Investors just bet $2.4 billion that your gut is the next frontier for the hottest part of healthcare

• Several high-profile startups that promised to draw insights from the bacteria living in and on us, known as the microbiome, have failed in recent months.
• One of them, a company called uBiome that was valued at $600 million, said it would shut down on Oct. 1 after months of challenges and setbacks.
• Yet investors still see the microbiome as a lucrative opportunity for the burgeoning digital health industry, which has raked in $36.3 billion from investors since 2011.
• Here's how the microbiome companies they're betting on plan to succeed.
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Testing poop is no easy sell.

At-home kits that let patients sample their stool offer an alluring promise: insight into what's going on inside our guts.

Here, at the final stop on a highway of nerves that links our brains to our stomachs, are believed to lie the keys to new treatments for everything from digestive diseases like irritable bowel syndrome (IBS) to mental illnesses like depression. Those treatments are focused on the microbiome, the massive community of bacteria in our guts.

If the data from the microbiome can be turned into a useful health product, entrepreneurs and investors believe they could be onto the next big wellness trend, similar to the way genetic insights have been turned into a range of hot consumer products by the likes of 23andMe and Ancestry.

But testing poop isn't quite as simple as spitting in a tube for a genetic test. Several startups including uBiome and Arivale tried and failed to create microbiome-based health products.

For the average healthy person, knowledge of the kinds of bacteria that live in their gut doesn't offer much in the way of practical use. And the insights, which can cost thousands of dollars per person, can be of highly variable quality.

But some investors see the promise of the microbiome as too great to abandon.

High-profile venture capitalists including Vinod Khosla, Marc Benioff, and the venture arms of well-known healthcare companies including the Mayo Clinic and Johnson & Johnson are all placing bets on microbiome startups that combine microbiome analysis with digital tracking.

Unlike uBiome or Arivale, which targeted the everyday consumer, most of the new startups are narrowly focused on people with chronic diseases. For these people, who live with conditions like diabetes or irritable bowel syndrome, daily tracking is a must, and custom diets appear to help.

So the companies take the insights from the microbiome and combine them with digital monitoring tools to tell people how they're likely to respond to various foods. One goal is coming up with personalized diets that significanly curb or completely eliminate their symptoms.

Using digital health tools 'for what they were designed for'

For Kimon Angelides, the cofounder and CEO of one such microbiome company called Vivante Health, the way to digestive health is through our phones.

A serial entrepreneur with a PhD in biochemistry, Angelides previously helped start Livongo, a company that uses a suite of digital tools to help people with diabetes manage their condition. This summer, Livongo became the first digital health startup to go public in three years. It raised more than $350 million in its IPO, and has a market value of about $1.8 billion.

Just as Livongo uses phones and computers to help people manage their diabetes symptoms, Vivante wants to use our devices to help people handle a broader class of digestive illnesses. That includes helping to eliminate the symptoms of hard-to-treat conditions like Crohn's and ulcerative colitis.

"Here we can actually help and use digital health therapeutics for what they were designed for," Angelides, who launched Vivante in 2016, told Business Insider.

Like uBiome and Arivale, Vivante requires customers to submit a poop sample as part of its protocol to see whether certain strains of bacteria may be linked with certain digestive diseases. But where uBiome used a simple method to analyze the sample called 16S, Vivante uses a more consistent method known as shotgun analysis, Angelides said.

Vivante has raised $8 million from investors including digital health venture firm Rock Health and Johnson & Johnson's venture ecosystem, JLabs. It was recently valued at $27 million, according to Angelides. Overall, the digital health industry has seen $36.3 billion invested since 2011, Rock Health says.

"You can't do anything about digestive health without looking at the microbiome," Angelides said.

The microbiome is a lucrative challenge that companies are lining up to tackle

Besides Vivante, several other startups are also using digital tools to tackle digestive illness, a generally overlooked disease area with few good treatments. They include Viome, which was founded in 2016 and counts Vinod Khosla and Marc Benioff among its backers, and and Mayo Clinic-backed DayTwo, founded in 2015.

Since 2014, 73 microbiome companies across five countries have raised $2.4 billion, according to data from the analytics firm CB Insights. While the US is the current market leader for microbiome startups, Canada, France, Israel, and the UK, are each home to at least four recently-founded microbiome companies.

Johnson & Johnson's venture ecosystem, the JLabs Innovation network, is leading the charge, according to CB Insights. It's backed both Vivante and DayTwo, along with 11 other microbiome startups.

Microbiome patents are heating up too: while fewer than 20 microbiome patents were filed in 2013, 140 were filed in 2017, CB Insights says.

Big pharma is showing interest in digital approaches to digestive health as well.

In August, Lilly, known for making Viagra competitor Cialis and blockbuster depression drug Prozac, launched an open innovation challenge for digital health approaches to treat inflammatory bowel disease (IBD), which includes Crohn's and ulcerative colitis. The winner gets $50,000 and a chance to co-develop the treatment with Lilly.

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"Innovation is happening everywhere, and this challenge is aimed at identifying bold ideas outside our walls and collaborating on ways to potentially deliver new solutions to those who need them most," Divakar Ramakrishnan, Lilly's chief digital officer, said in a statement.

Using a 'moving target' to create a personalized diet

The microbiome is a moving target.

Although it's believed to play a key role in how we process food and how we experience diseases like Crohn's and IBS, no study has yet proven that removing a food group or supplementing with a pill like a probiotic can alter the microbiome to consistently and sustainably treat a specific illness.

uBiome and Arivale learned this lesson the hard way.

After uBiome raised $105 million from investors including Andreessen Horowitz and 8VC, it shut down when questions were raised about how it was charging insurance companies for its tests and the quality of its data. Meanwhile, Arivale went dark because performing its services cost more than the average consumer would pay for them, the company said.

Read more: uBiome convinced Silicon Valley that testing poop was worth $600 million. Then the FBI came knocking. Here's the inside story.

One issue is that the makeup of bacteria in our guts is highly susceptible to change. It's so sensitive to small tweaks in diet and exercise, in fact, that some studies have shown that the makeup of bacteria in the microbiome can change on a daily basis.

To uBiome and Arivale, the constant fluctuation of the microbiome was a problem. Both companies struggled to create sustainable business models and to prove the role the microbiome played in disease.

But to Vivante's Angelides and to the team at DayTwo, the microbiome's wavering nature is a big opportunity.

Since each person responds to foods differently, the platforms look at which foods worsen or improve someone's symptoms - what the companies call a food-as-medicine approach.

Users track their symptoms alongside the foods they're eating, get paired with a licensed medical professional, and come up with a personalized diet that's designed to help.

"Almost every diet I've come across in my life is about saying 'no' to foods," Yonatan Machado, a director of ventures in Israel for Samsung Next, the technology company's venture arm, told Business Insider. But DayTwo isn't like that, he said.

Instead, the platform helps him stay healthy by pointing out the right combinations of foods for his microbiome.

"It's about saying yes to food, but the right kind of food," Machado said. "That to me is [DayTwo's] 'aha' moment."

'The next new wave' of consumer health innovation?

In contrast to previous microbiome startups, Vivante and DayTwo market their tools narrowly to people with chronic conditions. This strategy helps the companies in several key ways, according to Machado and Angelides: it provides a clear benefit to customers, who can use the information they get from the platforms to immediately change what they eat, and it helps the companies bring in revenue while they build up a microbiome database for future uses.

"DayTwo has managed to find a single use case" - people with diabetes - "that's very valuable," Machado said.

For his part, Angelides sees the microbiome as holding the keys to the "next new wave" of health innovation for consumers, after genetics.

While DayTwo sells most of its products through health practitioners, Vivante goes through employers. Vivante has roughly 2,000 customers, Angelides said, and plans to start marketing its tools directly to consumers next year. DayTwo has 40,000 customers, Tread Childs, the director of DayTwo's health practitioner program, told Business Insider.

For both Angelides and Machado, using Vivante or DayTwo have changed the way they think about food.

As someone with IBS, Angelides was constantly trying to figure out which meals or snacks might trigger symptoms like gas and bloating, but he could never spot a pattern until he started tracking things consistently. For Machado, who considers himself to be a "generally healthy" eater and avoids things like candy, he learned that the dried fruit he used to love eating can trigger blood sugar spikes in the same way a candy bar might.

"The beauty of digital health is being able to decipher this in a systematic way," Angelides said.

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