It’s been a strange couple of months for African genomics startup 54gene. In August, it laid off 95 employees, mostly contract workers (in labs and sales departments) hired for 54gene’s COVID business line, which launched in 2020. Co-founder and VP of Engineering Ogochukwu Francis Osifo left the company in September. And this week, founder and now former CEO Dr. Abasi Ene-Obong stepped down from the executive branch to be replaced by General Counsel Theresa L. Bost.
The news coincided with more 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 that remained after the first round of layoffs. The biotech did not say what roles and departments were being cut.
The Washington, D.C. and Lagos-based genomics startup has been seen as a model for Africa’s startup biotech space since landing at Y Combinator in 2019. But while 54gene was launched to address a gap in the global genomics market, where Africans make up less than 3%. The rise of genetic material used in pharmaceutical research in 2020 overlapped elsewhere with the Covid-19 pandemic and was adopted aggressively to meet the demands of being one of Nigeria’s largest providers of COVID tests.
Its willingness to take that opportunity with its clinical diagnostics group was also the catalyst to boost revenue and raise two huge growth rounds in quick succession: a $15 million Series A that year and a $25 million Series B in 2021 from investors like New York . Adjuvant Capital, Pan-African company Cathay AfricInvest Innovation Fund (CAIF), KdT Ventures and Endeavor Catalyst.
However, 2022 will be a year to forget for biotech startups. Not only has its revenue declined and nearly 200 employees have been laid off, but the company’s value has also declined significantly at a time when startup valuations are accelerating. 54gene’s valuation has fallen by two-thirds, from $170 million raised in its Series B raise to about $50 million in a bridge round involving lead investors from the company’s board, according to people with knowledge of the matter.
The sources also said that the down round ended with a 3x to 4x liquidation preference, meaning that the investors — usually the lead investor — would be repaid three or four times before other stakeholders, including other investors, founders and employees, in the event of an exit. . These terms, which give power back to investors, were rare during the venture capital boom of the mid-2020s to last year, but are now commonplace in this fundraising environment.
54gene did not confirm or deny the premise of this transaction. However, an emailed response said: “Existing investors contributed new capital to the company on terms that reflect current market conditions. We hope this round will not only support the company through this difficult period, but will also position it for future success – whether or not it is raising additional capital, attracting strategic partners or another future path.
Liquidation preferences often indicate that investors want to protect themselves if a growth-stage portfolio company exits at a value lower than originally expected. In some cases, investors believe that the startup may struggle to achieve a solid exit due to underlying issues affecting its business.
When news of the company’s layoffs first emerged, allegations of financial impropriety were brought against the then-CEO and his executives by a group of employees. And although they remain unfounded, these allegations have resurfaced following Ene-Obong’s resignation. The affected employees, who say they did not receive severance pay and spoke to TechCrunch on condition of anonymity, blame irresponsible hiring, dubious expansion efforts and misappropriation of funds for 54gene’s current woes. The YC-backed biotech did not respond to TechCrunch’s request for comment on its former executives’ alleged mismanagement of funds and unpaid severance packages.
54gene’s narrowness on this issue and the appointment of Bosta from her legal position as interim CEO arbitrarily raises questions and leaves room for interpretation against these allegations, especially since the two co-founders resigned within weeks of each other. However, in an email to TechCrunch, the company subtly countered that Osifo’s resignation had been around for some time and was unrelated to this month’s activities, while Bost, who was hired last September, was just what 54gene needed — with the support of COO Delali Attipoe . its next stage.
“Teresia is a well-rounded executive with deep experience in the global pharmaceutical and biotech industry, leading global teams and overseeing corporate governance,” the company said. “These skills, along with her extensive experience in managing business operations and translating complex regulatory requirements, will be invaluable in leading 54gene through this next phase of the company. Delali and Terezia will form a great team, which together will strengthen 54gene’s position as a genomics leader in the industry.
Meanwhile, 54gene said its former CEO “will continue to support the company in its future plans, such as strategic partnerships and fundraising,” without explaining why he stepped down.
However, the terms of 54gene’s new deal contributed to Ene-Obong’s resignation, according to several people inside the company. They say Ene-Obong, while retaining his position on the 54gene board while transitioning to a new senior adviser role, may have stepped down as CEO in protest at 54gene’s new valuation and liquidation preference offered by investors in the bridge round. There is some speculation that some of the investors also tried to repeat the company’s previous value round to get more shares while diluting the stake of the founders and other investors. 54gene declined to comment on the matter.
The fact that 54gene had to raise a bridge round despite securing more than $45 million over the past three years is a reminder that biotech projects are very capital-intensive — for example, it costs about $700 to sequence a human genome (one of 54gene’s main procedures). Typically, biotech research uses investor funds while thinking about revenue later, and the case is no different with 54gene. Still, the way the genomics startup is aggressively cutting costs, with two layoffs and the shuttering of its clinical diagnostics division, is somewhat worrisome, despite the obvious implications of the pandemic. This current crisis, combined with the difficult task the company faces, has also led many tech watchers to question whether its current and former executives can sustain the moonshot project long enough to generate significant revenue, let alone build a stable business.