The Role of Blockchain Technology in Pharma Supply Chains

Blockchain is a decentralised and distributed digital ledger system that chronologically records transactions across multiple computers. Each data or transaction is stored as a ‘block’, and each block is linked to another, forming a chain – hence the name, blockchain technology. Blockchain has been integrated into various industries, such as finance & banking (cryptocurrencies), healthcare, supply chain & logistics. Incorporating blockchain into the pharmaceutical industry, specifically pharma supply chains, is also promising because of many use cases.

Common Use Cases of Blockchain Technology in Pharma Supply Chains

Drug counterfeit prevention

The number of reported counterfeit incidents in the pharmaceutical industry has doubled within five years, from 3,600 reported incidents in 2017 to 6,800 reported incidents in 2023. The counterfeit pharmaceutical sector is also expected to grow rapidly in the upcoming years, forcing pharma companies to adopt new technologies to prevent the counterfeiting of their drugs. The technology with the most potential in this aspect is blockchain.

Blockchain can be used to create a unique immutable record for each pharmaceutical product; this record allows the real-time tracking of the drug across the supply chain, allowing all stakeholders to verify the product's authenticity when they receive it.

Smart contracts

Pharma supply chains include many stakeholders—manufacturers, suppliers, distributors and small vendors. Each stakeholder has multiple contracts with other stakeholders and needs to manage payment. However, the chances of fraud and manual errors are higher in such a complex network. Furthermore, payment delays and contract disputes are pretty probable.

Blockchain can automate payment for all stakeholders of the pharma supply chain. The integration of smart contracts ensures the payment is automatically complete when pre-defined conditions are met (e.g., once supplies are delivered). This reduces delays in transactions. Furthermore, when all transactions in the supply chain are managed by smart contracts and logged in an immutable ledger, there are fewer chances of manual errors and fraud.

Cold chain monitoring

Biologics and vaccines often require strict temperature control during storage and transportation. Temperature fluctuations can damage the product, changing its efficacy and quality. However, by integrating blockchain into cold chain monitoring, companies can realise the secure, real-time and tamper-proof tracking of biologics and other temperature-sensitive pharmaceutical products.

To this end, companies must integrate Internet of Things (IoT) sensors for real-time temperature data collection from storage units and vehicles. The IoT data is stored in a blockchain ledger, making it immutable. All stakeholders can access the shared blockchain network and view the logs to verify the shipment’s integrity.

Supplier verification

Pharmaceutical products are subject to stringent quality requirements, and using one sub-standard or fake raw material can compromise the quality of the entire batch. Unfortunately, identifying the sub-standard raw material that compromised batch quality after the fact is difficult but can be simplified using blockchain.

The immutable ledger made using blockchain can maintain a tamper-proof record of all supplies and their quality at the origin. Then, their quality as they’re processed throughout the manufacturing process can also be managed. Hence, sub-standard raw materials can easily be traced back to the origin, allowing companies to verify vendor credibility.

Recall management

Identifying and removing defective or contaminated products from the market is time-consuming and expensive for all pharma companies. However, blockchain can simplify this process. The ledger allows the tracing of the defective products from the source to the customer, allowing companies to manage recalls proactively--that is, they can track the specific batch to the customer and need not remember all products sold within a timeframe.

Many of these use cases are currently being explored. For example, Merck, IBM, KPMG and Walmart are collaborating to create a shared permissioned blockchain network for the real-time monitoring of products. These applications of blockchain technology in pharma supply chains are being widely studied because of the well-known advantages of the technology.

Advantages of Blockchain Technology in Pharma Supply Chains

Here are some advantages of blockchain because of which it is being implemented in pharma supply chains:

Decentralisation

In traditional data storage and management systems, data is stored on central servers (single entity), susceptible to data breaches and tampering. However, blockchain distributes all data on a network, and no single entity owns the data. Hence, it reduces the risk of data breaches and cyberattacks.

Immutability

In traditional data storage and management systems, data can be changed by anyone who has access to it. Furthermore, these changes are not always tracked, making data in pharma supply chains susceptible to tampering. By contrast, blockchain offers immutability. Once data is recorded on a blockchain ledger, it cannot be altered or deleted, reducing tampering and fraud opportunities and preserving the integrity of data records.

Transparency

In blockchain, all participants in a blockchain network have the same information. All transactions are visible to all participants in real time, increasing the system's transparency. In a complex ecosystem like pharma supply chains, this transparency reduces the chances of fraudulent activities and increases supply chain visibility, increasing trust.

Encryption

Blockchain also offers high data security. Using cryptographic techniques, blockchain can secure critical data to protect sensitive information. This is especially beneficial in pharma supply chains, which hold vital information like drug formulations and patient records. Cryptographic techniques like hashing and digital signatures prevent unauthorised access, reducing cybersecurity risk.

Consensus mechanisms

Consensus mechanisms allow participants to verify transactions before adding them to the blockchain network. For example, participants must verify transactions using proof of work or proof of stake mechanisms before they are added. This ensures only transactions considered valid by all parties are added, preventing fraud and double spending.

In brief, these advantages mean that blockchain can improve the system's reliability for stakeholders. They can be sure only valid transactions are added to the ledger, and that added transactions cannot be manipulated or leaked. These are incredibly considerable advantages in the pharmaceutical sector, where almost all information is sensitive. Unfortunately, pharma companies need to overcome some restrictions to realise these advantages.

Challenges Restricting Blockchain Technology

Here are some key challenges restricting blockchain adoption in pharma supply chains:

High costs

Setting up a blockchain network across a pharma supply chain requires a significant investment in infrastructure and software. Pharma companies must upgrade or replace existing systems across all locations to meet the required standards. Most small and mid-sized pharma companies cannot justify such high upfront costs.

Regulatory uncertainty

Like in the cases of AI and machine learning, global regulatory bodies have yet to define blockchain. Hence, there are no specific guidelines on regulatory bodies' use (or misuse). As pharma companies must ensure compliance with all policies, blockchain technology's uncertainty has restricted its adoption.

No standardisation

Different stakeholders use different blockchain systems, which may not always be compatible. Blockchain integration across all levels of the pharma supply chain is challenging when each stakeholder uses different software. Furthermore, many stakeholders use legacy systems incompatible with new technologies, further slowing down blockchain integration.

Scalability difficulties

Pharma companies process thousands of drug transactions per day. Managing all these transactions on a blockchain system requires high-speed processing. Most current systems cannot keep up with these requirements. For example, common public blockchains (e.g., bitcoin) can process 7-10 transactions per second, which is about 400 transactions per minute. For perspective, all pharmacies in any city probably see the same number, making current blockchains highly unsuitable for the pharma industry’s needs.

Data challenges

One of the advantages of blockchain is data privacy and immutability. However, pharma data often requires modification and anonymisation. This is challenging when using a system that doesn’t allow you to edit data. Blockchain transparency needs to be balanced with confidentiality.

Where Are We Headed?

While relatively less studied, Blockchain technology has great potential in the pharmaceutical sector. Its immutability, decentralisation and transparency allow pharma companies to address data security and privacy concerns. Many Big Pharma companies are testing the waters: Novartis and Merck are launching pilot projects, Pfizer has also implemented blockchain for recalls and chargebacks, and Novo Nordisk is implementing blockchain in clinical trials. These are pilot or small-scale projects; the industry-wide adoption of blockchain still depends on many factors.

FAQs

1. In which other areas of pharma can blockchain be implemented?

Blockchain can also be integrated into clinical trials management, cold chain logistics, pharmacovigilance and regulatory submission.

2. What are smart contracts in blockchain technology?

Smart contracts are self-executing agreements that are automatically fulfilled when the trigger is reached. For example, a payment smart contract for shipment will automatically complete the transaction once the shipment is received by the facility.

3. How will blockchain adoption benefit the pharma industry?

Blockchain adoption will increase transparency, industry collaboration, and reliability among stakeholders, which will improve the existing ecosystem for all involved.