Why Big Pharma Is Betting on Blockchain

Since the early days of the Covid-19 pandemic, world-class hospitals from New York to Atlanta to San Francisco struggled with shortages of basic safety equipment. Masks, gowns, and face shields have all been in short supply, and the race to get more has meant hospital staff and public officials desperately searching for reliable suppliers. Elsewhere on the front lines, there have been critical shortages in the test kits that experts agree are essential to reopening economies the world over.

Swift escalation in demand meant staff couldn’t rely on long established procurement processes. They needed to source new vendors and find and reallocate supplies quickly — and this pressure brought new visibility to long-festering problems in the medical supply chain. In the U.S., CDC and FDA officials warned that fraudulent respirators are in distribution and fraudulent test kits for Covid-19 are being sold online. The federal government recently placed more than $110 million in N95 mask orders at high prices with unproven vendors.

Problems in the medical supply chain are neither new, nor uncommon, and it’s easy to see why: These products can travel through tangled, global supply chains in which documentation is often manual and paper based, piling up at each handoff and border crossing. As a result, theft and quality control issues are common, and regulators and distributors struggle to locate substandard products that have entered the system. The World Health Organization estimates that one in 10 medical products — including pills, vaccines, and diagnostic kits — are substandard or falsified in low- and middle- income countries. In other regions, theft is the greater problem. BSI Group, the national standards body of the U.K., estimates pharmaceutical cargo theft at over $1 billion a year, with the U.K. and U.S. accounting for nearly half of all theft.

Unfortunately, today’s chaos may prove to be a practice run for even more concentrated pressure on our health care supply chains. When we do produce effective treatments or, eventually, a vaccine, millions — and even billions — of people around the world will simultaneously want the same thing, and it will be in limited supply.

To fix some of these supply chain vulnerabilities, the industry is turning to blockchain technology. With a blockchain — which can make it cheaper, easier, and faster to verify what is true when a business process spans organizations with competing interests — companies can safely work together in a shared, permanent ledger. They can do this without giving up control of or even revealing their data, as mathematical proof of data can stand in as a trustworthy proxy for actual data. Instead of being owned and managed by a single company that everyone must trust, the ledger is governed by all members of a network. Because this makes it possible to delegate the work of checks and balances to cryptography and code, blockchains can reduce friction, expose fraud, and assure product authenticity with new speed.

Better Together

The advantage of a blockchain-based system is that competitors can collaborate on a shared platform to, say, raise drug safety without sharing sensitive information. That’s exactly the idea behind the MediLedger Network, a consortium focused on pharma supply chains that counts leaders including Gilead, Pfizer, Amgen, Genentech, AmerisourceBergen, and McKesson among its members. Chronicled, a startup, provides the underlying technology.

The first solution in production from MediLedger is a product verification system that makes it easier to verify that a returned drug is authentic — a common, but difficult process. According to the Healthcare Distribution Alliance, approximately 60 million units of saleable drugs are returned annually. The work of verifying that these drugs are authentic before they’re resold falls to wholesalers, who must contact manufacturers to track down serial numbers, a process that can take up to 48 hours. Using blockchain, wholesale distributors can make the same verification in less than a second using a barcode scanner, so product can be quickly put back into commercial distribution, and manufacturers maintain control of their data. This rapid serial number verification can also be used to help hospitals and pharmacies. With no infrastructure beyond a web browser and a barcode scanner, staff can verify that a drug is authentic as it is placed on the shelf. Counterfeiters could still copy barcodes in an attempt to pass drugs off as legitimate — but the ledger will flag and permanently record suspicious activity.

MediLedger is working on a next phase: to apply this technology to “track and trace,” the process of identifying where a specific box of drugs is and where it has been, at any time. With the blockchain, this process can be done without revealing confidential business intelligence to anyone in the ecosystem. MediLedger recently completed a pilot using a blockchain for track and trace with 25 participants, including retailers Walgreens and Walmart, transportation provider FedEx, standards organization GS1, wholesale distributors including AmerisourceBergen and Cardinal Health, and manufacturers ranging in size from 100 employees to 125,000.

Ultimately, MediLedger Network participants will be able to enforce business rules in real-time as a box of drugs travels from one handoff point to another across an entire supply chain, even in the outer recesses of an ecosystem, far beyond a manufacturer or distributor’s control. Along the way, auditing is automated and embedded, flagging problems and who has custody as it happens. When drugs reach their final destination, it’s as if they arrive with a black box of data to assure not only authenticity but they have complied with business rules during their entire journey. In an interview, Chronicled CEO Susanne Somerville said, “It’s like placing your own embassy behind a trading partner’s firewall.”

Forging the Links

There is, of course, a catch: Blockchains are an ecosystem technology and only bring benefit when the technology is not only broadly adopted, but when physical systems work with it. More industry standards are needed to make it all truly interoperable. For example, the visibility of any technology is limited by manufacturers’ packaging. In some of the countries with the greatest fraud, serialized numbers are not yet required on a box of drugs; pharmacies move drugs into hoppers before they repackage them; hospitals use dispensing systems. Full track and trace, for example, would need to connect the network to these systems.

However, there are new, strong incentives adding to the pressure for change. New regulation is amplifying pressure for the pharmaceutical industry to work better together on developing standards. In the U.S., the Drug Supply Chain Security Act (DSCSA), which was signed into law in 2013, has a deadline of 2023 for manufacturers to achieve track and trace of all transactions involved in transporting medications from factory to patient. The E.U.’s Falsified Medicines Directive lays out rules to combat fake medicines in the region, and includes anti-tampering security on packaging and tracking requirements.

As both the technology and the industry’s processes for working together matures, blockchains could help us get better and faster at getting medicines and vaccines to where we have the most epidemiological urgency. With more granular visibility, stakeholders could better zero in on clogs in supply chains, more quickly locate and remove expired, damaged, or fraudulent products, see where supplies are low, and efficiently redistribute inventory to where it is needed most.

This will most certainly not be our last global health crisis. Blockchains could not only help us increase agility during extraordinary black swan events, but also help us operate better in day-to-day operations. While this work is focused on the pharmaceutical industry, the underlying protocol can be repurposed and customized to advance any supply chain — from the personal protective equipment that has been in such short supply to products in any industry. As we wake up to the fact that our health and economic welfare is interconnected with those thousands of miles away, it becomes clearer that we need to leverage our global resources to effectively fight large-scale problems. Blockchains could help us do this more safely and efficiently.