Microbiome testing startup, uBiome, which only last year was valued at $600 million, has announced that it has filed for protection under Chapter 11 of the U.S. Bankruptcy Code in Delaware to facilitate an orderly and efficient sale of its ongoing business, products in development, technology, and lab capabilities.
The company said it will continue to operate while it looks for suitors, adding that it was working to finalize terms and announce asset purchase agreements in the coming months. uBiome did not name any of the potential buyers, although it said it hoped to finalize terms and announce an asset purchase agreement within 75 days.
Maintaining business continuity
Furthermore, uBiome said it “will continue to offer the current Explorer product as usual throughout the sale process, and uBiome will maintain appropriate staffing and supply levels to support the product and process kits for customers.
It said it will continue to grow its commercial, academic, and research partnerships, despite filing for bankruptcy.
“Together with the board, we determined that uBiome’s business will be better positioned for success under new ownership. Our Chapter 11 filing allows us to preserve the value of these assets for all stakeholders and continue to serve current and new customers, while we evaluate potential buyers. This step builds on the decisive actions the board and new management team have recently taken to stabilize the company and leverage the substantive value of our advanced microbiome testing and analysis assets,” Acting Chief Executive Officer Curtis G. Solsvig III, said in a statement.
The company, which was founded in 2012, then outlined several steps it has undertaken to maintain business continuity. These include debtor in possession (DIP) financing obtained from 8VC and Silicon Valley Bank to support uBiome’s ongoing operations during the sale process. The company reportedly took out an $8 million loan to keep its doors open, while it hunts for a buyer.
uBiome said this additional financing, combined with normal, ongoing cash flows, will help ensure that the company can meet its go-forward commitments to employees, customers, and suppliers while also maximizing its chances of successfully selling its assets. The company said it had filed a series of motions with the court that, when approved, will allow it to maintain its usual employee compensation and benefit programs, make payments for goods and services in the normal course of business, and otherwise support the Explorer product as usual.
Five months ago, the FBI raided uBiome following accusations that it was double billing insurers. In the aftermath of the FBI raid, uBiome announced that it was suspending clinical operations for its health tests, including SmartGut and SmartJane.
Forbes reported that uBiome’s bankruptcy filing lists over $7 million owed to a number of health insurance company’s as “refund claims.”
Following the FBI investigation, the company’s founders and co-CEOs, Jessica Richman and Zac Apte, were put on “administrative leave.” The two resigned in July.
Adding to uBiome’s woes, Business Insider reported it had heard that key science related to the company’s products was flawed from the start, prompting the company to start an internal investigation alongside a top science journal, where it published its basic research.
However, in the bankruptcy filing, Solsvig wrote that the previous administrators had “implemented certain business strategies” that had “operational (but not scientific) flaws and, in some instances, were of questionable legality.”
“These issues included improper insurance provider billing practices, improper use of a telemedicine physician network, overly aggressive and potentially misleading marketing tactics, manipulation of customer upgrade testing, and improper use of customer inducements,” it was reported.
Furthermore, Solsvig stated “certain information” in uBiome’s fundraising pitches “may have been incorrect and/or misleading.”
Kimmy Scott, a partner at 8VC, which holds 22 percent of uBiome, was quoted as saying: “We have taken significant action to put the company on [a] stronger footing and believe in the strength and potential of uBiome’s scientific achievements and [intellectual property]. We remain committed to supporting the company as it pursues an orderly sale of its assets for the benefit of all stakeholders.”
uBiome’s fall from grace has been quite rapid. Just 12 months ago, the company raised $83 million in a Series C financing round that included participation from 8VC, Y Combinator and Dentsu Ventures among others. This brought the amount of money that uBiome raised to more than $100 million since it was founded, bringing its valuation to $600 million.
At the time, uBiome said it had more than 200 patent assets, including seven issued patents in the U.S. relating to sample collection, laboratory automation, computational approaches, and molecular techniques, as well as diagnostic signatures and therapeutic targets. It added that it had the largest human microbiome database, with over 250,000 samples, the largest in the world by 25 times, which it projected would grow to more than 1 million samples this year.