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Nucleonics, Co-Founders Settle Suit Out of Court as Company Continues to Shut Down

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Nucleonics and two of its co-founders last month settled out of court their roughly six month-old litigation, bringing to an end a legal battle that included charges of scientific misconduct and alleged falsification of data used in an investigational new drug application.
 
According to a court document obtained by RNAi News, Nucleonics’ co-founders Catherine Pachuk, who served as the company’s vice president of preclinical research, and C. Satishchandran, who was senior vice president of research and development, have reached the out-of-court settlement with the company and its president and CEO Robert Towarnicki.
 
As a result, the case has been dismissed with prejudice, eliminating the possibility that the suit can be revived in the future. Specific details about the settlement were not available.
 
The dismissal of the litigation came just days after Pachuk and Satishchandran had asked the court to appoint a receiver to oversee the ongoing sale of Nucleonics’ assets, which began this summer amid the company’s inability to secure funding (see RNAi News, 6/19/2008).
 
According to that request, Nucleonics has already “sold almost all of [its] tangible assets … [but has] failed to engage in any meaningful effort to sell the remaining assets of the company,” which has “wasted corporate assets.”
 
Pachuk and Satishchandran added in their request that although they are Nucleonics shareholders, they have “never been provided with any information in response to their inquiries concerning the … winding down [of] the affairs of Nucleonics.” As a result, they said they were “concerned” that Towarnicki had not been acting in the company’s best interests and asked “that a receiver should be appointed to properly sell the company’s remaining assets and provide an accounting to shareholders.”
 
In June, Towarnicki told RNAi News that Nucleonics had begun liquidating its scientific equipment and that he was looking for a buyer for the company. He did not return a request made this week for additional comment.
 
Presence of ‘Malice’
 
The legal wrangling between Nucleonics and its co-founders began in May when Pachuk and Satishchandran sued the company and Towarnicki for alleged wrongful termination, defamation, and other charges.
 
In their suit, Pachuk and Satishchandran, who were let go in late March, said that Towarnicki “purposefully, intentionally, wantonly, and maliciously acted in such a manner as to cause [their] termination,” adding that their dismissal “was not based upon anything other than personal animosity and malice.”
 

Nucleonics has already “sold almost all of [its] tangible assets … [but has] failed to engage in any meaningful effort to sell the remaining assets of the company,” which has “wasted corporate assets.”

The plaintiff’s suit claims that as early as January, Pachuk and Satishchandran became “increasingly concerned about … Towarnicki’s mishandling of the company’s efforts to obtain additional investment capital … [his] inappropriate and unanticipated efforts to insert himself into the company’s scientific research and development … [and his attempts] to undermine their authority and effectiveness with … [company] subordinates.”
 
Pachuk and Satishchandran added in their suit that they brought their concerns to Nucleonics’ board, which “further exacerbated … Towarnicki’s personal and professional animosity” and resulted in their being fired, although “Nucleonics would agree to characterize them as having been ‘laid off.’”
 
But according to a countersuit filed by Nucleonics in late June, Pachuk and Satishchandran left the company after allegations surfaced that they had mishandled or falsified data contained in an investigational new drug application Nucleonics filed in December 2006 for its hepatitis B therapy NucB 1000, and that Pachuk had included false data in a patent application (see RNAi News, 7/3/2008).
 
The co-founders also “knowingly submitted the false scientific data to” the National Institutes of Health and the US Food and Drug Administration in the IND filing and supporting papers, the countersuit added.
 
According to the countersuit, upon discovery of the alleged misconduct, a number of investment groups, including a venture capital arm of Johnson & Johnson, withdrew commitments to invest a combined $25 million in Nucleonics’ Series C round, which was set to close in early April. As a result, the company was forced to shut down and began looking to sell itself off, it stated.
 
Three-Piece Suit
 
Despite constant talk in the RNAi drug field about freedom to operate and intellectual property rights, there has been relatively little litigation among its players. Nucleonics, however, is an exception, having been embroiled in two major lawsuits.
 
In addition to the row with its co-founders, Nucleonics was a co-defendant in a protracted IP dispute with Australian expressed-RNAi firm Benitec that nearly brought the companies before the US Supreme Court.
 
That case began in 2004 when Benitec sued Nucleonics, Ambion, and GenScript for allegedly infringing its core US patent, which essentially claims gene-expression knockdown using DNA that transcribes double-stranded RNA (see RNAi News, 4/2/2004).
 
Although Ambion and GenScript licensed the patent to end the litigation, Nucleonics chose to fight. As part of its legal strategy, Nucleonics sought a court ruling that Benitec’s patent was invalid, and either opposed the patent or requested re-examinations of Benitec’s IP in several nations, including the US.
 
After years of legal fighting, Benitec withdrew its lawsuit in order to return to the business of drug development. Nucleonics, however, pushed to have the litigation reinstated, even taking its request to the US Supreme Court, which ultimately declined to hear the case (see RNAi News, 4/24/2008).
 
Still, the damage to Benitec was done. Earlier this year, the US Patent and Trademark Office issued its fourth non-final rejection of Benitec’s patent.
 
Last month, in its annual report to shareholders, Benitec said that it had issued a response to this latest rejection in July, and that it expects to meet with the USPTO “in the next few months to discuss this response in more detail.”
 
Benitec added that “it is difficult to say with any certainty what the next steps in this process will be as [patent] examiners are not restricted in the time to address the response or the timing of the review.”

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