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The FDA Taps IBM for Pharmaceutical Blockchain Pilot

Timothy Green, The Motley Fool

The U.S. Food and Drug Administration wants to use blockchain to identify, track, and trace prescription medicines and vaccines distributed throughout the country. International Business Machines (NYSE: IBM), along with Walmart, Merck, and KPMG, have been chosen to assist the FDA and other drug supply chain stakeholders in developing a blockchain-based system. This pilot project is expected to be completed by the end of the year, at which time next steps will be evaluated.

This blockchain project adds to a growing list of blockchain initiatives for IBM. Other notable examples include IBM Food Trust, which is being used by Walmart to trace certain food products, and TradeLens, a blockchain network aimed at the global shipping industry. In total, IBM has worked with more than 500 clients on blockchain projects so far.

IBM's Global Center for Watson IoT in Munich, Germany.

Image source: IBM.

Improving trust

In creating this blockchain network, the FDA has a few goals. These include reducing the time it takes to track and trace inventory, allowing for timely retrieval of distribution information, increasing data accuracy, and better determining the integrity of products in the distribution chain.

The goals here are similar to those of IBM's blockchain efforts in the food industry. Walmart has now run blockchain pilots to trace leafy greens, mangoes, and pork through the supply chain, testing the ability to trace products from farm to store. In the event of an outbreak of food-borne illness, the goal is to be able to trace the source of the contamination in seconds, instead of days or weeks. Speeding up that process can cut costs related to dealing with outbreaks, and it could potentially save lives.

In the case of this pharmaceutical blockchain trial, building trust and ensuring the integrity of products is the aim. "We believe we have to go further than offering great products that help our customers live better at everyday low prices. Our customers also need to know they can trust us to help ensure products are safe," said Karim Bennis, Walmart's VP of strategic planning and implementation, health and wellness.

"We believe this is an ideal use for the technology because it can not only provide an audit trail that tracks drugs within the supply chain; it can track who has shared data and with whom, without revealing the data itself," said Mark Treshock, IBM Global Solutions Leader for blockchain in healthcare and life sciences.

This pilot is part of the FDA's efforts to support the U.S. Drug Supply Chain Security Act, which was enacted by Congress in 2013. The legislation lays out steps to build an electronic system to trace prescription drugs, aiming to protect consumers from counterfeit, stolen, and contaminated products.

A multibillion-dollar opportunity

The market for blockchain totaled just $706 million in 2017, according to WinterGreen Research, but it could explode to $60 billion by 2024. Whether this explosive growth materializes remains to be seen. But if it does, IBM is well positioned to be a market leader.

Some of the blockchain projects that IBM is working on, including Food Trust, TradeLens, and this FDA initiative, have the potential to yield industry-standard solutions. These projects benefit from network effects -- the more companies and organizations that adopt them, the more valuable they become. If any of these blockchain networks are eventually widely adopted by their respective industries, IBM will have a business that's very sticky -- and very difficult to disrupt.

Blockchain is one component of IBM's long-term growth strategy. With the FDA choosing the company for its blockchain pilot, momentum continues to build for IBM's blockchain business.

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Timothy Green owns shares of IBM. The Motley Fool is short shares of IBM. The Motley Fool has a disclosure policy.