It’s been a strange few months for 54gene’s African genomics startup. In August, it laid off 95 employees, mostly contract staff (in labs and sales departments) hired to work on the 54gene Covid business line launched in 2020. In September, co-founder and VP of Engineering Ogochukwu Francis Osifo left the company. And this week, founder and now former CEO Dr. Abbasi Ene-Obong stepped down from his executive role to be replaced by General Counsel Teresia L. Bost.
This news coincided with more job cuts. The company confirmed to TechCrunch that this second round of layoffs, which took place on Tuesday, affected over 100 employees: 55% of the total workforce remaining after the first round of layoffs. The biotech did not specify which roles and departments were cut.
The genomics startup based in Washington and Lagos has been considered the showpiece of the African biotech space since entering I Combinator in 2019. But while 54gene was launched to address a gap in the global genomics market, where Africans make up less than 3% of the genetic material used in pharmaceutical research, its growth in 2020 has overlapped elsewhere, with the COVID-19 pandemic, and it has been aggressively hiring to meet the demands of being one of the largest providers of COVID testing in Nigeria.
His willingness to meet this opportunity with his clinical diagnostics arm was also a catalyst for growing revenue and raising 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 firm Cathai AfricInvest Innovation Fund (CAIF), KdT Ventures and Endeavor Catalist.
Still, 2022 will be a year to forget for the biotech startup. Not only did its revenue decline and it laid off nearly 200 employees, but the company’s value also declined significantly during a period when startup valuations were disrupted. 54gene’s valuation has fallen by two-thirds, from the $170 million it secured when it raised its Series B to about $50 million in a bridge round that included lead investors from the company’s board, according to people familiar with the matter.
Sources also said the drop round was closed with liquidation preferences of 3k to 4k, meaning investors – typically the lead investor – would get triple or quadruple their money back before other stakeholders, including other investors, founders and employees in the event of an exit. . These terms, which shift the 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.
54gene neither confirmed nor denied the premise of this deal. Still, the emailed response said: “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 future success – whether it’s raising additional capital, attracting strategic partners or some other future path.
Often, liquidation preferences signal 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 a startup may struggle to produce a solid exit due to fundamental challenges affecting its business.
When news of the company’s layoffs first broke, allegations of financial impropriety were leveled against the then-CEO and his executives from a group of employees. And although they remain unfounded, these allegations have resurfaced following Ene-Obong’s resignation. The affected employees — who claim they have not received severance pay and spoke to TechCrunch on condition of anonymity — vaguely blame 54gene’s current problems on irresponsible hiring, dubious expansion efforts and misuse of funds. The IC-backed biotech did not respond to TechCrunch’s request for comment on the alleged mismanagement of funds and unpaid severance payments to its former executives.
54gene’s reticence on the matter and Bost’s appointment from her legal role as interim CEO arbitrarily raises questions and leaves room for interpretation that leans toward these allegations, especially since both co-founders resigned within weeks of each other. However, in an email to TechCrunch, the company subtly countered that Osif’s resignation had been in the works for some time and was unrelated to this month’s activities, while Bost, hired last September, was just what 54gene needed — with the support of the COO Delali Attipoe — for its next phase.
“Teresia is a well-rounded executive with a depth of experience in the global pharmaceutical and biotechnology industries, leading global teams and overseeing corporate governance,” the company said. “These skills, along with her extensive experience managing business operations and translating complex regulatory requirements, will be invaluable in leading 54gene in this next phase of the company.” Delali and Teresia will make a great team that together will strengthen 54gene’s position as a genomics industry leader.”
Meanwhile, 54gene said its former CEO “will continue to support the company in its plans going forward, such as strategic partnerships and fundraising,” without explaining why he stepped down.
However, the terms of the new 54gene contract contributed to Ene-Obongo’s resignation, according to several people familiar with the company’s developments. It is said that Ene-Obong — who retained his position on 54gene’s board while moving to a new role as a senior adviser — may have resigned as CEO in protest at 54gene’s new valuation and investors’ preference for liquidation offered in the bridging round. There is speculation that some of the investors also tried to repeat the company’s previous round to get more shares, while diluting the shares of the founders and other investors. 54gene declined to comment on the matter.
The fact that 54gene had to arrange bridging in-house despite securing over $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 the human genome (one of 54gene’s main procedures ). Typically, biotechs allocate investor funds to research while thinking about revenue later and the case is no different with 54gene. Still, the way the genomics startup is aggressively cutting costs by laying off staff in two batches — and shuttering its clinical diagnostics arm — is somewhat worrisome despite the obvious effects of the pandemic. This current crisis, along with the difficult task ahead of the company, has also led many tech watchers to question whether its current and past executives can sustain the project “moonshot” long enough to generate significant revenue, let alone build a solid business.