March 29, 2021 PAO-03-21-NI-03
Blockchain is a ledger of decentralized data that is securely shared among a group of select participants.1 While Bitcoin may be why people are at least vaguely familiar with blockchain’s existence, blockchain itself is not synonymous with cryptocurrency — rather, cryptocurrency is built on blockchain technology, but the technology also seemingly has endless potential for a wide range of applications in the pharmaceutical industry.
So, how does it work? Data is gathered and ordered into shared “blocks” that are “chained” together using cryptographic hashes — mathematical algorithms that map data of arbitrary size to a bit array of a fixed size.1 A cryptographic hash function makes the links between blocks virtually unbreakable, with a unique string of characters that are used to verify the authenticity of the data, and checksums that are generated and securely matched across shared data from multiple sources. These unique identifiers provide data integrity with a single source of truth, eliminating data redundancy and increasing security. The hash from one block is added to the data in the next block, so when the next block goes through the hash function, it is woven into the new hash, and it continues throughout the chain.2
At its core, blockchain is a digital record of transactions — similar to a traditional ledger, but much more secure. Each transaction is time-stamped, recorded, and combined with other transactions on the block. When a block is complete, the block also gets its own time stamp, and all information is sequential, preventing duplicate entries and ensuring that all users on the network have the latest version. Because of the cryptographic hashes, it is virtually impossible to add, remove, or change data without being detected by other users,2 so it creates a system of group accountability.
A key feature of blockchain is that it is decentralized by design. Where traditional transactions are verified by a central authority, such as a government, financial institution, social media platform, or healthcare provider, blockchain allows for transaction verification via the consensus of all users sharing the data, in near real-time. Blockchain can be utilized to securely track the movement of money, goods, or secure data. The use of blockchain in pharma has a wide array of applications that span supply chain, regulatory compliance, fraud detection, and more.
One of the biggest and most obvious opportunities to leverage blockchain technology in pharma is in the drug supply chain. Logistical issues in the supply chain are neither new nor uncommon, as products weave their way through tangled, archaic processes where documentation is often manual and paper-based. This antiquated method of recordkeeping often leads to regulators and distributors struggling to identify subpar or counterfeit products that have entered the system. The World Health Organization (WHO) estimates that between 10% and 30% of all medical products — including pills, vaccines, and diagnostic kits — are substandard or falsified in low and middle-income countries.3 In 2015, a single Interpol operation resulted in the seizure of $81 million worth of counterfeit medicines and more than 150 arrests and removed nearly 2,500 fraudulent websites from the Internet.4 Theft is another substantial challenge, as the UK’s national standards body, the BSI Group, estimates that pharmaceutical cargo theft accounts for over $1 billion in losses annually, with the UK and United States accounting for nearly half of all theft.3
Beyond counterfeit and theft vulnerabilities, increased demand for vaccines and therapeutics can put a strain on systems that aren’t equipped to handle it. When millions or even billions of people around the world simultaneously all want and/or need the same products, accurate tracking and accounting becomes even more important. As technology and industry processes mature, blockchain could provide infrastructure to more quickly distribute medicines and vaccines to regions with the highest epidemiological urgency. With more granular visibility, stakeholders can more easily identify gaps in supply chains and more quickly locate and remove expired, damaged, or fraudulent products, see where supplies are low, and efficiently redistribute inventory to where it is lacking.
Vulnerabilities in the drug supply chain often exist at the point in which drugs transfer custody en route to patients, and traditional tracking standards provide drug manufacturers and distributors limited visibility into the authenticity of products. Blockchain can make it faster, easier, and more cost-effective to verify authenticities in the supply chain. Barcode-tagged drugs can be scanned and entered into secure digital blocks whenever they change custody, with transparent, real-time visibility by authorized parties. Competing organizations can safely collaborate in a shared, permanent ledger, without divulging their proprietary data. Individual products can be transferred from upstream suppliers to downstream consumers through a trusted network verified by smart contracts on a blockchain, greatly reducing human error and increasing efficiency. Beyond product integrity and tracking, blockchain can also potentially help smaller organizations overcome financial challenges — particularly in developing countries where drug supply chains are more fragmented and competition is fiercer.
The MediLedger Network, a blockchain consortium focused on pharma supply chains, counts Gilead, Pfizer, Amgen, Genentech, AmerisourceBergen, and McKesson among its members.3 According to the Healthcare Distribution Alliance, approximately 60 million units of saleable drugs are returned annually.3 Authenticity verification is typically the responsibility of wholesalers, who must contact manufacturers to track down serial numbers — a process that can take up to 48 hours. Using blockchain, however, wholesale distributors can make the same verification in less than a second using a barcode scanner, and products can quickly reenter commercial distribution, all while manufacturers maintain control of their data.4 This rapid serial number verification can also be used to help hospitals and pharmacies, as a web browser and barcode scanner are the only pieces of equipment needed for staff to verify that drugs are authentic before they are placed on the shelf.
New regulations are forcing the pharmaceutical industry to work collaboratively on developing better standards. In the United States, the Drug Supply Chain Security Act (DSCSA) was signed into law in 2013 and mandates a 2023 deadline for manufacturers to achieve track-and-trace of all transactions involved in the transporting of medications from factory to patient.3 To support DSCSA, the U.S. Food and Drug Administration (FDA) launched its Blockchain Interoperability Pilot to address requirements to identify, track, and trace prescription medicines and vaccines distributed within the United States.5 In collaboration with IBM, KPMG, Merck, and Walmart, the pilot was designed to demonstrate blockchain’s ability to connect disparate systems and organizations to provide drug transparency and traceability. It also aimed to show how implementing blockchain security could potentially improve patient safety by immediately alerting the supply chain of product recalls, thus reducing the timeline from a few days to a few seconds.5
The pilot aimed to prove that disparate organizations could leverage blockchain to enable interoperability between supply chain partners in an immutable, distributed ledger; provide a single, shared source of truth for pharmaceutical product movement; bring discovery and transparency to illegitimate activity; and improve patient safety in the event of a product recall.6 The pilot successfully connected a blockchain-based system from IBM with Merck’s existing industry-standard system for serialization.5 KPMG led the functional design efforts of the pilot, including process workflow, user interface development, and configuration requirements for the blockchain and overall integration to ensure DSCSA compliance. The results of the pilot proved that blockchain could tag a drug seconds after a recall is announced.6
The pilot also proved that a drug’s provenance, shipment, receipt, and distribution can be accurately captured on the blockchain, creating a continuous link and view of product movement.6 Perhaps even more importantly, the pilot demonstrated that data privacy can be maintained among network participants with limited one-up, one-down permissioned views.6
Studies indicate that inefficiencies and fraud cost the U.S. pharmaceutical industry over $15 billion annually,7 mainly due to complexities that make precise settlement and reconciliation nearly impossible. Drug manufacturers work with thousands of generic drugs, and settlement is conducted on a per-item basis, resulting in vast amounts of manual data processing that is rife with errors. The number of humans involved in these operations also adds significant lag times, as pharmaceutical distribution often includes pharmacies, wholesalers, and group purchasing organizations (GPOs). Pharmacies can either purchase drugs directly from suppliers or, more commonly, through a wholesaler or GPO. This creates situations where wholesalers, GPOs, and pharmacies all see different prices, supply times, and terms — and they are all governed by separate contracts. The antiquated logistical framework that regulates processing of differing prices and contracts adds further complexity to the mix, including rebates and chargebacks, and manufacturers end up losing millions of dollars every year due to inefficient processes.7
Blockchain technology could save the pharmaceutical industry billions of dollars per year7 while simultaneously reducing distribution times from labs to homes and hospitals. Smart contracts can identify chargeback and rebate discrepancies early on, vastly increasing efficiency by eliminating wasteful spend on settlement investigations. These contracts can also provide a root cause analysis to prevent disputes from ever occurring in the first place. Blockchain also fortifies trust between stakeholders, and companies that store highly sensitive information can be assured their data is safe and cannot be accessed by unwanted parties.
The future utilization of blockchain technology in pharma is seemingly a matter of when rather than if. With all of the benefits, ranging from supply chain management to regulatory compliance, safety, and fraud detection — in addition to cost-saving opportunities — blockchain will likely continue to be collaboratively tested and perfected among organizations in the near and long terms. Beyond the applications explored in this piece, blockchain also has potentially beneficial use cases in clinical trials, storage and access of patient health data, and global pandemic countermeasures. Collaboration is key in fully harnessing the power of blockchain, but with its many benefits, we are likely to see it continue to be leveraged in greater capacities across the pharmaceutical industry.
“Blockchain Defined.” Oracle. 2021. Web.
“Blockchain—The New Technology of Trust.” Goldman Sachs. 2021. Web.
McCauley, Alison. “Why Big Pharma is Betting on Blockchain.” Harvard Business Review. 29 May. 2020. Web.
“Blockchain in Pharma: Opportunities in the Supply Chain.” Pharmaceutical Technology. 31 Oct. 2017. Web.
Treshock, Mark. “How the FDA is Piloting Blockchain for the Pharmaceutical Supply Chain.” IBM. 4 May. 2020. Web.
“FDA DSCSA Blockchain Interoperability Pilot Project Report.” IBM. Feb. 2020. Web.
Hochberg, Gal. “How Blockchain Could Save Big Pharma Billions.” Nasdaq, Inc. 23 Sep. 2020. Web.
Kshitij (TJ) has been a part of Nice Insight since 2014. TJ’s role involves research design and operations, developing and maintaining syndicated studies, business intelligence data analysis, content development and article writing on the latest developments in the biopharmaceutical industry. Prior to market research, TJ spent time in academia research working on a broad range of subject matter, including pharmacoeconomics, drug delivery and genetics. TJ holds a masters of biotechnology degree from the University of Pennsylvania.