Swiss firm brings blockchain to the biopharmaceutical cold chain

 ( Photo: SkyCell )

(Photo: SkyCell)

No matter how you measure it, the American pharmaceutical industry is gigantic: the $446B Americans spent on medicines in 2016 represented 45% of the global market; while Japan, the United Kingdom, Germany, France, and Switzerland are major players, the United States’ pharmaceutical R&D spend in 2014, $89B, comprised 62% of global pharmaceutical R&D spending. The United States is also the world’s largest exporter of pharmaceuticals, with exports valued at $86B in 2015

Some of the most valuable drugs being produced these days are temperature-sensitive biopharmaceuticals (more on that later), but the refrigerated supply chain—or ‘cold chain’—that enables this lucrative export business is low-tech and wasteful, often amounting to little more than styrofoam coolers and frozen gel packs. The global pharmaceutical industry spent $13.4B shipping temperature-sensitive biopharmaceuticals in 2017, but the World Health Organization estimated that up to 40% of vaccines shipped worldwide degraded due to temperature variation during transport. More than 60% of the temperature deviations affecting the quality of biopharmaceutical shipments occurred on airport tarmacs, which experience extreme temperatures. Air freight logistics personnel under time crunches often plan ahead, and park pallets next to aircraft hours before departure, where they can be exposed to temperatures from -40° F in Anchorage to 120° in Dubai.

Enter SkyCell, a Switzerland-based high tech firm that has created an IoT and blockchain-enabled refrigerated air freight container especially for biopharmaceuticals. Why biopharmaceuticals? The economics of this class of drugs are completely different than typical small molecule medications produced by chemical processes. Biopharmaceuticals are typically large, complex protein molecules grown by genetically engineered microorganisms in vats called bioreactors. Small molecule drugs can be expensive, too, but these costs are mostly related to recovering research and development expenses: it takes years to invent a compound that works and bring it through a multistage FDA approval process—then a pharma company has a limited amount of time to sell the drug on the market before its patents expire. The cost of production and the ingredients themselves are trivial, though, and that’s why drug companies have historically tolerated wasteful supply chains. 

Biopharmaceuticals, though, are different. Biopharmaceutical manufacturing facilities are an order of magnitude more expensive than traditional drug factories—$200-500M instead of $20-50M—and the nature of the product makes production tedious and labor-intensive. Biopharmaceuticals are exceptionally sensitive to changes in pH, temperature, and environmental contaminants. Even slight changes can alter the chemistry of the protein under production, rendering it ineffective or even dangerous. Biopharmaceutical production processes are small batch, and equipment has to be carefully cleaned after the proteins have been harvested—it’s more like artisanal, microscopic organic farming than an industrial chemical factory. Because biopharmaceutical production costs are much higher than for traditional drugs, supply chain waste and loss is more costly, and companies have a strong incentive to minimize it.

SkyCell’s stylish line of air freight containers are built out of patented insulation, kept cold by a special rechargeable passive cooling technology, and are equipped with a plethora of sensors that monitor temperature, humidity, and geolocation. The SkyCell cloud platform records documentation like bills of lading and customs forms for each container on a blockchain-like ledger, providing a level of supply chain visibility and security that complements the container’s temperature security.

Check out this video of a SkyCell container being handled on its way from Austria to Brazil:

Besides the increased production costs of biopharmaceuticals, regulatory changes have caused pharma companies to upgrade their cold chains from styrofoam. FreightWaves spoke to SkyCell’s co-founder and CEO Richard Ettl by phone.

“What’s driving our industry right now—the cold chain and cold chain packaging—this regulation kicked in about 3 years ago,” explained Ettl. “Countries which in many cases are the buyers of medication realized they need to set a standard. Ten years back, pharma companies set their own standards. Now this is over. In most countries, regulators have decided that the companies have to prove temperature through the whole supply chain—from manufacture to pharmacy. These rules are now effective in Europe, Saudi Arabia, Brazil, China, and the USA is working on a similar regulatory regime. Even Botox is regulated in Saudi Arabia; it’s no longer an option just to ship it and hope that it works… they check the shipment at the airport—they open the container, and pull the data. If it’s supposed to be between 2 and 8 degrees [Celsius] constantly, and the logger says it reached 8.1, they send it back,” said Ettl. “It never makes it past customs.”

Pharmaceutical companies are also upgrading their cold chains because of consumer demand. The problem is that degradation due to temperature variation is invisible, unlike food spoilage, which in many cases is obvious. “Large molecule drugs break down because of heat or if they freeze; temperature has a huge impact on the performance. Insulin breaks down the warmer it is. If you freeze it, it breaks completely, from 100% effective to 0. The problem with pharma is you can’t tell, optically, if it’s broken,” said Ettl. Globally, 8.5% of sensitive pharmaceutical shipments experience temperature deviations; in the Middle East, that number rises to between 15-20%. For 2017, SkyCell brought their temperature-deviated rate down to less than 0.1%. 

Now SkyCell has slightly more than 1,000 containers circulating through the global cold chain, making them the fourth largest container firm in the space. Ettl said they will add another 1,000 containers this year and take the number three spot in the industry. SkyCell is preparing to move its most valuable shipment so far: one pallet-sized container of bulk vaccine worth $12M will move from its pharmaceutical manufacturer in Germany to Japan, where it will be divided into about a million doses and distributed to more countries. 

“This is typical of a pharma supply chain—super-expensive, mission-critical bulk shipments—where if you lose a shipment you lose weeks of inventory,” said Ettl. Cold chain security and visibility are paramount for biopharmaceuticals, which is why SkyCell bet on technology early. Ettl said the firm started putting sensors and data loggers on their containers four years ago, and has accumulated 1.2B data points, enabling SkyCell to map the biopharmaceutical supply chain and leverage its data in partnerships with airlines, pharma companies, and customers.

Later this year SkyCell’s parent company, Smart Containers Group, is doing an initial coin offering (ICO) to attract a decentralized, global network of investors to help grow a sister business called FoodGuardians, which will offer low-cost refrigerated shipping containers for food products like salmon. Dividends will be paid out in Ethereum to coinholders.

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