In the life science industry, absolute control over the quality of processed raw materials is of the utmost importance. For pharmaceutical companies, however, it is often very time-consuming to ensure that the raw materials used to manufacture pharmaceuticals are of the required quality and that the suppliers comply with the legal requirements. This has led to an increase in batch recalls in recent years. In the first half of 2019 alone, the US Food and Drug Administration (FDA) registered more than 30 recalls of pharmaceutical products due to quality defects. With its platform of the same name, the Frankfurt startup ChemSquare now offers an opportunity to outsource and simplify quality assurance along the supply chain. In an interview with 5-HT, founder David Schneider explains how this works and what advantages it has for pharmaceutical companies.
In short, what does Chemsquare do?
We are helping the pharmaceutical industry make supply chains safer and more transparent by connecting supply chain players and simplifying the outsourcing of supplier audits. Pharmaceutical companies are required to audit their raw material suppliers on a regular basis to ensure the performance of their suppliers. They can either employ their own auditors or outsource this to us.
What are the risks for pharmaceutical companies along the supply chain and why is quality management so important?
The damage that can be caused by contaminated raw materials is immense. They range from product recalls to the death of patients. This in turn can damage the company’s image. Pharmaceutical companies are therefore obliged by law to regularly check whether their suppliers comply with the legally prescribed quality requirements. The audits we carry out at our suppliers include checking goods using documents and certificates as well as checking the manufacturing process for certain products. This enables us to identify shortcomings in value-added processes and identify potential for improvement.
Why should pharmaceutical companies outsource supplier qualification to ChemSquare instead of doing it themselves?
This mainly saves work and costs. Many pharmaceutical companies are too busy to audit all the suppliers they should audit because they do not have the necessary resources to hire auditors and to train them continuously. For us, this is cheaper and less complicated. For example, a customer does not necessarily have to carry out his own audit but can join forces with other interested parties or use an existing report if we have already audited the supplier for another customer. In addition, many raw material suppliers are based in Asia. Normally, the pharmaceutical company then has to have its own auditors fly there. However, we employ many local auditors in different countries, so there are hardly any travel costs. In addition, we also handle the complex process that follows the actual auditing: The supplier comments on how the defects identified in the audit are to be rectified. The pharmaceutical company must then continuously check which tasks have already been completed and what is still outstanding. We believe our customers of this entire complex process.
You organize the entire auditing process via a digital platform. What are the advantages?
The platform is one of our key differentiators from other competitors. On our platform, the customer can simply search for a supplier and see whether an audit is already available or planned, or otherwise order one directly. An offer is then created automatically so that he can immediately see an all-inclusive price. In addition, the customer can view all relevant documents on the platform, such as the audit report or checked documents. There is also an overview of the current position in the process, for example whether an audit date has already been determined or whether documents are still missing. Everything is very clear, easy to manage and centrally available in one place.
If a pharmaceutical company outsources auditing to an external partner like ChemSquare, how can it be sure that quality is assured?
A high quality standard is a central requirement in our business model. For this reason, we ourselves have our own quality department as a startup, which takes care of our own quality system and at the same time is responsible for the qualification of our auditors. The quality of our audit reports depends on the quality of our auditors – which is why auditor qualification is a core process for us. Our auditor audit is a four-stage process: firstly, the auditor’s CV is reviewed; secondly, the auditor’s self-disclosure is followed by a review of his or her academic and professional background and how he or she would behave in certain situations. From this, a score is calculated. If the score is above a minimum, the next step is a Skype interview. If the case is not quite clear, there is a case study afterwards. At the beginning, the auditor is often accompanied during an audit. Finally, the audit reports are always checked by our quality department before they are made available to the customer.
How did ChemSquare come about?
The idea was born in September 2017 through some detours from my doctorate at the TU Darmstadt in the field of information systems and digital platforms. Soon Florian Hildebrand joined me as a second founder. Initially we had the idea to build an online trading platform for the chemical industry. However, this didn’t work well for raw materials, partly because the margins are so low that there is little room for a platform with commissions. That’s why we have shifted our focus to specialty chemicals. There, however, we found out that price is not the decisive factor, but rather whether the supplier meets certain quality requirements. Because we saw how important quality assurance is, we wanted to help simplify this process. In discussions with companies, we then learned that auditing is a major issue. In December 2018, we launched our new business model, the platform for supplier audits in the pharmaceutical industry.
What are your next steps?
Our current goal is to achieve a stable position in the German market. We are also increasingly pushing ahead with the automation of our internal processes so that, for example, the preparation of quotations is fully automated. In addition, from next year we want to try to win customers in other European countries as well.
Together with eleven other startups, you took part in our X-Linker program in May 2019, which included various mentoring sessions and allowed startups to network with investors and corporates. What did participation in the program bring to your development?
We made valuable contacts in the industry. We are currently talking to one of the companies that participated in X-Linker about conducting a test audit for them – as a kind of pre-qualification, so to speak. It was also interesting for us to get to know the ecosystems of other start-ups. With X-Linker, our network as a whole has grown a lot. For example, we became aware of a startup event at Fresenius University, where a group of students are currently working on a case study about our company.
What is your vision for the future of ChemSquare?
We want to offer continuous supplier qualification as a service: We want our customers to be able to completely outsource these tasks to us. We take care of everything that goes with it. In the long term, we want to be globally active and can also imagine expanding our service portfolio for other stakeholders, such as auditors and suppliers.