Words by Cheyenne Eugene
In the final instalment of GOLD’s blockchain trilogy, another facet of blockchain’s inevitable coupling with the pharma industry is explored, this time taking a look at business development and investment in the form of smart contracts
Time and money. Whether we like it or not, our appetite for both can be insatiable. We loan them both from our own personal banks and invest them into our survival, progress and happiness. We can calculate our own risks and have the autonomy to invest as we see fit.
In the business world, however, things are not that simple, and risks are in abundance, particularly with new developments such as blockchain. Nevertheless, its potential is palpable, and experts are urging that blockchain technology can lower risks across business development and investment, including intellectual property and venture capital, while guaranteeing privacy and compliance.
To this end, one blockchain-based solution is looking promising: smart contracts. While they have been present in pharma’s discourse for some time now, industry leaders are yet to fully take the plunge.
Understanding smart contracts
Put simply, smart contracts are digital contracts stored on a blockchain that are used to automate the execution of an agreement and subsequent workflow, triggering the next action when contractual terms are met. This means third party involvement is not required, ultimately saving time.
Contractual terms are coded as ‘if/when…then…’ statements and could include things like releasing funds to appropriate parties, sending notifications, and so on. Once the predetermined conditions have been met and verified, a network of computers automatically updates the blockchain. As it is so secure, the transaction cannot be changed, and only parties who have been granted permission can access the information.
Smart contracts hold massive possibilities for IP protection
In the pharmaceutical space, companies are currently looking into blockchain-based smart contract technology applications regarding intellectual property (IP). Vincent Steine, Independent Pharma Broker and self-confessed blockchain enthusiast, believes these hold “massive possibilities” for IP protection.
As well as solidifying evidence of creatorship and provenance authentication, “smart contracts can be used to establish and enforce IP agreements to track the distribution of IP, and for the transmission of payments to IP owners”, Steine explains. Ultimately, smart contracts can be used to address operational issues, introduce best practice and mitigate risks.
Venture capital potential
Using blockchain technology within venture capital systems is an area that is “heavily overlooked”, according to David Kopsky, Physician and CEO, Topical Innovations, who is also a keen blockchain supporter. Employing blockchain-based infrastructure would “guarantee traceability, transparency and accountability to all stakeholders so that they are in full control of their investments at all times,” he says.
Venture capital does not come without a considerable dose of risk. “The harsh truth is that new business opportunities with a relatively low ROI, or low potential patient numbers, are not that interesting for big pharma parties so a lot of innovations end up on the shelf after Phase 1 and 2 development,” says Kopsky.
Phase 3 development – the last stage before the launch of a product – is often the most expensive and risky stage for developers and investors. But smart contract technology offers an antidote to this through controlled, incremental startup capital infusion.
“Companies will have access to a limited amount of cash flow until further milestones or targets of the project have been completed,” explains Kopsky. “This ensures that in case of a failure, the loss will be kept to a minimum, having the rest returned to investors.” Equally, the technology could also be used for milestone and other conditional payments to investors, using the ‘if/when…then…’ rules of a smart contract.
Both Kopsky and Steine believe that such a system can be implemented into the classic business development architecture within pharma companies and big venture capital parties. However, one player whose involvement they think is potentially more interesting are the smaller venture capital parties and private investors. By mitigating risk, smart contracts would mean that “everybody could contribute to medicine development,” states Kopsky.
Saving time and money
One reason for the expanding costs of medicine development is that data compliance leads to “siloed information”, according to Steine. The current standard method for verifying and collecting one’s own data is through conducting preclinical and clinical trials. Clinical trials, however, have become so time- and cost-intensive that smaller pharma companies are frequently seeking merger or acquisition opportunities when developing medicines, as they are unable to supply the amount of capital necessary to complete the process.
Alongside this, protecting data requires a lot of money. If blockchain-based data storage was employed, information would be compiled and indexed and company’s running Phase 3 trials, for example, could find the desired patients who match their criteria more easily, saving time and money. This is currently theoretical but has the potential to set a new industry standard for sharing information. “In a nutshell, we move away from the traditional siloed way of storing data,” summarises Stiene.
Each department can work on a drug in the development pipeline at the same time
Blockchain technology could also “allow access to information in parallel”, Steine adds. This would mean that as patient data is being collected by physicians, researchers, marketers and other executives at the associated pharma company could simultaneously review it. “In other words, each department can work on a drug in the development pipeline at the same time,” explains Steine. “At the moment, there is no way to share such information in real time.”
Steine identifies “significant upfront costs” as the prominent hesitation around adopting blockchain technology into business development. “Justifying this initial financial investment may present challenges since most of the largest pharma companies leading the industry are managed and evaluated on a short-term basis by their investors,” he says. “Therefore, most pharmaceutical companies are taking a wait-and-see approach to how the implementation of this new technology will play out.”
Blockchain will have massive implications on how information is managed. However, the pharma industry is a relatively conservative and risk aversive one. Considering data sensitivity and the potential fallout from information being lost or compromised, pharma companies are currently reluctant to dive in. It goes without saying that introducing new technologies requires careful review.
Taking these into account, Steine still urges that blockchain-based technologies could have “massive, positive implications on medicine development” by protecting IP and derisking venture capital. And Kopsky believes “blockchain technology could lead to a more inclusive environment in regards to investing in medicine development, and could ultimately lead to more and better products on the market and better quality of life for patients”.
As the topic of blockchain ripples through pharma, both Kopsky and Steine predict that a “true paradigm shift” is approaching the industry. Only time will tell.
Catch up on the first and second features in this blockchain trilogy: