Blockchain in Pharma

10 min readAug 19, 2019

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Overview

Blockchains and other distributed ledger infrastructures (DLI’s) are the backbone for which autonomous and intelligent machines will reshape and decentralize global trade, supply chain, and pharmaceutical networks in a more trusted way. The pharmaceutical supply chain, is ripe for innovation and it is hard to ignore the increasing demand for data transparency, as it relates to the provenance and pricing of pharmaceuticals, across our fragmented pharmaceutical supply chain networks. In some of the largest pharmaceutical supply chains in the world, humans manage network state with the support of large, complex enterprise solutions, analytical systems, and data-management systems. For machines to autonomously and intelligently do business with each other across our pharmaceutical supply chains, we must first have a global standard for state management — one void of human intermediaries — to deliver on the promises of AI, industrial IoT, and additive manufacturing. Moreover, knowledge sharing of health research has been fairly limited between pharmaceutical companies due to a lack of trust and intellectual property constraints. With blockchains and other distributed ledger infrastructures (DLI’s) and the collaboration of many participants across our entire healthcare arena, our pharmaceutical supply chain networks will be able to leverage the power of autonomous and intelligent machines to help meet the demands of tomorrow’s rapidly evolving challenges.

The Pharma Engine

The pharmaceutical industry is as complex as it is important. The medicines that emerge from the efforts of the various sectors in this industry are vital to quality of life and even, in some cases, to life itself. Prescription medicines are the result of years of work and scientific exploration. At the beginning of the pharmaceutical supply chain, raw materials are harvested and manufactured to form prescription drugs. It is the job of the manufacturer to evolve the elements from mere substances to viable pharmaceuticals. Once a medication is approved by regulating authorities, it is ready to be sold to consumers. However, customers very rarely purchase medicines directly from manufacturers. Instead, pharmaceuticals are sold from the manufacturer to wholesale distributors. Pharmacies purchase the medications from wholesalers but usually do so through a third party, such as a PBM (pharmacy benefit manager). PBMs work within the pharmaceutical industry with all of the key players, including payers, to help determine the price of prescriptions. After the price is set, pharmacies take possession of the medications that are prescribed by doctors for consumers. The final step in the supply chain occurs when the customer picks up the prescription from the pharmacy and takes possession of the medicine.

Although very complex, there are six key divisions in the pharmaceutical supply chain. The entire process involves a complex level of interaction between the various sectors.

The following graphic is a visual representation of the divisions and their role in the pharmaceutical supply chain:

Problems with The Pharma Engine

From the harvesting of raw materials to the consumption of pharmaceuticals, it is vital to track the movement of all materials through the supply chain. Being able to accurately trace the movement history of pharmaceuticals is instrumental in preventing fraud and ensuring patient safety. One of the main issues with the current pharmaceutical supply chain is the low level of traceability. Although the degree to which medications can be tracked has improved with the practice of serialization- this measure alone has not, and cannot, solve the traceability issue because there lacks serialization standards throughout the industry.

Fraud occurs as a result of serialization shortcomings. This exists in many forms- from drug counterfeiting to theft, but ultimately, if a record can be altered without detection- fraud will continue to wreak havoc on the pharmaceutical supply chain. Fraud often results in data security endangerment, but there are other obstacles in the pharmaceutical supply chain that can cause a data breach. One of the most prominent of these obstacles is the current state of data management. Given that most companies use centralized methods for collecting and storing data, if a server is compromised, as they often are due to cyber-attacks, all of the data stored on the servers is put in jeopardy.

As key players work to solve these complex technological inefficiencies, the cost of pharmaceutical drugs continues to rise. By virtue of the current pharmaceutical supply chain conditions, there are many entities that sit between the drug manufacturer and the consumer. Until these issues are resolved we can expect that they will expand, becoming more insurmountable each year. In order to fix the current complications, all key sectors within the pharmaceutical industry must be willing to adopt new technological innovation. One such technology is called blockchain and, if implemented, blockchain has the potential to revolutionize the pharmaceutical industry and become the foundation for which autonomous and intelligent machines can power the next generation of pharmaceutical supply chains.

Blockchains and DLI’s

Blockchain is a type of distributed ledger infrastructure (DLI) and communications protocol for the internet. It was originally designed as the underpinning infrastructure for the digital asset Bitcoin, which combines elements of computer science, economics, and game theory. Blockchains and other DLI’s represent a paradigm shift in how we input, store, retrieve and trade value over the internet. Most importantly, blockchains and other DLI’s are designed to be decentralized, whereby all infrastructure decisions are not centrally governed by any one entity, which will increasingly matter as autonomous and intelligent machines begin to power our trade, supply chain, and pharmaceutical networks.

The inception of blockchain first began with the launch of the Bitcoin network on January 3rd, 2009 and has since given rise to many other blockchains and DLI’s such as the tangle DLI and Hashgraph DLI. What makes each DLI different is simply in the way they are designed to allow information to be managed across the internet. The architecture for DLI’s vary depending on the goals of the network. Some DLI’s are public like Bitcoin, some are private like Hashgraph, and some are federated like hyperledger.

While the original goal of the Bitcoin DLI was to create a peer-to-peer version of electronic cash which would allow online payments to be sent directly from one party to another without going through a centralized financial institution, it evolved into something far greater.

Technologists, economists, and scientists around the world studied the Bitcoin DLI and began collaborating and experimenting to further develop upon the Bitcoin DLI which led to the discovery of alternative use cases that go beyond financial applications. As a result, on July 30, 2015, a new blockchain project called Ethereum emerged. The innovation brought on by the Ethereum project is called smart contracts, which power decentralized applications (DApps) and new forms of complex business logic. Essentially, Ethereum functions like one big shared computer which allows anyone to build autonomous and intelligent machine applications for, complete with an immutable database that is easily auditable and not centrally governed.

Not only does blockchain ensure privacy of transactions by encrypting each ‘block’ of data, but it also safeguards security by making records tamper-proof for no cost by keeping the ledger accessible to everyone participating in the chain. Blockchain technology is hailed for keeping any asset (digital or physical) traceable. Using a verifiable chain of trust, one can track and check for updates of an asset by leveraging simple technologies like a QR code scanner.

Blockchain Pilots in Pharma

Merck blockchain project: In 2017, Merck partnered with Animal Ventures, an emerging technology consultancy, to pilot a multi-stage blockchain project. The goal of the project is to develop a new global pharmaceutical supply chain logistics framework that offers a series of micro-solutions that, collectively, lend new speed, reliability, security, and agility to industry supply chains rather than a single, comprehensive solution.

The first stage of Merck’s blockchain project was built on the Ethereum blockchain DLI and focused on giving internal and external stakeholders access to transaction data, along the supply chain through the foundational framework that securely encrypts, delegates, stores, and retrieves highly sensitive documents. Moreover, data will be able to flow through the supply chain even in trustless environments. Although Merck is labeling this a blockchain project, autonomous and intelligent machines will also play a critical role in the project, as they will be used to communicate vital and sensitive information to all network participants in a trusted, scalable, and cost-effective manner.

Craig Kennedy, the SVP of Merck’s Global Supply Chain Management division, and sponsor of the project, said, “If you look at a lot of the entire healthcare supply chain, the exchange of information in the silos we have created in the past have not only negatively impacted each company but also the ecosystem as a whole. Whether it is serialization mandates, anti-counterfeit strategies, or the ability to transition transactional information to our customers in an easier fashion, those are the things we all struggle with today.”

MediLedger project: The MediLedger project was launched in 2017, by Chronicled Technologies, and aims to demonstrate compliance with the 2013 Drug Supply Chain Security Act (DSCSA), which leverages the Ethereum blockchain and is designed with permissioned controls that prevent the double transfer of a serialized unit. Chronicled is looking to achieve this goal by establishing electronic standards that identify and trace certain prescription drugs as they move along the pharmaceutical supply chains in the United States.

The problem with the DSCSA is that the unit-level serialization requirement lacks controls that prevent counterfeits that negatively impact patients health. Chronicled Technologies brought together Pfizer, McKesson, Genetech, Amerisource Bergen, and Gilead to explore how blockchain DLI’s can meet DSCSA regulations, protect patients, and improve the overall operations of the pharmaceutical supply chain. Susanne Somerville, CEO of Chronicled Technologies said, “Our vision for an industrial blockchain ecosystem would have an open architecture, allowing a free, competitive market with appropriate governance.”

Yijian blockchain project: IBM and Sichuan Hejia Co., Ltd. teamed up in early 2017 to launch an blockchain financial services project called, the Yijian blockchain technology application system, for pharmaceutical procurement. Yijian is built on the Hyperledger Fabric designed with permissioned controls to improve the transparency, efficiency, and operations of supply chain finance.

Due to China’s underdeveloped credit system, smaller pharmaceutical retailers wait up to 90 days to receive payment after delivering drugs to hospitals. Yijian is designed to help funds to be released faster to all parties in the supply chain.

Additionally,Yijian allows financial institutions to make more informed decisions when granting small and medium pharmaceutical retailers access to funding and uses the Yijian system to track drugs through the supply chain which can be authenticated through highly secure encryption mechanisms.

Mr. Leng Tianhui, Board Chairman of Hejia, said, “In the future, the platform will expand to include more industries to provide participating companies and financial institutions with transparent and efficient financing services built on blockchain-based innovation in a business model that will contribute to China’s economic development.”

Challenges with Blockchain in Pharma

Blockchain technology solves many of the issues that currently exist throughout the pharmaceutical supply chain. However, blockchain is not a one size fits all solution and there are some key considerations that impose challenges to the implementation of blockchain technology in this industry. Before blockchain is able to achieve mass-adoption, the following elements will need to be considered:

Governance: Ensuring that the blockchain technology is compliant with existing governances (esp HIPAA) and writing new regulations ones around this innovation. Once data is put on a blockchain its owned by the network and therefore a sound governance model is needed to ensure that network is truly decentralized, trusted and efficient, especially when deploying autonomous and intelligent machines
Scalability: Blockchains today lack the level of scalability necessary to record transactions at the speed of the automated machines which manufacture and distribute drugs.
Interoperability: Often times, blockchain systems are not compatible with each other. In a closed ecosystem, such as that of the pharmaceutical industry, stakeholders and participants are highly reliant on each other. Mass adoption of one specific blockchain technology is critical for consistency and communication across the supply chain.

Broader Considerations

Current blockchain projects for the pharmaceutical industry all seem to be addressing similar core foundational problems and approaching them from different angles. However, once the foundational infrastructures are formalized, more interesting applications can emerge. One such future application is the tokenization of pharmaceutical recipes, which can lead to trustable and secure knowledge sharing whereby pharmaceutical companies can leverage blockchain to collaborate and share intellectual property without worrying about theft. Due to the nature of blockchain, a company can encrypt their research, open source their recipe to a new drug, and present it to other players securely with the help of cryptography. Moreover, the firm can track real time collaboration, be in full control of their data, and generate revenue from sharing their recipe rather than keeping it in siloed databases.

There are many DLI solutions that are each looking to solve very complex problems. The technology does however, afford the opportunity to rebuild a more efficient pharmaceutical supply chain. The adoption of such technologies will require large and small stakeholders to collaborate and ideate and decide which rules to adopt, that will ensure the pharmaceutical supply chains of tomorrow enable a world in which people have greater access to the medicines that are needed most to treat and prevent the onset of disease.