The R&D Tax Aspects of Microbiome Research

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        Recent studies have considerably expanded the collective knowledge of the human microbiome. Research has clarified the relations between the structure and functional capacity of the bacterial microbiome and a variety of health conditions. The further exploration of such interactions promises to lead to new methods for diagnosing and treating diseases. R&D tax credits are available to support companies engaged in better understanding the role of the microbiome in human health and disease.

The Research & Development Tax Credit

        Enacted in 1981, the federal Research and Development (R&D) Tax Credit allows a credit of up to 13% of eligible spending for new and improved products and processes. Qualified research must meet the following four criteria:

  • New or improved products, processes, or software
  • Technological in nature
  • Elimination of Uncertainty
  • Process of Elimination
        Eligible costs include employee wages, cost of supplies, cost of testing, contract research expenses, and costs associated with developing a patent.  On December 18, 2014 President Obama signed the bill extending the R&D Tax Credit for the 2014 tax year.

The Human Microbiome

        A regular human being shares its life with trillions of microbes. In fact, while the body is made of around ten trillion cells, it harbors a hundred trillion bacteria.  

        The immense community of microbes residing in and on the human body is collectively known as the microbiome, or microbiota.  Besides bacteria, it includes archaea, viruses, and eukaryotic organisms that together can weigh between 1 and 3 pounds.

        Distributed among different parts of the body, the human microbiome is highly complex, varied, ever changing, and context-dependent. Consequently, there is little consensus as to the existence of a “healthy” or “normal” microbiome. In other words, everyone’s microbiome is unique and constantly changing.   

        In spite of this variability both in terms of compositions and concentrations, the value of the human microbiota in relation to its host physiology is unchangeable.

        The microbes in our bodies perform crucial tasks, such as 1) contributing to metabolic functions; 2) protecting against pathogens; and 3) educating the immune system.

        Gut bacteria are an interesting example of the symbiotic, mutually beneficial relationship between host and microbiome. They are integral to the digestion process due to their capacity of generating nutrients from materials that would be otherwise indigestible.

        The microbial community in one’s body is also key for the education of the immune system, which must learn to tolerate it while appropriately responding to pathogens.

Recent Findings

        Research has revealed that changes in our microbiome accompany various health conditions. Recent studies are transforming the perceived role of the microbiota in human health and disease.

        For instance, the idea that bacteria are primarily a cause of disease has been largely challenged. It is now understood that “good” and “bad” microbes coexist in healthy individuals, and that imbalances between these two groups can trigger disease. The following table summarizes some of the recent findings.

Irritable Bowel Syndrome (IBS)
Recent findings have reinforced the role of the microbiome in IBS. Therapies targeted at the microbial stimulus, including dietary changes, probiotics, and antibiotics, have shown encouraging results.
Clostridium Difficile Infection (CDI)
CDI is a prime example of a human disease that develops as a result of critical changes to the gut microbiome and CDI is effectively treated by microbiome-based therapy. The use of fecal microbiota transplant, a kind of restoration therapy, in the prevention of recurrent CDI has an efficacy of about 90 percent.
Inflammatory Bowel Disease (IBD)
Even though IBD is explained by genetic predisposition, not everyone with the genes manifest the disease. Research shows that bacteria in the microbiome could be responsible for triggering this condition. People with IBD tend to have dysbiosis, with less of the friendly bacteria and more types of bacteria that cause gut inflammation. However, it remains unclear whether microbial changes contribute to disease pathogenesis or develop as a result of local inflammation.
Cardiovascular Disease
A recent study pointed to the fact that gut bacteria are responsible for turning lecithin - a nutrient found in egg yolks, liver, beef, pork, and wheat germ - into an artery-clogging compound called TMAO. Blood levels of TMAO can successfully predict heart attack, stroke, and death, independently of other risk factors. This discovery can lead to a new preventive approach to cardiovascular disease, which would involve altering gut bacteria.
Autoimmune Diseases In autoimmune diseases, such as multiple sclerosis, lupus, and rheumatoid arthritis, the immune system attacks the body's own tissues. The microbiome is crucial in training the immune system during childhood. Studies have suggested that certain types of microbes living in the gut may protect us from autoimmune diseases, while others seem to make us more vulnerable.
Studies have shown that people with type 2 diabetes have distinct microbiome compositions differing from healthy individuals. Gut bacteria can modify the metabolism, changing how and what nutrients the body absorbs. Experimental microbiome-based therapies have somewhat successfully improved insulin responsiveness.
Studies have linked obesity and the microbiome in different ways. Gut bacteria can contribute to metabolic disorders that favor weight gain. Concurrently, a diet high in fat, sugar, and simple carbs negatively affects "healthy" gut microbes that keep us thin while it encourages the development of "unhealthy" microbes that make us obese. Interestingly enough, when obese people lose weight, their microbiota changes accordingly.
According to recent studies, bacteria in the lungs might play a role in the susceptibility to asthma.  Lungs of asthmatic adults are reported to have far more bacteria than the lungs of people without asthma. Additionally, individuals with more severe cases of asthma had a greater diversity of bacteria than patients with less acute disease.
Recent studies have established direct connections between certain microbes and cancer. Examples include H. pylori bacteria, a common cause of stomach ulcers, which is also associated with cancers of the stomach and esophagus; Hepatitis B and C, which greatly increase the risk of liver cancer; the sexually transmitted human papilloma virus, which is associated with many cervical cancers; and the Epstein-Barr virus, the cause of mononucleosis, which is associated with lymphomas and other cancers.
Studies have shown that autistic children have different microbes living in their intestines than children without the disorder. Even though the relation between gut bacteria and autism remains unclear, researchers have suggested that they may actually contribute to the disorder. One hypothesis is that a leaky gut, a common condition in autistic patients caused by microbial imbalances, may allow harmful substances to pass into the bloodstream, eventually reaching the brain. Experimental probiotic therapy by the California Institute of Technology was reported to alleviate autism-like behaviors in mice.

Challenges and Ongoing Research

        The study of the human microbiome is one of the most promising areas of medical research, and one that could lead to a revolution in human health. A better understanding of the tremendous complexities surrounding the microbiota could unlock major therapeutic breakthroughs.

        Recent studies have pointed to connections between the microbiome and a wide range of conditions. In most cases, the outstanding challenge is to understand whether these connections are mere correlations or if they indicate causation. Once causality is demonstrated, microbes could be used to predict or modify disease states.

        With the objective of clarifying such connections, a group of 37 scientists from various universities and research institutions have created the American Gut Project, the world's largest open-source science project to understand the microbial diversity of the human body.

        This massive citizen experiment has already analyzed the microbiomes of over nine thousand people. By gathering an unprecedented amount of data on the microbes that inhabit the human body, the project hopes to understand the complexities of the microbiota and to elucidate its relation to factors such as racial and ethnic background, medication, and lifestyle choices, such as diet and exercise.

        Also with the objective of unveiling microbiome patterns and their relation to health and disease, the National Institutes of Health has created the Human Microbiome Project. In 2013, it awarded three grants for promising university initiatives that shed light on the limitless potential of microbiome research: 

  1. A joint project between Stanford University and Washington University in St. Louis will examine the microbes in the gut and nose and determine how alterations in certain microorganisms (for example during viral infections) may trigger the development of diseases such as diabetes.
  2. A second joint project between the Broad Institute and Harvard School of Public Health, will assess the populations and physiological activities of gut microbes in people with Crohn’s disease and ulcerative colitis.
  3. A third project, conducted by a research team at Virginia Commonwealth University in Richmond, will study bacteria that live in the vagina and assess the roles these bacteria play in health and disease in pregnant women as well as in their babies, particularly for preterm birth.

        The three projects will use several ‘omics’ approaches, including genomics, transcriptomics, and proteomics to follow the dynamic changes in the microbiome and in the host. In addition to such groundbreaking scientific methods, big data analytics should also be an integral tool in microbiome research.

The Birth of a Market

        The potential of microbiome research is limitless. Thanks to cheaper and more efficient gene-sequencing machines along with the ability to manipulate vast amounts of genetic data, so is the potential for microbiome-based medical innovation.

        Throughout the country, biotechnology companies are working to transform our expanding knowledge of the microbiome into marketable solutions, such as new drugs and therapies.

        Perspectives are extremely positive. Demand for over-the-counter probiotics products has grown steadily, demonstrating an unprecedented awareness about the role of bacteria in health. The probiotics industry, which includes yogurts, foods, beverages, and supplements, generates nearly $30 billion annually. 

        San Francisco-based Second Genome is determined to become a new kind of drug company; one that uses microbiome knowledge to create therapies that strengthen or emulate bacteria, generating a clear and decisive beneficial impact on users. Their primary objective is to create a drug for inflammatory bowel disease (IBD). Their second, more ambitious order of business is to develop a microbiome-based therapy for metabolic diseases such as type 2 diabetes.

        The four-years-old company focuses on bioactives, secretions of proteins, and metabolites produced by gut bacteria that affect our bodies just as drugs do. Their idea is to identify, patent, and produce bioactives that mimic the secretions of healthful gut bacteria and develop substances that block the effects of harmful ones.

        According to Second Genome researchers, an important innovation in microbiome drugs is that they would stay in the gut rather then entering the users’ circulatory system, what would considerably limit side effects.

        With ongoing partnerships with Pfizer and Janssen, the pharmaceutical arm of Johnson & Johnson, and its research collaboration with the Mayo Clinic, Second Genome expects to get a drug for IBD into trials within 18 months.

        Boston-based Vedanta is also partnering with Johnson & Johnson to develop a “bioactive” drug and synthesized bacteria that should have a positive effect on the lining of the gut. The company recently announced a license agreement with Janssen for its lead IBD microbiome pharmaceutical candidate, which has demonstrated efficacy in published preclinical studies using models of autoimmune disease.

        Another approach to microbiome pharmaceuticals consists of packaging live strains of bacteria to be used as therapy – the idea of “bugs as drugs”. Based in New York, Assembly Biosciences is working in the identification of bacterial strains that could cure C. difficile sufferers. Their objective is to synthesize such strains, package them in capsules, and deliver them directly to the colon of patients.

        Biotech companies also envision creating microbiome-based metadrugs. Alterations in the microbiota could enhance the efficacy or reduce the side effects of other drug treatments, including chemotherapy. An interesting example comes from Broomfield, Colorado, where Microbiome Therapeutics is developing a prebiotic that, by altering gut flora, could help type 2 diabetes patients better respond to the diabetes drug Metformin.

Microbiome-Related Opportunities

        As the role of the microbiome in health and disease becomes clearer, microbiomial testing should become a major global business. Routine physical exams should soon include a gut bacteria analysis. Aiming to explore this market, California-based Ubiome, a crowdfunded, $6 million-plus startup, provides analysis for anywhere between $89 and $399.

        Microbiome research should also create exciting opportunities in the food and beverages market.  The Nestlé Institute of Health Sciences, which aims to develop new products that bridge the fields of nutrition and health care, recently invested $65 million in Seres Health, a Cambridge, Massachusetts-based biotech startup specializing in microbiome therapies.

        Animal microbiome research is also a promising market. The livestock industry is increasingly interested in probiotic supplements for cattle and chicken, which can be a more natural alternative to antibiotics when trying to influence animals’ health and weight.   


        The microbiome represents one of the great frontiers of human health. Intensive research increasingly suggests that many of the answers we so desperately seek might be inside of us. The development of microbiome drugs and therapies as well as the application of microbiome knowledge into nutritional and animal products represent a major opportunity for innovation.

Article Citation List



Charles R Goulding Attorney/CPA, is the President of R&D Tax Savers.

Andrea Albanese is a Manager with R&D Tax Savers.

Andressa Bonafé is a Tax Analyst with R&D Tax Savers.

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