Tracking a pharma supply chain and blockchain technology

5/2018 13.1.2019

Counterfeit and falsified medicines could be fought against using blockchain technology which enables tracing an origin of various products

In the pharmaceutical industry, counterfeiting can be a major problem. According to the U.S. Food and Drug Administration (FDA), counterfeit is fake medicine and it may contain the wrong ingredient or be contaminated. They may be fraudulently mislabeled or have fake packaging. However, there are differences between falsified and counterfeited medicines. In the EU context, falsified medicines are fake medicines that are designed to mimic real medicines, whereas counterfeited medicines are medicines that do not comply with the intellectual property rights (IPRs). With a counterfeited medicine, a manufacturer aims to copy or imitate an original product without any rights and such product may infringe e.g. trademark law (see the official website of the European Medicines Agency).

On the other hand, falsified medicines may often infringe IPRs of the original manufacturer while trying to imitate the original product to be able to reach consumers better, and counterfeited medicines could have avoided the appropriate controls for the medicines required by law. Falsified and counterfeited medicines may pose risks to the consumers’ health and pharmaceutical industry. The World Health Organization (WHO) defines falsely-labeled, falsified or counterfeit medical products as medical products that are outside of specifications, which includes intentional, reckless or negligent errors, false packaging, and those intended to deliberately imitate a genuine product. However, any aspect related to IPRs is excluded from this definition. The WHO’s definition of fraudulent misrepresentation refers to any substitution or reproduction of an authorized medical product that is not an authorized product. These definitions are not meant to be exhaustive, instead, they are meant to improve the current terminology (see further the Working Definitions Document approved by the Seventieth World Health Assembly).

The EU and US strengthen the legal framework

In order to secure the legal supply chain of medicinal products, the EU has strengthened its legal framework with respect to falsified medicines. In 2011, the EU strengthened the protection of consumers by adopting a new directive on falsified medicines for human use. In addition, the European Commission has published a delegated regulation that introduces safety features to be placed on the packaging of human medicines.

These new features include a unique identifier (UI) and an anti-tampering device (ATD). UI is an alphanumerical code enabling the identification and authentication of individual packs whereas ATD is a device allowing the verification of whether a pack has been opened or tampered with (see the European Commission workshop presentation Medicines verification in Europe: What to Expect in 2019). A legal entity, that has the authorization to market a medicine, have an obligation to place these on the packaging of most prescription medicines 9th of February 2019 at the latest (see the official website of the European Medicines Agency). The purpose of these EU regulations is to prevent falsified medicines entering the legal supply chain.

In the United States (US), the security of a drug supply chain has raised concerns and the Drug Supply Chain Security Act (DSCSA) was enacted by Congress on November 27, 2013. The DSCSA’s aim is to improve the system to trace prescription drugs as they are distributed in the US. The system will probably improve removal of potentially dangerous drugs from the drug supply chain. The purpose of this regulation is that prescription drugs are traced and identified as they move through the supply chain.

According to the FDA’s official website, the DSCSA requires manufacturers and re-packagers to use unique product identifiers. According to DSCSA, for each transaction, product tracing information should be exchanged. Re-packagers of certain prescription drugs should put a unique product identifier on drug packages no later than November 27, 2018. Until 2023, the whole industry has to institute full, unit-level track-and trace system for products as they move through the supply chain.

Blockchain as a solution for tracking a supply chain

As we might already know, blockchain is well-known with respect to cryptocurrencies. Considering these new requirements with respect to drug supply chain and the latest hype with a blockchain technology, could blockchain technology offer a solution for these tracing requirements stated in the legislation, both in the US and in the EU?

Blockchain can be defined as an open ledger of information that can be used to trace different transactions. Information in the blockchain is exchanged across a peer-to-peer network. Each block is transferred to all of the participants in the network, and once a block is validated, it is impossible to modify it without changing it across the whole network. Blockchain technology’s ability to track distribution of products could be useful for the pharmaceutical industry in order to meet the regulatory requirements. A distributed ledger technology enables everyone in the drug supply chain, including consumers and custom authorities to validate a genuine product and distinguish it from a fake product. Every time a mutual understanding is reached, a transaction is recorded on a “block” which is a storage space. The blockchain keeps track of these transactions that can be later verified, and the transfer of the pharmaceutical products could be registered on a ledger as transactions. (Clark, Birgit and Burstall Ruth, ’Blockchain, IP and the pharma industry – how distributed ledger technologies can help secure the pharma supply chain’, Journal of Intellectual Property Law & Practice, Volume 13, Issue 7, 1 July 2018, p. 531, 531 – 532 and Mougayar, William and Buterin, Vitalik, ‘The Business Blockchain: Promise, Practice and the Application of the next Internet Technology’, John Wiley & Sons, Inc., Hoboken, New Jersey, 2016, p. 32)

Supply chains can be seen as delivering value to end-customers and pharmaceutical manufacturers as this value is created through a series of value-adding stages that are built up progressively (Rees, Hedley, ’Supply Chain Management in the Drug Industry: Delivering Patient Value for Pharmaceuticals and Biologics’, John Wiley & Sons, Inc., Hoboken, New Jersey, 2011, p. 155) and, the role of these supply chains can be seen quite important as we may notice from the recent legislation. Blockchain could provide major benefits for traceability and proper management of pharmaceutical supply chain with regard to counterfeited drugs or falsified medicines (on the one hand from perspective of pharmaceutical industry and IPRs, and on the other hand from the perspective of public health), although blockchain’s applicability still leaves a lot of questions, but it might be worth to think about in the light of the supply chain regulations as certain part of those will soon come into force.





Hanna Lehdes

Legal and Risk Management Advisor at KPMG Oy Ab

Candidate for MSc in Economics and Business Administration (Intellectual Property Law)


Aiheet: Muut