Putting the spotlight on DeepTech in Latin America
Mendelics is a Brazilian genomics sequencing laboratory with the largest genomic sample processing capacity in Latin America. They designed a whole software system to interpret genome sequencing.
Its 300+ team has been at the forefront of the COVID response, delivering close to 1 million PCR tests and is the second-largest contributor to the National Institute of Health (NIH) Clinvar database outside of the US. Internationally, Mendelics won the 2014 MIT Innovators Under 35 Award.
Innovation: “The basic idea was and still is that genetic sequencing is getting cheaper every year. In the first Human Genome Project, the first genome took about 13 years to sequence and cost US$3bn. Today we can do it for maybe six hundred dollars and less than 48 hours. Next-Generation Sequencing technologies and cloud computing has led to dramatic advances, simplifying data transfer and collaboration between a lot of scientists, research institutions, and large projects.”
Interview with David Schlesinger
David Schlesinger is the Co-Founder and CEO at Mendelics. He is an M.D., Board-certified Neurologist, and combined a passion for computer science and bioinformatics with a PhD in Genetics.
FI: Tell us more about your role today and the journey that got you here.
DS: I’m currently the CEO and co-founder of Mendelics. A 10-year journey since we started designing and building the company in 2011. I’m an M.D., and I have a PhD in genetics (computer science and bioinformatics), did my residency in clinical neurology, and worked in neurogenetics and research. In 2011, my three co-founders, a neurology professor at the university, a friend from medical school and one of the top bioinformaticians in the country, got together to build a company to diagnose rare diseases.
I never expected to be an entrepreneur until a VC approached me about a project for a genomics company in Brazil. I told them: “This is ridiculous; it’s never going to work, you’re copying what everybody else is doing, and everybody is wrong.”
They laughed and said: “OK, what do you think is the right way of doing it?” I sort of told them, and then they said: “OK, give us a business plan”. And this snowballed into what the company became.
The basic idea was and still is that genetic sequencing is getting cheaper every year. In the first Human Genome Project, the first genome took about 13 years to sequence and cost three billion dollars. Today we can do it for maybe six hundred dollars and in 48 hours. So, our predictions were correct: the interpretation of these genomes would be a massive bottleneck for physicians, labs, hospitals and everyone else. We started with one model; we’re going to be a B2B company selling to hospitals. Today, this is probably five percent of what we do. Most of the revenue that we make comes from insurance companies – we cover about two-thirds of Brazil’s insured lives, the government, pharmaceutical companies with rare disease drugs that need to find patients and several other channels. It’s much more diverse than we expected initially, and we learned this along the way; it wasn’t something that fell in our laps. Over time we grew our channels, our payer’s channels, and expanded geographically. Now we cover all Latin America and a few other countries elsewhere.
FI: When you think about the entrepreneurial power that you’ve applied in the last ten years and even before that, is there a specific toolbox, behaviour, resource – what springs to mind?
DS: Well, besides luck, which I think is a major part of everything we do, I think open communication within the community has been very positive and a recurring theme. It’s great to discuss topics in open Slack channels and not have a ton of private emails, it’s something we’ve done for a very long time, and this open communication breeds a good culture. If I were to recommend one thing, it is: always be transparent. Within your company, you should be very open, as much as possible, it attracts the best type of employees.
FI: What is the unique DNA of Mandelics’ founding team?
DS: The founders and the early employees all have the same profile, a very similar culture: telling the truth, testing things out, and liking data and facts more than opinions. Most of the team came from academia; many of them are way smarter than me, and that’s why we’ve been successful – because we have brilliant people in very key positions. We were able to reach our scale because of this great team. We gave them the liberty to do what they’re good at and removed all the red tape and bureaucracy that usually comes with building a company.
FI: What problems did you encounter along the way, and how did you solve them?
DS: We designed a whole software system to interpret the genome sequencing. As we started offering this diagnostic product in the Brazilian market, we saw many different bottlenecks. And that’s why most startups in the world, but especially in Brazil and South America, die out. It’s because it’s not one big problem that they can solve – it’s many small problems that you slowly bleed out. I call this “Death by A Thousand Bottlenecks”. So we successfully solved many of these problems, gained scale, verticalized the company, and became a full-stack company from logistics to lab, software, medical reporting, and everything. Health care has lots of problems in and of itself, especially when you talk about DeepTech. Most of the healthtech that we see throughout the world, especially in Latin America, is what I call Shallow Tech. Usually, it’s an electronic medical record, or it’s a clone of Oscar Health – another type of insurance company – or it’s an app or digital service that is much more tech/software than health. What we’re working on is different from most of these companies because we’re trying to solve fundamental scientific medical problems. It’s challenging to discuss these hardcore scientific problems in Brazil, where we don’t have a critical mass of people and companies. That’s usually restricted to a few top 20 cities globally (Boston, Cambridge, San Francisco, Seattle, San Diego). We founded the company in 2012. Talking about Venture Capital in Brazil at that time was a considerable challenge, and discussing health care was an added problem.
FI: What would be your advice to entrepreneurs today?
DS: Find the right investors and VCs to help fulfill areas that are not central to your team. The investors who came along the way helped us understand how to sell in this market. All the accounting, financial and early commercial work was either done by one specific person or our investors, so we could focus on getting an excellent product out and something that had a perfect fit with the market.
Then we were able to learn how to scale a company slowly, and the company has gone through many different phases: up to 25 employees, that was one phase, and then from 25 to 100/150, that was a different phase, and then now, up to 500. But we did it at a slightly slower pace than growing 2x a year, we had the time to build the processes over ten years, and now it’s a business that works, and I don’t have to look at everything. It’s not typical Silicon Valley culture; it’s not blitzscaling type culture; it’s a culture of looking at data and building solidly and sustainably for the long term, but not building too much beforehand and just focusing on the immediate problem and solving these problems.
FI: When you think of early business stages and think of role models that inspired you, can you point to anyone?
DS: I can only name two people who were very influential in the company – in the way that we built the company. One of them is one of my co-founders, André, who’s a physician. He’s the one who went to medical school with me, and he is our commercial and marketing director and has been since the beginning. And the fact that he understands how healthcare works was essential for us to discover how to sell to each different channel and build the company – he had a huge part in that. The other is our angel investor and chairman since the beginning. He built a company from scratch – TOTVS, the largest enterprise software company in Latin America – with his vision, we were more ambitious and grew much more than what we had expected to. His outside view from healthcare, but coming from tech, was essential for us to set our aim very high and progressively grow toward that.
FI: What were the challenges that you’ve tried to figure out?
DS: The challenges have changed in terms of scale; we went through a significant economic downturn in Brazil in 2015/2016 and now the pandemic. What we have done in the pandemic is very interesting.
We implemented a cheap and scalable test for COVID diagnostics, which has been performed in many different states, companies, schools, and non-for-profits. It’s much more affordable than any other test in the market right now, with a much faster turnaround of 24 hours. We could only do that because we had the infrastructure, a capable team, and the opportunity presented itself. But you don’t try to solve a pandemic ten years earlier; you just build something at the pace of the tools and technology available. And it’s not like we’re solving it (the pandemic), and it’s just that we’re contributing a fraction of what is needed to solve this problem.
We had focused on a specific problem, and remained optimistic that technology would get progressively cheaper. So what we said was, “let’s do one test that solves everybody’s problem at the same time; it’s going to be more expensive than the cheapest test, but on average, it’s going to be much better, and you’ll get the long tail of a patient and solve that problem”. And from that base, other solutions came to other problems. First, it was rare diseases; then, we expanded to hereditary breast cancer and other cancer syndromes. We went with it. We had a huge/capable lab.
FI: If you were pitching to investors now, which key metrics that impact the business would you highlight?
DS: We raised an angel round from the family office of the founder of TOTVS and we subsequently raised a Series A in 2015 from a biotech fund and then in 2019 raised a Series B.
Mendelics today is a sustainable company; we have grown our revenues about 2x year over year, every single year, over the past ten years. What is quite significant about the company is the amount of sequencing it generates as we look at a very diverse population. The genetic variants brought through Africans and through Native Americans, have made the Brazilian people very unique worldwide. And as we look more and more into genetic variants and mutations specific to our population and unknown, this makes Brazil a precious resource. So since we do a lot of sequencing in these novel populations – most of the sequencing has been done in European populations – we generate data that is unique and not replicable anywhere else, plus the fact that we have a lot of experience. I avoid talking about A.I. because now everybody has their own A.I., but we’ve been working with data science and machine learning for many years. We got the MIT Innovators Award in 2014 for an algorithm that we developed called Abracadabra, which interprets genetic mutations much faster, and that allowed us to scale the company to over 300 employees; we do most of the sequencing in Latin America with only 300 employees.
FI: In terms of traction, can you indicate the volume of sequencing you are touching in the region?
DS: We’ve done hundreds of thousands of patient tests and 50 international publications in nine years. Almost one per cent of all knowledge of rare diseases has in some way gone through us over these past years, and that’s in large part because of the diversity of our population, and also because of the scale of what we have been doing over the past few years. We submit mutations diagnosed in patients to the National Institutes of Health (NIH) international database – which is public. We are one of the top 20 submitters globally and the number two outside of the United States.
FI: What about expansion?
DS: We also have offices in Bogota, Colombia. We are accredited to work in the United States and Europe as well. So we do have clients elsewhere; they now ship to Brazil; I think after the pandemic and travel bans are down and other things, it’s very likely that we will expand overseas.
FI: Which specific successes in the COVID context make you most proud?
DS: We never expected to enter the COVID testing (market). We sort of looked at PCR testing for COVID, and this is super simple; why aren’t the labs just doing this on a huge scale. So, in mid-April, government officials started calling us up and saying, “Mendelics needs to start doing PCR testing as well because we don’t have enough testing”. We started speaking to suppliers and other labs. We understood it was not a specific problem that existed, but a whole supply chain failure from raw materials to getting reports back to patients. And it is an interesting problem where we can tie together our lab capabilities with our software capabilities, with our logistics for all of Latin America and do it fast. We’ve done almost a million tests, and we are one of the top labs in Brazil in terms of Covid testing at a much lower price point and cost for everyone involved, a much simpler test that people can do repetitively. Contributing to that has been a great satisfaction; now we’re hoping it ends sooner rather than later.
FI: In the COVID context, what is the crucial learning you have gathered from analysing, problem-solving, scaling your business?
DS: It solidified our view that the problems of health care are not technological, they’re a whole stack of issues – from end to end – an integrated problem, a problem of logistics, a problem of technology and supply chain. The difficulty in combining all these things is what makes solving health care problems hard. So looking forward to what we can do in the future and what types of issues we’re going to have, I see a disconnection between the whole network and where we can put it all together and make things more efficient. And it’s not sequencing. It’s not AI. It’s sometimes straightforward getting a sample from somebody’s house to the lab.
FI: What are the objectives, how do you define success for the business and your contribution to the company and where you want to lead the company?
DS: The number one metric that we’re going to measure success over the next few years is that we plan on reaching one million sequenced patients over the next five years. And this would certainly be the most diverse genetic database in the world.
FI: What is the greatest fear that can challenge that objective, that could make the dream not become a reality?
DS: We have many regulatory challenges everywhere in the world; the conservatism of the healthcare system is actually punishing patients, is making their health worse, but supposedly protecting them. Some of the data protection laws that are in place in several other countries have hampered a lot of genetic research. This has impeded collaborations between Europeans and Americans, which are two of the main sources. China does not let any DNA or DNA data trickle out of China. Therefore we have a quarter of the world’s population that nobody is studying outside of China. The data protection laws in Brazil are different and very reasonable, they empower the individual, the data is theirs, and they decide what to do with that data.
I think the pandemic, in some ways, has shown us the strengths and weaknesses of globalisation; in this type of global cooperation, the data is being collaborated, which is great. Still, at the same time, we see countries limiting exports of raw materials, vaccines, ests, and this is just a snowball; it’s a very negative cycle. If we continue down this path of limiting access to data, to reagents, to science, everything, that’s what I see as the main fear that I have. This progressive fragmentation of science and data is very negative. I just hope that countries don’t start limiting information in the same way that they’re limiting exports for now. The world is going into a phase of the next 20, 30 years of having a new Cold War and not having the science done as a world community. I adhere to a very global view of collaboration between countries.
FI: When you think about collaboration, sharing, global protocols in how data is managed, is there a specific change that excites you? That could become a reality sooner rather than later?
DS: I think that the things that we don’t usually think about are primary causes of collaboration, but cloud computing easing the transfer of data simplifies scientists lives because they’re not specialised in collaboration, in having research institutions finance large projects and collaborative projects. NIH is a good example. People who are sequencing COVID around the world are depositing their data there. We also do that so everybody can see the new strains evolving and coming up; this type of effort has to continue and grow.