and how they’re disclosed, those are conservative based on the assumption that we do not do any more deals. If we do any more pharma deals, which we can as a those non-dilutive monies to extend our runway.

Allan Lee

Thank you Joe! Just mindblowing!

[Disclosures: Introductory text by KSS. Interview by Allan Lee. Transcription by Otter. Interview edited for clarity and organization by KSS. BioPub has no pecuniary relationship with Arcturus or its officers. This article is intended neither as recommendation nor solicitation to purchase $ARCT shares, but is offered to jumpstart reader due diligence. KSS owns a long position in $ARCT and will not trade in $ARCT for 7 business days after this column is published. The editors express gratitude to Arcturus VP for IR Neda Safarzadeh. Copyright 2019 by BioPub, Helixir Media, LL.C., and the editors. All rights reserved. May not be reproduced without permission.]