Bitcoin is for Drugs: Counterfeit Prevention in a Digital Supply Chain
Pfizer is using Bitcoin technology to prevent counterfeit drug sales. Who will pay the cost for the digital supply blockchain? Will Pfizer expand its own B2C ecommerce?
Due to the growing number of pharmaceutical drugs, complex supply chains, and global demand, there has been an increase in the sale of counterfeit drugs to over $100B per annum globally.[1] Today, Pfizer has taken bold stride to pilot a project to enhance security and comply with regulations to combat counterfeit drugs within its digital supply chain. In February 2012, Genentech, a peer of Pfizer’s, released a statement that the Food and Drug Administration (FDA) found a counterfeit version of its oncology drug Avastin® being circulated.[2] In September 2012, the Center for Disease Control (CDC) and FDA launched an investigation into the New England Compounding Center (NECC) for causing a multistate outbreak of fungal meningitis, from illegal manufacturing of drugs, killing 64 people and infecting over 750. [3] This led to Drug Quality and Security Act (DQSA) which was signed into law November 27, 2013. Where, title’s I and II of DQSA were created to prevent another NECC and Genentech incident, respectively. DQSA has in effect required the creation of a digital supply chain and securing the information inside, and Pfizer is leading the way towards compliance.
Pfizer’s Digital Supply Chain
In 2015, Pfizer introduced its Highly Orchestrated Supply Network (HOSuN) creating an information rich digitally enabled supply chain, backed with data analytic tools to anticipate future supply and demand patterns. [4] The supply network or chain consists of raw material suppliers, Pfizer as a manufacturer, distributers, repackagers, pharmacies, and third-party logistics companies. HOSuN has made Pfizer more adaptive and responsive to its customers, thereby improving operational efficiencies and productivity throughout the supply chain. Pfizer uses Electronic Product Code Information Services as its standard for harmonizing enterprise resource planning (ERP) tools and ensures interoperability of new and legacy systems. Pfizer has what PWC identified as three key elements of a pharma digital supply chain, which are: virtual supply chain control tools, cloud-based information architecture, and digitally enabled physical supply chain.[5] In the short-term Pfizer needs to adapt its digital supply chain to be DQSA compliant to track and trace drugs globally.
Title II of DQSA
The DQSA requires companies to build an electronic, interoperable system to identify and trace certain prescription drugs that are distributed in the US. The system is supposed to improve detection and removal of potentially dangerous counterfeit, stolen, contaminated, or otherwise harmful drugs from the drug supply chain to protect consumers.[6] Effective November 27, 2017, all manufacturers are required to have unique serial numbers on all commercial units and homogeneous cases of their drug products sold in the United States. With subsequent rollouts to repackagers, wholesale distributors, and dispensers (pharmacies) in 2018, 2019, and 2020 respectively. [7] By 2023 there is a requirement to be able to electronically trace all transactions from the consumer to the manufacturer for products that may either be recalled or have been affected by counterfeiting. The information used to trace the product must be secured to protect confidential or proprietary information of all members of the supply chain.
Blockchain Pilot
To creatively meet the DQSA 2023 requirements, Pfizer has partnered with Linklab to apply the advanced digital ledger technology, or blockchain to secure drug pedigree data in digital supply chain transactions. Blockchain is the underlying technology used by Bitcoin, that uses a group of distributed computer systems to securely compute the authenticity of a transaction in a decentralized manner, and does so with a digital ledger showing who had what, when, and where without the need for a central authority.[8] A big opportunity for Pfizer is to capitalize on a digital supply chain enhanced with blockchain to improve operations and deliver on its customer promise securely. Because blockchain offers radical transparency and enhanced security it will offer greater confidence in Pfizer’s growing ecommerce channels like Express Scripts and Alibaba.[9] Therefore, if all goes according to plan Pfizer could be well positioned to go B2C with other drugs beyond Viagra, one of the most counterfeited drugs globally.
Will it work?
Today most of the cost for DQSA compliance is bore by Pfizer for the implementation of a digital supply chain and blockchain, should the cost be shared equally by repackagers, distributors, dispensaries and third-party logistics companies?[10] If Pfizer, achieves successful implementation of a DQSA compliant digital supply chain with block chain, what should it do when it identifies a suspect or illegitimate product may have entered the supply chain? Who in the supply chain should ultimately be held responsible?[11] (746 words)
[1] Peter Behner, Dr. Marie-Lyn Hecht, Dr. Fabian Wahl, Fighting counterfeit pharmaceuticals: New defenses for an underestimated – and growing – menace,(PWC, June 2017), [https://www.strategyand.pwc.com/reports/counterfeit-pharmaceuticals], accessed November 2017
[2]Genentech Statement On Counterfeit Drug Labeled As Avastin® (Bevacizumab) In The United States, (San Francisco Genentech, 2012), [https://www.gene.com/media/statements/ps_021412], accessed November 2017
[3] Multistate Outbreak of Fungal Meningitis and Other Infections, (Atlanta, CDC, 2015), [https://www.cdc.gov/hai/outbreaks/meningitis.html], accessed November 2017
[4] Dr. Marcus Ehrhardt, Peter Behner, Digitization in pharma: Gaining an edge in operations, (PWC, October 2016), [https://www.strategyand.pwc.com/reports/digitization-in-pharma], accessed November 2017
[5] Pfizer 2016 Annual Review : Transforming Delivery of High Quality Products, (Pfizer, 2016), [https://www.pfizer.com/files/investors/financial_reports/annual_reports/2016/transforming-delivery-of-high-quality-products/index.html], accessed November 2017
[6] Drug Supply Chain Security Act, [https://www.fda.gov/Drugs/DrugSafety/DrugIntegrityandSupplyChainSecurity/DrugSupplyChainSecurityAct/default.htm], accessed November 2017
[7] Drug Supply Chain Security Act: Overview of Product Tracing Requirements, (FDA September 2015), [https://www.fda.gov/downloads/Drugs/DrugSafety/DrugIntegrityandSupplyChainSecurity/DrugSupplyChainSecurityAct/UCM464907.pdf], accessed November 2017
[8] Jeff John Roberts, Pharma turns to Blockchain,[http://fortune.com/2017/09/21/pharma-blockchain/], accessed November 2017
[9] Lydia Chen, Roger Chung , Andrea Ding, Xu Si Tao, China’s Changing Ecommerce Market, (Deloitte, 2016) [https://www2.deloitte.com/content/dam/Deloitte/de/Documents/life-sciences-health-care/Chinas_changing_pharmaceutical_ECommerce_Market.pdf], accessed November 2017
[10] Kathy Pretz, How Blockchain Technology Could Combat the Gobal Counterfeit drug Market: IEEE Survey of the Pharmaceutical Industry Identifies Benefits and Challenges, (IEEE,November 2017), [http://theinstitute.ieee.org/resources/standards/how-blockchain-technology-could-combat-the-global-counterfeit-drug-market], accessed November 2017
[11] ibid
It is interesting to see how the bitcoin technology can help Pfizer to both increase revenue through less counterfeits and expanding B2C ecommerce and at the same time comply with regulation and secure their own supply chain. If both of these hold true, Pfizer should be less concerned about who picks up the bill as it will probably be a net positive from a financial perspective.
One thing that would worry me with B2C ecommerce, is how to deal with prescription drugs and their delivery? In the current setup you can usually only access these drugs by first seeing a doctor and then getting the drugs in person at the pharmacy. I worry that in a B2C delivery system it would be either very inconvenient or prohibitively expensive to ensure that drugs only reach the right patients, especially for drugs that could have high resell value on the black market such as opioids. What would happen to the patients if delivery is late or lost in transport?
The move toward a more digitized tracking and monitoring system appears to be necessary to properly track the legitimacy of various touch points throughout the supply chain. However, the jump to blockchain concerns me because of the requisite buy-in and use of the system required by all the various stakeholders along the supply chain. Because Pfizer ultimately bears the responsibility to ensure the drugs are not counterfeit, ensuring that its partners are also successfully rolled out onto the blockchain technology adds a degree of project management that seems beyond the scope that Pfizer should be taking for all of its partners. A possible alternative to phasing this across the supply chain over 6 – 7 years would be to identify the major partners at each of the various stages along the supply chain and roll this out to them rather than rolling out one step at a time down the supply chain. Then, once best practices are established and kinks are worked out, the remaining partners could be moved over onto the newly established digital supply chain.
I think it’s interesting to consider the question of who will stand to benefit the most from securing the authenticity of pharmaceutical drugs, especially when you compare the societal impacts of counterfeit drugs vs. other counterfeit products. When I consider who stands to benefit the most from the decrease in pharmaceutical drugs, I think it’s mostly the consumer, due to the health risks mentioned above. Sure, there are also financial benefits to each of the companies in the supply chain that come from reducing counterfeits and maximizing sales of the authentic product, but I don’t know how much of these sales represent true cannibalization vs. sales from customers that would be substituting other less expensive products (especially in emerging markets). This stands in stark contrast to other counterfeit goods such as luxury goods where the prime beneficiary of reducing counterfeit goods is the manufacturer. As such, I wonder if there is some way for companies such as Pfizer to share the cost of these supply chain improvements with other actors in the value chain such as health insurers and end customers.
Thanks for the great article, DR! Blockchain is an interesting and bold approach – but I wonder if it is necessary? I agree with Patrick’s point above about these anti-counterfeit measures benefitting the end consumer more than the manufacturer, and I think this point is further illustrated by the fact that pharma companies are just now scrambling to achieve serialization due to DQSA mandates. Pharma would have taken the initiative to serialize before now if the value proposition for them really is strong; instead, the government has to interject to enforce these changes on the patients’ behalf. In addition, achieving full serialization of the supply chain as mandated will already be significantly beneficial in deterring counterfeits. I am not yet convinced that the additional security blockchain will provide will outweigh the large costs of implementation, including the buy-in costs across all players in the supply chain as Kyle mentioned above. If Pfizer wants to act for the greater good of the patient, this cost may be justifiable. But even so, passing on savings in terms of decreased cost of drugs to patients might be a better use of this money. And from a pure profit standpoint, perhaps it is wise to implement the bare minimum in regulatory requirements – the government needs to mandate serialization for the very reason that it is not in pharma’s best interests to overly invest in this area.