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The Importance of Microbiomes
Microbiomes are the community of bacteria present in an environment. It usually comprises hundreds if not thousands of different species interacting with each other in complex ways.
Most of the time, when people speak of microbiomes, they speak of the human gut microbiome. It is essential for our health and can be the source of multiple medical issues, from mere discomfort to life-threatening ailments. This is especially relevant for metabolic and inflammatory diseases.
But this can also be the microbiome of the soil, an essential component of soil fertility and agricultural yields.
In 2021, microbiome companies had collectively raised $1.6B in capital in just 2 years, mostly from VC funds.
The strength of microbiome companies is to leverage living organisms that already contribute to a person's good health. So they mostly work with something that is naturally going in the direction of being therapeutical.
The problem can be that living organisms are very complex and can be hard to control or optimized to deliver a predictable and consistent health effect. This is why the sector is only possible to use as therapeutics now, thanks to genomic science progress allowing researchers to perform full microbiome genome analysis in the last 10 years.
Top 5 Microbiome Biology Companies Selection
This top 5 has been created to highlight companies following the criteria below.
(This is not investment advice. Order is by valuation and might not reflect the relative quality of the companies.)
- Publicly traded.
- Actively exclusively or mostly on the microbiome, which excludes large companies active in the field but without a central focus on the topic.
- Have a good track record of innovation in the field.
- Good successful product development track record, either already commercialized/licensed or supported by reputable partners.
- Reasonable expectations are that it could commercialize a product from its current R&D efforts.
(An exception was made for Finch Therapeutics due to the potential value of its pre-clinical portfolio and its large cash balance).
In a major disappointment, the company decided in January 2023 to discontinue its phase III clinical trial for C. difficile infections. It will instead focus on developing treatments for ulcerative colitis, Crohn's disease, and autism. All are at the preclinical stage.At this point, the company seems essentially on hold and might be a good target for an acquisition of its preclinical portfolio. So, it makes the current valuation mostly reliant on the value of this IP and the assets on the balance sheet.
The company has $133M in cash and cash equivalent, with only $23M in total liability. This net asset value is way below the current market capitalization, opening the possibility of a “profitable” liquidation instead of an acquisition.
The company is combining synthetic biology with microbiome science. The idea is to engineer bacteria to perform a specific function in the patient's microbiome.
The company is working in tandem with Ginkgo Bioworks, which we covered as well in the synthetic biology article, through a $30M strategic research collaboration. Synlogic will retain fully the marketing rights.
Another partnership was signed in 2021 with Roche to develop a treatment for inflammatory bowel disease (IBD)
Syn logic is preparing to launch the phase III clinical trial for a drug targeting phenylketonuria (PKU), a rare disease affecting 150,000 people worldwide, with 75% of patients untreated. The revenue potential for the drug is $1B.
It also has phase I studies for 2 other diseases, moving currently to phase II, and 3 other drugs in the preclinical stage.
The company is pre-revenue, with $91M in cash in September 2022 with $18m in spending per quarter, giving it a cash runaway up to H2 2024.
3. Maat Pharma
Maat developed Microbiome Ecosystem Therapies (MET) using AI-driven analysis. The idea is to deliver not one bacteria species to the patient microbiome but a full ecosystem of hundreds of species derived from healthy people and optimized by the company.
The goal of the therapy is to alleviate the lethal side effects of cancer treatments. It currently has 3 products in development and 4 ongoing clinical trials in oncology (cancer). This makes the company the first to reach a phase III trial for microbiome treatment in oncology.
One treatment is already in phase III and with the precious Orphan Drug designation by the FDA, and one is in phase II.
The results for the drug in phase III, MaaT013, have been promising, greatly increasing the survival rate of patients after 1 year, from 13% to 44% for half of the treated patients that showed a positive response. The safety profile was also good, giving a good chance the treatment will be used on most patients if approved. If all goes well, the launch of MaaT013 is expected by early 2025
The company is now building the largest facility in Europe for MET, with up to 9,000 capsules of MaaT013 per year and up to 1.6 million capsules for its other treatments still in trial. This could cover the entire addressable market.
The company is listed on the Paris Euronext stock exchange. The company is pre-revenue, has $47M in cash, and used $10M in the last quarter. It also raised $35M in the last quarter.
Evelo is concentrating on inflammatory diseases, as it is now documented that gut health is tightly linked to inflammatory syndromes. The current focus is on skin diseases, psoriasis, and atopic dermatitis in particular. In addition to esthetic and comfort issues, these diseases are also associated with increased rates of heart disease, asthma, arthritis, allergies, and bowel syndrome. Essentially, the skin rashes are just the visible symptoms of generalized and out-of-control inflammation. Existing treatments are efficient at only an 8% rate for psoriasis and 2% for dermatitis.
Phase II studies have been positive on psoriasis, with phase III clinical trials in preparation. Dermatitis results were less encouraging, mostly due to the unexpectedly high level of remission among the placebo group, throwing the study out of balance.
The company currently has $69M in cash in the last quarter, with expenses of $30M per quarter. This might prove a limited runway and is likely to force the company to dilute current shareholders, even with the recent low share prices.
The company is working with Nestle Health to get approved SER-109, an oral therapeutic for recurring C. difficile infections. This is a hard-to-treat infection responsible for 20,000 deaths per year in just the USA.
The FDA review for this drug (PDUFA date) is set for April 26th, 2023, a potential strong catalyst for the stock.
The next product in Seres' focus is SER-155, a treatment for immunocompromised patients, like cancer patients. Its goal is to reduce the risk of gastrointestinal disease, which can be very serious in already weakened patients.
Its pipeline also contains potential treatment for ulcerative colitis (SER-287 & 301) and candidate treatments to modulate the tolerability of cancer treatments.
By 2025, the company hopes to have SER-109 become the standard treatment for C. difficile infections and SER-155 in the late clinical trial stages.
Due to being pre-revenue, the company does not have significant cash flow. In December 2022, it had a cash balance of $290M and recently issued $100M in stock.
Building a Microbiome Portfolio
Microbiome therapeutic is a very novel idea, entirely still in the clinical trial stage, even if some trials are already well ahead in the last phase III. Consequently, this is a very speculative sector of investing, as illustrated by the unexpected suspension of phase III trials by Finch Therapeutics.
It is also an idea that, like many biotechs, has fallen out of favor with investors in the last 12-18 months. This did not stop the companies in the field from pushing forward the scientific and clinical progress of the sector.
Aggressive investors and speculators might be interested in a left-for-dead company like Finch Therapeutics, trading at 1/5 of its cash value, if nothing else, for its liquidation value. They might also be fine with companies needing new cash injections in the next 2 years, like Evelo Biosciences or Synlogic. In this case, the investment strategy is for the expected dilution to be bearable compared to the future capital gains when the companies get closer to a commercialized product.
More conservative investors might prefer to focus on companies with more advanced clinical trials, like Seres Therapeutics or Maat Pharma.
Seres seems to be one of the most advanced companies in the field, targeting the important and large market of C. difficile infection. The commercialization could be just 1 year or even a few months away.
Maat Pharma is instead focusing on a very niche market, but critical to patients' health, with few existing alternatives.
Both have a commercialization target for 2025 and will require little additional cash to reach that target. Nevertheless, this is still an investment best for investors ready to take risks, as clinical trial results can be unpredictable.