Will the Gut Microbiome Change Medicine? Wall Street Isn't Convinced.

Cancer patients who receive an antibiotic within one month of receiving a checkpoint inhibitor achieve a median survival of just 2 months. Those who don't take an antibiotic and receive the same treatment achieve a median survival of 26 months, fully 1,200% longer. The significant gap is thought to be explained by changes in the gut microbiome, which is severely impacted by antibiotics, diet, and exercise, and has become the focus of a great deal of investment and hype in healthcare.

On the one hand, there are a growing number of companies chasing the Holy Grail of health residing in the human gut microbiome. On the other hand, Wall Street either doesn't seem convinced of the growth potential, or is entirely overlooking the opportunity. What should investors make of microbiome stocks?

Image source: Getty Images.

What is the gut microbiome?

A microbiome is any population of microbes living in a confined environment. The plant root microbiome plays a role in the survival of agricultural crops. A separate microbiome that calls your skin home determines your susceptibility to acne, skin diseases, and whether or not you suffer from "old person" smell. Your mouth microbiome affects your blood pressure (not brushing your teeth actually helps lower your blood pressure). And your gut microbiome affects how well you harvest nutrients from food, the activity of your immune system, and how well you respond to ingested medicines.

At birth, an individual's gut microbiome is inherited from their parents, similar to a blood type or genotype. Over the course of a lifetime, a microbiome changes and adapts to its environment. It changes based on the foods you eat, the amount of alcohol you consume, and how much quality sleep you get, among other factors. It plays an enormous role in your short- and long-term immune function and health. It's even thought to play a role in how long you'll stay in the hospital should you be admitted.

Researchers are beginning to understand that an individual's gut microbiome plays a significant role in their overall health, but the exact correlation isn't exactly clear, nor is there a clear way to leverage the relationship. There appear to be unique gut microbiomes for individuals struggling with obesity, inflammatory diseases such as endometriosis, and immune disorders such as cancer -- and each population of microbes appears to affect the severity of each disease.

What are the top microbiome stocks?

The word "top" is relative in this space. No business has really cracked the code of the gut microbiome, or determined how to selectively alter it to promote good health (aside from a healthy, balanced diet, but you can't sell that). But that hasn't stopped a slew of attempts.

Synlogic (SYBX -3.55%) was once considered the leader in the space, but it's having trouble finding its way. The company has discontinued clinical programs, dealt with executive churn, and reported an operating loss of $27 million in the first half of 2019. It counts a microbe engineering partnership with unicorn start-up Ginkgo Bioworks, which, despite much hype, hasn't commercialized a single product in its history and continues to lose gobs of money itself as it cycles through products in its own pipeline.

All of that has left Synlogic with a market cap of just $80 million, down from a year-to-date high of over $300 million. Its lead drug candidate, SYNB1618 in phenylketonuria, is in a phase 1 trial. The experimental therapy is a microbe designed to produce enzymes that degrade molecules leading to the condition. It will compete most notably with an enzymatic medicine from Codexis, which cleared a phase 1 clinical trial not long ago and seems to be a more direct treatment option. Time will tell if either will succeed.

Seres Therapeutics (MCRB -4.04%) is better positioned than Synlogic. Rather than an over-hyped start-up, the business counts partnerships with AstraZeneca, Nestle Health Science (the same partner of Codexis), and MD Anderson Cancer Center. Its lead drug candidate, SER-109, is in a phase 3 trial against C. difficile infection. It also boasts a phase 2 trial for SER-287 in ulcerative colitis and a phase 1b trial for SER-401 as a combination therapy with Opdivo from Bristol-Myers Squibb.

Seres Therapeutics is also eager to develop SER-301, a fermented microbe drug candidate, which would directly encroach on the turf of Synlogic and Ginkgo Bioworks. The business, valued at roughly $250 million, expects data readouts or new clinical trials from at least four drug candidates in 2020. Considering it ended June with $102 million in cash, it remains relatively well positioned to make the most (or least) of its major clinical events next year without raising additional capital.

There's also Kaleido Biosciences (KLDO), Assembly Biosciences (ASMB -1.43%), and Evelo Biosciences (EVLO), all valued at or above $250 million. Here's how they all stack up:

Data source: Company websites.

Simply put, Wall Street is hardly convinced that any microbiome stock holds blockbuster potential with its lead drug candidate. Investors cannot dismiss that pessimism.

Should you invest in the gut microbiome?

There's undeniable potential in altering the human gut microbiome to promote good health. But despite that potential, individual investors should be very cautious of microbiome stocks right now. In addition to Synlogic, Synthetic Biologics launched with a tremendous amount of hype, but is valued at less than $10 million today. There's also Intrexon, which, similar to Ginkgo Bioworks, hasn't lived up to the hype at the commercial level.

That doesn't paint a very optimistic investment picture for individual investors. It doesn't seem that any company is well positioned to capitalize on all the potential of the gut microbiome, let alone unique aspects of it. Investors need more and better data before they can confidently invest in the hype.