It’s been an amazing two months for African genomics startup 54gene. In August, it laid off 95 employees, mostly contract staff (in laboratories and sales departments) hired to work on 54gene’s COVID business line launched in 2020. In September, the co-founder and VP of Engineering Ogochukwu Francis Osifo left the company. And this week, the founder and now ex-CEO Dr. Abasi Ene-Obong resigned from his executive role to be replaced by General Counsel Teresia L. Bost.
This news coincides with further job cuts. The company confirmed to TechCrunch that this second round of layoffs, which took place on Tuesday, affected more than 100 employees: 55% of the total workforce left after the first round of layoffs. The biotech did not specify which roles and departments were cut.
The Washington and Lagos-based genomics startup has been considered the showpiece of Africa’s new biotech space since it entered Y Combinator in 2019. But while 54gene was launched to address a gap in the global genomics market, where the Africans account for less than 3% of the genetic material used in pharmaceutical research, its growth in 2020 overlaps elsewhere, with the COVID-19 pandemic, and it is hiring aggressively to meet the demands of a of the largest provider of COVID testing in Nigeria.
Its readiness to address this opportunity with its clinical diagnostics arm was also a factor in increasing its revenue and raising two major growth rounds in quick succession: a $15 million Series A that year and a $25 million Series B in 2021 from investors such as New York. -based Adjuvant Capital, Pan-African firm Cathay AfricInvest Innovation Fund (CAIF), KdT Ventures and Endeavor Catalyst.
However, 2022 will be a year to forget for biotech startups. Not only did its revenues decline and it laid off nearly 200 employees, but the company’s value was also significantly reduced at a time when valuations for startups were increasingly beating. According to people with knowledge of the matter, 54gene’s valuation has fallen by two-thirds, from the $170 million it got when it raised its Series B to about $50 million in a bridge round involving top investor from the company’s board.
The sources also said that the down round was closed with a 3x to 4x liquidation preference, which means that the investors – usually the lead investor – will be paid back triple or quadruple their money before other stakeholders, including other investors, founders and employees in case of an exit. . These terms, which shift power back to investors, were rare during the venture capital boom between the mid-2020s and last year but are now common in this fundraising environment.
54gene has neither confirmed nor denied the basis of this deal. However, it said in an email response: “Existing investors are injecting new capital into the company on terms that reflect the current market situation. We hope that this round is not the only supports the company in this challenging time but also positions it for future success – whether it is to raise additional capital, attract strategic partners, or another path to the future.
Generally, liquidation preferences indicate that investors want to protect themselves if a growth-stage portfolio company exits at a value lower than initially expected. In some cases, investors believe that the startup may struggle to make a solid exit due to underlying challenges affecting its business.
When news of the company’s layoff first broke, allegations of financial impropriety were leveled against the ex-CEO and his executives from a group of employees. And although it remains unfounded, these accusations have come to light again after Ene-Obong’s resignation. Affected employees — who claim they didn’t receive their severance packages and spoke to TechCrunch on condition of anonymity — unequivocally blame 54gene’s current woes on irresponsible hiring, questionable expansion and misuse of funds. The YC-backed biotech did not respond to TechCrunch’s request for comment about the alleged mismanagement of funds by former executives and unpaid severance packages to employees.
54gene’s silence on the matter and the appointment of Bost from his legal role to interim CEO arbitrarily raises questions and leaves room for interpretation that tilts these accusations, especially since the two co- founder resigned a few weeks apart. However, in an email to TechCrunch, the company quickly countered that Osifo’s resignation was a long-term process and had nothing to do with this month’s activities, while Bost, hired in September, was necessary of 54gene – with support from COO Delali Attipoe – for its next phase.
“Teresia is an accomplished executive with depth of experience in the global pharmaceutical and biotech industry, leading global teams and managing corporate governance,” the company said. “These skills, combined with his breadth of experience driving business operations and interpreting complex regulatory requirements, will be invaluable at the helm of 54gene in the company’s next phase. Delali and Teresia will make a great team that together will strengthen 54gene’s position as a genomics industry leader.
Meanwhile, 54gene stated that its former chief executive “will continue to support the company’s sustainability plans such as strategic partnerships and fundraising” without explaining why he resigned.
However, according to several people with knowledge of the company’s events, the terms of the new deal with 54gene contributed to Ene-Obong’s resignation. They said Ene-Obong – retaining his position on 54gene’s board while transitioning to a new role of senior advisor – may have resigned as CEO in protest at 54gene’s new valuation and liquidation preference. offered to investors in the bridge round. There are some speculations that some of the investors also tried to change the previous prized round of the company to get more shares while the dilution of the founders and other investors. 54gene declined to comment on the matter.
The fact that 54gene had to arrange a bridge in-house despite securing more than $45 million over the past three years is a reminder that biotech projects are extremely capital intensive – for example, costing it is about $700 to sequence a human genome (one of the 54 main gene methods). Usually, biotechs deploy funds to research investors while thinking about the profits of the latter and the case is no different with 54gene. However, the way in which the genome startup has aggressively cut costs by laying off staff in both groups – and closing the clinical diagnostic arm – is somewhat troubling despite the clear effects of the pandemic. This current crisis, combined with the difficult task ahead for the company, has also prompted many technology observers to wonder whether current and former executives can keep the moonshot project afloat long enough to generate more income, especially building a strong business.
