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Sequencing Firm Genapsys, Mired in Lawsuits, Explores Bankruptcy


NEW YORK – Sequencing technology firm Genapsys is considering bankruptcy amid an escalating power struggle between the firm's former CEO and cofounder and his successor.

According to court documents obtained by GenomeWeb, Genapsys in May sought and received permission from the Delaware Court of Chancery to hire New York-based financial services firm Lazard "to explore both financing transactions and bankruptcy." This activity appears to be related to a "special finance and risk committee" created by the Genapsys board in March.

This revelation comes from proceedings related to one of two lawsuits filed earlier this year by Genapsys Cofounder and former CEO Hesaam Esfandyarpour against the firm and current CEO Jason Myers, among others.

Esfandyarpour, still on the Genapsys board, opposed the formation of the committee, just one in a series of actions that have pitted him against the company. In his second suit, filed in April, he demanded more visibility on the special committee's activities. As first reported by Law360, Esfandyarpour alleged that the committee is "acting in secret" and denying him access to information.

The defendants, including Myers and other board members, have disputed the allegations that Esfandyarpour has not received information about the company's finances, Court Vice Chancellor Morgan Zurn said during a June 10 hearing, and they have claimed the ex-CEO is "adverse to the company's financing efforts and therefore can be excluded from the committee's work."

Esfandyarpour also alleged that two board seats were improperly filled and that the firm has not held a shareholder meeting in over a year. The trial began on Tuesday in Wilmington, Delaware.

In another suit filed in March in the same court, Esfandyarpour is seeking more support from Genapsys in dealing with yet another lawsuit, filed in California last year by venture capital firm Foresite Capital, an investor in the company, against him and the firm.

The Foresite suit, filed in the Superior Court of Santa Clara County in June 2020, alleges that Esfandyarpour and Genapsys issued "material misstatements" and "fraudulently induced" Foresite to invest $50 million in Genapsys' $90 million Series C financing round, closed in late 2019.

The lawsuits have not been the only disruptions for the company this year. In the second quarter, the firm laid off approximately a third of its workforce, or about 40 employees, less than a year after raising $70 million in Series D financing.

The cuts came just months after the firm touted plans to create approximately 240 jobs in Colorado, where it opened a second location in late 2021. In a joint statement with the Colorado Office of Economic Development and International Trade, Genapsys noted that it had applied for and received a Job Growth Incentive Tax Credit and a LONE Strategic Fund incentive for the creation of these jobs. According to his LinkedIn profile, Myers is based in Golden, Colorado.

Esfandyarpour did not respond to multiple requests for comment. Similarly, Genapsys, Myers, and Foresite did not respond to requests for comment.

Founded in 2010, Redwood City, California-based Genapsys has been developing a sequencing platform based on detecting electronic signals from base incorporation using complementary metal-oxide semiconductor (CMOS) chips. While some instruments have been placed in the field, they are not widely available. In 2019, Esfandyarpour, then CEO, said the firm was on track to launch the shoebox-sized instrument later that year. In 2021, Myers, who cofounded ArcherDx, replaced Esfandyarpour as CEO.

However, Esfandyarpour — who claims in court documents to be the majority shareholder in Genapsys — alleged in his April suit that Myers and company director Fredrik Eliasson were improperly seated on the board and that he and other shareholders voted in April to remove Myers, Eliasson, and other directors. Esfandyarpour has asked the Delaware Court of Chancery to compel a shareholder meeting.

As part of the suit, the court has instituted a status quo order requested by Esfandyarpour, freezing the company's board and constraining its activities. "To be perfectly clear, the status quo order does not permit the status quo board to put the company into bankruptcy," Zurn said at the June 10 hearing, although a modification to the order permits Genapsys to retain Lazard and "to explore and pursue (but not agree to or consummate)" new financing or a reorganization.

In his other Delaware suit, Esfandyarpour claimed that Genapsys must cover approximately $336,000 in legal fees related to the Foresite suit. As a codefendant in the California lawsuit, Genapsys has countersued Foresite, alleging breach of contract and misappropriation of trade secrets. The firm alleged that Foresite "stole Genapsys' intellectual property" after receiving confidential information in 2017, and allegedly used that information to help start Element Biosciences. However, which information was allegedly misappropriated and how it might have been used to help launch Element is not clear, as the cross-complaint was heavily redacted.

Foresite co-led Element's $15 million Series A financing round in 2019 and participated in its $276 million Series C round last year. Element CEO Molly He is a former venture partner at the firm.

"The Element and Genapsys technologies are vastly different," Element said in a statement. "We categorically deny that Element or any of its leadership have taken any technology or confidential information from Genapsys."