Blockchain Hype May Finally Turn Into Reality in Pharmaceuticals

(Bloomberg) -- Blockchain believers have delivered little more than hype, mostly failing to get it deployed outside the cryptocurrency space where the technology was developed. But a little-noticed U.S. law could change that, bringing the ledger system to the pharmaceutical business.

The Drug Supply Chain Security Act from 2013 requires drug companies and their supply-chain partners to more closely track where their finished products are shipped, making counterfeit medicines harder to sneak into the system and easing drug recalls.

By 2020, pharmacies and hospitals must be able to verify that the drugs they're dispensing came from manufacturers or repackagers, which divvy up huge batches of pharmaceuticals into the actual bottles that get distributed in pharmacies or hospitals. While pharma giants are still evaluating how to comply, health-care analysts says the impeding deadline is leading firms to seriously consider the blockchain, since it's designed to create detailed and immutable databases.

“The best bet going right now appears to be blockchain,” in part because of the shortcomings of conventional software, said Chet Stagnaro, a consultant with health-care advisory firm Freed Associates. “The potential is definitely there.”

Read more: What's a blockchain?

Blockchain, originally developed as the ledger technology that powers the Bitcoin digital currency, is promising for corporations, if they can figure out how to use it. Proponents predict billions of dollars in savings by handling records more efficiently and rapidly. Yet most corporate efforts are still in early development or testing.

Health care may buck that trend. The Center for Supply Chain Studies has been conducting studies and trials with drug manufacturers, distributors and pharmacies since 2017 to assess how blockchain can meet the law's requirements, according to Robert Celeste, founder of the organization.

Plugging tens of thousands of American pharmacies into a drug-tracking database is a huge challenge, and a blockchain is an attractive way to simplify that, Celeste said. “From the blockchain point of view, there is still a lot of work to be done, but it's being done in earnest,” he said.

Representatives from pharma companies GlaxoSmithKline Plc, Novartis AG, Merck & Co., Johnson & Johnson and Pfizer Inc. either declined to comment or didn't respond to inquiries about their blockchain efforts.

More Detailed

The law requires tracking each package of drugs separately, but current industry software can only do it to the lot or batch level, said Arun Ghosh, blockchain leader at KPMG LLP. A blockchain solution won't necessarily displace existing software, but augment it, he said.

“With blockchain you can now get to a much lower grain of detail,” Ghosh said. For sophisticated drugs used in cancer treatment or biologics, which are expensive to develop, that can lead to huge savings if a bad ingredient leads to a recall because the exact point of failure will be recorded on the blockchain.

“The recall on a biologic is hundreds of millions of dollars compared with a generic,” he said. Drugmakers will need to prove to the Food and Drug Administration that expired drugs are returned to them, Ghosh said. Here too, the detailed records kept by a blockchain may prove superior.

“When all these things come into place, blockchain is being actively entertained,” he said.

--With assistance from Anna Edney.

To contact the reporter on this story: Matthew Leising in Los Angeles at mleising@bloomberg.net

To contact the editors responsible for this story: Michael J. Moore at mmoore55@bloomberg.net, Nick Baker, Daniel Taub

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