Big Pharma Turns to Blockchain to Track Meds

September 21, 2017, 10:00 AM UTC

The pharma industry may be on the verge of solving a longtime problem: How to stop a flow of stolen or counterfeit pills entering the supply chain and trickling down to patients.

The answer comes in the form of blockchain technology, a form of software that runs across multiple computers, and creates a tamper-proof, indelible record of transactions.

On Thursday, a group of companies announced the MediLedger Project, which is creating blockchain tools to manage pharmaceutical supply chains. The group, which includes drug giants Genentech and Pfizer, has already completed a successful pilot program to track medicines.

If the project meets its goals, everyone from drug makers to wholesalers to hospitals will be recording drug deliveries on a blockchain. What this means in practice is that, at each step of the distribution process, a network of computers will vouch for the provenance and authenticity of a drug shipment—making it harder for thieves to unload stolen medications, or for counterfeiters to introduce fake wares.

According to Ryan Orr of Chronicled, the San Francisco-based company creating the blockchain tools for MediLedger, the drug industry already uses software to manage supplies, but these consist of a mishmash of different databases. The introduction of a blockchain system, in which each participant controls a node on the network, and transactions require a consensus, is thus a significant leap forward.

“The pharma industry consists of large conservative companies, so it takes a lot of confidence to build up a network like this,” said Orr.

Drug companies aren’t the only ones using a blockchain to tighten up their supply lines. The diamond industry is working with a company called Everledger to verify the origins of precious stones (it has already added over 1.6M gems to a ledger) while food sellers, including Walmart, are using blockchain to track pork and chicken. Meanwhile, the state of Delaware passed a law to help companies place shareholder lists and other corporate records on a blockchain.

For the drug industry, the potential advantages of the blockchain go beyond securing supply chains. According to Orr, the permission-based nature of the node system is a superior way for companies to share information with partners and customers without “leaking key business information.”

Genentech, meanwhile, sees blockchain as a logical extension of its efforts to assign unique traceable numbers to pharmaceutical products.

“Ensuring the safety of people receiving our medicines is of utmost importance to us. We look forward to exploring the potential benefits that this pilot could provide in protecting our medicines across the entire supply chain,” said the company’s SVP of Managed Care and Customer Operations, Marc Watrous, in a revised statement to Fortune.

One further upside to using a blockchain is speed: In the event a shipment is disrupted or goes missing, the data stored on the common ledger provides a rapid way for all parties to trace it, and determine who handled the shipment last.

For now, Orr says, the MediLedger Project is working on getting big companies to adopt the blockchain technology, and only intends to focus on business models down the road. The initiative is likely to get a boost thanks to the Drug Supply Chain Security Act Passed, a law requires companies to take a series of steps to create a more uniform drug-tracking system.

The MediLedger Project, which is receiving support from supply chain consulting group The LinkLab, has been building its software using Quorum—an enterprise version of the Ethereum protocol backed by J.P. Morgan.

This is part of Fortune’s new initiative, The Ledger, a trusted news source at the intersection of tech and finance. For more on The Ledger, click here.

This story was updated at 10:15 ET to include a revised statement from Genentech.