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Genapsys Files for Chapter 11 Bankruptcy Protection

This story has been updated to add that Genapsys Cofounder Hesaam Esfandyarpour plans to attempt to block the firm's bankruptcy proceedings and the firm's cash on hand.

NEW YORK – Troubled sequencing firm Genapsys has filed for bankruptcy protection as it appears to be headed for a sale.

The Redwood City, California-based firm filed its Chapter 11 petition on Monday in the US Bankruptcy Court for the District of Delaware. The company has arranged for a debtor-in-possession loan from Oxford Finance of up to $4 million, with $1 million available on an interim basis and at an interest rate of 14 percent per annum. The terms of the loan suggest that Genapsys could be sold within two months.

Genapsys has total liabilities of at least $36 million and total assets of at least $10 million.

"Ongoing litigation, including corporate governance disputes, has depleted [Genapsys'] resources and made out-of-court financing efforts impossible," the firm said in a document filed with the court.

As reported by GenomeWeb last week, Genapsys has been exploring bankruptcy and new financing since May as it was roiled by a power struggle between Hesaam Esfandyaropour — the firm's cofounder and former CEO — and the rest of its board of directors, as well as by a lawsuit from Foresite Capital, a major investor.

Genapsys, it turns out, was also running out of cash and defaulted on a $30 million loan from Oxford Finance in June, according to a court document filed by CFO Britton Russell. As a result, the firm lost access to restricted cash and "without access to those funds, [Genapsys] did not have enough funding to meet its upcoming payroll obligations," he wrote.

In late June, Genapsys furloughed "almost all of its employees to keep the company afloat" until a July 6 trial related to one of two lawsuits brought against the company by Esfandyarpour. On July 8, Genapsys laid off more than 70 employees.

As of July 11, Genapsys had approximately $75,000 in cash on hand, according to court filings amd 46 full-time employees. The firm said it owed approximately $300,000 in unpaid wages and approximately $800,000 in accrued paid leave; it lists New England Biolabs as an unsecured creditor holding a claim of $130,618.

Founded in 2010, Genapsys has been developing a silicon chip-based benchtop sequencing instrument.

The firm has held discussions with Oxford Finance and Farallon Capital about potentially acting as a so-called "stalking horse purchaser" in the sale process, essentially a preferred bidder. "As of [July 11,] these negotiations remain ongoing," Russell said in his declaration.

In a hearing on Wednesday, an attorney for Esfandyarpour said he plans to attempt to block the proceedings by filing a motion to dismiss the case.