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It’s been a strange couple of months for African genomics startup 54Gene. In the year In August 2020, 54gene’s COVID business line launched 95 employees, mainly contract workers (lab and sales departments). In September, founder and VP of Engineering Ogochukwu Francis Osifo left the company. And this week, founder and now former CEO Dr. Abbasi Ine-Obong stepped down as CEO and was replaced by General Counsel Theresia L. Bost.
This news has been linked to 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 percent of the total workforce remained after the first round of layoffs. The biotech did not say what roles and departments were cut.
The Washington and Lagos-based genomics startup has been hailed as a showcase for Africa’s biotech space since joining Y Combinator in 2019. Genetic material used in drug research, its growth elsewhere in 2020, overlaps with the COVID-19 pandemic, and Nigeria is recruiting heavily to meet the demands of being the largest provider of covid testing.
Its readiness to meet this opportunity with its clinical investigation arm was the catalyst to increase revenue and quickly raise two massive growth rounds: a $15 million Series A that year and a $25 million Series B in 2021 from investors such as New York-based Adjuvant Capital, a pan-African company Cathay Africa. Invest Innovation Fund (CAIF), KdT Ventures and Endeavor Catalyst.
Yet, 2022 will be a year to forget for biotech startups. Not only did the company lay off about 200 employees due to declining revenue, but the company’s value has plummeted at a time when startups are falling. 54gene’s valuation has fallen by two-thirds, from $170 million raised in a bridge round in which the company’s board led investors to $50 million, according to people familiar with the matter.
The down round is closed with a 3x to 4x liquidity option, meaning that investors – usually the lead investor – get three or four times their money back, relative to the exits of other stakeholders, other investors, founders and employees. . These deals, which shift power to investors, were rare during the capital boom between the mid-2020s and last year, but are now commonplace in this fundraising environment.
54gene has neither confirmed nor denied the origin of this Agreement. Still, in an email response, he says: “Existing investors have injected new capital into the company in a way that reflects current market conditions. We hope that this round will not only support the company through these challenging times, but also set it up for future success – whether it’s to raise additional capital, attract strategic partners, or some other way forward.
Liquidity options often indicate that investors want to protect themselves if a growth-stage portfolio company exits at a price below initial expectations. In some cases, investors believe the startup may struggle to make a strong exit due to challenges affecting its operations.
When news of the company’s first layoffs broke, the then-CEO and executives were sued by a group of employees for financial insufficiency. Although they remain unfounded, these allegations have resurfaced following In-Obong’s resignation. The affected employees — who said they did not receive their severance packages and spoke to TechCrunch on condition of anonymity — blame 54Gen’s current woes on irresponsible hiring, questionable expansion drives and misappropriation of funds. The YC-backed biotech did not respond to TechCrunch’s request for comment on its former executives’ financial management and unpaid severance packages for employees.
54gene’s bravado on the matter and Boast’s appointment of interim CEO from her legal responsibilities raises questions and leaves room for interpretation to lean toward these charges, especially when both co-founders resigned within a few weeks of each other. However, the company tactfully argued in an email to TechCrunch that Osifo’s resignation process had been in the works for some time and was not related to this month’s move, and that Boss, who was hired last September, needed 54gene — along with COO Delali Attipoe — for the next step.
“Teresia is an executive with deep experience in the global pharmaceutical and biotech industry, leading international teams and overseeing corporate governance,” the company said. “These skills, combined with experience driving business operations and interpreting complex regulatory requirements, will be invaluable in this next phase of the company under 54gene’s leadership. Together, Delali and Teresia form a great team that will strengthen 54gene’s position as a genomics leader in the industry.
Meanwhile, 54gene said it will “continue to support the company through its ongoing plans such as strategic partnerships and fundraising,” without disclosing why its former CEO left.
However, the terms of 54gene’s new deal contributed to N-Obong’s resignation, according to several people with knowledge of events at the company. They say Ene-Obong – who retained his position on 54gene’s board and moved into a new senior advisory role – resigned as CEO in opposition to 54gene’s new valuation and the vetting option presented by investors in the bridge round. There is also speculation that some investors tried to avenge the company’s earlier round of awards by diluting the shares of the founders and other investors in order to get more shares. 54gene declined to comment on the matter.
The fact that 54gene has earned more than 45 million dollars in the last three years, but the fact that it had to facilitate a bridge at home reminds us that biotech projects require a lot of capital – for example, it costs 700 dollars to sequence the human genome (one of the 54 main processes of the gene). Typically, biotechs invest investors’ money in research while thinking about the revenue later, and the case with 54G is no different. Still, the way the genome startup has cut costs dramatically by laying off employees in two groups and closing its clinical trials arm is somewhat worrisome, despite the effects of the pandemic. This current crisis, combined with the daunting task ahead for the company, has many tech watchers wondering whether current and former executives can keep the lunar manufacturing project viable long enough to generate significant revenue, let alone build a solid business.
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