In the world of pharmaceuticals, companies aim to operate under GMP guidelines — a set of production and manufacturing measures to assure standards for medicinal products. But too often, the realities can be anything but that.
“Officially, GMP stands for ‘Good Manufacturing Practices,’” said Dr. David Schneider, the founder and CEO of Qualifyze. “But people joke that it actually stands for ‘Give Me Paper,’ because everything is paper-based in the pharma industry.”
The term and the sardonic joke behind it underscore the problem in the pharmaceutical industry, as well as Schneider’s efforts to fix it through Qualifyze.
The Frankfurt-based startup has built out a network of quality assurance experts plus a large database of suppliers and buyers to help track how a company’s supply chain is operating, and how it meets the many fragmented standards that define how the industry works (these include GxP, ESG, ISO, CAPA follow-ups and more).
Now, it is announcing a milestone in those efforts: a Series B of $54 million that it will be using to grow, specifically by targeting more business in the U.S. and by expanding its product with more analytics and AI.
Insight Partners is leading the round, with HV Capital, HarbourVest Partners, H14 and Cherry Ventures — all previous backers — participating. No valuation is being disclosed, but the company has raised $84 million to date, and its valuation is “significantly higher” than the $100 million post-money it commanded previously, Schneider said.
At a time when startups are finding it challenging to raise money in their later stages of growth, Qualifyze likely stood out for investors because of its traction to date. Its customer list includes Merck, Moehs, DSM, Olon, Siegfried, Teva, CordenPharma, Cipla, Dr. Reddy’s Laboratories, Sun Pharmaceuticals, Sandoz and Mallinckrodt Pharmaceuticals, among others.
The pharmaceutical industry is made up of long supply chains that start with companies manufacturing chemicals through to those who make those chemicals into ingredients that then go into drugs; then there are the actual drug manufacturers; those who package them; and those who transport finished drugs, drugs in the middle of being made, or more basically their ingredients from one place or another. (Some of those distances can be very long, which creates its own set of challenges that startups like SkyCell are tackling.)
All of this is also potentially very costly — all the more if something goes wrong. As Dr Schneider described it, one of the main reasons why pharmaceuticals are so expensive is not (just?) because pharmaceutical companies are greedy, but because the price of making drugs is just high because of those supply chains. One report estimated that mistakes in supply chains can result to costs of up to 20% of the final amount of the product.
Qualifyze works with a network of 250 auditors, who make regular checks and reports on a database of about 1,200 suppliers to assure that they are meeting compliance standards set not just by regulators but companies themselves.
You might say that Qualifyze practices what it preaches: Some of those auditors are part of Qualifyze itself, but some are contractors, so it has had also to build out its own training and vetting process to assure the quality of its own supply chain. That has inevitably meant that Qualifyze’s business model — even while using technology to manage information; to run analytics (currently based on 3,000 audits conducted across 85 countries) to help make suggestions to its customers to improve practices; and to potentially pick up further data on manufacturing processes — is fundamentally still anchored around people.
Shneider, you might notice above, is a doctor, but not of medicine nor of pharmaceuticals but of management and strategy. Prior to founding Qualifyze, he was working for McKinsey as a consultant and some of his clients were pharma companies. He saw things were inefficient, but he didn’t realise quite how much that was the case. His original idea was to build a B2B marketplace to help companies procure ingredients and other supply chain products and services for drug making. A little while into the enterprise, however, the startup pivoted to what it focuses on today.
“What we learned was that the challenge was not so much finding who the suppliers are, but actually understanding whether those suppliers meet your quality and regulatory requirements. That’s more the difficult piece. Getting the right price is just a matter of an email.”
It’s a no-brainer that investors would be attracted to the company, given not just the current client list and Qualifyze’s technology-based approach to scaling its business, but also because, well, the pharmaceutical industry is enormous, estimated at $1.2 trillion this year and projected to be as big as $1.5 trillion by 2029. And there is more to come, said Ryan Hinkle, MD at Insight Partners who led the investment for the firm.
“We see opportunity for Qualifyze to deepen its offering for the life sciences by building on top of the proprietary data they have collected over years, enabling use cases from predictive risk management to procurement,” he said. “We also see lots of opportunity in the US, where Qualifyze already has clients but will be leaning into even more.”
