# uBiome (2012 – 2019)

- URL: https://girisimcikafasi.com/en/startup-graveyard/ubiome/
- Sector: Health
- Country: United States
- Total funding: unknown
- Cause of closure: Regulation and legal issues

## What did it do?

uBiome was a biotechnology company that sequenced the human microbiome from samples of the gut, mouth, nose, skin and genital area taken at home. Customers bought a test kit, and the company's machine learning algorithms compared the results against its own microbiome database. The company later moved into clinical tests billed to health insurers, such as SmartGut and SmartJane.

## Why did it shut down?

In April 2019 the FBI searched the company's office as part of an investigation into possible insurance fraud, including Medicare, and the clinical testing business was suspended. Co-founders Richman and Apte were placed on administrative leave by the board. The company filed for Chapter 11 restructuring in September 2019 and, less than a month later, converted to a Chapter 7 liquidation and closed. In 2021 the SEC charged the two co-founders with defrauding investors of $60 million; federal prosecutors brought a parallel criminal case. The FBI has considered both founders fugitives since 2021.

## The story

In April 2019 FBI agents entered the office of a San Francisco start-up. The company in their sights was uBiome, which sequenced the microorganisms living in the human body, the microbiome. The investigation concerned possible insurance fraud, including against Medicare, the US public health insurance programme.

uBiome was founded in 2012 by Jessica Richman, Zachary Apte and Will Ludington, scientists working at the California Institute for Quantitative Biosciences. Having raised $350,000 through crowdfunding in November 2012, the company attracted attention with its “citizen science” approach: customers took gut, mouth, nose or skin samples at home and sent them in, and the company used them both to give each person a report and to grow its own database. After Y Combinator, Andreessen Horowitz and 8VC invested. According to Business Insider, the company's valuation reached $600 million. Over time uBiome moved into clinical tests ordered by doctors and billed to health insurers.

After the FBI search, clinical operations were suspended and co-founders Richman and Apte were placed on administrative leave by the board. The company filed for Chapter 11 restructuring in September 2019; less than a month later it converted to a Chapter 7 liquidation and closed.

In March 2021 the US Securities and Exchange Commission (SEC) charged Richman and Apte with defrauding investors of $60 million. According to the SEC's complaint, the pair portrayed uBiome as a fast-growing company with a solid business model, while that success rested on improper practices such as steering doctors into ordering unnecessary tests; submitting backdated and misleading medical records to insurers was also among the allegations. The same day, federal prosecutors announced a criminal case against the pair on federal charges including conspiracy to commit fraud and money laundering. These charges have not been resolved in court: the FBI has considered both founders fugitives since 2021.

The uBiome story shows what a different risk landscape it is to move from a consumer data product to a clinical business that depends on insurance reimbursement. Growth figures are no reassurance to investors unless they explain how the revenue behind them was generated.

## Lessons

- For a health product whose revenue depends on insurance reimbursement, have an independent compliance team audit your billing practices regularly.
- State clearly which revenue line the growth figures shown to investors rest on, and the regulatory risk attached to that line.
- Moving from direct-to-consumer testing to clinical testing means entering an entirely different realm of regulation and liability; prepare for it with the right team and processes.

## Sources

- [UBiome](https://en.wikipedia.org/wiki/UBiome)
- [SEC Charges Co-Founders of San Francisco Biotech Company With $60 Million Fraud](https://www.sec.gov/news/press-release/2021-49)
- [Health tech start-up uBiome suspends clinical operations following FBI raid](https://www.cnbc.com/2019/05/06/ubiome-suspends-clinical-operations-after-fbi-raid.html)
- [Everything we know about uBiome, the startup that convinced Silicon Valley that testing poop was worth $600 million, and then filed for bankruptcy amid an FBI investigation](https://www.businessinsider.com/ubiome-what-we-know-microbiome-startup-fbi-raid-ceos-resigned-2019-7)