Investing in the Microbiome
The Microbiome: Part 4
Key Takeaways:
Here are my picks for microbiome areas to watch:
- In the near term, companies developing microbiome-based therapeutics (drugs) to treat cancer and immune system disorders have the greatest potential to grow rapidly.
- Thousands of microbiome-related observational (for research) and clinical trials are performed each year. The high cost (in money and time) of these trials creates a huge opportunity for startups offering tools to increase the quality of data and insights generated.
- The intersection of microbiome science and agriculture is generating new methods to lower both the costs and impacts of farming. Several soil microbiome companies have taken off in the last few years, and animal health seems poised for similar growth.
In previous posts we introduced the human microbiome and the advances in science (and particularly DNA sequencing) that brought about this revolution. We’ve also discussed how the microbiome is being engaged to treat life-threatening diseases including cancer. In this post, I’ll share three areas I think are exciting from my perspective as an engineer and early-stage investor: microbiome-based therapeutics for oncology and immune system disorders, startups offering tools that serve the microbiome therapeutics sector, and the intersection of the microbiome and agriculture.
Microbiome-Based Therapeutics for Cancer and Immune System Disorders
Microbiome-based therapeutics are incredibly exciting because they represent a new orthogonal toolset to overcome disease, dramatically improving the lives of billions of people.
This nascent market is poised to grow rapidly. The current value of human-microbiome-based products and interventions for diagnostic and therapeutic use is estimated to be between $275 million and $400 million worldwide. It is expected to increase to between $750 million and $1.9 billion by 2024. (Nature 2019) This growth has been stimulated by billions of dollars of both public and private investment into microbiome-based therapeutics and diagnostics.
A big reason for this area’s popularity among private investors is the opportunity for exits on an attractive timeline and value for venture funds. Several microbiome therapeutics companies have funded late development activities through IPOs, led by Seres Therapeutics in 2015. [1] BiomX effectively went public by merging with a Special Purpose Acquisition Company (SPAC) in 2019. Recently, there have been a few large acquisitions: two microbiome companies were acquired in 2018 for undisclosed amounts, Rebiotix by Ferring Pharmaceuticals, and Epibiome by Locus Biosciences.
Large pharmaceutical companies are increasingly partnering with and acquiring microbiome-based therapeutics companies as they move through clinical trials. Such partnerships are the most common path to increased valuations for startups in this space; the value of these licensing deals can be in the billions. In one of the largest publicly disclosed deals, microbiome company Assembly Biosciences licensed their microbe-based drugs for gastrointestinal disease to Allergan for up to $2.8B.[2] A similar deal between Seres Therapeutics and Nestle HealthSciences is worth $1.9B.
Managing risk. Major pharma companies structure these deals to reduce their risk by tying payments to specified development or commercial milestones, limiting their exposure if a therapeutic candidate fails in clinical trials. (Only 9–14% of therapeutics entering Phase 1 clinical trials eventually receive FDA approval.) [3] For private investors, identifying microbiome companies with a strong platform to discover promising microbes/molecules rather than a single exciting candidate provides a hedge and a way to pivot. Different types of microbiome therapeutics also have different development challenges and associated risks.
Of the many therapeutic areas being pursued, microbiome companies focused on cancer and immune disorders are the best therapeutic areas for early-stage investors in the near term. Companies targeting C. difficile infections and gastrointestinal diseases are relatively mature, with a growing number of drug candidates in Phase 3 clinical trials. At the other end of the spectrum, possible connections between the gut microbiome and neurodegenerative disorders like Parkinson’s are still poorly understood; additional clinical research needs to happen to understand possible mechanisms before strong candidates emerge. (Animal trials for brain disease are also notoriously poor predictors for effectiveness in humans because our brains are so different, further increasing the challenge.) Microbiome-based therapeutics to treat cancer and immune disorders appear to be in the “Goldilocks” region — promising candidates have been found, and still have the potential to become a novel therapy rather than a “me too”.
The count of active clinical trials supports this: oncology (cancer) trials are in the largely still in the research and preclinical phases, gastrointestinal diseases are farther along, and neurological disorders are just entering preclinical (animal) studies.
The increasing quality and volume of scientific and medical research on the gut microbiome-immune system connections suggests that there will be even more opportunities in this area in the near future. Given the volume of research on gut-immune system interactions underway in both academia and industry, look for more landmark studies to be published in the next three years, sparking additional spin-offs and candidate therapies.
Mining the Miners: Tools for Therapeutics Development
A adjacent area that is critical for long-term growth in this area are companies providing analysis tools to enable higher quality data and more accurate identification of potential treatments. The variability in microbiome data (and how the data is interpreted) is a huge challenge for therapeutics development. If disease (or health) is attributed to the wrong microbes initially, the effectiveness of treatments based on this data will be poor from the start.
Here’s one example of how much variability in microbiome data exists. Even if the same sample is analyzed following the procedure and test kits from two different commercial suppliers, it’s possible to get very different results. [4] Currently, research groups and companies use different kit suppliers, reagents, and their own custom approach to analyze stool samples and interpret the data. This makes it difficult to compare results across research groups or observational trials.
To complicate matters further, data on the composition of our guts is inherently variable; the microbes and molecules that they produce change both over the course of the day, and in response to changes in our diet, exercise levels, sleep, and stress levels. Biome Sense’s solution to this variability is a portable sample collection and prep system to enable every “sample” from patients to be collected and analyzed. In this case, value is created both through providing the collection systems and analytical services, and a database that can be licensed out.
There is a clear need to standardize sample collection and analysis in both academic and observational studies and in clinical trials of therapeutics. With the right business model, providing these services could be an attractive investment opportunity. The number of clinical trials of microbiome-based therapies is increasing rapidly — in 2018, over 2,400 observational and clinical trials were in progress, compared to 1,600 the previous year. (Labiotech 2019) Given the high cost of these trials and the difficulty in recruiting the right patients, medical researchers and pharmaceutical companies are highly incentivized to extract as much high quality data from each trial as possible.
A related challenge faced across the board by medical research institutes, startups and pharma are the wide range of capabilities needed to develop microbiome-based products and huge quantities of data generated. Particularly for large pharmaceutical companies, it may make sense to outsource or partner with more specialized companies for activities like high-throughput screening of possible drug candidates (Kintai Therapeutics, Second Genome) or developing machine-learning algorithms to effectively identify candidates from large data sets (Vast Biome).
The Intersection of the Microbiome and Agriculture
Why I like this area: There is both big potential for disruption in this space, and solid science showing that smarter soil management increases yields, improves plant health and lowers overall costs. Our portfolio company Edenworks has reduced their fertilizer use by 80–90% and almost eliminated disease in their reimagined vertical farms by creating a complete microbial ecosystem. There is increasing interest in applying “regenerative agriculture” practices to traditional farms — these practices include increasing microbial diversity to improve crop yields, while protecting soil health and sequestering carbon.
Accompanying the trend towards regenerative agriculture, several breakout companies are providing microbiome-based soil management solutions, including Pivot Bio, which uses microbes to reduce the need for synthetic fertilizer and improve soil health, AgBiome which uses microbes to increase pest resistance, and Indigo Ag which touts both benefits. Younger companies in this space include Trace Genomics, Boost Biome, Biome Makers, and Reazent.
Microbiome companies that improve animal health may be the next growth frontier in the AgTech sector. Soil microbiome companies use microbes to replace fertilizer; similarly, animal microbiome companies use microbes to replace antibiotics. Currently, over 70% of the antibiotics we produce are used in animal feed — both to increase animal weight gain, and to prevent disease. Several startups have shown that certain microbes can also effectively increase weight gain and prevent disease. In addition to reducing costs for farmers, replacing antibiotics with microbe-based alternatives reduces the risk of increasing antimicrobial resistance. Switching to microbial feed additives or disease treatments also helps farmers meet increasing consumer demand for organic and antibiotic-free products. [5]
The potential market is nothing to sneeze at; the global market for animal feed additives was $38B in 2019, with the US making up almost $7B. (Grand View Research) Antibiotics are roughly 10% of the feed additive market, which also includes vitamins, amino acids, and enzymes.
Because feed additives are reasonably expected to become a component of food, they are considered a food additive and require approval by FDA, unless the substance is generally recognized as safe (GRAS). (Source) Often, the company can make a case that an additive is similar to other GRAS compounds and go through the relatively short process of submitting a new GRAS notification. [6] The list of GRAS compounds is already extensive.
Building trust and relationships with farmers and distributors [7] is likely to be the factor limiting adoption in the animal health sector. The industry tends to move relatively slowly and can be highly fragmented depending on the sector (poultry, dairy, pork, beef). Depending on sector and region, achieving large-volume sales could require winning over a few major consolidated producers (e.g. Lucerne, Strauss), many large poultry farms, or hundreds of independent cattle ranchers. In addition to proving out the economics with early adopters, establishing relationships with meat and dairy producers early and maintaining a reasonable customer acquisition cost (CAC) are critical in this space.
Summary
In my view as an interested scientist and early stage investor, the most exciting areas within the “microbiome” umbrella are 1) therapeutics targeting cancer and the immune system, 2) tools to help increase the success rate of these therapeutics, and 3) microbiome-based products for animal health. These areas are exciting because the scientific basis is there (or will be soon), the markets are large, and they are poised for growth. As an added benefit, progress in each of these areas will have an undeniable positive impact on human lives.
Notes
- Microbiome companies who have raised money through IPOs: Seres Therapeutics raised $134mm in 2015 on the back of promising Phase 1 data for their first therapeutic candidate. Their candidate, SER-109 is a capsule containing a mix of bacterial spores from healthy human donors for treating C. difficile infections that stumbled in later clinical trials. (Source) Other microbiome therapeutics companies who have gone the IPO route include Assembly Biosciences and Evelo Biosciences.
- Deals between microbiome companies and pharma: The products that Assembly Biosciences licensed for $2.8B are a consortia of live bacteria to treat ulcerative colitis (UC), Crohn’s Disease and Irritable Bowel Syndrome. For more information, see the 2017 press release announcing the licensing deal with Allergan, and a 2019 announcement when Assembly reached Phase 1b trials and disclosing the deal amount.
- The success rate differs depending on which disease is being treated. A 2018 summary of clinical trial success rates by phase and by therapeutic area can be found here.
- The lysis procedure used to break open the microbes to recover their DNA is the single biggest difference between test kits. Small biases in the DNA that each kit recovers can greatly affect which DNA segments are amplified and read, which in turn determines which genes and bacterial strains are identified.
- The presence of trace antibiotics in meat because of their excessive use as growth promoters is becoming a health concern. Several countries are now imposing a ban on antibiotics in animal feed and feed additive formulations, which may lead to faster adoption of probiotic (microbiome-based) additives. Europe has tightened regulations around the use of antibiotics, and the Indian government recently imposed a ban on the use of Colistin, an antibiotic used for fattening the livestock. (Grand View Research 2020)
- The process of applying for an extension of the “Generally Recognized As Safe) GRAS designation for feed additives is explained on this FDA website.
- There are several large animal feed additives companies that operate over large distribution channels, including Kemin Industries, Royal DSM, Novus International, Phibro Animal Health Corporation, Adisseo, Evonik, and Cargill.
Prime Movers Lab invests in breakthrough scientific startups founded by Prime Movers, the inventors who transform billions of lives. We invest in seed-stage companies reinventing energy, transportation, infrastructure, manufacturing, human augmentation and computing.
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