From UCSF Start-Up to Fugitives From Justice

Monday, February 28, 2022

The founders of a biotech firm that launched at a UCSF start-up incubator in 2012 with promises of a groundbreaking fecal testing system are facing fraud charges in a case that’s not merely reminiscent of the notorious Theranos scandal, but tangentially connected to it.

Last March, federal prosecutors charged the founders of uBiome, Zach Apte, who received a PhD from UCSF in 2012, and Jessica Richman of defrauding investors of $76 million. Prosecutors say they are now fugitives. (A third founder, Will Ludington, who also received a PhD at UCSF, left the company in 2013.)

Apte and Richman have also been charged with healthcare fraud and securities fraud for allegedly falsely billing insurers approximately $300 million — insurers paid uBiome over $35 million of those claims.

Government attorneys allege they “turned a blind eye to compliance and pursued at all costs a path designed to bring the greatest investment in their company.”

The U.S. Securities and Exchange Commission also filed a complaint against Apte and Richman alleging that they “painted a false picture of uBiome as a rapidly growing company,” and that uBiome's revenue growth was “a sham.”

The pair could face 95 years behind bars. But Apte and Richman are hiding in Germany to avoid prosecution, according to the U.S. government. And since Apte has German citizenship and Richman is his wife, it’s unlikely they will be extradited to the U.S.

A Wall Street Journal investigation quoted their attorneys as saying the couple are staying in Germany because Richman’s current health issues prohibit travel.

A Promising Start

The biotech launched with high hopes, as we reported in Synapse on January 16, 2013. Synapse reporter and then-biomedical sciences student Amanda Paulson was at Mission Bay’s Quantitative Biosciences Institute start-up incubator covering uBiome’s launch celebration.

The uBiome product was an at home test kit that would test the makeup of an individual’s microbiome. The founder liked to call their product “the 23andMe of poop.”

Synapse reported that as of the launch in January 2013, uBiome had raised more than $75,000 from over 672 funders on four continents and in 11 countries.

The founders were spreading the call for investors as well as for donors of samples from gut microflora, mouth, nose, ears and genitals to contribute to its citizen science initiative.

“We want people from around the world to contribute money to sequence their samples and contribute their samples to us,” Apte told Synapse.

The company gained credibility by assembling lauded researchers on its scientific advisory board, including UCSF’s Dr. Peter Turnbaugh, Dr. Joseph DeRisi, Dr. Joel Palefsky and Dr. Atul Butte, UC Davis’ Dr. Jonathan Eisen, UCLA’s Dr. Elaine Hsiao, and Harvard University’s Dr. George Church.

Richman attracted further credibility as a featured speaker for TED Talk.

The company moved forward, and soon introduced a new test called SmartGut and SmartJane (which sequenced vaginal microbiome) that they claimed could be used in a clinical setting. uBiome billed these at up to $3,000 per use.

“Here is a real medical test that real doctors prescribe and is processed in a real clinical lab and reimbursed by real insurance companies,” Richman said during a 2014 speech at Harvard Medical School.

Eisen, who is very vocal about “not overselling the microbiome” told the Wall Street Journal that he had helped the company with communications, and had not vetted the science itself. He left the board in 2016 and denounced uBiome’s new direction.

Signs of trouble

It appears that one glaring red flag that both uBiome and Theranos had in common was secrecy.

As uBiome grew, Richman and Apte’s supporting scientists became increasingly confused and skeptical. For example, the term “precision sequencing” was opaque even for employees.

“It was sort of an inside joke that even we didn’t know what it was. Only Jessica and Zach knew what it was,” she said.

Another employee said he saw some red flags but was dissuaded from asking questions.

“I would be told that that’s not your problem, shut up, go worry about your own stuff,” he said.

Richman pushed back against scientists when they offered their input despite having less background in the science of medicine and not being a scientist by training.

The company’s goal was to sell as many clinical tests as possible, an employee said. So uBiome created a telemedicine platform that would approve or deny a test based on an online survey often without personal interaction between patient and healthcare provider, according to the employee.

And the federal indictment states that in some cases they allegedly wrote doctor notes that falsified an encounter between a patient and a doctor to justify a test.

Finally, in May 2018, uBiome employee Damian Moskowitz heard an interview with the journalist who exposed the Theranos scandal and connected it with what was happening at uBiome. He would go on to file a lengthy complaint with the California Medical Board and reach out to the media.

It turned out that insurance companies were also raising the alarm. And in April 2019, the FBI raided uBiome’s San Francisco office, demanding that employees hand over their computers.

The accusations made against the company were not linked to faulty science but to fraudulent billing.

uBiome’s board placed Richman and Apte on leave, and the company continued to operate without the clinical testing. Finally, in September 2019, it filed for bankruptcy.

Meanwhile, a criminal investigation ramped up and in March 2021, charges were filed.

Theranos Connection

The charges are reminiscent of the high-profile case against Elizabeth Holmes, founder of Theranos, which promised a new groundbreaking system for testing blood. Theranos was exposed when its former lab director, Adam Rosendorff, quit in disgust and blew the whistle on the company.

Rosendorff went on to become lab director at uBiome before it too became mired in regulatory investigations and criminal charges. Holmes’ lawyer has argued this proves it was Rosendorff’s “incompetence” — not his client’s wrongdoing — that led to Theranos’ downfall.

The prosecutor rejected the connection, saying the uBiome case centers on fraudulent insurance billing and not testing accuracy.

“Dr. Rosendorff as the lab director had nothing to do with the billing practices,” he told the judge.

On January 3, 2022, Holmes, 37, was found guilty of three counts of wire fraud and one count of conspiracy to commit wire fraud. Holmes, who gave birth during the trial, faces up to 80 years behind bars and a $1 million fine. A sentencing hearing is scheduled for September 26, 2022.