Blockchain Technology Breaking into the Pharmaceutical Industry
Updated: Oct 26
A recent discovery in blockchain supply management has made breakthroughs in the pharmaceutical industry. Supply chain security has drawn a lot of attention from the (DSCSA) with the evolution of counterfeit drugs. New and improved drugs that are prescribed to patients allow for counterfeited versions of those drugs to make their way into circulation. The World Health Organization (WHO, 2010) estimated worldwide sales of counterfeit medicines to be $75 billion in 2010, a 90% rise in five years. According to the WHO, in more than 50% of cases, medicines purchased over the Internet from illegal sites concealing their physical address are counterfeit drugs. Counterfeit drugs lead to distrust and loss of business with customers.
Blockchain could be an opportunity platform to increase trust and transparency, with customers being able to track pharmaceutical products throughout the supply chain. Blockchains allow trusted parties to see the history of the drug (where it has traveled to, the contents, etc.), which improves drug identification, tracing, verification, and notifications in case an illegitimate drug is found. In a short definition, blockchain technology is similar to an online ledger where parties can see and monitor transactions. This technology has been used in industries such as finance, cryptocurrency, banking, and marketing/fintech. Another asset being introduced to the pharmaceutical industry, along with blockchain, is the introduction of smart contracts. Smart contracts allow parties to change contracts midway through transactions to fit the consumer's needs.
This technology can help organizations make major strides in product security. Not only will this technology be implemented in the manufacturing and transportation of pharmaceutical drugs, but it will also provide security for Research and Development projects that pharmaceutical organizations conduct. This also transparently shows information security (within R&D), which is important to future investors of the organization. Investors obtain management's beliefs about any value change of the asset, which they can incorporate into their valuation. An immediate expense of R&D deprives that information from the investors. Consequently, information asymmetry between managers and outside investors likely arises (Aboody et al., 2000). Information asymmetry is apparent in various industries, but it is arguably the strongest in companies in the pharmaceutical sector and a potential driver of abnormal returns of up to 4- 6% annually (Schöner, 2017).
Blockchain technology is just a step toward making pharmaceuticals more innovative. Businesses everywhere are implementing this new technology to make supply chains more proficient. The world of pharmaceuticals is evolving, and time will only tell what the end product will be.