Strug­gling poo-test­ing start­up uBio­me files for bank­rupt­cy, months af­ter FBI kicks off in­ves­ti­ga­tion

George Church Har­vard

Months af­ter the FBI launched a probe in­to its billing prac­tices, be­lea­guered poo-test­ing start­up uBio­me has filed for bank­rupt­cy.

Jes­si­ca Rich­man and Zach Apte launched uBio­me in 2012, af­ter rais­ing $350,000 from a crowd­fund­ing cam­paign to fa­cil­i­tate a mi­cro­bio­me study. The com­pa­ny — which maps the ecosys­tem of mi­crobes in the body to de­vel­op tests eval­u­at­ing gut and vagi­nal health — has since hauled in more than $100 mil­lion in ven­ture cap­i­tal from Y Com­bi­na­tor, An­dreessen Horowitz, and 8VC.

In the be­gin­ning, San Fran­cis­co-based uBio­me made all the right moves.  It wooed a num­ber of lead­ing sci­en­tists from UCSF and Har­vard, in­clud­ing ge­neti­cist George Church, on its sci­en­tif­ic ad­vi­so­ry board, re­cruit­ed for­mer con­tro­ver­sial No­var­tis CEO Joe Jimenez to its board, re­leased a hand­ful of di­rect-to-con­sumer tests de­signed to gauge mi­cro­bial health, and inked a part­ner­ship with L’Oréal to re­search the skin mi­cro­bio­me.

But soon, things start­ed to fall apart. In April, the FBI com­menced an in­ves­ti­ga­tion in­to the com­pa­ny’s billing prac­tices — even­tu­al­ly raid­ing uBio­me’s of­fices — around the time sources told CN­BC that the start­up was hound­ing doc­tors to ap­prove tests with lit­tle over­sight, billing con­sumers mul­ti­ple times with­out their con­sent —and in­sur­ance plans were start­ing to re­ject the claims.

The com­pa­ny got rid of half its staff ear­li­er this sum­mer. In ad­di­tion, in­sid­ers told Busi­ness In­sid­er that the sci­ence back­ing up its tests was flawed from the start — trig­ger­ing an in­ter­nal in­ves­ti­ga­tion. A jour­nal where uBio­me pub­lished its ba­sic re­search is al­so in­ves­ti­gat­ing the com­pa­nies claims, BI re­port­ed. The sale of some of the com­pa­ny’s tests was al­so re­cent­ly sus­pend­ed.

Short­ly af­ter the FBI in­ves­ti­ga­tion be­came pub­lic, uBio­me’s founders de­part­ed to make room for a new man­age­ment team.

In a fil­ing, uBio­me blamed its founders for much of its trou­ble. “The Founders im­ple­ment­ed cer­tain busi­ness strate­gies…that were high­ly prob­lem­at­ic, con­tained sig­nif­i­cant op­er­a­tional (but not sci­en­tif­ic) flaws and, in some in­stances, were of ques­tion­able le­gal­i­ty,” the fil­ing said.

“These is­sues in­clud­ed im­prop­er in­sur­ance provider billing prac­tices, im­prop­er use of a telemed­i­cine physi­cian net­work (known as the Ex­ter­nal Clin­i­cal Care Net­work), over­ly ag­gres­sive and po­ten­tial­ly mis­lead­ing mar­ket­ing tac­tics, ma­nip­u­la­tion of cus­tomer up­grade test­ing, and im­prop­er use of cus­tomer in­duce­ments. More­over, cer­tain in­for­ma­tion pre­sent­ed to po­ten­tial in­vestors dur­ing the three rounds of cap­i­tal raise my have been in­cor­rect and/or mis­lead­ing.”

“(W)hile the Debtor ex­pe­ri­enced a se­ri­ous set­back as a re­sult of the (FBI) In­ves­ti­ga­tion, the In­ves­ti­ga­tion re­sult­ed from the busi­ness prac­tices im­ple­ment­ed by the Founders, not bad sci­ence or bad lab prac­tices. The Debtor has es­tab­lished a new Board and a new Busi­ness Plan, and is poised to move for­ward. This Chap­ter 11 Case will pro­vide the fresh start nec­es­sary to do so.”

Af­ter fil­ing for bank­rupt­cy, uBio­me has se­cured $8 mil­lion in fi­nanc­ing from Sil­i­con Val­ley Bank. The start­up is seek­ing to con­sum­mate a sale of its busi­ness with­in the first 75 days, and in a sep­a­rate fil­ing un­veiled it cur­rent­ly has as­sets worth $50 to $100 mil­lion, an es­ti­mat­ed li­a­bil­i­ties in the range of $10 to $50 mil­lion.

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