Natera's Journey: Innovation in Health

I think ever since I came to the States, I was kind of invincible, you know. I'd made money, lost money, relationships came and went, and no matter what happened, I was just riding the wave and nothing really broke me. And this just broke me. And I think the engineering me sort of took over, and I thought this is a problem that I have to, have to solve. Welcome to Crucible Moments. a podcast about the critical crossroads and inflection points that shaped some of the world's most remarkable companies. I'm your host and managing partner of Sequoia Capital, Rolof Buota. Today's episode is about Natera, a global leader in women's health, oncology, and organ transplant rejection testing. To give you a sense of scale, 40% of all pregnancies in the United States are tested using Natera's technology to ensure the health of the child. and nearly half of oncologists in America have ordered Natera's cancer screening test. My connection to Natera began long before its inception. I met its co-founder, Matthew Rabinowitz, when I was a teenager in South Africa. We attended the same academic vacation school, which is a nice way of saying it was a nerd camp. Later, we both made the top 100 in the National Science Olympiad. Matthew was the gold medalist. I reconnected with Matthew in 2002. After completing an undergraduate in physics, where he was the top student at Stanford, and then completing a PhD in electrical engineering, Matthew became a founder. But now he was immersing himself in a brand new challenge, mastering biology and genetics. But there was no doubt in my mind that Matthew could learn anything he wanted. From its origins in IVF pre-implantation testing, To expanding into prenatal testing, cancer recurrence monitoring, and organ transplant rejection testing, Natera is a company that has innovated again and again to change the management of disease worldwide. To get there, however, the company grappled with crucible moments. Natera bet its future on developing unproven technology and defied skeptics as it expanded into new fields of testing and larger markets. This is the story of a mission-driven company that risks consequences at every turn, determined to help people live healthy lives. Hi, my name is Matthew Rubinowitz, and I'm the founder and executive chairman of Natera. You know, Natera was sparked by a combination of factors. I came from a good Jewish family of two doctors, and so I was always surrounded by these kinds of, you know, debates between... different medical practices and different approaches. And I didn't go the medical path. I studied electrical engineering and physics. But in 2003, my sister had a kid with Down syndrome. The baby was born in one of the top hospitals in the country. And they only found out when the kid was born that the kid had Down syndrome. And the child died after six days. And it was horrific. I couldn't understand how in the 21st century you could... have all this technology in your cell phones and spaceships and our laptops and none of that technology had found its way into diagnostics. And at that point I thought, you know, that this is something that I really need to fix and I need to understand what's going on here and try to apply these technologies that I was aware of in the signal processing world to the world of genetics. I joined Matt around 2004. I was at the time finishing up a startup in the mobile space, and Matt was finishing working up on his previous startup as well. And I was tired of making phones beep, and I wanted to do something with more social value. My name is Jonathan Sheena. I am a co-founder and a board member at Natera. What was clear at the time, besides Matt's personal story, was that genetics was in its infancy. Human Genome Project had just completed, and it was abundantly clear that geneticists needed to help understanding the masses of data that they were starting to produce. Were we confident in making that shift from engineering to biology? For me, no, not at all. I was not confident at all. But talking to geneticists at Stanford mostly, you saw pretty quickly everybody had the same book on their desk. It was bioinformatics and... pearl or pearl for bioinformaticians. And it was very thin. It was really high level. It was clunky. It was hard to use. All the tools were terrible. And as an engineer, it was really, really clear that I could be helpful there. Originally, when I joined the company, it was just some people around the table. And we're still in this phase of figuring out what was the market that we were going to tackle? What was going to be effective? What could we build that would really make a difference? Initially, we were looking at all sorts of problems of how you could take genetic data and make it computable and combine the computable genetic data with phenotype or clinical data. And this was the sort of long-term idea that you could have a kind of market. place where we could build these better models to predict what drugs a patient should get for cancer, what mutated HIV viruses should be treated with in terms of cocktails and reverse transcriptase inhibitors and protease inhibitors. So we were looking at all sorts of problems. But at the same time, I think I couldn't let go of that desire, you know, when the baby was born with Down syndrome, and then there were so many complications. You know, at that point, it was a real emotional inflection. So I think I couldn't let go of that desire to solve that particular problem. Matthew and Jonathan began by looking at a subset of pregnancies with genetic data available and an immediate decision-making need, those having children via IVF. Back in 2004, there were methods available to evaluate the health of an embryo prior to implantation, but they had limitations. The way people were going about the problem at that time. was just so much, from my perspective, it was a much more blunt instrument. You know, they were trying to hybridize probes to chromosomes and look at them under a microscope and count how many fluorescent probes you could see. And then you could only see five chromosomes that way. And companies were trying to convince doctors that you only needed to see five out of the 22 chromosomes. And you know, that's obviously not true. There was so much snake oil in the IVF market that we actually sent a sample to one of these companies. where we knew what the cells were. We knew the kerotypes, and they produced a whole bunch of bad results. It was just so amazing to me that doctors and labs were sending these samples to companies that just had these very sort of basic approaches to the problem. So, you know, we came into this world thinking that we were going to do it a whole lot better and that we had the capabilities to do it a whole lot better. The team at Natera dove into researching a test that would eventually be called Spectrum. to allow for precise genetic testing of an embryo. No easy feat. The challenge with any pre-implantation genetic test is that you have to assess the genetic health of the embryo, but the starting material is extremely small. You know, it's often just a single cell. My name is Chitra Kothwaliwale. I'm the Senior Vice President of Portfolio Management and Operations at Natera. So to be able to Assess the genetic health of the embryo, starting with a single cell, is extremely technically challenging. You end up having very, very noisy data. I bought the graduate textbook that you learn genetics with, and I spent two months just studying genetics from that textbook. And I remember turning to the chapter on meiosis and coming to understand the different mechanisms of that biological process and seeing how much we understood about the... pieces that went into that mechanism of meiosis. And at that moment, I thought, wow, you know, there's so much a priori modeling that we could bring to this problem of what information is coming from the parents contributing to the DNA of a child. I thought that could probably be structured as a kind of a Bayesian optimization framework. You know, if we use all of that modeling information, we could have a much more powerful test statistic to evaluate what's in a child's cell. The idea is that if you've got this noisy data, which you're getting from a single cell that you're analyzing from an embryo biopsy, you can limit the space that you're searching for for answers because you know up front that this genetic makeup came from mom and dad. So if you know mom and dad, you're not starting from the universe of all possible combinations of A, Cs, Ts, and Gs. You're starting from... this basic premise that everything you're looking at had to have come from mom and dad. So that helped dramatically improve the signal that you got out of this very noisy data, something that people hadn't done before. That was really the groundbreaking aspect of Spectrum. This whole idea that you can take a maternal genome and a paternal genome and build this probabilistic model of what the embryo genome is, and based on that, be able to tell whether that embryo has a chromosomal abnormality or has inherited mutations for a single gene disorder. That was the nascent idea as I turned the pages, and that was the idea that we ended up pursuing with Spectrum. While the team was excited about this breakthrough idea, at this point, it was just an idea. The technology at that point was unproven. Although we had some initial data that we used to demonstrate a proof of concept, and the proof of concept did work, whether that was going to actually work in... a real-life scenario where you are biopsying an embryo, putting it in a tube, shipping it around the world on tri-ice, and then trying to produce a result in less than 48 hours, whether that was all going to work together was very much TBD. When we went out to raise funding, there were plenty of skeptics. A, who are these non-geneticists in front of us talking about genetics? What did they know? There was a lot of discussion of... IVF as a market. It wasn't perceived to be that big. And we were in Silicon Valley, which hadn't done a lot of genetics investing at the time. At its outset, the company faced a defining crucible decision. Do you pursue an idea where the technology is unproven, the market has red flags, and where your expertise raises eyebrows? I could say it was tough. But the reality is, you know, I just had a mission. So, you know, you don't worry about not getting funding at the right time when you've got a mission. You just pursue the mission any way you can. The team dove into bringing Spectrum to life. We actually applied for a bunch of NIH grants. And that's an incredibly good process for a company to go through to sort of figure out the technology with a level of rigor. so that these very experienced NIH review panels can give you the thumbs up. A lot of the great IP that went into Natera, then Gene Security Network in those early days, came from that process of applying for NIH grants. So that sort of got us going. And then when it was time to raise money for Natera, I thought Rulof would be the ideal guy to partner with. I'd known him for a long time. We met as teenagers in South Africa. at a kind of nerd camp during the vacation when other guys were starting to date girls. We were being lectured to by a bunch of college professors. And then we met in the States and he was courageous. He'd left this very well-known family in South Africa and his career as an actuarial scientist and had come to forge his path in the US, as I had. And he was also very humble. And the first rule of being a VC is do no harm. And so I thought that's the kind of guy I'd really like to work with. And then I particularly targeted Sequoia. They kind of invest like Santana plays the guitar. I mean, they are just so naturally and comfortably aware of where a company is at. And I think they could see at a certain point that we were focusing on this problem in IVF because there had been this confluence and we were sort of organically driving in that direction. And that's the time that they sort of pulled the trigger. So I think the whole process of leading up to that investment, you know, the the NIH grants, trying to make our story more rigorous on the technology and the business side is an incredibly healthy process for a company to go through. And it's not something that you can go through if you're just taking angel investment. I often tell companies, you know, force yourself to get grants and to get venture capital investment because it brazen the company in a way that you can't easily do otherwise. I do remember a moment when one of our senior statisticians came to me. And we were trying to do this modeling based on the idiosyncrasies of the noise that we were getting from these arrays and building in a detailed, functional model of the mechanism of meiosis to figure out what had come from the parents to make the DNA of the child. And there was all sorts of noisy processes that were generated from this array because we had to get this protocol running in one day that was supposed to run in three days. And I remember... One of our really great statisticians came knocking on my door, and he'd been looking at the data based on this latest test statistic that we were trying to get working. And he just said to me, dude, you know, come look at this, you're going to shit yourself. And at that moment, I was, I didn't know whether it was good or bad news as he said that, but I saw a big smile and I thought, okay, you know, this is actually working at last. In 2009, Natera launched the Spectrum test for public use. So there were the technical moments when we knew that Spectrum worked. We had successful transfers that turned into successful implantations for IVF. But the real moments were... The postcards and the emails that came back from the families thanking us for helping them grow their family or start their new family, those went up on the wall. And those were the moments that I remember much more so than the technical successes. The unlock of spectrum was a critical turning point in Natera's story in that it demonstrated we could use statistical methods that... hadn't been applied to genetics before that was useful by both patients and physicians. It proved that we could fulfill the promise of our mission to not only to our patients, but also to our employees. It was a great motivator internally. While Spectrum was a technical success, it struggled to become a commercial one. We made this bet that if you could, do a reliable screening across 24 chromosomes and substantially improve implantation rates and let people who are going through IVF know what they had, whether their embryos were good euploid embryos, that this would be really valuable. And that didn't really happen fast. I remember the third month I'd been there, we were having a board meeting and there were some concerns expressed about the volume. My name is Steve Chapman. I'm the CEO of Natera. So initially, when I joined the company in 2010, I was hired as vice president of commercial. And I think I was like the 20th employee. I think the first month I was there, we did 100 tests per month. The second month I was there, we did like 105 tests. And then the third month we did 90 tests. And all the board members were concerned. They're like, oh, man, 90 tests, like the volume is going down. And I remember after the meeting, Jonathan. And Sheena, he pulled me aside. He's like, look, man, don't worry. I'm sure everything's going to be fine. And I went home that night. I remember I told my wife, I'm like, there's a good chance I'm getting fired. The challenge was at the time, the number of IVF cycles per year in the United States was around 150,000. And so when you think about it from a market size point of view, given the price point that we had at the time, it just didn't amount to a very big business. Even if we fully penetrated the market opportunity, it wasn't. you know, the market wasn't deep enough for us to build a very big business. So just to give you a sense, I think even today, the number of IVF cycles per animal in the United States has now grown to about 160,000. And the average price that you can get for diagnostic testing is maybe $4,000. So that's a $600 million-ish total market available if every single person used this technology like ours. And obviously, in reality, the served market is much smaller. So it was very hard for us to see how you could build a multi-hundred million dollar year business if you only addressed the IVF opportunity. I guess I had the exuberance of, you know, a mission. And I thought that those concerns about the IVF market were secondary. They turn out to be right, actually. So the idea that you can create a new market is a very challenging idea. You know, venture capitalists tend to be very wary of that. And they're right. You know, although a founder thinks that... you know, you've got this technology and it's totally rational for everyone to use it. There are so many entrenched norms, protocols, insurance issues, sort of marketing challenges, educational challenges. It's not easy to totally create a new market. That can take years and years unless you're really lucky. So I think that the market played out well, but it didn't play out nearly to the extent that I thought it would. Natera set its sights on its next act to address a much larger market, natural pregnancies. If Natera could leverage its technology for more effective prenatal testing in all pregnancies, the size of the market could support a meaningful business. So shifting to natural pregnancies from IVF was something that was always in the back of our minds. We always knew that we wanted to be able to apply the same idea of cleaning up genetic signal from genetic noise to natural pregnancies. What we saw in natural pregnancies was that the technology that was being used up to roughly that time was very poor. Prenatal testing has been around, you know, I think really in the 80s is when the initial biomarkers started to be used to screen women for the risk of chromosome aneuploidies or neural tube defects. Now those same... techniques that were developed in the 80s were still being used in 2009, 2010, maybe they had changed a little bit. They were a little bit better than they were, but not by much. And so about 20% of pregnancies that had a severe genetic abnormality would be missed using those previous techniques. But the worst problem was that 19 out of 20 women that were told that they were positive actually were fine. And so there were a lot of people who would get an amniocentesis unnecessarily. For such an important test, for such an important screen for prenatal health, it was almost unconscionable that the world hadn't applied the same kind of resources that we had applied to our iPhones and targeting better advertisements. The team began to look at how the technology from Spectrum could It paved the way for families to test unborn babies for genetic disorders as early as nine weeks into the pregnancy. This test would eventually be called Panorama. When we started to do experimentation, we knew that there was a lot of signal that you could get from the cell-free DNA that had just been released from the placental cells or from the fetus that was floating around in the mother's blood. And it became a very similar problem of trying to extract a really detailed model of the child from these fragments of cell-free DNA. By taking a blood roll from the mother, we could find these little puzzle pieces. fragments of the fetus's DNA that has sort of accidentally ended up in the mother's bloodstream. And then our technology helps you reassemble that puzzle to get a complete picture of the unborn child's genetic profile, which is just staggering if you think about it. And so that was a surprise. I mean, honestly, when we first made the investment, I don't think any, I certainly didn't anticipate that this type of technology would even be possible. You know, of course, we weren't the first company that were offering cell-free fetal DNA tests or NIPT tests. The major difference with the Niteros test is that what you can do is you can actually separate informatically the maternal DNA, the paternal DNA, and the fetal DNA. And that allows you to see a clear picture of what's happening within the genetics of the fetus. So that allows us to more accurately identify chromosomal abnormalities and also... just biologically see things that others can't see. Natera had reached another turning point. It needed to decide once again whether or not to move forward with a first-of-its-kind diagnostics test. This time, however, there was much more at stake. What were the business risks? I mean, there were real business risks. You know, we had investors telling us that we had not done what we set out to do in IVF. We were going to be the world leaders in IVF. And at that point, we hadn't established our leadership. There was still a lot of work to be done. And we had investors around the board table tell us, you know, do what you said you were going to do and don't distract yourself. You've got all sorts of established competition. And we were going up against really big, well-funded companies with different level of clinical trial rigor that was demanded. Yeah, there was a lot of good reasons to not do it. This is something that I never talk about publicly, but I'll talk about it now. The decision to go into prenatal testing was completely personally driven. It was a totally emotional decision, if I'm honest, because I spoke about what happened to my sister around 2003. What I never talk about publicly is that I lost a child. around 2009. And it was not related to what happened to my sister. We didn't have a particular genetic susceptibility. It was just, you know, two events that struck in the same family by chance. And we were going to have a little girl and we found out late in the pregnancy that the child had a genetic condition. And... We'd been fooled by the screening tests that didn't detect this issue. Just because I was an information freak and, you know, because of what had happened to my sister, I thought it was a good idea to have an amnio just to be safe. And we found out from the amnio that there was this genetic issue. And I think, you know, ever since I came to the States, I was kind of invincible, you know. I'd made money, lost money, relationships came and went, and no matter what happened. You know, I was just riding the wave and nothing really broke me. And this just broke me. And I think the engineering me sort of took over. And I thought this is a problem that I have to have to solve. And we actually used a sample from that pregnancy to submit data to the NIH based on a bunch of the techniques that we were developing at Natera. And we asked the NIH to fund us to improve prenatal testing, which, you know, we were. pretty convinced that we could do. And we got that money from the NIH and then a bunch of subsequent grants and we raised additional venture capital. So yeah, there was pros and cons to make this decision to get into prenatal testing. But at that time, around 2009, 2010, where we focused on this product, it was an entirely emotional decision for me. It was just something that I had There was no question that we were going to move forward with Panorama if the technology could deliver the results that we had hoped it would deliver. In fact. I think the company's success was hinging on us developing a technology that worked and launching it successfully. I remember we had several clinical trials that were underway, but it was all coming down to the blinded performance of the technology in a prospective clinical trial. And so the principal investigator called us and he said, hey, I've got the results, final results. Everything's locked down. This is going for publication. And he read off the final results, and we realized that we had hit the performance specs that we were hoping for. And that was a real incredible moment because at that time, we knew that we were going to be able to move the product forward. While Panorama represented a novel approach and a technical breakthrough, Natera's long-entrenched competitors were also bringing their own versions of updated prenatal screening products to the market. When we developed Panorama, we were actually the fourth to market. These three other companies were out there educating the market, and they were also setting the story. They were telling the market what was important and what wasn't important in their own terms. And so we were up against these big established players. We had Illumina, who was the gorilla. of sequencing. They controlled all the sequencing technology pretty much at the time. We had Roche that had bought a company, Ariosa, LabCorp that had partnered with the company Sequenom. Most of the companies had launched in kind of 2011, 2012. And here we were in 2013 trying to get our test out the door. And many of them had big sales teams. They were already delivering volume. It was a challenging time because while there was excitement within the company at Natera about what we were doing, there was also a sense that we were missing our window and that we were slipping behind and that we needed to get the test out the door. And if we didn't, you know, we weren't ever going to be able to catch up. I remember there was a moment where I was curled up. in the corner of my living room in fetal position, literally shaking in the corner of the room because, you know, we had to raise venture capital. You know, we needed more money to drive the technology. And we had just learned that Illumina, who was our main supplier, had just bought our main competitor, this company, Verinata. And I didn't know how we were going to survive. We had to explain why this approach was better. We had to demonstrate it. We had to invest in studies that would demonstrate that. I mean, it's an incredibly complicated statistical problem. And we figured out how you could use techniques like information filters, like hidden Markov models to sift through all of the possible combinations of what's going on in the DNA. When... you find the right set of parameters, the right fetal fraction, the right noise figure, the right set of crossovers, the right assumptions about how many chromosomes came from each parent, everything just makes sense. And you get this maximum likelihood peak. You just get this very high probability where the algorithm says, aha, I know what's going on here. Everything is making sense. That was the moment that I learned. that having an incredibly strong commercial team out there in the field that was able to describe the science, that was able to convey the benefits, was hugely important. Having all the great technology in the world, it didn't matter if you couldn't explain to your physician why it was. Explaining that we could see microdeletions, we could see abnormalities of the sex chromosomes, a whole range of things that in aggregate are... much more prevalent than Down syndrome. What was really cool about the panorama test and micro deletions in particular is it was the first time that I know of that you had brought deep learning neural networks to bear on a very large biotech or diagnostics problem. You can do this very early in pregnancy and you can use this to detect all sorts of things that don't match. how the DNA should look, all sorts of abnormalities, which the other techniques just can't see. We knew we had to do things differently than others. And so not only was our technology different. But we also focused more on user experience. You know, if you order a pair of shoes online on Amazon, you push a button, you get all these pings on your cell phone. When your package arrives, you get a text message. And that's exciting. You know exactly where things are. But something like the health of your baby, you get your blood drawn in this dark, dingy draw station. You send your tube in. You never hear back from the laboratory. You don't know when it's being billed. You don't know how much you're going to owe. And so we wanted to change all that and really make lab testing and genetic testing feel like a consumer experience that you would expect, you know, in today's world versus something that's very outdated. I think the main thing is that science doesn't lie. You put your faith in the science, the faith that you are taking on a problem in a very different way to everybody else. And given that you have a... better technology, there will be a path through. So we just kind of took a series of pragmatic steps. And we started to see a sort of transition where the doctors understood the value of the technology and the momentum started to pick up. There was actually a distinct moment for me. I was at a birthday party for my son wearing my Natera jacket proudly. And Over the course of that afternoon, three newly pregnant mothers approached me just gushing about their experience with Panorama. The peace of mind it provided, the ease of use, how early in the pregnancy it could be used. They couldn't believe that Natera was right in our backyard here in San Carlos. I mean, I felt like a celebrity. My name is Sarah Elliott, and I'm the Senior Director of the Executive Services Organization at Natera. Panorama was a critical chapter for Natera. It... indisputably put us on the map. We were serving such a wide audience of people all of a sudden and really becoming a known name in the world of genetic testing. You know, as a company opened up to a much larger market, all of a sudden rapid growth was really on our doorstep and we all felt sort of the steady shift from the more startup atmosphere to a mid-sized company. I was supporting Jonathan Sheena and I just distinctly remember the onslaught of open positions. interviews and, you know, the challenge of finding top engineering talent locally to our home office. We were always on the hunt for more office space, more desks. I was literally stacking engineers on top of each other as new hires came on board each week. There were a lot of things where, you know, I mean, there was a lot of work to build the capacity out. And we felt like for a long time we were drinking from a fire hose. There was a period of time where every time you walked into the lab, It was either there was a different floor that we had expanded to or a different building we had expanded to. I mean, it was just really rapidly growing. One of the biggest decisions that we had to make when we launched Panorama was whether we just focus on the high risk pregnancy segment or whether we made our test available to all pregnant women, regardless of their risk. At the time, many of the other companies were limiting. their offering into the high-risk segment alone. And we made a decision and made it available for all women, regardless of their prior risk. And that was really an important decision that we made. We weren't just tapping into 15% of pregnancies. We were actually tapping into all pregnancies. I mean, the biggest milestone, I mean, one was that we're now processing, you know, over a million samples a year. Like, we used to think. a few hundred thousand samples was a great achievement, but now we're routinely processing over a million samples for Panorama alone, and we have other genetic testing for women's health markets, such as carrier screening and so on. So that's a huge milestone. I think some of the biggest lessons from my perspective, really it comes down to sheer grit and determination by every individual on all of the teams, no matter your role across the company. Every single person has a role, and you have to ride the highs and get ready to roll up your sleeves through the lows. You know, there's so much that can go wrong. It's really how prepared you are to react that is key during those times. In July 2015, buoyed by the success of Panorama, Natera went public. Around this time, the company began looking at adjacent areas where their core technology could make an impact. One of those areas was oncology. We always had this mindset that we were going to transform healthcare and we were going to have as much impact as we could possibly have by bringing these sort of signal processing techniques and apply that to diagnostics. There was no way that we weren't going to, you know, keep taking on bigger and bigger aspects of healthcare. There were some very practical considerations in the oncology world. We had built this massively multiplexed PCR protocol, and that lets you run samples in a single reaction volume without losing molecules. And when you're dealing with oncology, every molecule matters. And so... We had to solve this problem of not splitting up the sample. And we had built this PCR technique where we could get all of these primers to work in a single reaction. And we started to apply that to problems in oncology in a way that nobody had been able to do before us, where you could run all of these primers in a single reaction. And we could also customize the assay for every single patient. So based on your particular tumor and the mutations that were unique to your cancer, We could build this personalized assay to target those molecules for you. It was just an incredibly exciting moment when we saw how well this worked to detect these cancers early. We could pretty much see a single molecule that was coming from a tumor, from a blood draw in the arm. And that's like the analogy that I use is that's like finding one blade of grass in a hundred. thousand soccer fields to be able to see that single molecule that carries the cancer mutations. With that capability, we thought that this would be transformative. The base technology that we developed in the prenatal testing space translated into oncology. It turns out that most cancer types shed into the bloodstream. And so in the same way that there's free-floating fetal DNA in the mother's blood, for most cancer types, they shed. fragments of the cancer DNA into your bloodstream. This is a wonderful analogy of being able to take a non-invasive test, a blood draw from a cancer patient to see if the disease is still present. And so there's an enormous benefit from an R&D point of view that we believe that our core technology would translate. While Nateris technology held great promise in the field of oncology, pursuing cancer diagnostics in earnest would come with enormous risk. Building out an entirely new division would demand significant resources, and the Women's Health Division, while growing, was not yet profitable, putting Natera in a precarious position. This one, we had a lot of criticism that I can remember like it was yesterday, because it was a very stressful time at the company. We were growing our women's health business, and we were burning a lot of cash. We were not profitable, we weren't cash flow break-even. We didn't have full reimbursement for Panorama yet. Almost as complicated as genetically sequencing fetal and maternal cell-free DNA is getting reimbursed for it. We had now offered our NIPT test to all pregnancies, but we weren't getting the reimbursement in the low-risk pregnancies. We knew that the reimbursement was going to pick up, but it was going to take time. And the market had to understand this, and we had to explain this. And at the same time that we were explaining all of this, I was telling the market, guys, we've got this incredible performance in oncology, which we cannot ignore. There were many investors who were skeptical of Natera's approach and that they would not be able to simultaneously pull off building a profitable maternal health business and do the R&D work to eventually build an oncology business. The amount of effort and focus it would take, we would have to build out a sales team. We would have to, you know, dedicate R&D effort to continuously improve the test, scale the test, you know, build out marketing teams and so on. With that energy and that focus we would have to give to a different market, would that hinder the growth of women's health market? Public investors would repeatedly call me and implore me to convince the team to abandon this idea of building an oncology business. Some of them would write to the company and try to explain and make the case that it was foolhardy to do so. There were meetings where every analyst question was about what's our plan? What is the guideline coming out? When are we going to fix reimbursement? When are we going to reduce COGS? And there were several one-on-one investor meetings too where the people would get really frustrated. There were plenty of people who said, don't do it. It's too hard. Oncology, the timelines are too long. The reimbursement is too complicated. But when you come back to if you're producing something of enough value to a patient and enough value to a payer and to a physician, the answer in the end was clear. The team made the crucible decision to move forward with oncology business and to pursue a test called Signatera, which tests for cancer recurrence by using tumor and blood samples to detect small traces of cancer in the body. The build-out that was necessary to accommodate the oncology business was really reminiscent of the build-out that occurred when Panorama was launching, just in terms of growing teams, growing infrastructure. We had to convey that the work that we were doing in cancer was going to be rigorous enough to get through the FDA, that we were serious enough about this, that we were going to hire the experts that we needed, and that we were going to forge the relationships with the leading centers that we needed. We adopted a mindset of growth. That said, there was an incredible amount of pressure to be profitable. We needed to develop that plan to become profitable. and show that we were meeting those milestones along the way. So there was a lot of planning angst that went into deciding how much of our resource we devoted to cost-cutting projects, efficiency projects, versus the next shiny new thing. Resource allocation was a constant challenge. So not only within women's health did we have to make sure that we were allocating resources appropriately to projects that would drive profitability, you know, reduce our... reduce the cost of our test, and also investing our resources in projects that were important for our long-term growth initiatives, while also making sure that we were investing appropriate amount of resources in Signatera. That was one of the biggest challenges. There was a time when the stock dropped down to $7 a share, which was intense. There was a long period of time where we weren't profitable. We hadn't seen a lot of the major growth. reimbursement milestones that people were looking for. We were burning money. We had nothing to really show for oncology. You know, we talked about this field and how exciting it was going to be, but no one cared about the talk. They wanted to see results. And, you know, as a result, I think the shares were down in the six to $8 range for probably three years and, or maybe more. People within the company were demotivated. I think there was a sense of, is the company going to make it? It was certainly demotivating. It was demotivating to us, but just as much to employees who had come in recently off of the high of an IPO. And so making sure that we were all focused on a mission that we all knew would yield in the long run was what carried us through that. We had to just kind of keep repeating that plan and flesh out that plan at a level that we... absolutely believed it. However rough it was, we absolutely believed what we were saying. And besides that, I mean, I think that you just have to believe in the mission. And when the share price was $7, you know, we did lose some people, unfortunately, and there was a lot of naysayers, unfortunately, but the core people who believed in that mission and lived for that mission weren't affected, you know, at least not affected enough to stop believing. The one thing I will tell you, which was extremely refreshing for me from the perspective of like, you know, working in corporate America was that there was an incredible amount of like unified vision. You know, it wasn't about making one business unit successful over another. Everybody had that shared vision that the company had to become successful. And so as a result, there was a very strong sense of collaboration across all of the different business units, across all of the different teams. And that allowed us to find synergies across different projects. We could leverage our resources in a smart way and also make really fast and good decisions because we were all extremely communicative and there was a really strong sense of collaboration across the company. And the other thing I will say is that it's a testament to our teams. Whenever we're resource constrained, which happens, I'm sure it happens at every organization, Instead of seeing that as an insurmountable challenge, like we just can't move forward, the teams at Natera are always finding sort of ways to get the work done with minimal resources. And that's something that I've really come to appreciate of Natera, you know, in my last five years here is that anytime there's a resource constraint problem, we're always thinking about, okay, well, then how do we do it in a different way with fewer resources rather than saying it just can't be done because we don't have enough resources. So while there was a lot of tension, I think it was... The good kind of tension, it really led to very strong bonds among the people who were at Natera at the time. The day we launched Signatera was huge. We weren't just a women's health company anymore. You know, personally, my mom had been in the Signatera clinical trial since diagnosis in 2016. I remember sitting down with Jonathan Sheena at that time, and, you know, it wasn't a great week in my life. And he said, well, hey, we should get her on this clinical trial right away. And. You know, I didn't even know exactly what that meant. And looking back, it definitely changed the course of my mom's care and, you know, her ability to really get ahead of her diagnosis. She's now a seven-year survivor. I mean, the oncology division is wild. I was reflecting on oncology and just Natera. And what's wild is that in 2019, we were processing maybe a few thousand Signatera samples a year. maybe 5,000 or something. But just in the first quarter of 2024 alone, we processed over 100,000 samples of Signatera. So it's not just that, you know, in five years, we've gone from processing a few thousand samples to 100,000 samples in a quarter. But just, you know, year after year, we're doubling the volume. So I think that's an amazing milestone for Cignatera. It's really quite incredible. I mean, minimal residual disease testing, recurrence monitoring for solid tumors is essentially a market that was developed by Cignatera. And now it's considered to be a huge multibillion-dollar market. So I think that's a significant achievement for the oncology business unit. We've both... this enormous database now of early cancer samples based on the rapid uptake of Signaterra. We now have about 50% of oncologists in the United States using Signaterra, and we've got reimbursement for bladder cancer, colon cancer, breast cancer for all subtypes, ovarian cancer, IO monitoring for all solid tumor types. As Signaterra expanded its oncology division, the company turned economics a panorama profitable. Panorama is now the most widely used prenatal test in America. This year, the company is on track to generate about $1.5 billion in revenue. And that $7 share price has risen to well over $100. What's next for Natera? Yeah, I mean, I think that there's another order of magnitude growth for Natera. There's so much coming down the pike. So we're about... 55 to 60% of women's health genetic testing in the United States. We are the leader in MRD oncology testing. We've transformed the way you manage cancer care. We can catch the recurrence of cancers like breast, colon, lung, bladder cancer a year roughly before you see clinical symptoms, which is transformative. We can continue to transform healthcare where we have these huge pools of data. And we can now curate these pools of data with large language models. Matera and other projects where I'm involved are going to be using these curation of clinical data to build models for patients. And you can model with all of this AI technology now people's susceptibility to disease. We've built many different markets, right? So in the women's health market, the non-invasive prenatal test, we are market leaders. Oncology, we built that market and we are market leaders. Both are huge opportunities, not only for us, but for everybody else as well, right? So there are a lot of new players, both in women's health as well as in oncology. So what's next for Natera is that we can't slow down on our innovation. You know, the innovative... and agile spirit that we had, you know, five or 10 years ago cannot go away. We have to maintain that in order to maintain our market leadership. So we're not going to become a company that, you know, were successful and then sort of plateaued because, you know, we stopped innovating. So what's next for us is, you know, a lot of innovation. That's what we can do. That's what we work on every day. The wonderful thing about Natera is the mission orientation of the company. If you remember the original investment memo I wrote was you know to help people have healthy babies and if you go visit the Natero office and you walk around the office there are these walls where we pin up the photographs of families that have sent in pictures of their children and it's moving it's uh it's really moving to work with the company that has that kind of impact on people. To people thinking about embarking, taking these kinds of risks, I would advise them not to be afraid of hard. Hard is what creates value and creates a barrier to others. If you prove to yourself that the value is there, that people are willing to pay for it, then just because it's hard doesn't mean you shouldn't go after it. It's like this quote from my mom. where she would always say, bless the obstacle, will is faith. If you've got a better technological approach and you trust the science, that sort of gives you the faith that you really can bless the obstacle and have that resilience and patience. And that was not so much a trick as just a state of mind. You put your faith in the science and you just plug away persistently and patiently and bless the obstacle. Because if you're persistent... and the science doesn't lie, it's very likely that you are gonna find your path through. This has been Crucible Moments, a podcast from Sequoia Capital. Crucible Moments is produced by the Epic Stories and Vox Creative Podcast Teams, along with Sequoia Capital. Special thanks to Matthew Rabinowitz, Jonathan Sheena, Steve Chapman, Chitra Kutwalewale, and Sarah Elliott for telling their stories.

And I think the engineering me sort of took over, and I thought this is a problem that I have to, have to solve. Welcome to Crucible Moments. a podcast about the critical crossroads and inflection points that shaped some of the world's most remarkable companies. I'm your host and managing partner of Sequoia Capital, Rolof Buota.

Today's episode is about Natera, a global leader in women's health, oncology, and organ transplant rejection testing. To give you a sense of scale, 40% of all pregnancies in the United States are tested using Natera's technology to ensure the health of the child. and nearly half of oncologists in America have ordered Natera's cancer screening test.

My connection to Natera began long before its inception. I met its co-founder, Matthew Rabinowitz, when I was a teenager in South Africa. We attended the same academic vacation school, which is a nice way of saying it was a nerd camp. Later, we both made the top 100 in the National Science Olympiad.

Matthew was the gold medalist. I reconnected with Matthew in 2002. After completing an undergraduate in physics, where he was the top student at Stanford, and then completing a PhD in electrical engineering, Matthew became a founder. But now he was immersing himself in a brand new challenge, mastering biology and genetics. But there was no doubt in my mind that Matthew could learn anything he wanted.

From its origins in IVF pre-implantation testing, To expanding into prenatal testing, cancer recurrence monitoring, and organ transplant rejection testing, Natera is a company that has innovated again and again to change the management of disease worldwide. To get there, however, the company grappled with crucible moments. Natera bet its future on developing unproven technology and defied skeptics as it expanded into new fields of testing and larger markets.

This is the story of a mission-driven company that risks consequences at every turn, determined to help people live healthy lives. Hi, my name is Matthew Rubinowitz, and I'm the founder and executive chairman of Natera. You know, Natera was sparked by a combination of factors. I came from a good Jewish family of two doctors, and so I was always surrounded by these kinds of, you know, debates between...

different medical practices and different approaches. And I didn't go the medical path. I studied electrical engineering and physics. But in 2003, my sister had a kid with Down syndrome. The baby was born in one of the top hospitals in the country.

And they only found out when the kid was born that the kid had Down syndrome. And the child died after six days. And it was horrific. I couldn't understand how in the 21st century you could... have all this technology in your cell phones and spaceships and our laptops and none of that technology had found its way into diagnostics.

And at that point I thought, you know, that this is something that I really need to fix and I need to understand what's going on here and try to apply these technologies that I was aware of in the signal processing world to the world of genetics. I joined Matt around 2004. I was at the time finishing up a startup in the mobile space, and Matt was finishing working up on his previous startup as well. And I was tired of making phones beep, and I wanted to do something with more social value. My name is Jonathan Sheena.

I am a co-founder and a board member at Natera. What was clear at the time, besides Matt's personal story, was that genetics was in its infancy. Human Genome Project had just completed, and it was abundantly clear that geneticists needed to help understanding the masses of data that they were starting to produce. Were we confident in making that shift from engineering to biology?

For me, no, not at all. I was not confident at all. But talking to geneticists at Stanford mostly, you saw pretty quickly everybody had the same book on their desk.

It was bioinformatics and... pearl or pearl for bioinformaticians. And it was very thin. It was really high level.

It was clunky. It was hard to use. All the tools were terrible. And as an engineer, it was really, really clear that I could be helpful there. Originally, when I joined the company, it was just some people around the table.

And we're still in this phase of figuring out what was the market that we were going to tackle? What was going to be effective? What could we build that would really make a difference?

Initially, we were looking at all sorts of problems of how you could take genetic data and make it computable and combine the computable genetic data with phenotype or clinical data. And this was the sort of long-term idea that you could have a kind of market. place where we could build these better models to predict what drugs a patient should get for cancer, what mutated HIV viruses should be treated with in terms of cocktails and reverse transcriptase inhibitors and protease inhibitors.

So we were looking at all sorts of problems. But at the same time, I think I couldn't let go of that desire, you know, when the baby was born with Down syndrome, and then there were so many complications. You know, at that point, it was a real emotional inflection. So I think I couldn't let go of that desire to solve that particular problem. Matthew and Jonathan began by looking at a subset of pregnancies with genetic data available and an immediate decision-making need, those having children via IVF.

Back in 2004, there were methods available to evaluate the health of an embryo prior to implantation, but they had limitations. The way people were going about the problem at that time. was just so much, from my perspective, it was a much more blunt instrument.

You know, they were trying to hybridize probes to chromosomes and look at them under a microscope and count how many fluorescent probes you could see. And then you could only see five chromosomes that way. And companies were trying to convince doctors that you only needed to see five out of the 22 chromosomes. And you know, that's obviously not true.

There was so much snake oil in the IVF market that we actually sent a sample to one of these companies. where we knew what the cells were. We knew the kerotypes, and they produced a whole bunch of bad results.

It was just so amazing to me that doctors and labs were sending these samples to companies that just had these very sort of basic approaches to the problem. So, you know, we came into this world thinking that we were going to do it a whole lot better and that we had the capabilities to do it a whole lot better. The team at Natera dove into researching a test that would eventually be called Spectrum.

to allow for precise genetic testing of an embryo. No easy feat. The challenge with any pre-implantation genetic test is that you have to assess the genetic health of the embryo, but the starting material is extremely small.

You know, it's often just a single cell. My name is Chitra Kothwaliwale. I'm the Senior Vice President of Portfolio Management and Operations at Natera. So to be able to Assess the genetic health of the embryo, starting with a single cell, is extremely technically challenging.

You end up having very, very noisy data. I bought the graduate textbook that you learn genetics with, and I spent two months just studying genetics from that textbook. And I remember turning to the chapter on meiosis and coming to understand the different mechanisms of that biological process and seeing how much we understood about the... pieces that went into that mechanism of meiosis. And at that moment, I thought, wow, you know, there's so much a priori modeling that we could bring to this problem of what information is coming from the parents contributing to the DNA of a child.

I thought that could probably be structured as a kind of a Bayesian optimization framework. You know, if we use all of that modeling information, we could have a much more powerful test statistic to evaluate what's in a child's cell. The idea is that if you've got this noisy data, which you're getting from a single cell that you're analyzing from an embryo biopsy, you can limit the space that you're searching for for answers because you know up front that this genetic makeup came from mom and dad. So if you know mom and dad, you're not starting from the universe of all possible combinations of A, Cs, Ts, and Gs. You're starting from...

this basic premise that everything you're looking at had to have come from mom and dad. So that helped dramatically improve the signal that you got out of this very noisy data, something that people hadn't done before. That was really the groundbreaking aspect of Spectrum. This whole idea that you can take a maternal genome and a paternal genome and build this probabilistic model of what the embryo genome is, and based on that, be able to tell whether that embryo has a chromosomal abnormality or has inherited mutations for a single gene disorder. That was the nascent idea as I turned the pages, and that was the idea that we ended up pursuing with Spectrum.

While the team was excited about this breakthrough idea, at this point, it was just an idea. The technology at that point was unproven. Although we had some initial data that we used to demonstrate a proof of concept, and the proof of concept did work, whether that was going to actually work in... a real-life scenario where you are biopsying an embryo, putting it in a tube, shipping it around the world on tri-ice, and then trying to produce a result in less than 48 hours, whether that was all going to work together was very much TBD. When we went out to raise funding, there were plenty of skeptics.

A, who are these non-geneticists in front of us talking about genetics? What did they know? There was a lot of discussion of... IVF as a market. It wasn't perceived to be that big.

And we were in Silicon Valley, which hadn't done a lot of genetics investing at the time. At its outset, the company faced a defining crucible decision. Do you pursue an idea where the technology is unproven, the market has red flags, and where your expertise raises eyebrows? I could say it was tough.

But the reality is, you know, I just had a mission. So, you know, you don't worry about not getting funding at the right time when you've got a mission. You just pursue the mission any way you can. The team dove into bringing Spectrum to life.

We actually applied for a bunch of NIH grants. And that's an incredibly good process for a company to go through to sort of figure out the technology with a level of rigor. so that these very experienced NIH review panels can give you the thumbs up.

A lot of the great IP that went into Natera, then Gene Security Network in those early days, came from that process of applying for NIH grants. So that sort of got us going. And then when it was time to raise money for Natera, I thought Rulof would be the ideal guy to partner with. I'd known him for a long time.

We met as teenagers in South Africa. at a kind of nerd camp during the vacation when other guys were starting to date girls. We were being lectured to by a bunch of college professors. And then we met in the States and he was courageous. He'd left this very well-known family in South Africa and his career as an actuarial scientist and had come to forge his path in the US, as I had.

And he was also very humble. And the first rule of being a VC is do no harm. And so I thought that's the kind of guy I'd really like to work with. And then I particularly targeted Sequoia. They kind of invest like Santana plays the guitar.

I mean, they are just so naturally and comfortably aware of where a company is at. And I think they could see at a certain point that we were focusing on this problem in IVF because there had been this confluence and we were sort of organically driving in that direction. And that's the time that they sort of pulled the trigger.

So I think the whole process of leading up to that investment, you know, the the NIH grants, trying to make our story more rigorous on the technology and the business side is an incredibly healthy process for a company to go through. And it's not something that you can go through if you're just taking angel investment. I often tell companies, you know, force yourself to get grants and to get venture capital investment because it brazen the company in a way that you can't easily do otherwise.

I do remember a moment when one of our senior statisticians came to me. And we were trying to do this modeling based on the idiosyncrasies of the noise that we were getting from these arrays and building in a detailed, functional model of the mechanism of meiosis to figure out what had come from the parents to make the DNA of the child. And there was all sorts of noisy processes that were generated from this array because we had to get this protocol running in one day that was supposed to run in three days.

And I remember... One of our really great statisticians came knocking on my door, and he'd been looking at the data based on this latest test statistic that we were trying to get working. And he just said to me, dude, you know, come look at this, you're going to shit yourself. And at that moment, I was, I didn't know whether it was good or bad news as he said that, but I saw a big smile and I thought, okay, you know, this is actually working at last.

In 2009, Natera launched the Spectrum test for public use. So there were the technical moments when we knew that Spectrum worked. We had successful transfers that turned into successful implantations for IVF. But the real moments were... The postcards and the emails that came back from the families thanking us for helping them grow their family or start their new family, those went up on the wall.

And those were the moments that I remember much more so than the technical successes. The unlock of spectrum was a critical turning point in Natera's story in that it demonstrated we could use statistical methods that... hadn't been applied to genetics before that was useful by both patients and physicians.

It proved that we could fulfill the promise of our mission to not only to our patients, but also to our employees. It was a great motivator internally. While Spectrum was a technical success, it struggled to become a commercial one. We made this bet that if you could, do a reliable screening across 24 chromosomes and substantially improve implantation rates and let people who are going through IVF know what they had, whether their embryos were good euploid embryos, that this would be really valuable.

And that didn't really happen fast. I remember the third month I'd been there, we were having a board meeting and there were some concerns expressed about the volume. My name is Steve Chapman.

I'm the CEO of Natera. So initially, when I joined the company in 2010, I was hired as vice president of commercial. And I think I was like the 20th employee. I think the first month I was there, we did 100 tests per month. The second month I was there, we did like 105 tests.

And then the third month we did 90 tests. And all the board members were concerned. They're like, oh, man, 90 tests, like the volume is going down. And I remember after the meeting, Jonathan. And Sheena, he pulled me aside.

He's like, look, man, don't worry. I'm sure everything's going to be fine. And I went home that night. I remember I told my wife, I'm like, there's a good chance I'm getting fired. The challenge was at the time, the number of IVF cycles per year in the United States was around 150,000.

And so when you think about it from a market size point of view, given the price point that we had at the time, it just didn't amount to a very big business. Even if we fully penetrated the market opportunity, it wasn't. you know, the market wasn't deep enough for us to build a very big business.

So just to give you a sense, I think even today, the number of IVF cycles per animal in the United States has now grown to about 160,000. And the average price that you can get for diagnostic testing is maybe $4,000. So that's a $600 million-ish total market available if every single person used this technology like ours.

And obviously, in reality, the served market is much smaller. So it was very hard for us to see how you could build a multi-hundred million dollar year business if you only addressed the IVF opportunity. I guess I had the exuberance of, you know, a mission. And I thought that those concerns about the IVF market were secondary. They turn out to be right, actually.

So the idea that you can create a new market is a very challenging idea. You know, venture capitalists tend to be very wary of that. And they're right. You know, although a founder thinks that... you know, you've got this technology and it's totally rational for everyone to use it.

There are so many entrenched norms, protocols, insurance issues, sort of marketing challenges, educational challenges. It's not easy to totally create a new market. That can take years and years unless you're really lucky. So I think that the market played out well, but it didn't play out nearly to the extent that I thought it would.

Natera set its sights on its next act to address a much larger market, natural pregnancies. If Natera could leverage its technology for more effective prenatal testing in all pregnancies, the size of the market could support a meaningful business. So shifting to natural pregnancies from IVF was something that was always in the back of our minds. We always knew that we wanted to be able to apply the same idea of cleaning up genetic signal from genetic noise to natural pregnancies.

What we saw in natural pregnancies was that the technology that was being used up to roughly that time was very poor. Prenatal testing has been around, you know, I think really in the 80s is when the initial biomarkers started to be used to screen women for the risk of chromosome aneuploidies or neural tube defects. Now those same... techniques that were developed in the 80s were still being used in 2009, 2010, maybe they had changed a little bit. They were a little bit better than they were, but not by much.

And so about 20% of pregnancies that had a severe genetic abnormality would be missed using those previous techniques. But the worst problem was that 19 out of 20 women that were told that they were positive actually were fine. And so there were a lot of people who would get an amniocentesis unnecessarily.

For such an important test, for such an important screen for prenatal health, it was almost unconscionable that the world hadn't applied the same kind of resources that we had applied to our iPhones and targeting better advertisements. The team began to look at how the technology from Spectrum could It paved the way for families to test unborn babies for genetic disorders as early as nine weeks into the pregnancy. This test would eventually be called Panorama.

When we started to do experimentation, we knew that there was a lot of signal that you could get from the cell-free DNA that had just been released from the placental cells or from the fetus that was floating around in the mother's blood. And it became a very similar problem of trying to extract a really detailed model of the child from these fragments of cell-free DNA. By taking a blood roll from the mother, we could find these little puzzle pieces.

fragments of the fetus's DNA that has sort of accidentally ended up in the mother's bloodstream. And then our technology helps you reassemble that puzzle to get a complete picture of the unborn child's genetic profile, which is just staggering if you think about it. And so that was a surprise.

I mean, honestly, when we first made the investment, I don't think any, I certainly didn't anticipate that this type of technology would even be possible. You know, of course, we weren't the first company that were offering cell-free fetal DNA tests or NIPT tests. The major difference with the Niteros test is that what you can do is you can actually separate informatically the maternal DNA, the paternal DNA, and the fetal DNA. And that allows you to see a clear picture of what's happening within the genetics of the fetus. So that allows us to more accurately identify chromosomal abnormalities and also...

just biologically see things that others can't see. Natera had reached another turning point. It needed to decide once again whether or not to move forward with a first-of-its-kind diagnostics test.

This time, however, there was much more at stake. What were the business risks? I mean, there were real business risks. You know, we had investors telling us that we had not done what we set out to do in IVF. We were going to be the world leaders in IVF.

And at that point, we hadn't established our leadership. There was still a lot of work to be done. And we had investors around the board table tell us, you know, do what you said you were going to do and don't distract yourself. You've got all sorts of established competition. And we were going up against really big, well-funded companies with different level of clinical trial rigor that was demanded.

Yeah, there was a lot of good reasons to not do it. This is something that I never talk about publicly, but I'll talk about it now. The decision to go into prenatal testing was completely personally driven. It was a totally emotional decision, if I'm honest, because I spoke about what happened to my sister around 2003. What I never talk about publicly is that I lost a child. around 2009. And it was not related to what happened to my sister.

We didn't have a particular genetic susceptibility. It was just, you know, two events that struck in the same family by chance. And we were going to have a little girl and we found out late in the pregnancy that the child had a genetic condition. And...

We'd been fooled by the screening tests that didn't detect this issue. Just because I was an information freak and, you know, because of what had happened to my sister, I thought it was a good idea to have an amnio just to be safe. And we found out from the amnio that there was this genetic issue. And I think, you know, ever since I came to the States, I was kind of invincible, you know.

I'd made money, lost money, relationships came and went, and no matter what happened. You know, I was just riding the wave and nothing really broke me. And this just broke me. And I think the engineering me sort of took over. And I thought this is a problem that I have to have to solve.

And we actually used a sample from that pregnancy to submit data to the NIH based on a bunch of the techniques that we were developing at Natera. And we asked the NIH to fund us to improve prenatal testing, which, you know, we were. pretty convinced that we could do. And we got that money from the NIH and then a bunch of subsequent grants and we raised additional venture capital. So yeah, there was pros and cons to make this decision to get into prenatal testing.

But at that time, around 2009, 2010, where we focused on this product, it was an entirely emotional decision for me. It was just something that I had There was no question that we were going to move forward with Panorama if the technology could deliver the results that we had hoped it would deliver. In fact.

I think the company's success was hinging on us developing a technology that worked and launching it successfully. I remember we had several clinical trials that were underway, but it was all coming down to the blinded performance of the technology in a prospective clinical trial. And so the principal investigator called us and he said, hey, I've got the results, final results.

Everything's locked down. This is going for publication. And he read off the final results, and we realized that we had hit the performance specs that we were hoping for.

And that was a real incredible moment because at that time, we knew that we were going to be able to move the product forward. While Panorama represented a novel approach and a technical breakthrough, Natera's long-entrenched competitors were also bringing their own versions of updated prenatal screening products to the market. When we developed Panorama, we were actually the fourth to market.

These three other companies were out there educating the market, and they were also setting the story. They were telling the market what was important and what wasn't important in their own terms. And so we were up against these big established players. We had Illumina, who was the gorilla. of sequencing.

They controlled all the sequencing technology pretty much at the time. We had Roche that had bought a company, Ariosa, LabCorp that had partnered with the company Sequenom. Most of the companies had launched in kind of 2011, 2012. And here we were in 2013 trying to get our test out the door. And many of them had big sales teams. They were already delivering volume.

It was a challenging time because while there was excitement within the company at Natera about what we were doing, there was also a sense that we were missing our window and that we were slipping behind and that we needed to get the test out the door. And if we didn't, you know, we weren't ever going to be able to catch up. I remember there was a moment where I was curled up. in the corner of my living room in fetal position, literally shaking in the corner of the room because, you know, we had to raise venture capital.

You know, we needed more money to drive the technology. And we had just learned that Illumina, who was our main supplier, had just bought our main competitor, this company, Verinata. And I didn't know how we were going to survive.

We had to explain why this approach was better. We had to demonstrate it. We had to invest in studies that would demonstrate that. I mean, it's an incredibly complicated statistical problem. And we figured out how you could use techniques like information filters, like hidden Markov models to sift through all of the possible combinations of what's going on in the DNA.

When... you find the right set of parameters, the right fetal fraction, the right noise figure, the right set of crossovers, the right assumptions about how many chromosomes came from each parent, everything just makes sense. And you get this maximum likelihood peak.

You just get this very high probability where the algorithm says, aha, I know what's going on here. Everything is making sense. That was the moment that I learned. that having an incredibly strong commercial team out there in the field that was able to describe the science, that was able to convey the benefits, was hugely important.

Having all the great technology in the world, it didn't matter if you couldn't explain to your physician why it was. Explaining that we could see microdeletions, we could see abnormalities of the sex chromosomes, a whole range of things that in aggregate are... much more prevalent than Down syndrome. What was really cool about the panorama test and micro deletions in particular is it was the first time that I know of that you had brought deep learning neural networks to bear on a very large biotech or diagnostics problem.

You can do this very early in pregnancy and you can use this to detect all sorts of things that don't match. how the DNA should look, all sorts of abnormalities, which the other techniques just can't see. We knew we had to do things differently than others. And so not only was our technology different. But we also focused more on user experience.

You know, if you order a pair of shoes online on Amazon, you push a button, you get all these pings on your cell phone. When your package arrives, you get a text message. And that's exciting.

You know exactly where things are. But something like the health of your baby, you get your blood drawn in this dark, dingy draw station. You send your tube in.

You never hear back from the laboratory. You don't know when it's being billed. You don't know how much you're going to owe. And so we wanted to change all that and really make lab testing and genetic testing feel like a consumer experience that you would expect, you know, in today's world versus something that's very outdated. I think the main thing is that science doesn't lie.

You put your faith in the science, the faith that you are taking on a problem in a very different way to everybody else. And given that you have a... better technology, there will be a path through.

So we just kind of took a series of pragmatic steps. And we started to see a sort of transition where the doctors understood the value of the technology and the momentum started to pick up. There was actually a distinct moment for me.

I was at a birthday party for my son wearing my Natera jacket proudly. And Over the course of that afternoon, three newly pregnant mothers approached me just gushing about their experience with Panorama. The peace of mind it provided, the ease of use, how early in the pregnancy it could be used.

They couldn't believe that Natera was right in our backyard here in San Carlos. I mean, I felt like a celebrity. My name is Sarah Elliott, and I'm the Senior Director of the Executive Services Organization at Natera. Panorama was a critical chapter for Natera. It...

indisputably put us on the map. We were serving such a wide audience of people all of a sudden and really becoming a known name in the world of genetic testing. You know, as a company opened up to a much larger market, all of a sudden rapid growth was really on our doorstep and we all felt sort of the steady shift from the more startup atmosphere to a mid-sized company.

I was supporting Jonathan Sheena and I just distinctly remember the onslaught of open positions. interviews and, you know, the challenge of finding top engineering talent locally to our home office. We were always on the hunt for more office space, more desks.

I was literally stacking engineers on top of each other as new hires came on board each week. There were a lot of things where, you know, I mean, there was a lot of work to build the capacity out. And we felt like for a long time we were drinking from a fire hose.

There was a period of time where every time you walked into the lab, It was either there was a different floor that we had expanded to or a different building we had expanded to. I mean, it was just really rapidly growing. One of the biggest decisions that we had to make when we launched Panorama was whether we just focus on the high risk pregnancy segment or whether we made our test available to all pregnant women, regardless of their risk.

At the time, many of the other companies were limiting. their offering into the high-risk segment alone. And we made a decision and made it available for all women, regardless of their prior risk.

And that was really an important decision that we made. We weren't just tapping into 15% of pregnancies. We were actually tapping into all pregnancies.

I mean, the biggest milestone, I mean, one was that we're now processing, you know, over a million samples a year. Like, we used to think. a few hundred thousand samples was a great achievement, but now we're routinely processing over a million samples for Panorama alone, and we have other genetic testing for women's health markets, such as carrier screening and so on. So that's a huge milestone. I think some of the biggest lessons from my perspective, really it comes down to sheer grit and determination by every individual on all of the teams, no matter your role across the company.

Every single person has a role, and you have to ride the highs and get ready to roll up your sleeves through the lows. You know, there's so much that can go wrong. It's really how prepared you are to react that is key during those times.

In July 2015, buoyed by the success of Panorama, Natera went public. Around this time, the company began looking at adjacent areas where their core technology could make an impact. One of those areas was oncology.

We always had this mindset that we were going to transform healthcare and we were going to have as much impact as we could possibly have by bringing these sort of signal processing techniques and apply that to diagnostics. There was no way that we weren't going to, you know, keep taking on bigger and bigger aspects of healthcare. There were some very practical considerations in the oncology world. We had built this massively multiplexed PCR protocol, and that lets you run samples in a single reaction volume without losing molecules. And when you're dealing with oncology, every molecule matters.

And so... We had to solve this problem of not splitting up the sample. And we had built this PCR technique where we could get all of these primers to work in a single reaction. And we started to apply that to problems in oncology in a way that nobody had been able to do before us, where you could run all of these primers in a single reaction. And we could also customize the assay for every single patient.

So based on your particular tumor and the mutations that were unique to your cancer, We could build this personalized assay to target those molecules for you. It was just an incredibly exciting moment when we saw how well this worked to detect these cancers early. We could pretty much see a single molecule that was coming from a tumor, from a blood draw in the arm.

And that's like the analogy that I use is that's like finding one blade of grass in a hundred. thousand soccer fields to be able to see that single molecule that carries the cancer mutations. With that capability, we thought that this would be transformative. The base technology that we developed in the prenatal testing space translated into oncology. It turns out that most cancer types shed into the bloodstream.

And so in the same way that there's free-floating fetal DNA in the mother's blood, for most cancer types, they shed. fragments of the cancer DNA into your bloodstream. This is a wonderful analogy of being able to take a non-invasive test, a blood draw from a cancer patient to see if the disease is still present. And so there's an enormous benefit from an R&D point of view that we believe that our core technology would translate.

While Nateris technology held great promise in the field of oncology, pursuing cancer diagnostics in earnest would come with enormous risk. Building out an entirely new division would demand significant resources, and the Women's Health Division, while growing, was not yet profitable, putting Natera in a precarious position. This one, we had a lot of criticism that I can remember like it was yesterday, because it was a very stressful time at the company. We were growing our women's health business, and we were burning a lot of cash. We were not profitable, we weren't cash flow break-even.

We didn't have full reimbursement for Panorama yet. Almost as complicated as genetically sequencing fetal and maternal cell-free DNA is getting reimbursed for it. We had now offered our NIPT test to all pregnancies, but we weren't getting the reimbursement in the low-risk pregnancies.

We knew that the reimbursement was going to pick up, but it was going to take time. And the market had to understand this, and we had to explain this. And at the same time that we were explaining all of this, I was telling the market, guys, we've got this incredible performance in oncology, which we cannot ignore. There were many investors who were skeptical of Natera's approach and that they would not be able to simultaneously pull off building a profitable maternal health business and do the R&D work to eventually build an oncology business. The amount of effort and focus it would take, we would have to build out a sales team.

We would have to, you know, dedicate R&D effort to continuously improve the test, scale the test, you know, build out marketing teams and so on. With that energy and that focus we would have to give to a different market, would that hinder the growth of women's health market? Public investors would repeatedly call me and implore me to convince the team to abandon this idea of building an oncology business. Some of them would write to the company and try to explain and make the case that it was foolhardy to do so. There were meetings where every analyst question was about what's our plan?

What is the guideline coming out? When are we going to fix reimbursement? When are we going to reduce COGS?

And there were several one-on-one investor meetings too where the people would get really frustrated. There were plenty of people who said, don't do it. It's too hard.

Oncology, the timelines are too long. The reimbursement is too complicated. But when you come back to if you're producing something of enough value to a patient and enough value to a payer and to a physician, the answer in the end was clear.

The team made the crucible decision to move forward with oncology business and to pursue a test called Signatera, which tests for cancer recurrence by using tumor and blood samples to detect small traces of cancer in the body. The build-out that was necessary to accommodate the oncology business was really reminiscent of the build-out that occurred when Panorama was launching, just in terms of growing teams, growing infrastructure. We had to convey that the work that we were doing in cancer was going to be rigorous enough to get through the FDA, that we were serious enough about this, that we were going to hire the experts that we needed, and that we were going to forge the relationships with the leading centers that we needed.

We adopted a mindset of growth. That said, there was an incredible amount of pressure to be profitable. We needed to develop that plan to become profitable.

and show that we were meeting those milestones along the way. So there was a lot of planning angst that went into deciding how much of our resource we devoted to cost-cutting projects, efficiency projects, versus the next shiny new thing. Resource allocation was a constant challenge. So not only within women's health did we have to make sure that we were allocating resources appropriately to projects that would drive profitability, you know, reduce our... reduce the cost of our test, and also investing our resources in projects that were important for our long-term growth initiatives, while also making sure that we were investing appropriate amount of resources in Signatera.

That was one of the biggest challenges. There was a time when the stock dropped down to $7 a share, which was intense. There was a long period of time where we weren't profitable. We hadn't seen a lot of the major growth. reimbursement milestones that people were looking for.

We were burning money. We had nothing to really show for oncology. You know, we talked about this field and how exciting it was going to be, but no one cared about the talk.

They wanted to see results. And, you know, as a result, I think the shares were down in the six to $8 range for probably three years and, or maybe more. People within the company were demotivated. I think there was a sense of, is the company going to make it? It was certainly demotivating.

It was demotivating to us, but just as much to employees who had come in recently off of the high of an IPO. And so making sure that we were all focused on a mission that we all knew would yield in the long run was what carried us through that. We had to just kind of keep repeating that plan and flesh out that plan at a level that we...

absolutely believed it. However rough it was, we absolutely believed what we were saying. And besides that, I mean, I think that you just have to believe in the mission.

And when the share price was $7, you know, we did lose some people, unfortunately, and there was a lot of naysayers, unfortunately, but the core people who believed in that mission and lived for that mission weren't affected, you know, at least not affected enough to stop believing. The one thing I will tell you, which was extremely refreshing for me from the perspective of like, you know, working in corporate America was that there was an incredible amount of like unified vision. You know, it wasn't about making one business unit successful over another. Everybody had that shared vision that the company had to become successful. And so as a result, there was a very strong sense of collaboration across all of the different business units, across all of the different teams.

And that allowed us to find synergies across different projects. We could leverage our resources in a smart way and also make really fast and good decisions because we were all extremely communicative and there was a really strong sense of collaboration across the company. And the other thing I will say is that it's a testament to our teams.

Whenever we're resource constrained, which happens, I'm sure it happens at every organization, Instead of seeing that as an insurmountable challenge, like we just can't move forward, the teams at Natera are always finding sort of ways to get the work done with minimal resources. And that's something that I've really come to appreciate of Natera, you know, in my last five years here is that anytime there's a resource constraint problem, we're always thinking about, okay, well, then how do we do it in a different way with fewer resources rather than saying it just can't be done because we don't have enough resources. So while there was a lot of tension, I think it was...

The good kind of tension, it really led to very strong bonds among the people who were at Natera at the time. The day we launched Signatera was huge. We weren't just a women's health company anymore.

You know, personally, my mom had been in the Signatera clinical trial since diagnosis in 2016. I remember sitting down with Jonathan Sheena at that time, and, you know, it wasn't a great week in my life. And he said, well, hey, we should get her on this clinical trial right away. And. You know, I didn't even know exactly what that meant.

And looking back, it definitely changed the course of my mom's care and, you know, her ability to really get ahead of her diagnosis. She's now a seven-year survivor. I mean, the oncology division is wild. I was reflecting on oncology and just Natera.

And what's wild is that in 2019, we were processing maybe a few thousand Signatera samples a year. maybe 5,000 or something. But just in the first quarter of 2024 alone, we processed over 100,000 samples of Signatera. So it's not just that, you know, in five years, we've gone from processing a few thousand samples to 100,000 samples in a quarter. But just, you know, year after year, we're doubling the volume.

So I think that's an amazing milestone for Cignatera. It's really quite incredible. I mean, minimal residual disease testing, recurrence monitoring for solid tumors is essentially a market that was developed by Cignatera.

And now it's considered to be a huge multibillion-dollar market. So I think that's a significant achievement for the oncology business unit. We've both...

this enormous database now of early cancer samples based on the rapid uptake of Signaterra. We now have about 50% of oncologists in the United States using Signaterra, and we've got reimbursement for bladder cancer, colon cancer, breast cancer for all subtypes, ovarian cancer, IO monitoring for all solid tumor types. As Signaterra expanded its oncology division, the company turned economics a panorama profitable.

Panorama is now the most widely used prenatal test in America. This year, the company is on track to generate about $1.5 billion in revenue. And that $7 share price has risen to well over $100.

What's next for Natera? Yeah, I mean, I think that there's another order of magnitude growth for Natera. There's so much coming down the pike.

So we're about... 55 to 60% of women's health genetic testing in the United States. We are the leader in MRD oncology testing. We've transformed the way you manage cancer care. We can catch the recurrence of cancers like breast, colon, lung, bladder cancer a year roughly before you see clinical symptoms, which is transformative.

We can continue to transform healthcare where we have these huge pools of data. And we can now curate these pools of data with large language models. Matera and other projects where I'm involved are going to be using these curation of clinical data to build models for patients. And you can model with all of this AI technology now people's susceptibility to disease. We've built many different markets, right?

So in the women's health market, the non-invasive prenatal test, we are market leaders. Oncology, we built that market and we are market leaders. Both are huge opportunities, not only for us, but for everybody else as well, right?

So there are a lot of new players, both in women's health as well as in oncology. So what's next for Natera is that we can't slow down on our innovation. You know, the innovative... and agile spirit that we had, you know, five or 10 years ago cannot go away.

We have to maintain that in order to maintain our market leadership. So we're not going to become a company that, you know, were successful and then sort of plateaued because, you know, we stopped innovating. So what's next for us is, you know, a lot of innovation. That's what we can do. That's what we work on every day.

The wonderful thing about Natera is the mission orientation of the company. If you remember the original investment memo I wrote was you know to help people have healthy babies and if you go visit the Natero office and you walk around the office there are these walls where we pin up the photographs of families that have sent in pictures of their children and it's moving it's uh it's really moving to work with the company that has that kind of impact on people. To people thinking about embarking, taking these kinds of risks, I would advise them not to be afraid of hard. Hard is what creates value and creates a barrier to others. If you prove to yourself that the value is there, that people are willing to pay for it, then just because it's hard doesn't mean you shouldn't go after it.

It's like this quote from my mom. where she would always say, bless the obstacle, will is faith. If you've got a better technological approach and you trust the science, that sort of gives you the faith that you really can bless the obstacle and have that resilience and patience. And that was not so much a trick as just a state of mind.

You put your faith in the science and you just plug away persistently and patiently and bless the obstacle. Because if you're persistent... and the science doesn't lie, it's very likely that you are gonna find your path through. This has been Crucible Moments, a podcast from Sequoia Capital.

Crucible Moments is produced by the Epic Stories and Vox Creative Podcast Teams, along with Sequoia Capital. Special thanks to Matthew Rabinowitz, Jonathan Sheena, Steve Chapman, Chitra Kutwalewale, and Sarah Elliott for telling their stories.

Transcript for:Natera's Journey: Innovation in Health

Transcript for:
Natera's Journey: Innovation in Health