It’s been a strange few months at African genomics startup 54gene. In August, it fired 95 employees, mostly contract workers (in labs and sales departments) hired to work in 54gene’s COVID business line, launched in 2020. In September, co-founder and VP Engineering Ogochukwu Francis Osifo left the company. And this week, founder and now ex-CEO dr. Abasi Ene Obong stepped down from his executive role to be replaced by General Counsel Teresa L. Bost.
This news coincided with more job losses. The company confirmed to gotechbusiness.com that this second round of layoffs, which took place on Tuesday, affected more than 100 employees: 55% of the total workforce left over from the first round of layoffs. The biotech did not specify which roles and departments were being shortened.
The Washington and Lagos-based genomics startup has been considered the flagship of Africa’s fledgling biotech space since it landed in Y Combinator in 2019. But while 54gene was launched to fill the gap in the global genomics market, where Africans make up less than 3% of genetic material used in pharmaceutical research, growth in 2020 overlapped elsewhere, with the COVID-19 pandemic, and was hired aggressively to meet the demands of one of Nigeria’s largest suppliers of COVID testing.
A willingness to capitalize on this opportunity with its clinical diagnostic arm has also been a catalyst to increase its sales and accelerate two massive rounds of growth in quick succession: a $15 million Series A that year and a $25 million Series B in 2021. from investors such as New York Adjuvant Capital, the pan-African company Cathay AfricInvest Innovation Fund (CAIF), KdT Ventures and Endeavor Catalyst.
Still, 2022 will be a year to forget for the biotech startup. Not only have revenues dwindled and nearly 200 employees laid off, but the company’s value has also declined significantly at a time when startup valuations are taking a beating. According to those in the know, 54gene’s valuation has fallen by two-thirds, from the $170 million secured when it increased its Series B to about $50 million in a bridging round involving leading investors on the company’s board of directors. .
Sources also said the downside round ended with a liquidation bias of 3x to 4x, meaning investors — usually the lead investor — would pay back their money three or four times before other stakeholders, including other investors, founders and employees in the event of a exit . These terms, which shift power back to investors, were rare during the venture capital boom between mid-2020 and last year, but are now commonplace in this fundraising environment.
54gene has not confirmed or denied the premise of this deal. Still, it stated in an email response: “Existing investors have injected fresh capital into the company on terms that reflect current market conditions. We hope this round will not only support the company through this challenging period, but also position it for success in the future – whether it’s raising additional capital, attracting strategic partners, or any other future path.”
Often, liquidation preferences indicate that investors want to protect themselves if a growth-stage portfolio company exits at a value that is lower than initially expected. In some cases, the investors believe that the startup may struggle to achieve a solid exit due to underlying challenges affecting its business.
When the company’s first layoff news broke, allegations of financial impropriety were leveled by a group of employees against the then CEO and his executives. And while they remain unfounded, these allegations have come to light again after Ene-Obong’s resignation. Affected employees — who claim they haven’t received their severance payments and have spoken to gotechbusiness.com on condition of anonymity — unequivocally blame 54gene’s current problems on irresponsible hiring, questionable expansionism and misappropriation of funds. The YC-backed biotech did not respond to gotechbusiness.com’s request for comments about the alleged mismanagement of funds and the unpaid severance pay of its former executives.
54gene’s empowerment on the matter and Bost’s appointment from her legal role as interim CEO raises arbitrary questions and leaves room for interpretation leaning toward these allegations, especially as both co-founders resigned a few weeks apart. names. However, in an email to gotechbusiness.com, the company subtly argues that Osifo’s layoff had been going on for a while and was unrelated to this month’s activities, while Bost, who was hired last September, was what 54gene needed — with the support of COO Delali Attipu – for the next stage.
“Teresia is a versatile executive with deep experience in the global pharmaceutical and biotech industries, leading global teams and overseeing corporate governance,” the company said. “These skills, combined with her broad experience in managing business operations and translating complex regulatory requirements, will be invaluable at the helm of 54gene in this next phase of the business. Delali and Teresia will make a great team that together will strengthen 54gene’s position as the genomics leader in the industry.”
Meanwhile, 54gene stated that his ex-chief executive “will continue to support the company in its plans for the future, such as strategic partnerships and fundraising,” without explaining why he resigned.
However, according to several people aware of the events at the company, the terms of 54gene’s new deal contributed to Ene-Obong’s resignation. They say Ene-Obong — who retained his position on 54gene’s board of directors while transitioning to a new role as a senior advisor — may have resigned as CEO in protest at 54gene’s new valuation and liquidation preference offered by investors in the bridging round. It is speculated that some investors also tried to replicate the company’s previous price round to gain more shares, while diluting those of its founders and other investors. 54gene declined to comment on the matter.
The fact that 54gene had to arrange a bridging round internally despite raising more than $45 million in 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 (a of 54gene’s key procedures). Typically, biotech companies put investors’ money into research while thinking about revenue later, and 54gene is no different. Still, the way genome startup is aggressively cutting costs by laying off staff in two batches — and closing the clinical diagnostic arm — is somewhat troubling, despite the obvious effects of the pandemic. This current crisis, coupled with the arduous task ahead of the company, has also left many tech observers questioning whether current and past executives can keep the moonshot project afloat long enough to generate substantial revenue, let alone build a solid business.