Todd Franklin Watanabe
About Todd Franklin Watanabe
Todd Franklin Watanabe, 57, is President, Chief Executive Officer, and a Class III director of Arcutis Biotherapeutics (ARQT), roles he has held since April 2017. He holds an M.A. in National Security Studies and a B.A. in International Relations from Georgetown University, and previously served as a U.S. Navy Reserve officer for 25 years . Under his tenure, Arcutis executed multiple product launches (ZORYVE indications), drove 2024 net product revenue to $166.5 million (+471% YoY), and achieved 128% of corporate goals tied to the annual bonus plan, though 2024 net income remained negative at $(140.0) million; the company’s TSR (value of $100 since IPO) stood at 63.90 as of year-end 2024 versus 14.82 in 2023 and 67.89 in 2022 .
Performance snapshot
| Metric | 2022 | 2023 | 2024 |
|---|---|---|---|
| Net product revenue ($mm) | — | — | 166.5 (+471% YoY) |
| Corporate goal achievement (%) | — | — | 128% |
| Net income ($mm) | (311.5) | (262.1) | (140.0) |
| TSR – value of initial $100 (since IPO) | 67.89 | 14.82 | 63.90 |
Past Roles
| Organization | Role | Years | Strategic impact |
|---|---|---|---|
| Kanan Therapeutics | Co-founder & Chief Operating Officer | Dec 2015 – Feb 2018 | Early-stage drug development leadership in cardiovascular; operating build-out |
| Kythera Biopharma | VP, Strategy & Corp Dev | Oct 2013 – Nov 2015 | Corporate strategy and transactions at a dermatology-focused company |
| Amgen | Executive (multiple roles) | 2005 – 2013 | Development/marketing for Repatha (hyperlipidemia), Aimovig (migraine), Enbrel (derm/rheum) |
| Eli Lilly; U.S. Government | Executive; Government official | Prior to 2005 | Commercial and policy experience diversifying operating profile |
External Roles
- No other public company board roles for Mr. Watanabe are disclosed in the proxy; he serves only on ARQT’s board .
Fixed Compensation
| Component (CEO) | 2022 | 2023 | 2024 |
|---|---|---|---|
| Base salary ($) | 590,000 | 633,500 | 660,867 (ending base $665,000) |
| Perquisites ($) | 16,952 | 20,069 | 19,926 (incl. $6,126 travel/housing) |
Notes:
- 2024 CEO ending base salary set at $665,000 effective Mar 1, 2024 (+3.9% YoY) .
- Employee directors receive no additional cash/equity for board service under the non‑employee director program .
Performance Compensation
- Target bonus opportunity: 65% of base salary (unchanged in 2024) .
- 2024 corporate goals spanned revenue, commercialization, follow-on indications, pipeline, BD, and finance/corporate. Company achieved 128% vs target; CEO’s 2024 actual cash bonus was $549,841 (83% of salary) .
| Metric category | Weight | Target/Objective | 2024 Result | Payout driver |
|---|---|---|---|---|
| ZORYVE revenue | 40% | Achieve net product revenue target with compliance excellence | Exceeded; 135% of target element; full-year revenue $166.5mm (+471% YoY) | Over-target revenue attainment |
| Commercialization | 10% | Covered scripts targets; AD launch access; Part D access; Medicaid access in key states | Achieved most, missed Part D; expanded Medicaid to ~1/2 lives over time | Partial; weighted to achievements |
| Follow-on indications | 20% | AD approval (US); sNDA scalp psoriasis; Canada approvals/submissions | Achieved US AD approval; sNDA submissions; Canada approvals | Over-achievement in category |
| Pipeline | 10% | ARQ-234 steps; ARQ-255 P1b enrollment | Achieved milestones; ARQ-255 last subject enrolled | On plan |
| Business Development | 10% | Japan license; U.S. PCP co-promote; CBE-30 tech transfer | Achieved Sato deal; Kowa co-promote; CBE-30 submitted | On plan |
| Finance/Corporate | 10% | Strengthen balance sheet; manage opex; cybersecurity; turnover | Achieved equity/debt actions and opex goals; turnover <10% | On/above plan |
| Corporate score | — | 100% target | 128% | Applies to CEO bonus |
Multi‑Year CEO Compensation (Summary Compensation Table)
| Year | Salary ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive ($) | All Other ($) | Total ($) |
|---|---|---|---|---|---|---|
| 2022 | 590,000 | 1,252,803 | 2,314,700 | 407,100 | 16,952 | 4,581,555 |
| 2023 | 633,500 | 1,384,250 | 2,543,320 | 354,127 | 20,069 | 4,935,266 |
| 2024 | 660,867 | 1,405,630 | 1,053,227 | 549,841 | 19,926 | 3,689,491 |
Equity Grants and Vesting
- 2024 CEO equity: 410,000 stock options and 125,000 RSUs (annual grants on Jan 12, 2024); plus 264,882 RSUs via the 2024 option exchange (584,500 underwater options exchanged, 2–3:1 ratios by strike; one‑time design) .
- Option exchange rationale: retention risk amid stock decline (Dec 2021 $20.74 to Dec 2023 $3.29) and back‑to‑back 2024 launches; major investors expressed support post‑performance .
| Grant | Date | Type | Quantity | Key terms |
|---|---|---|---|---|
| Annual | Jan 12, 2024 | Options | 410,000 | Strike $3.64; vest monthly over 4 yrs; expire 01/12/2034 |
| Annual | Jan 12, 2024 | RSUs | 125,000 | Vest annually over 4 yrs |
| Option Exchange | Feb 13, 2024 | RSUs | 264,882 | Replacement RSUs for 584,500 options; vest per replacement schedule |
Outstanding equity (12/31/2024 snapshot, selected CEO lines):
- Options exercisable: 49,823 @ $1.68 (exp 03/13/2029); 217,973 @ $1.68 (exp 03/13/2029); 24,991 @ $6.52 (exp 11/20/2029); 93,958 of the 1/12/24 grant are already exercisable (with 316,042 unexercisable) .
- Unvested RSUs by line item: 8,175 (3/3/2021 grant); 35,450 (3/1/2022); 65,625 (3/1/2023); 125,000 (2/1/2024); plus replacement RSUs shown as 5,417 / 79,447 / 87,075 (footnotes for exchange tranches) .
- Standard schedules: options vest monthly over 4 years; RSUs vest in equal annual installments over 4 years (subject to service) .
Implications for selling pressure:
- RSUs vest on annual anniversaries (e.g., Feb 1 and Mar 1 cohorts), creating predictable delivery/withholding events; new 2024 RSUs (125,000) and exchange RSUs (multiple line items) add to 2025–2028 vesting cadence .
- Options vest monthly (smoother cadence) and include multiple deep legacy strikes ($1.68, $3.64, $6.52), potentially increasing in-the-money exercisability if share price appreciates; avoid lump-date pressure compared to RSUs .
Equity Ownership & Alignment
| Item | 2023 | 2024 | 2025 |
|---|---|---|---|
| Shares beneficially owned – CEO | 960,817 | 654,606 | 768,348 (<1%) |
| Of which, common stock (ex options within 60 days) | 420,396 | 606,541 | 709,200 |
| Options/RSUs counted within 60 days | 540,421 | 48,065 options + 30,982 RSUs | 59,148 options |
- Hedging/Pledging: Company prohibits hedging and generally prohibits pledging (including margin) unless approved by compliance officer; insider trading policy applies to officers/directors . A separate clawback policy compliant with SEC/Nasdaq allows recovery of incentive compensation upon restatement .
- Stock ownership guidelines: Apply to senior executives and non‑employee directors (numerical multiples not disclosed); compliance status not detailed .
Employment Terms
| Scenario | Cash severance | Bonus/COC treatment | COBRA/health | Equity acceleration |
|---|---|---|---|---|
| Termination without cause or resignation for good reason (outside COC window) | 12 months base salary | — | 12 months employer-paid COBRA or equivalent taxable cash | — |
| Double-trigger: termination within 18 months after COC (or 3 months prior) | 18 months base salary + 1.5x target annual bonus (paid over 18 months) | Target bonus multiple as above | 18 months employer-paid COBRA or equivalent taxable cash | Full acceleration of all time‑based equity; specified performance options (3/13/2019) also accelerate |
- Illustrative 12/31/2024 COC termination values for CEO included $997,500 base, $648,375 bonus multiple, $32,791 COBRA, and $8,910,285 equity acceleration (valued at $13.93/share) .
Board Governance and Director Service
- Role: Director since 2017; Class III term runs to 2026 annual meeting .
- Independence: Not independent (employee); 8 of 9 directors independent .
- Committees: CEO is not listed on Audit, Compensation, or Nominating & Governance committees; all three committees are fully independent .
- Leadership structure: CEO and Chair roles are separated; Keith R. Leonard Jr. became Chair on Nov 4, 2024, enhancing oversight independence .
- Attendance: Board met 5x in 2024; all directors had 100% attendance at board and committee meetings on which they served .
- Executive sessions: Independent directors meet in regularly scheduled sessions .
- Director pay: Non‑employee director program provides $50,000 cash retainer plus committee fees and a $250,000 annual equity mix; employees (incl. CEO) receive no additional pay for board service .
Compensation Structure Analysis
- High at‑risk mix: 82% of CEO 2024 pay is variable/at‑risk (company disclosure of mix), emphasizing long-term equity .
- Option exchange: 2024 one‑time exchange replaced underwater options with RSUs to address retention and re‑align incentives amid stock volatility; design was dilution‑conscious and supported by major investors post‑2024 execution (monitor for future use to avoid pay‑inflation optics) .
- Governance guardrails: Double‑trigger COC severance; no tax gross‑ups; hedging/pledging restrictions; clawback policy compliant with SEC/Nasdaq .
Compensation & Incentives Detail (CEO)
| Item | 2024 |
|---|---|
| Base salary (ending) | $665,000 |
| Target bonus % | 65% of salary |
| Actual bonus paid | $549,841 (83% of salary) |
| 2024 equity grants | 410,000 options; 125,000 RSUs |
| 2024 option exchange | 264,882 RSUs (for 584,500 options) |
| Key performance metrics | Revenue, commercialization, follow‑on indications, pipeline, BD, finance/corporate; overall score 128% |
Ownership, Vesting Schedules, and Potential Selling Pressure
- Unvested RSUs scheduled to vest annually from 2025–2028 across multiple cohorts (e.g., 2/1/2024, 3/1/2023, 3/1/2022, 3/3/2021) including exchange RSUs; monitor early‑year vesting dates for delivery/withholding dynamics .
- Options vest monthly; legacy in‑the‑money strikes ($1.68, $3.64, $6.52) may drive periodic exercises rather than lump‑date selling; expirations range 2029–2034 .
Related Party Transactions and Policies
- Policy requires audit committee review/approval of related‑party transactions; thresholds >$120,000; methodology to ensure arm’s‑length terms .
- Example: 5% holder Frazier Life Sciences VIII purchased shares in 3/2024 follow‑on at deal terms; no Watanabe‑specific related party transactions disclosed .
Compensation Peer Group (2024)
Agios, Alector, AnaptysBio, BioCryst, Bluebird Bio, Cara Therapeutics, Coherus, MannKind, Protagonist, Revance, Sage, Seres, Tarsus, Travere, Vanda, Y‑mAbs .
Expertise & Qualifications
- Deep dermatology commercialization and large‑cap biotech operating experience (Amgen; Kythera); strategic transactions and pipeline development background; extended military service; Georgetown M.A./B.A. .
Investment Implications
- Alignment: High at‑risk equity and formal clawback/anti‑hedging policies support shareholder alignment; separate Chair mitigates CEO+Director dual‑role governance risk .
- Retention and pressure: 2024 option‑to‑RSU exchange improves retention but increases annual vesting events that can create incremental selling pressure around vest dates; monthly option vesting smooths exercise cadence .
- Pay-for-performance: 2024 payouts reflect strong execution (128% score, +471% revenue) despite negative net income; continued delivery on regulatory/commercial milestones is key to sustaining support and mitigating dilution optics from equity programs .
- Change-in-control economics: Double‑trigger with full time‑based equity acceleration and 1.5x bonus multiple creates material COC value ($8.9m equity acceleration valued at 12/31/24), a standard but meaningful factor in strategic scenarios .