Blockchain is beginning to make itself known in a wide-range of industries. Executives in companies ranging from healthcare to property management are exploring how distributed ledgers can be applied to their industries.
One area in which the ability to record data in a tamper-proof and transparent way could be particularly beneficial is the sprawling and complex pharmaceutical supply chain that encompasses the development, manufacture and distribution of drugs that are used by hospitals, healthcare centres and sold over-the-counter to consumers.
We spoke with Maria Palombini, Director, Communities & Initiatives Development, Global Business Strategy & Intelligence, IEEE Standards Association, about the potential benefits of blockchain for the US pharmaceutical industry and the specific barriers to adoption that exist.
IEEE has an on-going project called The Pharma Blockchain Initiative, which is looking at how emerging technology can be upsized or applied in ways that will optimise processes across the pharmaceutical network. The aim is to not only make the whole industry more effective, but also to ultimately lead to better patient safety and care.
The logical place to start seemed the pharmaceutical supply chain. “We hosted an event back in June entitled ‘Pharma Supply Blockchain Forum’ which specifically looked at using the blockchain application on the pharmaceutical supply chain operation, for a couple of reasons,” explains Palombini.
“We were looking at it as a means to achieve compliance with the FDA’s Drug Supply Chain Security Act (DSCSA); and, also to better manage inventory, to facilitate true collaboration amongst trusted partners, and combat counterfeit medicines because it is becoming a rapidly rising global epidemic.”
The discussions and outcomes of the Forum led to the development of a groundbreaking study that was released in November 2017. The goal of the study was to get the perspective from the three major arms of the pharmaceutical supply chain: the manufacturers, the wholesalers and the dispensaries (ie. retailers and healthcare facilities). The study targeted current operational executives, who were either actively exploring blockchain or were in a pilot or proof of concept (PoC) phase. The goal of the study was not just to be about the potential advantages of adopting distributed ledgers, but also the barriers that are currently impeding progress.
“The consensus is that there is a lot of opportunity with blockchain, it can do all these things in every single industry,” says Palombini. “But, we really wanted to get to the crux of the challenges, which is a lot more about processes, policy and protocol, and really hear what these executive’s concerns are.”
The United States is home to the largest single drugs market in the world in terms of distribution. The US alone accounts for around 45% of the global pharmaceutical market, and was valued at $446 billion. The supply chain is made up of a relatively small number of large multinational manufacturers that make up the vast bulk of all manufacturing. The 10 largest corporations accounted for around 60% of total US sales in 2004.
These manufacturers distribute their medicine to wholesalers who then move it onto dispensaries. The number of wholesalers has declined rapidly from around 200 in 1975 to less than 50 in 2000, with the top three accounting for around 95% of their market.
Needless to say, the system is large and complex, with many moving parts and a lot of money flowing through it. The question that IEEE was seeking to answer was whether enough of a consensus could be built around blockchain in order to implement structural change to the system?
“We found that the pharmaceutical manufacturers were the most incentivised to either participate in a permissioned blockchain or to build their own,” Maria explains. “The wholesalers and retailers exhibited more of a position ‘if you build it, we will come’. They are still a little bit sceptical on the outcomes.”
The benefits that were seen by all the separate parts of the supply chain highlighted were related to their different areas of focus. For manufacturers, blockchain represents a potentially highly efficient way to secure the supply chain and comply with FDA DSCSA at the same time. The picture was a little more complicated for the other players in the supply chain.
“The wholesalers and the dispensaries saw the derived benefits of the blockchain as being better inventory management and control,” says Palombini. “In this case they saw it as a better way to anticipate drug shortages, because that seems to be a recurring problem – where Pharma are reacting to drug shortages and provide alternatives to address the issue resulting in adverse reaction and increased costs for patients.”
pharmaceutical manufacturers were the most incentivised to either participate in a permissioned blockchain or to build their own
When it came to the barriers that are currently stopping the pharmaceutical industry from leaping on blockchain, opinion was always not uniform. One major concern did, however, ring out loudly above the others.
“When we looked at barriers, we saw that they all commonly thought that cost and getting acceptance or buy-in from users are barriers to implementation,” recalls Palombini. The overriding opinion was that blockchain was likely going to take financial and human resources to migrate and make all platforms interoperable.
“The wholesalers and the dispensaries told us that pharma should take the financial and maintenance responsibility for it,” said Palombini. “They also correlated financial investment with data ownership, which indicates there needs to be more education on the concept of decentralization and a new view of data ownership.”
Interestingly, the manufacturers did not seem to be buy into a key claim put forward by blockchain proponents, that setting one up would be financially beneficial. “The current focus is utilizing the tool to be compliant with the FDA’s DSCSA,” recalls Maria. “Unlike the wholesalers and retailers, manufacturers did not place more weight on the use of blockchain for better management of inventory.”
This is interesting because it indicates that there is still a significant education gap amongst executives, even those actively engaged in pilot schemes. The idea that blockchain was worth investing in primarily as a compliance tool seemed to prevail amongst manufacturing executives. Palombini thinks that they could not be considering a range of additional benefits:
“I think all in all, it showed that process, policy and protocol are still the things that they are trying to work out. Ultimately, the study showed that those currently in a PoC or pilot phase showed an inclination to progressing to the next stage of implementation.”
Maria says that there was no evidence of any party starting up a blockchain project, only to later abandon it.
“We don’t see the challenges as road blocks, we actually just see them as things that still need to be resolved,” she said.
What makes blockchain such a good potential solution for pharma?
The last year has seen companies and advisory bodies around the globe proclaim that blockchain is going to revolutionise every industry in the next few years. While a lot of this is likely to turn out to be hyperbole, there are a number of features of the US pharmaceutical industry that mean blockchain could actually improve the system in a number of key ways.
If you look at the pharmaceutical supply chain, the first thing you’ll notice is that efficient distribution of drugs to consumers and patients relies on a large network of external parties working harmoniously together. In short, it is not a simple system.
“The challenge with the pharmaceutical system is the legacy platforms,” agrees Palombini. “It’s an IP-sensitive, heavily regulated industry and the idea of data sharing, and this is one of the things that pharmaceutical manufacturers pointed out in the study, the idea of trust in an autonomous system, with a decentralized approach to their supply chain operation was one of the biggest barriers. It is all about uncertainty which is not uncommon when employing an emerging technology.”
The idea of data sharing is not one that many pharmaceutical manufacturers are comfortable with. The industry is heavily reliant on each company having complete control of their intellectual property, and keeping it hidden from their competitors. Many of the executives also equated blockchain with giving regulatory bodies carte blanche to see whatever they wanted. This would not be the case with a permission-based blockchain, where access and visibility can be assigned and data remains anonymous, timestamped and audited. So blockchain could potentially allow data sharing relating to supply chain efficiency without opening up a company’s secrets to the world.
Another facet of the need for increased data sharing is the requirement to better harmonise with their partners along the supply chain as part of the FDA’s DSCSA and other regulatory bodies’ guidelines for securing the supply chain.
“The idea is to have a system that is permission-based, that allows them to share the necessary data to stay compliant but to also better secure the system as well is a better incentivisation,” says Palombini.
“As with most companies, data resides in a centralised database accessible to the privileged few, forcing a duplicative and manual process to share data among trusted partners. The current silo approach has created an opportunistic market for counterfeit medicines and the rise of unregulated internet pharmacies creating detrimental impacts to patient safety and entity revenue.”
An example of where the current system is falling short is when it comes to trying to effectively anticipate drug shortages. This can balloon into a significant patient care and financial issue, especially with regards to certain kinds of diseases where there is already a limited number of drugs available or in the event of outbreaks. Since manufacturers don’t have clear visibility into inventory they have no proactive way to anticipate shortages thereby forcing patients to use expensive alternatives that may cause adverse reactions because of the different ingredients.
But, for Maria there is another key issue weighing on the minds of everyone involved in the supply chain:
“The biggest challenge that everyone is facing is the growth of unregulated internet pharmacies.”
The best defense to the growth of unregulated internet pharmacies is a knowledgeable consumer/patient. Currently the track and trace system with serialization is designed to go from manufacturer through to the retailer, even with blockchain. However, blockchain enables for patients to verify the source of the drug and its journey to the end-user without sacrificing data privacy or IP. If regulators and all the key trading partners can develop process that would allow for the continuation of the serialization data to pass through to the coding on vials dispensed to the patients, then the knowledge passed through to the patient via blockchain would be the best weapon in the counterfeit medicine market. This should be the best incentive for all stakeholders in this process – manufacturers, wholesalers, retailers, regulators and patients – to give blockchain a chance.”
the current silo approach has created an opportunistic market for counterfeit medicines and the rise of unregulated internet pharmacies
Transparency and the growth of internet pharmacies
The drive towards more transparency to combat counterfeit drugs making their way into the hands of consumers and patients is not just a concern of the players in the supply chain. Increasingly regulatory bodies such as the FDA and the EUFMD are putting in place more extensive regulatory guidelines to better track and trace the drugs through the supply chain. However, regulation is only one-side of the equation, with a change in governance being equally important.
Whether all parties in the supply chain are willing to try and implement deep governance changes, and whether blockchain is widely viewed as a tool to facilitate this, is not clear. Transparency here can be seen as a double-edged sword. While the idea that patients can verify their drugs is universally seen as a good development, there are also concerns about how this would begin factoring into the buy/sell process. For retail pharmacies, the big fear would be that manufacturers would begin to cut them out by selling directly to the patients.
“That’s their fear, that the big companies might start bypassing the process,” says Palombini. “I don’t foresee that happening, because the value for pharmaceutical companies is not selling drugs but the data generated throughout the drug development cycle through to consumption. I think time will tell as all the players become more comfortable with the technology and its fulfillment of the promise to share data in a way that retains data privacy.”
The idea of a ‘public blockchain’ conjures up images of all of a company’s data freely available to anyone that wants to look at it. For Maria, it really came down to a lot of the executives having trouble visualising “their data” being replicated in an autonomous way in a decentralized platform. This fear is not exclusive to enterprises either.
The best way to address the fear is to continue to educate and engage executives to participate in consensus working groups. The study showed a direct correlation where those were less familiar with blockchain were less likely to advance to the next step of testing or implementation. The need for education on all sides of the equation is clear, if the industry is going to start creating processes and policies that tie in and work harmoniously with advances in technology then the voices of all stakeholders need to be taken into consideration.
One blockchain to rule them all?
So, if we make a really big assumption that all the multitude of entities involved in the pharmaceutical supply chain all decide that distributed ledgers are the way to go. The next set of questions seem equally complex.
Is each pharmaceutical manufacturer going to operate their own individual blockchain that incorporates all of the partners, or is everyone going to come together to create something on a much grander scale? Maria has seen two potential models that could be applicable to a supply chain of this size and complexity.
“There was one pharmaceutical manufacturer that was going along the route that was like the ‘federated consortium’ concept – where all the major pharmaceutical companies would point their supply chain data to one blockchain,” she says.
“Even though the governance and control of this federated blockchain is private and controlled, it still appears as though there is too much transparency amongst competitors,” Palombini says.
The second model works on a hybrid (Public + Private) blockchain where the participants on the blockchain are permissioned based on trusted party participations – manufacturers, wholesalers and retailers. This appears the preferred amongst the executives:
“The majority of them seem to be leaning towards model. I think it is because they have this perception that the data distribution is more controlled and secure.” In the end, it may come down to companies going through their own PoCs and pilots before they start letting go of this fear decentralizing control of their data.
“Ultimately, the best model would be a true public blockchain where all the companies can point their data so that pharma supply chain companies come in, but I think we are a long way away from that,” says Palombini.
the value for pharmaceutical companies is not selling drugs but the data generated throughout the drug development cycle through to consumption
There is definitely movement in this area, and it is likely that the next few years will see a rapid growth in the number of blockchain-related projects taking place in the pharmaceutical market. 30% of the IEEE study respondents reported that they were already in the PoC or pilot phase.
“When I first started researching this,” says Palombini. “Everybody was telling me that pharma was behind the curve with blockchain, that they didn’t know what was going on and they are not onto to it yet.” However, the results of the study indicated that was not the case, especially when you consider the number of respondents already in pilot or POC with the intent to move to the next phase.
“I think we’ll probably start getting some feedback about pilot studies in the next 12 months,” she continues. “I think sooner or later the technology providers are going to want to start putting information out, to get the industry motivated.”
As for the IEEE, the organisation is currently working with a leadership study group who are working on a simulation study with over 100 participants. The simulation is looking at the various ways that blockchain can assist with FDA compliance, and involves manufacturers, wholesalers and retailers actively building models and inputting data.
“Our goal is, once we go into real data, is that if any of those models prove true once we put real data in there and start using it,” says Palombini. “The goal of the standard is to drive industry-wide adoption. The barriers outlined in the study can be mitigated by a standard.”
When you consider barriers such as the credibility and the ability to interoperate with other platforms or the costs of customisation, technical standards reduce those barriers,” She continues.
The need for a standard
Palombini is optimistic that the results of pilot schemes will start emerging towards the end of 2018. Hopefully, when enough data has been collected, some serious proposals for what form an industry standard should take can follow. So, does Maria see the floodgates opening once a viable standard has been put in place?
“Definitely. When companies go at it alone because they want to have first market mover advantage they are least likely to discuss the failures,” she says. “But that’s the thing: with an emerging technology like this, people need to talk about the failures because otherwise we will never have the opportunity to correct the issues and innovate in order to have all entities leverage the benefits of the technology.”
The IEEE sees itself as occupying a valuable place in all of this frenzied activity. As a neutral, non-profit, it can talk openly discuss failures and successes without the fear of incurring commercial consequences, which is vital for spreading accurate information. While the organisation understands that blockchain is unlikely to be a magic bullet that solves every problem in the supply chain, it does present a fairly elegant solution to some of the more pressing problems.
“We have definitely identified problems in optimization and data security where blockchain can offer a viable solution,” Palombini concludes.
“Now it is just a matter of getting to grips with the little challenges along the way, and making sure that all stakeholders have a vested buy-in – so the regulators, the manufacturers, the wholesalers and retailers are all in agreement. That is part of the reason why we engage a community of diverse stakeholders so that we can build consensus on what the technical standard should address thereby providing the credibility and buy-in needed for industry-wide adoption.”