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SAP blockchain service helps fight counterfeit drugs

SAP's new blockchain service may help drug wholesalers verify the authenticity of returned drugs, but it faces business process challenges before more organizations come on board.

SAP is working to combat counterfeit drugs. The company has released a blockchain offering that is aimed at authenticating drugs in the supply chain.

The SAP blockchain application for the pharmaceutical industry is designed to ensure that any drugs returned to a wholesaler from hospitals and pharmacies are validated before they are resold, according to SAP. The blockchain was developed in the SAP Information Collaboration Hub for Life Sciences, a public cloud network involving several large pharmaceutical wholesalers and manufacturers, which SAP launched in November 2017.

The blockchain hub also helps pharmaceutical wholesalers comply with the new U.S. Drug Supply Security Act (DSCSA), which goes into effect in November 2019 and requires wholesalers to validate prescription drugs that are returned before they are resold, according to Jeff Denton, senior director of global secure supply chain for AmerisourceBergen, a major drug wholesaler.

"In the U.S., we have about 58 million units of pharmaceutical product that's distributed to pharmacies and is then returned to the wholesaler for a number of reasons, and it's put back on the shelf and resold," he said. "With this new regulation in November, there are some additional checks that we have to do around verifying unique markings and serial numbers on each of those bottles."

Authenticating returned drugs

The return rate for sellable drug products is about 2% annually, which accounts for about $10 to $12 billion, according to Denton.

Although drug counterfeiting has not been a major problem in the U.S., it is in many other countries, particularly in South America and Asia. The DSCSA regulation was enacted to prevent counterfeit pharmaceuticals from entering the U.S. drug supply chain.

"If there was any opportunity to introduce counterfeit drugs, it would probably be in the returns process," Denton said. "We have a stringent process already, and this just adds a couple more layers to that to ensure that it remains pristine."

The SAP blockchain hub helps to ensure drug packages are authentic by creating a trusted, shared ledger that cannot be tampered with. The ledger contains drug manufacturing data, which is information that wholesalers haven't had access to previously, according to Oliver Nuernberg, chief product owner of the SAP for Life Sciences solution portfolio.

"In theory, every time the wholesalers do a scan in the warehouse, they have to reach out to the manufacturer to say, 'Do you know this pack?'" he said. "We're trying to avoid this by pushing the data into the blockchain, making it available and distributing it across the ecosystem. The manufacturers write the data into the blockchain in a way that cannot be misused or harvested for other purposes, and then we make this data available to the wholesale community."

Reducing blockchain complexity

The SAP blockchain application is built on the open source blockchain platform MultiChain and accessed via the SAP Cloud Platform. The idea is to make everything open and accessible but trusted, Nuernberg said. MultiChain is a permissioned blockchain technology that allows only approved users to write data to a blockchain.

"MultiChain is great for a permissioned blockchain because the members -- the people who read and write -- are all known members of the supply chain, so we don't have to put [in] a lot of effort and overhead for consensus and trust," he said. "[SAP Cloud Platform] is hiding a lot of the complexity of the blockchain, and connecting the business processes to the blockchain layer is really easy."

Indeed, the reduced complexity of the SAP blockchain is vital for driving adoption in the wholesale industry, according to Denton.

"The value add for us is that SAP is doing all the heavy lifting; they have all the infrastructure and we didn't need to retrain our staff around blockchain," he said.

Appropriate use case for blockchain

The SAP blockchain hub is one of the most appropriate cases for blockchain in the enterprise, according to Martha Bennett, vice president and principal analyst at Forrester.

Martha Bennett, vice president and principal analyst, ForresterMartha Bennett

Anything involving track and trace, as the pharmaceutical supply chain does, lends itself to blockchain or distributed ledger technology, as multiple parties are involved and data integrity is of the utmost importance, Bennett said. Additionally, blockchain can leverage smart contract capabilities, which can ensure automatic adherence to contract rules or trigger actions when certain conditions are fulfilled.

The strength of the initiative is that it is led by SAP, which has ERP and supply chain expertise and a deep understanding of enterprise computing requirements, Bennett said.

"It also helps to have regulatory compliance as a driver, as it focuses minds on coming up with a solution," she said. "A challenge is going to be bringing other players on board, in particular as there are competing initiatives out there aimed at addressing the same use case."

Blockchain limitations

However, a blockchain hub is limited to an extent because it can't detect counterfeit drugs traded outside of the regulated drug supply chain. It's also only as good as the data that's entered at the beginning of the blockchain.

"A blockchain can only register that a packet or bottle has been scanned, and any associated details, such as date, time or location," Bennett explained. "What a blockchain can't know is whether the contents of that package or bottle are still the same as they were when they left the factory or when it was last scanned."

Blockchain technology is still nascent, but Bennett said that business issues are a more significant barrier to adoption than technology issues. It will take time to resolve the business-related issues with blockchain, including agreement on data definitions when there's no existing standard, agreement on what data can be shared and what needs to be kept confidential, agreement on business rules, establishing a commercial model, and putting appropriate legal agreements in place.

"None of these are straightforward, as we don't have any precedents for the types of shared, trusted systems that blockchain or distributed ledger technology enable," Bennett said.

This was last published in March 2019

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