How two California startups are preparing pharma companies for blockchain

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Blockchain is coming to healthcare and medical fields, and being readied for the potential ways in which an innovative technology might turn the old ways of doing business on its head. Entrepreneurs and researchers have already begun considering different use cases. Blockchain for electronic medical records. Blockchain for Medicaid applicants. Blockchain for payments.

But perhaps the best suited medical application for blockchain, the underlying technology of Bitcoin and other crypto-currencies, is also the one being upended by federal legislation passed in 2013: tracking and tracing the movement of prescription drugs from manufacturer to the pharmacy to prevent counterfeit or dangerous drugs from entering the supply line.

To meet the challenge, two California-based companies have recently joined forces to build an electronic, interoperable pilot system to track the movement of prescription drugs throughout the U.S.

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The Link Lab and Chronicled, a blockchain startup that recently raised $6.25 million, are currently partnering to develop such a system based on blockchain, a networking system known for its security. In the blockchain, records of transactions are linked, meaning it’s easy to detect tampering, if any, by a bad actor. Come this fall, at least one global pharmaceutical company — which the two companies declined to name — will be plugged into this pilot application that’s currently under construction, and using it to verify prescription drugs.

“Our vision is a system where everyone would register a serial number, and you could develop technology so that every time a drug changes hands, the technology automatically verifies the authenticity of the drug,” said Susanne Somerville, co-founder of the Link Lab, a life sciences consulting firm.

But the bigger idea is that all of the players in the prescription drug supply chain — not only pharmaceutical companies, but also drug wholesalers, drug distributors, hospitals, and pharmacies — would be able to use blockchain for drug tracking and tracing.

“Everyone says it’s a no-brainer,” Somerville said in a call with MedCity News. “There’s a law that requires the serialization of any drug product, and then the ability to verify drugs as they move on to dispensing.”

What Somerville refers to is the Drug Supply Chain Security Act (DSCSA). Passed into law in 2013, the act says that by 2023 pharma companies should be able to track the production of drugs from raw materials all the way to dispensing to ensure safety and legitimacy, and that they should be able to do so in an interoperable, electronic way. The law is being slowly phased in, which gives startups like Chronicled the chance to experiment with what the best way will be for tracking drugs using serial numbers.

Blockchain technology, according to Chronicled CEO Ryan Orr, allows for the posting of such serial number data unidirectionally, creating an unbroken chain where the many players of the drug supply line can verify the drugs they are receiving are arriving from the correct source.

“The regulation requires the logging of serial numbers,” Orr said in a phone call. “We’re logging and tracking serial numbers through movement in the supply chain. Blockchain can log it automatically.”

What’s more, blockchain technology provides for an easy framework to create an electronic, interoperable mechanism — another requirement of the DSCSA — by which players in the prescription drug supply chain can track those serial numbers.

Where potential hangups exist in applying blockchain tech for this area of the healthcare industry is in widespread adoption.

“The pharmaceutical industry is super conservative. How do you explain the improved inherent security of a blockchain solution to somebody who doesn’t understand it?” Somerville said.

Jim Lebret, an assistant professor of medicine and clinical innovation at the NYU School of Medicine and a digital health consultant, said that infrastructure is the biggest challenge when it comes to bringing the prescription drug industry over to blockchain.

“I don’t have a lot of hope for a sudden, mass, industry-wide adoption of blockchain, unless there was some payment restructuring that required it,” he said. “It’s a culture-change question. It’s also a compliance question.”

Now until the end of 2017, Chronicled and the Link Lab will test its pilot system with a number of players on that drug supply chain. Their goal isn’t to build an enterprise-level blockchain for the medical industry, but rather explore two things: How to incorporate blockchain technology into the world of drug-tracking, and then the potential organizational structure for a public, prescription drug blockchain that, presumably, every player in the worldwide pharmaceutical industry would plug into. It’s a tall order for an industry that’s expected to be larger than $1.12 billion by 2022.

“We’ve spent the most time thinking about the model of organization to incorporate this technology as a back-end in an industry as large and as substantial as the pharmaceutical industry,” said Orr.

Chronicled and the Link Lab have already signed up one large pharmaceutical company to participate. At the time of their pilot project announcement this month, the plan was to sign up several other participants — drug wholesalers and distributors — to begin sussing out what the protocol and structure should be for posting drug records with blockchain.

Orr hopes to enlist one player at each stage of the supply chain, then build out the technology needed to have them use blockchain for logging serial numbers in a way that ensures they meet compliance with their specific regulations. If their pilot project proves successful, then a small startup will have blazed a trail for larger enterprise companies to follow in creating a large-scale blockchain for the pharmaceutical industry.

“Technologically, the problem we’re trying to solve is not a complex one. It’s more about aligning expectations around the configuration of this approach,” said Orr. “But we’re very hopeful and excited about where this can go.”

Photo: Pixtum, Getty Images

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