Specialty drug prices in the US are out of control. Although they represent about 2% of the total prescription volume, specialty drugs represent 53% of total annual pharmacy costs last year — up from 27% in 2010 — driven in part by growth in oncology and autoimmune drugs.
Lyfegen, a startup based in Switzerland and New York, believes the solution to this problem lies in value-based drug contracting. Investors may be starting to feel the same way — on Tuesday, the company raised $8 million in an excessive Series A funding round.
Founded in 2018, the startup provides value-based contracting software for high-cost drugs.
“It’s really about ensuring a future for drug pricing where the price of a drug depends on the value it provides to patients and the healthcare system.” Girisha FernandoCEO and founder of Lyfegen, said in an interview.
Lyfegen’s software digitizes value-based drug pricing contracts between payers and pharmaceutical manufacturers. Its platform uses algorithms to collect and analyze real-world data and then matches those data points to contract terms. Essentially, the startup promises to automate the entire process of determining whether a drug has benefited a patient, as well as analyzing what the drug should cost based on the outcome it delivered.
“[The platform] automates the entire value-based contract adjudication process and creates transparency around which drugs worked and which didn’t for each patient,” Fernando said. “That’s what the platform does, and it does it at scale. You can run many thousands of contracts simultaneously.”
Lyfegen sells its software to pharmaceutical manufacturers and “any organization that has drug pricing agreements with manufacturers,” according to Fernando. He said the company currently has about 20 customers.
Some of Lygen’s drug manufacturer clients include Pfizer, Roche, Novartis, Johnson and Johnson, Merck and Bristol Myers Squibb. The startup also has contracts with a state Medicaid plan and an integrated delivery network in the U.S., Fernando said. The company’s remaining clients are European insurers, as well as one government payer in Saudi Arabia.
Lyfegen’s Series A funding round was led by aMoonwith additional participation from Apex Ventures and European family offices, according to Fernando. With this influx of funds, he said Lyfegen wants to “massively expand” its presence in the US
“The challenge of drug pricing in the U.S. is really the highest in the world, unfortunately,” Fernando said. “In the US, patients are simply paying three to five times the prices paid elsewhere, and that has a detrimental effect on the people who can afford these drugs.”
Value-based contracting is desperately needed in the U.S. because specialty drug prices aren’t expected to drop anytime soon, according to Fernando. In fact, Lyfegen’s announcement said the cost of specialty drugs in the U.S. has risen by 12% from 2020 to 2021 only.