Eshwar Inapuri, Former CEO & Co-Founder of InnaMed, on Founding Diagnostics Companies

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Eshwar Inapuri

In the first episode of Season 3 of LifeSci Beat, we chatted with Eshwar Inapuri, Former CEO & Co-Founder of InnaMed.

InnaMed is an at-home blood testing company focused on improving the monitoring and treatment of patients undergoing heart failure, kidney transplant, hypoparathyroidism and in vitro fertilization. InnaMed was acquired by Fluxergy in 2023.

Eshwar Inapuri is the former CEO & Co-Founder of InnaMed. He is a young, driven entrepreneur and engineer with experience building and leading early stage technology ventures. As CEO and Co-Founder of InnaMed, he raised $4.5M from top VCs including YC, DCVC, and Blue 9 Capital, successfully bid for government grants awarded by the U.S. Department of Health and Human Services and NASA, built an IP portfolio and co-invented five patents, and negotiated five multi-year pharma research partnerships generating seven-figure revenues. After InnaMed was acquired, he joined the founding team at Ventricle Health, a tech-enabled healthcare services startup empowering cardiovascular patients with access to high quality care that optimizes the use of guideline-directed medical therapies. He holds a Bioengineering degree from the University of Pennsylvania and is currently pursuing an MS/MBA at Harvard Business School.

The conversation spanned:

• Contrasting diagnostics with biopharma company creation
• Lessons in founding diagnostics companies
• Navigating challenges as a young entrepreneur
• New frontiers and trends in the diagnostics space

1:42 to 9:45: Contrasting diagnostics with biopharma company creation

• On disadvantages for diagnostics companies: A common misconception is that the regulatory pathway for diagnostics is shorter than for biopharma. However, empirical data demonstrates that the regulatory pathway rival each other in length, even for companies pursuing 510Ks. A second challenge is building investor interest, as diagnostics and devices generate lower margins than therapeutics. Furthermore, in diagnostics, it’s harder to compete with market leaders, Eshwar notes.

“For traditional diagnostics, a lot of the innovation happens through the incumbents — they usually have innovation arms or do a lot of product development in house. But for new ventures, it’s definitely challenging.”

• On advantages for diagnostics companies: Eshwar states that the clinical bar for evidence is lower to have a device or diagnostic approved compared to a drug. This holds true for de novo diagnostics, but the contrast is particularly stark if a predicate device exists and the company pursues a 510K for “incremental innovation.” It is also cheaper to get a device or diagnostic approved than a therapeutic, but the process remains still significantly more costly than for a software or consumer product.
• On unique challenges for InnaMed: InnaMed’s leading product, HomeLab, overcame challenges specific to point of care home blood tests. Namely, it is difficult to perform multiple tests accurately on a low volume of blood. Furthermore, user error commonly leads to the hemolysis, or bursting of blood cells during the blood draw process, resulting to inaccurate analyte measurements.

9:46 to 17:50 and 23:01 to 29:34: Lessons in founding diagnostics companies

• On IP: Eshwar’s team licensed IP from Auburn University. In diagnostics, it is important to thoroughly vet technology readiness level, or commercial validity, before licensing IP from academic settings. University lab research typically is conducted with the goal of publication rather than commercialization, so commercial feasibility of technology has rarely already been investigated prior to IP licensing.
• On FDA approval: It is particularly critical to have an experienced team in the regulatory department. Eshwar’s team included a physician mentor who was familiar with the FDA through work in industry, and they hired external consultants. They provided invaluable assistance wiht drafting initial regulatory documents, navigate pre-submission meetings with the FDA, conversations about coverage with CMS, and discussions on how to set up quality management and manufacturing.
• On choosing the right team: Eshwar admits that if he could go back in time, he would focus on hiring more employees with 10–20 years of experience in diagnostics. However, Eshwar adds, folks that are older and settled with their families are often more risk averse to joining a startup until it is well-capitalized.
• On raising capital: Eshwar advises raising as much non-dilutive capital, such as grant funding, as possible, as there aren’t many diagnostics-focused investors.

“[Diagnostics] investors care about two things. One is de-risking the technology. They want to see something that looks like and works like the product, and they want to see human studies comparing the tool against the gold standard.

Two, they care about the unit economics. Hire manufacturing expertise. Show investors a pathway to lower cost of goods in the future and do real research to make that pathway realistic. For us, we had challenges showing that we could generate 70 percent margins, which is what investors are excited by — 60, 70 percent margins.”

• On scaling: While fundraising, InnaMed scaled their product to the Series A stage. They joined Y Combinator in 2017 and raised $1M in funding, after which they hired a team of PhDs and moved to the Pennovation Center space in Philadelphia. From 2018 to 2021, they grew from 3 to 15 full-time employees — a combination of mechanical, software, and electrical engineering PhDs. They outsourced quality and regulatory expertise to consultants, and the founders themselves spent their time mostly on sales and R&D. By 2022, they raised $4M and focused on sales to pharmaceutical companies, generating up to $2.5M in revenue.

“We had contracts with several pharmaceutical companies who wanted to work with us to do at-home diagnostics for clinical trials. That was a scrappy approach that we took. We had a whole sales pipeline, talked to a bunch of pharmaceutical companies, and closed contracts to generate non-dilutive revenue.”

• On exit strategy: InnaMed ran a formal sales process themselves, without hiring a banker. They targeted well-capitalized early-stage diagnostics companies focused on at-home testing. Many had emerged during the pandemic with at-home Covid-19 tests and were looking for ways to diversify away from Covid-19. Eshwar notes that later-stage companies may not be interested in taking on start-up risk, particularly if HomeLab did not align with their existing products. Eshwar reveals that InnaMed ended up selling to Fluxergy because they valued InnaMed’s assets and were open to keeping their offices open in Philadelphia, where many InnaMed employees lived and wanted to stay.

17:51 to 23:00: Navigating challenges as a young entrepreneur

• On investor perception: Eshwar describes diagnostics investors as wary of young entrepreneurs because at baseline, it is difficult to commercialize a profitable business, and a young founder adds additional risk on top of this.

“Risk compounds. If you have founder risk, hardware risk, chemistry risk, FDA risk, reimbursement risk — all of that compounds. If you can eliminate or minimize each of those, then investors are more comfortable.”

• On mitigating young founder risk: Young founder risk is unique to healthcare because its fragmented nature makes connections in the industry a necessity, particularly for sales. Also, industry-specific knowledge is required for success. As a young entrepreneur, Eshwar focused on acquiring this knowledge through learning by doing.

“If you’ve worked in diagnostics for 15 years, you already have experience. Whereas for a founder like me coming straight out of undergrad, you have to build experience on the job. And so for me, I learned a lot through working directly, hands-on, in different disciplines.

For example, if you take quality management, I would write out the actual quality management documentation myself, the SOPs, the operating procedures that we used. [The founders] worked with a quality consultant, but we often learned via the quality consultant how to do it ourselves.”

29:35 to 36:24: New frontiers and trends in the diagnostics space

• On the impact of Theranos: After the Theranos scandal, Eshwar noticed an palpably higher bar for venture capital investment in diagnostics, particularly tech and life sciences investors whose interest in diagnostics had been previously growing. When it comes to the life sciences, investors are now more reliant on their specialized industry expertise and less willing to expand to other areas.

“There was a period of time when tech investors were really interested in the life sciences. The Theranos scandal, I think, created awareness and hesitancy among tech investors because life science is not their core competency and requires a lot of industry know-how. So the Theranos scandal made the bar to raise more difficult in the life sciences and specifically, diagnostics.”

• On the impact of Covid-19: Covid-19 generated significant VC investment in infectious disease testing and in particular, at-home Covid-19 testing. Many of these companies have now dried up and investors have suffered the loss, renewing their emphasis on evergreen companies with a diversifiable long-term vision.
• On paradigm-shifting frontiers: AI and machine learning-based diagnostic applications to EKGs and retina scans are generating significant buzz. Eshwar observes that software diagnostics possess the potential for high value given minimal costs and significantly improved outcomes. Among more traditional diagnostics, liquid biopsy is a major area of innovation.

“It’s really interesting what you can find in EKG data. Originally, people thought, hey, we can just find heart rate data, arrhythmias, and abnormalities. But now people running different models on EKG data to find completely unique diagnostic insights. Similarly, there are diagnostic companies that are doing computer vision on retina scans to diagnose diabetes or hypertension.”

Eshwar concludes with a few last words of encouragement: “It’s an exciting path. It’s a challenging path…It’s a good time to be an entrepreneur.”