It’s been a strange couple of months at African genomics startup 54gene. In August, it laid off 95 employees, mostly contract workers (in labs and sales departments) hired to work on 54gene’s COVID business line launched in 2020. in September, co-founder and VP of Engineering Ogochukwu Francis Osifo left the company. And this week, Dr. Abasi Ene-Obong, founder and current former CEO, has stepped down from his executive role to be replaced by General Counsel Teresia 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 remaining after the first round. The biotech did not specify which roles and departments would be cut.
The genomics startup in Washington and Lagos has been considered the showcase of the emerging biotechnology space in Africa since joining Y Combinator in 2019. But while 54gene was launched to address the gap in the market for global genomics, where Africans account for less than 3% of the genetic material used in pharmaceutical research, its growth in 2020 coincided elsewhere, with the COVID-19 epidemic, and he was hired by force to meet the demand of being one of the largest providers of COVID tests in Nigeria.
His preparation to meet this opportunity with his clinical diagnostics arm resulted in increasing his income and raising two large rounds in succession: Series A $15 million that year and Series B $25 million 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 did it lose revenue and lay off nearly 200 employees, but the company’s value also plummeted at a time when startup valuations were deteriorating. According to people familiar with the matter, 54gene’s valuation has fallen by two-thirds, from a guaranteed $170 million when it raised its Series B to about $50 million in a bridge round that included investors from corporate offices.
Sources also said that the last round closed at 3x to 4x, which means that investors – usually investors – will get three or four times their money back before the receivers. other stakeholders, including investors, founders and employees in the event of an exit. . These terms, which return power back to investors, were rare during the venture capital boom between the mid-2020s and last year but are now commonplace in this fundraising environment. this.
54gene has neither confirmed nor denied the terms of this Agreement. However, he said in an email response: “The existing investors have injected new capital into the company on terms that reflect the current market conditions. We hope that this round will not support the company not only in this difficult period but will also set it up for future success – whether it’s raising additional capital, attracting strategic partners, or other future paths.”
Often, liquidation options indicate that investors want to protect themselves if a portfolio company exits at a lower price than originally expected. In some cases, investors believe that startups may struggle to generate strong exits due to fundamental challenges affecting their businesses.
When news of the company’s first layoffs broke, allegations of financial impropriety were leveled against the then-CEO and his manager from a group of employees. And although they remain unsubstantiated, these allegations have resurfaced after Ene-Obong’s resignation. The affected employees — who say they did not receive severance packages and spoke to TechCrunch on the condition of anonymity — vaguely blame 54gene’s current woes on irresponsible recruitment, dubious expansion and misappropriation of funds. The YC-backed biotech did not respond to TechCrunch’s request for comment on former executives’ claims of cash mismanagement and an unpaid severance package.
54gene’s silence on the matter and the appointment of Bost from his legal role as interim CEO raises questions and leaves room for interpretation of these allegations, especially since the co-founders have limited -leave for a few weeks. However, in an email to TechCrunch, the company implicitly denied that Osifo’s resignation was long overdue and had nothing to do with this month’s action, while Bost , hired last September, is what 54gene needs – with the support of COO Delali Attipoe – for the next step.
“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 his experience in managing businesses and interpreting complex regulatory requirements, will be invaluable in leading 54gene through this next phase of the business. Delali and Teresia will lead a great team that together will strengthen 54gene’s position as a genomics leader in the industry.
Meanwhile, 54gene announced that the former chief executive “will continue to support the company in forward-looking plans such as strategic partnerships and fundraising” without explaining why he left.
However, according to several people with knowledge of what is going on in the company, the terms of the new 54gene contract contributed to Ene-Obong’s resignation. They said Ene-Obong – keeping his position on the 54gene board while moving into a new senior adviser role – may have resigned as CEO in protest at the valuation. 54gene and the liquidation option offered by the investors in the bridge round. There is also speculation that some of the investors also tried to return the company’s previous rounds in order to get more shares and dilute those of the founders and other investors. 54gene declined to comment on the matter.
The fact that 54gene had to organize a bridge around the house despite receiving more than $ 45 million in the last three years is a reminder that biotech projects require a lot of money – for example, it costs $ 700 approximately the sequence of the human genome (one of the 54 main gene sequences). In general, biotechs put investors’ money in research when thinking about future income and the case is not the same with 54gene. However, the way to reduce the cost of the genome by laying off employees in two batches – and closing its clinical diagnostic arm – is somewhat confusing despite the impact of the epidemic. This current crisis, along with the difficult task ahead for the company, has left many tech watchers wondering whether current and former executives can keep the moonshot project afloat long enough to generate revenue. much, much less building a strong business.