Gisli Herjolfsson, M.Eng., is co-founder and CEO of Controlant, gisli@controlant.com.

Gisli Herjolfsson

Enterprises that operate in the pharmaceutical supply chain are often flooded with product information, but only at the start and the end of each trip in which product is shipped. What happens between those two points is often a mystery. Without accurate and real-time data connecting time, temperature, product location, and other shipment data, it is impossible to know who has handled the product, whether it has been subjected to changes in temperature or other conditions during its voyage, or whether it was intercepted and replaced by counterfeit product.

As supply chains become more complex, the need for greater transparency and security has dictated the need for technologies that enable real-time visibility and predictive analytics. Terms such as blockchain, that were mere buzzwords just a few years ago, are gaining wider acceptance. Even within the pharma industry, which is still largely paper-based and has historically been slow to adopt new technology, more companies realize that supply chain digitalization and the use of new technologies will be key to ensuring data accuracy, reliability, transparency, and remaining competitive.

Digitalization plays a crucial role in the transformation of logistics by maintaining the chain of custody as products change hands and move throughout commerce. Although safety and security are primary concerns, technology also promises to reduce waste and drive return on investment (ROI).

COVID-19 has demonstrated the need for enterprises to maintain flexible, agile, and resilient supply chains in order to weather unanticipated disruptions. Digital transformation will enable enterprises to prepare their operations for future challenges.

Regulators are also driving change. In the United States, FDA’s Drug Supply Chain Security Act (DSCSA) requires that, by 2023, all stakeholders in the pharmaceutical supply chain enable electronic track-and-trace capability. US supply chain partners must have processes and systems in place that enable interoperable, electronic tracing of pharmaceutical products at the packaging level. In similar spirit, the European Union’s Falsified Medicines Directive (FMD), which took effect in February 2019, demands traceability, requiring that pharmaceutical companies include safety features on their products and that packaging data connect to a central data repository for the EU.

Evaluating bar codes and serialization was the first part of this journey to traceability. Other initiatives are evaluating blockchain (Sidebar) and other technologies to see how they might fit into a new interoperable track and trace system. In February 2019, FDA launched a number of blockchain pilot projects as part of the DSCSA, that aim to reduce domestic drug distribution errors and prevent counterfeit drugs from entering the supply chain. Not only have the pilots resulted in increased industry interest in blockchain, they signify a change in attitude on the part of regulatory authorities by sharing results of these studies to help industry establish best practices.

By definition, blockchain is a shared, trusted, digital transaction ledger of cryptographically secured time-stamped records (1) that everyone can inspect, but no single user controls. In basic parlance, blockchain consists of a timeline chain of “blocks,” where each block is a transaction record and linked to one another via timestamps and other attributes. Although there are private blockchains, the system is generally public and doesn’t reside on a central database. Instead, it is run on computers by individuals around the world. In other words, it is decentralized and distributed. Importantly, and perhaps its most significant attribute, blockchain uses heavy-duty encryption to ensure virtual security so that each time-stamped record is immutable and cannot be hacked or modified.

By making the entire supply chain transparent, the technology offers stakeholders a way to share product information on a single, distributed, and immutable ledger. This type of approach is essential when building the level of trust that is required for exchanging data between global stakeholders.

Blockchain can store many different types of data, including information on when, where, and to whom a shipment was handed off, as well as temperature and other conditions during shipment. Pharmaceutical enterprises are currently in the early stages of experimenting with blockchain for cold chain applications, evaluating its potential value to determine whether it is a viable long-term investment.

At this point, in light of track-and-trace regulation deadlines, the most widely discussed blockchain applications are counterfeit detection and authentication verification of returned drugs. However, complementary applications (e.g., its use in conjunction with Internet of Things [IoT] devices for condition monitoring, and in smart contracts that leverage this connection) demonstrate blockchain’s potential business value in other facets of managing the pharmaceutical cold chain.

The pharmaceutical industry maintains a highly regulated and complex supply chain, with many varied stakeholders involved in the manufacture and distribution of a single drug. Products often move through several points from manufacture through storage, distribution, and the last mile before they reach their final destinations. Environmental conditions have a direct impact on the quality and efficacy of pharmaceuticals. For example, temperature sensitive products such as vaccines must be maintained at specific temperatures (typically 2–8 ºC), which must be monitored and maintained from manufacture through the last mile.

IoT devices, which use smart sensors to record data, can be used to monitor temperature and other conditions throughout the supply chain. Unlike traditional USB data loggers, which require that each stakeholder maintain a separate ledger and determine product quality at the end of each shipment, IoT devices can monitor conditions in real time so that corrective steps can be taken immediately if and when problems occur during shipment.

For the past few years, the pharmaceutical industry has been taking a much closer look at blockchain. Preventing drug counterfeiting is a key focus, as are preventing more than $1 billion in pharma cargo theft and $7 billion in drug returns each year (1).

Early efforts to examine blockchain’s potential in pharma began in 2017 (2). Among the groups working on collaborative pilot projects to evaluate blockchain in pharma is the MediLedger Project, a group of 25 pharmaceutical manufacturers, leading pharma distributors, and major retail pharmacies (3).

Since that time, the industry has made progress. In January 2020, a study by the US Department of Health and Human Services’ Office of the Inspector General (4) found that product ownership (if not full e-pedigree) could be traced with existing technologies. MediLedger’s final blockchain pilot study report (5) showed that the technology could be used to meet the US Drug Supply Chain Safety Act’s track and trace requirements. Although it noted the need for more industry standards in a number of critical areas, the study pointed to blockchain’s potential to improve data synchronization, asset exchange, and overall business process automation.

1. A. McCauley, “Why Pharma is Betting on Blockchain” 

, May 2020.
2. A. Shanley, “Could Blockchain Improve Pharmaceutical Supply Chain Security?” 

Pharmaceutical Technology Outsourcing Resources Supplement

 (August 2017).
3. LedgerInsights blog, “FDA to Run Pharma Blockchain Pilots,” 

, December 2019.
4. S. Morrin, “Ownership—But Not Physical Movement—of Selected Drugs Can Be Traced Through the Supply Chain,” US Department of Health and Human Services, Office of the Inspector General, oig.hhs.gov, February 2020.
5. M. Sample, 

MediLedger DSCA Pilot Project Final Report

Using blockchain, all stakeholders involved in any individual shipment—including the pharmaceutical manufacturer, the logistics company, wholesalers, distributors, and pharmacies—would be able to access environmental sensor data captured in real-time through IoT devices.

Data would then automatically be sent to a cloud software platform, which would validate the system and ensure that it meets regulatory requirements. This approach would increase transparency, collaboration, and accountability among stakeholders, and mitigate supply-chain risk.

For example, a pharmaceutical manufacturer might ship several million dollars’ worth of products via ocean freight. If a technical malfunction requires unexpected redirection of the reefer to another seaport—one that hasn’t been validated for pharmaceuticals—product integrity might be compromised without stakeholders ever knowing why. With IoT and cloud technology connecting time, temperature, and product location data in real-time, both the pharmaceutical manufacturer and logistics partner would know immediately if products had been taken off course and whether temperatures had started to drift from required levels. Real-time alerts would notify supply chain stakeholders, who could then take corrective action immediately to maintain product quality and integrity, and proactively prevent waste.

Blockchain technology allows companies to add another layer of trust and transparency with respect to quality assurance and compliance. As with supply chain cloud solutions, blockchain can link drugs that require temperature control to a temperature sensor and connect everything using IoT. If the temperature exceeds a certain threshold level (e.g., because the drugs had been left for too long on an outdoor airstrip on a hot day) the sensor could automatically log a violation of temperature controls that could not be overturned by the supplier. In this way, the pharmaceutical company can ensure brand integrity and patient safety. Combining blockchain technology with machine learning and IoT capabilities would permit more dramatic benefits by reducing the possibility of error in data capture, increasing supply chain automation, and accelerating decision-making based on transaction information.

Over time, real-time supply chain data could provide companies with valuable insights that can be leveraged to reduce product and operational waste substantially. The savings are reflected not only in less product waste, but in more accurate forecasting, reduced need for replacement product, and shorter product quality reviews. All told, these improvements can save pharmaceutical companies tens of thousands of hours each year.

With foundations in place and stakeholders’ decisions on which protocols and platforms to use, data from validated sources would be added to the blockchain, highlighting additional opportunities to leverage the approach. For example, blockchain allows smart contracts to be programmed. Unlike traditional contracts, these can be executed automatically when compliance conditions are met, or invalidated when targets are missed, alerting relevant parties in the supply chain. Using this approach automates processes, eliminating the need for individuals to review shipment data for quality and compliance issues, and makes it easier to determine the root cause of any moderate or severe temperature deviations that may have occurred en route.

Identifying temperature excursions in real time

Real-time IoT monitoring can help identify when and where the lapse occurred and who was responsible for it, allowing invoices to be quickly and dynamically adjusted based on compliance with specific storage requirements and other processes. Consider a situation in which temperature-controlled medications are being shipped by truck. IoT data loggers placed in the product containers can continuously capture environmental data through IoT devices and automatically send it to a centralized ledger. If a temperature excursion occurs while the product is in transit, alerts can be sent via email and SMS to notify stakeholders. A discrepancy in compliance conditions would result in a pause in payment to the logistics partner, so that shipment data can be reviewed, along with any concerns associated with the product’s integrity.

IoT and cloud-based technology already provide stakeholders with data and insights that can help determine, immediately, the cause of any temperature deviation. Blockchain provides an added layer of automation through the use of smart contracts. Using these contracts, payment would depend on specific conditions being met. In the future, performance on smart contracts could be tied to cryptocurrencies, automatically triggering payment and alleviating reliance on separate intermediaries, which must review shipment data and arrange for payment.

This kind of contract can be executed without blockchain but use of the ledger provides the additional layer of trust necessary to automate this process. Stakeholders will trust the source and immutability of the data being used by the smart contracts.

Pharmaceutical manufacturers are managing the sourcing of APIs and other components used in the final product. Each component requires that strict quality conditions, including temperature and humidity, remain intact at all times.

Moreover, contract developers and contract packaging enterprises are increasingly working closely alongside manufacturers to develop and protect products that must remain safe while traveling throughout the supply chain. Historically, data silos can exist among these stakeholders, who may not have access to supply chain data needed to mitigate risk and improve operations. Real-time, IoT-driven visibility solutions can remain with products as they travel throughout the supply chain capturing and automatically sending data to a cloud software platform. Data can also be captured in the blockchain for an added layer of transparency and trust. These technologies can provide a single source of truth for stakeholders.

In the pharmaceutical supply chain, an increase in data access and capture gives rise to greater traceability, security, automation, and trust. Patient safety concerns, regulatory requirements, and business needs are driving these changes. The realization of ROI in this sector requires standardization and alignment among stakeholders, especially with respect to blockchain platforms.

Blockchain has the potential to offer added security to supply chain stakeholders, instilling more transparency into the supply chain and reducing inefficiencies and friction. Challenges to the adoption of this technology, however, include the degree of industry participation in trial and pilot projects testing the technology, as well as questions of data integrity, not only for original data but for data elements that would be recorded in the ledger. Steps must be in place to ensure that data cannot be changed. Using a compliant and validated data-collection solution would prevent this problem from occurring.

Pharma’s need to automate and share data

While IoT technology can help ensure blockchain’s data accuracy, pharmaceutical supply chain partners must take the first move, and improve the way they handle data, by gathering data consistently, and focusing on reducing overhead and errors in data collection through automation.

Automating the quality process through IoT and the cloud and making it immutable through blockchain can help to ensure consistency, reliability, and data accuracy, and drive accountability with suppliers, logistics partners, and other stakeholders. Over time, the technology will serve to help the industry identify bad actors, mitigate risks, and achieve exponential cost savings.

As a first step, industry leaders should move to digitize their supply chain processes to achieve new levels of visibility and incorporate those digital strategies, with an openness to the various use cases and benefits that blockchain can offer. The true business case for blockchain will evolve and expand as more companies and stakeholders evaluate the technology and get involved in tests and pilot projects. Clearly, for pharmaceutical supply chains, blockchain technology can reduce risk and improve competitive advantage, offering compelling returns on investment.


Supplement: Outsourcing Resources 2020
Volume 44
August 2020
Pages: s21–s24

When referring to this article, please cite it as G. Herjolfsson, "Blockchain and IoT: Determining ROI in the Pharma Supply Chain," 

Pharmaceutical Technology Outsourcing Resources 

Articles

For pharmaceutical manufacturers and their contract partners, blockchain and the Internet of Things promise to enable return on investment, not only by preventing counterfeiting and verifying returns but by enabling real-time condition monitoring and automating supply contracts.