Internecine disputes and charges of scientific misconduct, rather than a soft economic environment, appear to be at the heart of Nucleonics’ inability to find investors and subsequent efforts to sell itself off, according to court documents obtained by RNAi News.
The allegations are part of a countersuit Nucleonics filed in the US District Court for the Eastern District of Pennsylvania late last month after two of the company’s co-founders in May sued Nucleonics and President and CEO Robert Towarnicki for alleged wrongful termination, defamation, and other charges.
They also come less than a month after RNAi News reported that Nucleonics had put itself on the block after running into problems closing a Series C financing round (see RNAi News, 6/18/2008). As part of the company’s difficulties, it also laid off most of its staff and began liquidating much of its laboratory equipment.
Although Towarnicki at the time attributed the firm’s fundraising issues to a weak economic landscape, Nucleonics’ countersuit against the co-founders — now former employees — alleges that investors balked when it was discovered that preclinical data from the company’s HBV program may have been mishandled and possibly falsified.
According to court documents filed by Nucleonics, a number of investment groups, including a venture capital arm of Johnson & Johnson, had agreed to invest a combined $25 million in the Series C round, which was set to close in early April. The capital would have raised the RNAi shop’s valuation to an estimated $58 million.
But Nucleonics said that after it learned that co-founders Catherine Pachuk, who served as vice president of preclinical research, and C. Satishchandran, who was senior vice president of research and development, had allegedly “falsified and/or grossly misjudged” certain of the HBV preclinical data, the Series C investment was “aborted, all private funding was … pulled, and Nucleonics was ruined.”
Pachuk and Satishchandran, however, argue in their lawsuit that the allegations of scientific misconduct are untrue and were made by Towarnicki out of “personal and professional animosity” as he attempted to “undermine their authority and effectiveness” by inappropriately involving himself in the company’s scientific work.
‘Animosity and Malice’
The legal wrangling began in May when Pachuk and Satishchandran sued Nucleonics and Towarnicki for, among other things, wrongful termination.
In the suit, the plaintiffs allege that “Towarnicki purposefully, intentionally, wantonly, and maliciously acted in such a manner as to cause [their] termination” in late March. They added that their dismissal “was not based upon anything other than personal animosity and malice.”
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.’”
“The independent consultant found the experiments presented and managed by [Pachuk and Satishchandran] to be ‘cherry picked’ to ‘prove’ the desired result,” and that “confirmation of the delivery nanoparticle was ‘unknown’ and the control experiments performed were weak.”
But according to Nucleonics’ countersuit, 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 HBV therapy NucB 1000, and that Pachuk had included false data in a patent application.
“At various times throughout the period of their employment with Nucleonics, [Pachuk and Satishchandran] knowingly manipulated the testing and test results [from preclinical research], falsely representing to Nucleonics, its investors, and potential investors that the preclinical trials performed by [the company] were successful and that the testing methods were proper and performed with proper control groups,” Nucleonics’ countersuit charges.
Pachuk and Satishchandran 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, it adds.
The FDA approved the IND in May 2007 and patients began receiving NucB 1000 in January 2008 as part of a phase I study, according to Nucleonics press releases.
The countersuit further states that Pachuk and Satishchandran were then “terminated for cause,” two months later and that Nucleonics hired an “outside consultant” to investigate their research.
“The investigation concluded that [Pachuk and Satishchandran] had compromised preclinical trial results and were guilty of ‘gross professional misconduct’ in their research and reporting of their research,” the countersuit states.
“Specifically, the investigation revealed that the test results of … work done to define and optimize a delivery nanoparticle for [expressed RNAi] therapeutics to be used to treat chronic hepatitis B and hepatitis C infections were, if not fraudulent, the product of gross professional misjudgment and delusion,” the counterclaim charges.
“The independent consultant found the experiments presented and managed by [Pachuk and Satishchandran] to be ‘cherry picked’ to ‘prove’ the desired result,” and that “confirmation of the delivery nanoparticle was ‘unknown’ and the control experiments performed were weak,” it adds.
Nucleonics’ outside investigator wasn’t the only one to draw this conclusion. In late 2006, the company went before the NIH’s Recombinant DNA Advisory Committee to discuss testing of NucB 1000 in humans. At the time, the RAC expressed concerns about the strength of the preclinical data submitted by the company (see RNAi News, 12/21/2006). Video of the RAC meeting is available here.
While the Series C investors had intended to go forward with the financing after hearing of the plaintiffs’ departures, Nucleonics said they backed out of the round when it was discovered that the IND data was allegedly mishandled. That decision forced Nucleonics to “wind down its corporate affairs by liquidating its assets and equipment,” according to the counterclaim.
In addition to the damage to Nucleonics, the countersuit claims that Towarnicki’s reputation has been “adversely affected and his future opportunities in the industry have become all but foreclosed.”
For their part, Pachuk and Satishchandran state in their lawsuit that in addition to the harm caused by the accusations of misconduct, they never received severance packages promised by Nucleonics and that the company has failed to return “several items of personal property … and scientific equipment owned by the plaintiffs … collectively worth several hundred thousand dollars.”
Both the plaintiffs and the defendants are seeking damages and costs, as well as other relief deemed proper by the court. The case is currently slated to go to trial on Dec. 9.
In its countersuit, Nucleonics also stated that had the alleged false data contained within the NucB 1000 IND not been discovered, patients would have continued to be enrolled in the phase I dose-escalating study “without sufficient indication of clinically relevant delivery to warrant such an action.”
Towarnicki declined to comment on the situation, leaving unanswered questions about the status of the three patients who were dosed in the phase I trial of NucB 1000 before it was stopped — a move he had previously indicated was related to Nucleonics’ financial woes.
Calls to California Pacific Medical Center’s Robert Gish, who was the principal investigator of the NucB 1000 study, were not returned. Attempts to reach Pachuk and Satishchandran were unsuccessful.
An FDA spokeswoman said that she was unaware of the charges made against Pachuk and Satishchandran but noted that the falsification of data submitted in regulatory filings could lead to “legal prosecution” through the agency’s office of chief counsel.