54gene valuation slashed by over $100M amid job cuts and CEO exit • TechCrunch

It’s been an amazing couple of months for African genomics startup 54gene. In August, he fired 95 employees, mostly contract employees (in the laboratory and sales department) hired to work in the COVID business line 54gene launched in 2020. In September, co-founder and VP Engineering Ogochukwu Francis Osifo left the company the And this week, founder and now former CEO Dr. Abasi Ene-Obong resigned from his executive role to be replaced by General Counsel Teresia L. Bost.

This news coincides with more job cuts. The company confirmed to TechCrunch that the second round of layoffs, which took place on Tuesday, affected more than 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 pinnacle of the African biotech space since joining Y Combinator in 2019. But while 54gene was launched to address gaps in the global genomics market, where African they make less than 3% of the genetic material used in pharmaceutical research, its growth in 2020 overlaps elsewhere, with the COVID-19 pandemic, and it is hiring aggressively to meet the demands of being one of Nigeria’s largest providers of testing COVID.

His readiness to meet this opportunity with his clinical diagnostic arm has also been a catalyst to increase his revenue and raise two major growths in quick succession: a $15 million Series A this year and a $25 million Series B this year 2021 from investors like New York. based on Adjuvant Capital, pan-African company Cathay AfricInvest Innovation Fund (CAIF), KdT Ventures and Endeavor Catalyst.

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But 2022 will be a forgettable year for the biotech startup. Not only did its revenues decrease and lay off nearly 200 employees, but the company’s value was also significantly trimmed at a time when valuations are taking a beating. According to people with knowledge of the matter, 54gene’s valuation has dropped by two-thirds, from the $170 million secured when it raised its Series B to about $50 million in a bridge round involving lead investors on company boards. the

The sources also said that the closing round is down to a liquidation preference of 3x to 4x, which means that the investors – typically the main investor – would have to repay three or four times their money before other stakeholders, including other investors , founders and employees in case of an exit. . These terms, which shift power back to investors, were rare during the boom in venture capital between the mid-2020s and last year, but are now common in this fundraising environment.

54gene did not confirm or deny this contract. Still, he stated in an email response: “The existing investors inject new capital into the company in terms that reflect current market conditions. We hope that this round will not only support the company in this difficult period, but it also positions it for future success – whether it’s raising more capital, attracting strategic partners, or another future path.”

Often, liquidation preferences signal that investors want to protect themselves if a growth-stage portfolio company exits at a lower value than originally expected. In some cases, investors believe that the startup might struggle to produce a viable exit due to underlying challenges affecting its business.

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When news of the company’s layoffs first broke, allegations of financial impropriety were brought against the then-CEO and his executives from a group of employees. And though they remain unfounded, these allegations have resurfaced after Ene-Obong’s resignation. The affected employees — who said they have not received their severance packages and spoke to TechCrunch on condition of anonymity — blame 54gene’s current woes on irresponsible hiring, questionable expansion drives and money laundering. The YC-backed biotech did not respond to TechCrunch’s request for comment on its former executives’ alleged mismanagement of funds and unpaid employee severance packages.

54gene tight on the matter and the appointment of Bost in his legal role of interim CEO arbitrarily raises questions and leaves room for interpretation inclined to these accusations, especially since both co-founders resigned a few weeks apart. However, in an email to TechCrunch, the company subtly countered that Osifo’s resignation had been in the process for some time and was unrelated to this month’s activities, while Bost, hired last September, was what 54gene needed. – with support from COO Delali Attipoe – for its next phase.

“Teresia is a well-rounded executive with a depth of experience in the global pharmaceutical and biotech industry, leading global teams and overseeing corporate governance,” the company said. “These skills, along with his breadth of experience in driving business operations and translating complex regulatory requirements, will be invaluable to 54gene’s leadership 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 leader in the industry.”

Meanwhile, 54gene stated that its former chief executive “will continue to support the company in its advanced plans such as strategic partnerships and fundraising” without explaining why he resigned.

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However, according to several people with knowledge of the company’s goings-on, the terms of the new 54gene contract contributed to Ene-Obong’s resignation. It is said that Ene-Obong – retaining his position on 54gene’s board while moving into a new senior advisory role – may have resigned as CEO in protest against 54gene’s new valuation and liquidation preferences offered by investors in the bridge round. There is some speculation that some of the investors also tried to reprise the company’s previous precious round to get more shares while diluting those of the founders and other investors. 54gene declined to comment on the matter.

The fact that 54gene had to arrange a bridge round in-house despite securing more than $45 million over the last 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 the main procedures of 54gene). Typically, biotechs deploy investors’ money in 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 splitting employees — and closing its clinical diagnostics arm — is somewhat troubling despite the obvious effects of the pandemic. This current crisis, coupled with the difficult task ahead of the company, has also led many technology observers to wonder if its current and past executives can keep the moonshot project afloat long enough to generate substantial revenue, let alone build a solid business.

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