Alex Philippidis Senior News Editor Genetic Engineering & Biotechnology News

Founding CEOs Continue to Meet Resistance from Investors and Directors

Aladar A. Szalay, Ph.D., envisioned bringing a cancer treatment to market after leading a Loma Linda University research team in discovering that tumors in mice split up and emitted more light when injected with light-emitting viruses. Dr. Szalay, his boss the dean of the university’s School of Medicine, and a friend agreed to commercialize the potential treatment by establishing Genelux in 2001.

In the years that followed, disputes among the founders over the issuing of stock and Dr. Szalay’s management culminated last year in a board of directors vote to remove Dr. Slazay as Genelux’ chairman, CEO, president, and CSO, and invalidate half of his founder’s shares—depriving him of his ability to elect two people to the board.

But on October 22, the Delaware Court of Chancery sided against the company and with Dr. Slazay, finding that his shares were validly issued—the company had argued otherwise—and that two board members he handpicked were validly elected. Lawyers for Genelux have said publicly the company is considering an appeal.

Robert Brownlie, managing partner of the San Diego office of the law firm DLA Piper, which represented Dr. Slazay and the two allied board members, told GEN what happened at Genelux was atypical of cases where founding CEOs face removal from their companies.

“There were a number of investors who probably weren’t best-suited for a startup life science company who came in very early to the company, and didn’t fully appreciate how long it takes to get from the lab with an idea through clinical trials to commercialization. And those folks lost patience,” Brownlie said.

More commonly, he said, a startup hungry for cash brings in new investors, diluting the shares held by founders.

“At some point, a founder realizes that he or she is about to lose control of their company to the investors. At that point, behaviors that are not conducive to the good corporate management of a business start to occur,” Brownlie added.

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