Quantifying the Value of Blockchain-Based Supply Chain Networks—Part Three

In Part Two of this series, we described the typical structure of pharmaceutical supply chains that some and specific challenges pharma supply chains face. Here in part three, we propose a supply chain application network providing a ‘produce-to-use’ chain-of-custody solution for pharmaceutical supply chains. We specify its capabilities and make an estimate (in dollars) of the value it could provide to an archetypal pharmaceutical manufacturer.

A “produce-to-use” chain-of-custody solution

A “produce-to-use” chain-of-custody solution tracks and monitors pharmaceuticals all the way from the point of production (“produce”) to the point of consumption (“use”) by the patient. This is inherently a multi-enter­prise and multi-entity solution, as it involves manufacturers, packagers, distributors, logistics service providers, dispensers, and the patients themselves. A BSN  is well suited to support chain-of-custody management across multiple parties. In Figure 1 we envision a BSN offering five main areas of functionality. We refer to this hypothetical chain-of-custody BSN as “PharmaNet.”

Figure 1 – Proposed PharmaNet functionality

• Identity management—While virtually all B2B BSNs require strong identity management, the need is especially acute in pharmaceutical networks, where highly confidential data¹ is being shared. Block­chain technology provides a foundation for verifiable credentials and self-sovereign identity, which are key pieces of the distributed network security puzzle. A lot of work on these has already been done.² The services provided by the network would include identity proofing, authentication, and access control.
• Track and trace/recall—The platform would provide end-to-end traceability, providing network-accessible records of each chain-of-custody handoff. This will help companies comply with DSCSA and other regulations around the world.³ This type of system will have benefits including potentially dramatic reductions in counterfeits and grey market diversion, and much more rapid, precise, and less costly recalls. The platform also provides the ability to reinforce contractual obligations,⁴ which further curtails grey-market sales and counterfeits. It provides mechanisms to encourage dispensers to partici­pate, and tools for them to record all dispensing of the drugs being tracked, as well as tools for patients and caregivers to record patients’ consumption of those drugs. That information could be used to notify specific dispensers, caregivers, and patients in case of a recall.
• Inventory management—End-to-end track and trace provides a foundation for network-wide perpetual inventory management, evaluated receipts settlement, and vendor-managed inventory (VMI). The network-wide perpetual inventory system is not intended to replace existing inventory systems for most participants.⁵ The network provides evaluated receipts settlement. When a shipment is received and confirmed to be in good order, a pay­ment is automatically scheduled without any invoice needed.⁶ With VMI, the system provides tools for the supplier to monitor inventory levels and replenish stock to maintain agreed-to inventory levels (per contract) without the buyer having to issue a new order each time.
• End-to-end cold chain/condition monitoring—The envisioned network platform would provide end-to-end temperature monitoring, from the point of manufacturing to dispensing. This will include alerts for temperature excursions (and potentially other environmental condition deviations, such as excessive humidity), with analytics that track total lifecycle exposure to calculate the impact on drug efficacy or remaining shelf-life. Remaining shelf-life estimates can be used to optimize distribution and dispensing decisions, thereby minimizing loss of expired products while ensuring efficacy.
• Patient adherence—The vision for the platform is that chain-of-custody does not stop at the dispenser, but rather goes all the way to the patient, including (with informed consent) tracking the actual consumption of the drug by the patient. Further, the network connects caregivers as well, to help ensure the desired outcome. The platform service would provide patients with an app that provides reminders, education, personal tracking, and monitoring.⁷ The monitoring could involve QR code scans, smart pill bottles or packages, or possibly even ingestible sensors.⁸ The app is connected to the network, allowing involvement and interaction between the patient and the primary care and specialist physicians, pharmacists, case workers, and counselors. Ideally, financial and other incentives are interwoven into the solution, possibly funded by insurers. Because the drugs are serialized down to the end-unit level, recall alerts can be directly delivered to the patient and caregivers, advising of actions that need to be taken, such as disposing and replacing remaining doses. On the back end, analytics can be used to provide outcome tracking to manufacturers, caregivers, and researchers. Valuable anonymized information can be provided to help these parties understand adherence rates and correlated outcomes.
• Interoperability and Integration—PharmaNet will be designed assuming that many of the companies participating on the network will already use other networks or systems to implement some of the same functionality that BSN provides. For example, some companies may be on other networks that provide DSCSA-compliant traceability, or cold chain functionality, or combinations of other functionality. Because of this, PharmaNet will provide comprehensive interoperability with other popular networks as well as integration with commonly used enterprise systems. It will be architected in a way that each participant can decide exactly how to meld their existing functionality with PharmaNet functionality. The dividing line between what functionality is performed on PharmaNet vs. on other networks and systems will be highly granular and flexible (small chunks of functionality can be moved from one to the other) and unique for each participant. That dividing line can evolve over time. For example, the customer can retire some existing systems and move that functionality onto PharmaNet.

The capabilities described above are broad and ambitious. In a practical scenario, the network would most likely start with a focused subset of these capabilities. For example, the platform might first focus on DSCSA compliance. Once it was gaining traction, with a critical mass of adoption and funding or revenue, it could start to expand into other areas, prioritized by the network participants’ needs and market demand.

Value generated by an end-to-end chain-of-custody BSN

Here we estimate the potential value generated through the use of the envisioned PharmaNet by our hypothetical company, BioPharma, Inc. The total value realized by our hypothetical $15B manufacturer, BioPharma Inc., is substantial, as shown in Table 1. It includes increased revenue of over $1.2B, increased profits of nearly $290M, and $140M of working capital freed up for other uses. This represents a high ROI, even assuming a cost of $10M to $20M per year for using PharmaNet⁹ and implementing the programs described in the following sections.

Table 1 – Estimated value realized by a hypothetical company, BioPharma Inc., via comprehensive use of PharmaNet

The next 10 pages describe how these estimates of value are derived. They include descriptions of how the PharmaNet functionality drives the benefit, key metrics for measuring value, mechanisms of improvement, range of expected improvement, and value calculations. If you want to skip these details, feel free to skip forward to the section Value for other pharmaceutical supply chain participants.

The following detailed descriptions of how value is generated are organized into four categories:

• Patient outcomes—This section describes how the patient adherence functionality leads to better patient outcomes. Reductions in the number of unfulfilled prescriptions drive increased revenues.
• Ease of doing business—This section discusses four ways that PharmaNet increases ease of doing business: 1) receiving process and evaluated receipts—labor savings from eliminating the issuing and processing of invoices; upon confirmation of receipt of goods by the buying party, payments are automatically scheduled, 2) automatic-replenishment—Labor savings by automatically replenishing inventory when stock falls below a certain level, 3) inventory management tools—Simple tools for smaller healthcare providers and independent pharmacies to manage their inventory, 4) shortages management—Labor savings and improved outcomes via reduced shortages.
• Inventory management—This section describes reducing inventory levels while maintaining or improving service levels through better visibility and more optimized deployment of inventory enabled by PharmaNet. Reductions in expired and returned drugs.
• Compliance and control—This section covers several areas: reduction in counterfeits and grey market diversion; reduction in loss due to temperature excursion via improved cold chain management; compliance with new serialization and end-to-end traceability regulations; and lower cost of recalls.

The following sections focus on these benefits for a pharmaceuti­cal manufacturer, as embodied by our hypo­the­ti­cal company, BioPharma Inc. However, PharmaNet generates value for all supply chain participants, as discussed briefly in the section Value for other pharmaceutical supply chain participants.

In Part Four of this series, we begin drilling down into the components of the value estimate in Table 1 above, starting with Patient Adherence and Ease of Doing Business.