Tim Sweeney has raised over $200M for his biotechnology startup which is about to bring groundbreaking new healthcare solutions to the market. Inflammatix, his venture has acquired financing from top-tier investors like OSF Ventures, D1 Capital Partners, Think.Health, and Northpond Ventures.
In this episode you will learn:
- Making hard pivots
- The value in going direct to the customer yourself
- The future of precision medicine
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About Tim Sweeney:
Tim Sweeney, MD, Ph.D. is the co-Founder & CEO of Inflammatix, Inc., which focuses on using robust informatics and machine learning to derive novel HostDx⢠diagnostics based on âreadingâ patterns in the immune system. Inflammatixâs first tests are focused on diagnosing acute bacterial and viral infections and sepsis. The company is funded by Khosla Ventures, Stanford-StartX Fund, and the U.S. governmentâs DARPA program.
Tim Sweeney completed his MD and Ph.D. at Duke University, after which he was a surgery resident at Stanford. While training as a surgeon, he became frustrated with the limitations of current diagnostic tools for infection. During his residency, he completed a postdoctorate MS in Biomedical Informatics, mentored by Dr. Purvesh Khatri. Together they designed the custom informatics algorithms for sifting through heterogeneous âbig data,â which formed the core technology on which Inflammatix is based.
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Read the Full Transcription of the Interview:
Alejandro: Alrighty. Hello everyone, and welcome to the DealMakers show. Today we have a very exciting guest. Itâs not the typical SaaS company that you would think of, but nonetheless, a really, really interesting journey, especially figuring out product/market fit without being in the market. Think about that.
Before going into it, Iâd like to remind you all that my latest book just came out. Itâs called Selling Your Startup, and itâs all about the roadmap to really understanding how you get to an exit. Basically, itâs all about understanding what the finish line is going to look like and then reverse-engineer the process to really understand how to get there. I couldnât find any books or any information around this when I went through the acquisition on my last company. That was the main reason why I thought that bringing this to life would be a great resource for founders. It doesnât matter whether youâre in the M&A process, or you are thinking about it, or you got some inbound. Itâs about understanding where youâre going before you have to actually go in that direction so that you have full visibility. So Selling Your Startup is available at Amazon, Barnes & Noble, and everywhere else that you want.
Without further ado, letâs get into it here today because I think that our founder has been at it for quite a bit, and I think that weâre going to be learning quite a lot when it comes to biotech. So, letâs welcome our guest today. Tim Sweeney, welcome to the show.
Tim Sweeney: Thanks for having me, Alejandro. Iâm looking forward to it.
Alejandro: You grew up in Colorado, so how was life growing up there?
Tim Sweeney: I donât have anything to compare it to, but good, I guess. Plenty of time in the mountains and outdoors, rock climbing, hiking, mountaineering, and that kind of thing.
Alejandro: Itâs interesting. Youâre talking about climbing mountains and all of this stuff, and to a certain degree, that is building a company.
Tim Sweeney: I think theyâre both personal journeys. Youâve got to make it through. As my climbing buddy used to say, âYouâve got to make it through the pain cave to get to the top.â Certainly, both can be lonely at times. I agree with that.
Alejandro: Well, 100%. The problem with startups is that thereâs not a peak. When you think youâre getting to the peak, thereâs a new one that opens up. It will be interesting to know in a little bit when we get into what youâre up to. But before that, you always knew at a very young age that you wanted to do biotech one day. So why was that?
Tim Sweeney: I donât know. Itâs a funny thing. As we were chatting, I was reflecting that I wrote my college entrance essay sort of about, âSomeday, I want to start this company.â I think I just had a true belief that if you really wanted to make a difference and scale and intervention, you have to do that basically through a company. I knew I wanted to be focused inâit sounds kind of cheesy, but trying to make peopleâs lives better. I thought that the way to do that was by building products that would make peopleâs lives better, and the way to do that is founding a company that changed the field. I didnât have any idea that I would be doing what Iâm doing now, in particular, in this area, but yeah, I thought this was where I was going to try to make my impact.
Alejandro: In your case, your journey was very interesting because once you got your degree in Chicago in biology, chemistry, and all of that good stuff, then you end up going more of the research approach, and that brought you from doing your Ph.D. in a place like Duke to ending up in Stanford where you actually met your co-founderâso, research. What kind of background or base do you think research and that journey and that experience gave you?
Tim Sweeney: You know, itâs easy to look backward with hindsight and say, âI stopped and learned about molecular biology in my Ph.D., and I learned about biometrics machine learning in my post-doc. I learned about technology development and signal processing even back in my undergrad research. I think the reality is, at the time, it was just doing what seems interesting. Along the way, I, obviously, trained in medicine. I was a practicing surgeon for a while. I think that the thing made sense in a hind sense. The funny thing about Inflammatix, where we are today, is that it touched on a lot of those areas. I think that when we were formulating how to build this company when my professional co-founder and I were very first sitting in the lab and saying like, âThis work that weâve done really ought to be a product.â I think maybe if I hadnât had my experience in some of those prior areas, it would have been much harder to visualize how that could all come together. I think it was very much just: follow the curiosity and what seems interesting. Then it happened to come together later.
Alejandro: For you guys, you met your co-founder here at Stanford, and everything happened in the lab. Tell us about that process and that sequence of events toward you guys saying, âOkay. I think weâve got to do something.â
Tim Sweeney: Yeah. I met both of my co-founders, actually, at Stanford. The first was in my post-doc at Stanford; out of residency, I started in the lab. I met Purvesh Khatri. I was his first post-doc, and we worked together on a project to improve diagnostics. My focus was on post-operative infections in surgical patients because that was what I was seeing clinically. He came much more from the bioinformatics, non-clinical side. But it turned out to be a great partnership, and we wrote lots of different kinds of manuscripts, basically demonstrating that we had come up with this computational platform for creating novel kinds of medical diagnostics. At some point, we looked at each other and thought like, âGosh! This is so good we ought to turn it from a scientific paper into a product.â And we didnât really know how to do that. I think, as many folks do in academic settings, we first tried to license it. We thought, âSome company will take this idea. Theyâll go build a product out of it.â We went out and did a little roadshow. We talked to big diagnostics companies and said, âHereâs our IT; hereâs our idea. Would you like to take this?â In a couple of cases, they took us seriously. We were invited for lectures or to talk to the development groups, but I think what we were proposing was a little bit too radical for the big companies. It was like, âWell, if you just built a new instrument, and imagine a new clinical workflow, and onboarded a new technology, and the team to build that,â it was like, âThis is the bridge too far for us.â Then we decided, âmaybe we can meet somebody that knows commercializing diagnostics. We reached out into the Stanford network, almost like a Stanford bulletin board, and said, âWho knows something about commercializing novel molecular diagnostics?â Which seems like a very, very specific skill set. But it turned out we met our third co-founder, Jonathan Romanowsky, in that way. He responded and said, âOh, yeah. Thatâs exactly what I do. Iâve been doing it for 15 years.â He went to Stanford Business School, so we started putting together a business plan. What would it take to build a startup? Especially coming out of academics, this was not something that I knew anything about, but I talked to a lot of other recent founders out of Stanford. Stanford has its own accelerator programs. So we joined those and started to learn what you would need to build a venture-backed business. Of course, the problem is in this space that Inflammatix operates in. It is FDA-regulated medical diagnostics. So we canât just put together something and see how the market likes it and respond. Itâs not like an unregulated market where you ship first, you iterate, and you get it better and better over time. We have to build something that when it makes it through the FDA years later, itâs going to be taken up by customers. So I think that was a challenge to fundraise initially, and itâs been a challenge to build, although, obviously, we were just on the cusp. I think I finally realized some of that success, and itâs been quite a journey so far.
Alejandro: For the people that are listening to really understand what you guys are up to, how would you define Inflammatix? Whatâs really at the core?
Tim Sweeney: Trying not to be too technical, basically the idea is thatâthink about today if youâve got a fever and a cough, and you go to your doctor, and you say, âHey, doc. Do I have an infection, and do I need antibiotics?â Most people donât realize this, but the doctor basically just guesses. We have almost no tests that are very good at picking up bacterial versus viral infections. Even if youâre somewhat sick, sometimes, we can do, obviously, with the pandemic, like a COVID test right there in the office, but most people arenât sick with COVID. Most people are sick with something else, so it can be very hard to establish whatâs going on. Just one technical point: 40% of antibiotics are estimated by the CDC to be given inappropriately. So this is the decision doctors get wrong a lot. Our company builds tests that work. Rather than looking for a bug, we actually read out a patientâs immune response. So we look in the blood. We look at some of the immune markers in the blood. We use machine learning to interpret that, and then we can tell a physician, âThis patient has a bacterial infection or viral infections. This is how sick they are.â Of course, this test has to be really fast, so it runs in a cartridge that looks like this (if youâre watching) in about 30 minutes in a small machine that would run in the doctorâs office. Thatâs taking a lot of basic science around understanding the immune system, creating a rapid test system, and then learning how to manufacture that rapid test system and feeding it all through regulatory clearance. So we should finally be on the market next year.
Alejandro: Typically, for a project like this, how long does it take until youâre able to put it in front of people because I can assume that during all that process of development, it must be very capital intensive too, and also a lot of uncertainty for you guys. So how long does it take for a company like this to really go through that approval, that process all the way to bringing this to life in the market?
Tim Sweeney: They say that an average time for the idea in the lab until itâs on the market, is about ten years. Weâre on track for about seven years. If you look at, again, the source of resources, the average amount that a major new diagnostics company has fundraised by the time it hits the market, thereâs pretty wide variability, but the standard number is like $100 million to bring something out.
Alejandro: Wow. So how do you know if you have product/market fit if thereâs a real need for this without you being able to listen to customers?
Tim Sweeney: At first, honestly, it was that I would have been my own customer. I was a physician and practiced and thought about what was my key need? I was trying to solve a problem that I saw in my own practice. In surgery, if you take someone for an operation, they always look sick afterward. They donât want to look sick afterward. You cut them open; youâve done this big operation, and the number of people that are actually sick from an infection is pretty low, luckily, maybe 5-10%. The number of people that look like they could have an infection is almost 100%. We thought, âIf only we had a better way to figure out who had infections,â that is the core need. Then, of course, we transitioned that as the company grew up into more like, âHereâs an example ofâhereâs a target product profile. Is this something you would use in practice?â We would take that out, and we would survey different kinds of physicians, emergency department physicians, surgeons, and infectious disease physicians, and folks in the clinical have all of these different stakeholders in the hospital. Then we do clinical studies to show that our product is likely to work, and then on the way to doing clinical studies that show that the product does work. I think the biggest thing is when we connected our venture backers with physicians that knew about the product. They were able to say, âIs this something youâre likely to use?â Of course, the response was always enthusiastic, so that was the big thing. But it is really hard. You canât easily iterate. You canât just say, âOh, people wish the product were a little bit smaller. Just go ahead and make a smaller version and get out.â If you change the product, that has to go back through regulatory review and everything else. So it is time-intensive, and it is labor-intensive. On the other hand, what it means is that the products that do get used in people are safe and effective. You donât necessarily want to be using an experimental product when you go to your physicianâs office. You want it to be reviewed by somebody, so thatâs the tradeoff.
Alejandro: What prompted the pivot that you guys did on year two? Because if youâre not able to have that type of feedback and interaction with potential customers, how did you know that you needed to change course of action?
Tim Sweeney: The idea of the product had been the same for years: this test could tell you whether or not you have an infection and how sick you are. But when we got funded, it was an interesting story. So Iâll take you back when it was a profession, and Jonathan and I sat in a room saying, âYeah. This is going to be a business.â The first thing we did was we wrote a grant to DARPA, who ended up funding a million-dollar grant to build the product, and we are very, very grateful for that. Then we started thinking about what our venture pitch would be. The most important thing is that we knew this statistic that building a new diagnostics test system would be $50 million to $100 million. We certainly didnât have it at the time. We had this idea that what we had was a platform that allowed us to build new content, formulate new kinds of tests, and thatâs a little bit unusual in the industry. If you think about the pandemic, everyone has the same SARS-CoV-2, more or less. They just have a different format to get it out to folks. What we had was a different test and, frankly, no format to get it out to folks. Our idea was a business model that would basically be like software licensing. We had content. We knew we could reproduce it on different platforms, and if we went out and talked to folks that were already on the market, we could license through our content on their platforms. That was how Khosla Ventures funded us. We didnât want to raise the money to build the device, and they didnât want to fund us to build the device because it wasnât our core expertise. We were a bunch of computer guys. What ended up happening was, we went out as a young company and actually managed to secure term sheets from a bunch of big diagnostics companies to license our technology. In some ways, it was great. The problem was at the very end. We could never convince them to do non-exclusive licensing. Basically, we would have had one partner for test X, and a partner B for test Y, and partner C for test Z. The promise is that nobody has full market share would have limited the opportunities for our particular testing. While it might have allowed us to build a business, I think that Inflammatix could have succeeded and could have done that. It wouldnât have been a big business. We always would have needed those partners more than they needed us. As a result, we always would have been on the losing end of those negotiations. If they have access to the customer, and thatâs the sole way to get to the customer, theyâre always going to be able to control the terms. We decided âthis isnât going to work,â so we said no to all of those terms sheets and decided to build our own instrument and decided to go for it. That was a big pivot. It was hard. I think that fundraise took nine months maybe. It was tough. We were a small company at the time, around 10-12 people. But finally, we were introduced to the CEO of Northpond Ventures. Northpond is now one of the premier venture backers of diagnostics companies. But, at the time, they were a new shop, and Mike Rubin, their CEO, had just come over from Sands Capital. They had a big fund but not too many companies under their belt, and we hit it off right from the beginning. I was so nervous as an entrepreneur. Mike was enthusiastic from day one, and we had a term sheet almost immediately, but especially after having so many noes, youâre like, âIs the money actually going to show up?â But Mike was great, and sure enough, the money did. He really bought into this idea that if we could build our own device and our own content, we could grow into being a big standalone diagnostics company.
Alejandro: How much have you guys raised, Tim, in total?
Tim Sweeney: A little over $150 million in venture financing. Plus, weâve got non-dilutive development contracts. I havenât talked much about that, but primarily from BARDA, who we were contracted with before they were cool. Now everyone knows BARDA from the pandemic, but theyâve been supporting health security for a long time. So, BARDA, but also DARPA and NIH, altogether is worth about $75 million in non-diluted funding. So itâs a good chunk of change that we brought together to make this vision a reality.
Alejandro: Nice. 100%. As you are raising capital, itâs very interesting because, for SaaS companies and other companies that are developing something more tangible, they can showcase some validation to investors, they can talk about their customers and that data that they have been able to achieve. For a company like this, for Inflammatix, how is that process of raising money? Youâve raised, you were saying, $150 million, and now with the other, probably over $200 million, $250 million, or whatever that is. In essence, here, what is that journey like from one financing cycle to another financing cycle, and how do those expectations change over time for something that is still not tangible?
Tim Sweeney: I think itâs tangible in the clinical data. Thatâs the biggest thing. I think at last count, we had over 60 clinical studies, either active or in planning. Our test has now been tested across thousands of patients in four continents in lots and lots of different settings. What always helped in these conversations was, weâd walk in and say, âWe have a product that can do this amazing thing. Here are some people that say they would like that thing. But clinically, hereâs the clinical data that shows that we will be able to meet this demand.â Like any pitch, itâs like, âHereâs a problem in the world. Imagine a solution that looks like this, but rather than showing you, hereâs our ARR, hereâs our turnover, for us itâs, âHereâs the clinical data showing again and again that our products will be able to do this. And hereâs data on the actual profile of the device. Itâs real, and it will be fast enough dependent on the workflows, and the cost will be low enough to support a great margin and all those things that go into seeing that this is going to be a good business down the road.â Every business has risks, and the venture timeline is about, âFirst, join me in the vision that thereâs a big TAM here. Second, join me in the vision that my solution is a good one to eat up a big part of that TAM. Third, letâs progressively knockdown risks until weâve done that.â I think itâs the same. We just start in a different place with a different set of risks and then continually move through. Obviously, what you donât want isâas an entrepreneur, I donât want an investor who has never done that because theyâll be too scared. âI donât know anything about FDA, so that seems really scary.â What we want is a bunch of venture backers who have done that, who have a portfolio over their products that have been through FDA approval or clearance, so they understand what that timeline is, and they understand what those risks are, and they can work with us, and there is a whole class of investors that are like that. Itâs often a different group for us. Folks like Khosla Ventures, obviously, do both, but itâs an interesting journey.
Alejandro: How many people do you have on the team now?
Tim Sweeney: Weâre right around 100.
Alejandro: Got it. As we are thinking about capital raising efforts and all of that stuff, how do you see, for a company of this nature, the capital requirements of the use of proceeds changing as you are going from one cycle to another? How does that also transform?
Tim Sweeney: I think the big thing in any regulated industry, but especially in diagnostics, is going to be this question of clearance. Youâre building product for a while, and the burn stays low, and suddenly if you have access to a market, itâs suddenly, establish a commercialization team, establish manufacturing, and go. For us, it very much was, we have a relatively small team showing how things could potentially be built, validatedâokay, it was a slightly bigger team to actually start final development and to begin manufacturing. Now that itâs time for, âWe need to get all the way through regulatory and actually building sales teams, and suddenly, the spend is going to go way up. Then we have revenues go. The difference, of course, is that in a regulated market, the barriers to entry are high, but thatâs true for your competition. And stickiness is high too. If youâve gotten into a hospital that likes your product, most likely, they will continue to use your product. There are a lot of big businesses that have done very well in their diagnostics, and so thatâs why it makes sense for people that are knowledgeable in this space.
Alejandro: Tim, letâs say you were to go to sleep tonight, and you wake up in a world five years later. Five years later, Iâm sure that youâve been dreaming about what that would look like, and when you get that approval, and youâre out there, and things are happening. Letâs say you wake up five years from now in a world where the vision of Inflammatix is fully realized. What does that look like?
Tim Sweeney: We talk about this a lot, actually, currently. Itâs a good question because five years ago, the vision was to get the first product to market. Now having almost accomplished that, itâs time to think about what comes next. I think for those of your listeners that are familiar with the cancer story. Historically, we try to draw parallels here. In the 1960s, you just had cancer, and it was listed by a sight in the body. You had cancer of the breast, or the pancreas, or the lung. As we learn more about that, you didnât just have breast cancer. Then you had ERPR-positive breast cancer, etc. Now, you have breast cancer that has these really advanced molecular subtyping assays, and these big precision medicine companies that haveâfor your listeners who are familiar with biotech, multi-billion-dollar companies that have been built on bringing precision medicine to oncology. As a result, survival rates have dramatically improved across a number of those cancers. We, at Inflammatix, believe that the critically ill patient is like this: For any of you who have known somebody who has been in an ICU, it probably seems like a black box. The patient is really sick, and theyâre in the ICU, and youâre doing everything you can to support them through this. The reality is that in many ways, I think critical illness today is like cancer in the 1960s. We have all these words, but basically, they come down to like, âThis patient is really sick.â We donât have advanced immunotherapies that are good at subtyping patients, and we need all of those things. Weâve been trying for decades, and there have never been good therapies. As a result, survival rates and things like sepsis have been pretty flat for 10-15 years. I believe that we can bring precision medicine to this whole class of patients through better, careful immune subtyping, matching patients to the right therapies to improve outcomes, and bring this whole acute care pathway into this era of precision medicine. I think weâve just begun to see that now with SARS-CoV-2 as the whole world has been working on this one product, this one project of improving survival in COVID. I think what we can do is bring it to the rest of critical illnesses as well.
Alejandro: Let me ask you this. If I put you into a time machine and bring you back in time, and I bring you back maybe to the days where you were in the lab in Stanford, and you were thinking about doing something with it, maybe starting a business. What would be that one piece of business advice that you would give to your younger self before launching a company and why given what you know now?
Tim Sweeney: Weâve made missteps along the way. Everybody does. There are ways we could have done something faster like I talked about. Maybe if we had known from the very front that we werenât going to do this licensing model and just go build a device, maybe we would have been a little bit faster. Itâs hard, though. So much of startups, as you know, is luck. So much of it is luck. You happen to meet the right person at the right time when youâve done the right prep work. Maybe I would have said, âGo build the device,â earlier. Maybe if I had done that, Inflammatix wouldnât have worked out. I think a lot of it has been this twisty road that just when thing-X was ready, it needed a little extra time to incubate. So the fact that we took a little extra time and it was okay. Itâs a roundabout way of saying, I guess I donât know. I think that whatever success weâve had to date, and weâre still not done. I mean, weâre not done untilâby the way, itâs not FDA clearance, and it isnât an IPO. Weâll be done when our products are standard of care and theyâre making a big difference. When that happens, there will have been a lot of health before and after. I think that probably the hardest thing personally was just being so personally tied to the business and experiencing emotional ups and downs that come with this round of funding or that. If anything, it would have been just a little more belief, a little less worry, take some deep breaths, enjoy the ride. I had two boys since the business was founded, and weâre due for our third in December. Family happens along the way, so itâs this mix ofâI mean, entrepreneurship is incredibly difficult and definitely has some really hard times trying to just smooth it out a little bit, understanding that if youâre doing the right thing, youâll make it to the next milestone because youâre creating value. I think thatâs probably what I would have said.
Alejandro: Itâs interesting that you mentioned this because I find that entrepreneurs always focus on the end and getting there. I think that along the way, they really miss out on being able to embrace the journey because itâs not about reaching the end or reaching the finish line. Itâs all about the journey to get there. Iâm right there with you. Itâs all about having fun; itâs all about embracing the ups, embracing the downs because thatâs ultimately what is going to make everything worth it in the end. So, Tim, Iâm right there with you. For the folks that are listening, what is the best way for them to reach out and say hi?
Tim Sweeney: You can reach me over email. Itâs easy to remember: ts******@*********ix.com. Iâm on LinkedIn or wherever else. Iâm always happy to chat with folks interested in the field or in entrepreneurship. I do think one of the things we can do or whatever success Iâve had; Iâm happy to try to pay it forward. I always benefited when I started out in my journey from being able to talk to folks a few years ahead who had been through it recently. I think founders helping founders is a really important part of the ecosystem, so Iâll always do my best.
Alejandro: Amazing. Tim, thank you so much for being on the DealMakers show today.
Tim Sweeney: Thanks again for having me, Alejandro. I really appreciate it.
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