In the pharmaceutical industry, companies aim to operate according to GMP guidelines, a set of production and manufacturing procedures to ensure drug standards. However, the reality is often quite different.
“Officially, GMP stands for 'Good Manufacturing Practice,'” says Dr. David Schneider, founder and CEO of Qualifyze, “but some people joke that it actually stands for 'Give Me Paper,' because everything in the pharmaceutical industry is paper-based.”
The quote and wry joke highlight a problem in the pharmaceutical industry and Schneider's efforts to solve it through Qualifyze.
The Frankfurt-based startup has built a network of quality assurance experts and a large database of suppliers and buyers to help companies track how their supply chains are running and how compliant they are with fragmented industry standards (GxP, ESG, ISO, CAPA follow-up, etc.).
Now the company is announcing a milestone in those efforts: It has raised $54 million in a Series B round that it plans to use for growth, particularly in the U.S., and to expand its product with more analytics and AI capabilities.
Insight Partners led the round, with participation from existing investors HV Capital, HarbourVest Partners, H14 and Cherry Ventures. The company didn't disclose its valuation, but Schneider said the valuation is “significantly higher” than the $100 million it was at after its previous round of funding, which it has raised to date.
That traction has helped Qualifyze stand out at a time when late-stage startups are struggling to raise capital: its client 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 consists of a long supply chain that starts with the companies that make chemicals, and then turn those chemicals into ingredients for medicines. Then there are the companies that actually make the medicines, the companies that package the medicines, and the companies that transport all of the unfinished and finished medicines and ingredients from various locations.
All of this is extremely costly, especially if something goes wrong. As Schneider noted, drugs are expensive not just because pharmaceutical companies are greedy, but because the supply chain makes them expensive to produce. One report estimates that a mistake in the supply chain could cost up to 20% of the final amount of product.
Qualifyze works with a network of 250 auditors who regularly check and report on a database of around 3,000 suppliers to 1,200 clients to ensure they meet compliance standards set by both regulators and companies.
It could be said that Qualifyze practices what it preaches: some of its auditors are part of Qualifyze itself, while others are contractors, so it has had to develop its own training and vetting process to ensure the quality of its own supply chain.
This means that Qualifyze’s business model is still fundamentally people-centric, even though it uses technology to manage information, perform analytics and collect data about its manufacturing processes.
As you may notice from the photo above, Schneider is a physician, but not a medical or pharmaceutical doctor. His specialty is strategy and management. Prior to joining Qualifyze, he worked as a consultant at McKinsey, where he saw how inefficient things were at some of his pharmaceutical clients.
His original idea was to build a B2B marketplace to help companies source raw materials for drug development and other supply chain products and services, but after some time in business, the startup pivoted to its current focus.
“The challenge was not to find out who the suppliers were, but to actually understand whether those suppliers met quality and regulatory requirements. That's the harder part. Knowing the right price is just a matter of an email,” he said.
Investors are naturally attracted to the company: Its current client roster and tech-first approach are impressive, but the pharmaceutical industry is also huge, with revenue estimated to reach about $1.15 trillion this year and projected to grow to $1.5 trillion by 2029.
Ryan Hinkle, managing director at Insight Partners, which led the company's investment, added: “We believe Qualifyze can strengthen its offering to the life sciences sector by building on the unique data it has collected over the years to enable a range of use cases, from predictive risk management to procurement. We also see a lot of opportunity in the US, where Qualifyze already has clients, but plans to expand further.”