Asset Visibility: Changing Regulatory Landscape Driving Adoption of IoT Solutions in the Pharma Vertical

The US and the EU’s rollout of serialization regulations has led to disruption to the pharmaceutical supply chain and created opportunity for Internet of Things (IoT) value chain players across multiple application segments like asset tracking, condition-based monitoring, and inventory management. Serialization regulations are defined as the affixing of unique barcodes on items, packages, pallets, cases, and containers for the purpose of traceability. Traceability refers to record-keeping by any player in the supply chain of details of who their supplier was and who their customer is, for each given transaction. In some jurisdictions, all supply chain players must keep digital records, making traceability an end-to-end phenomenon. The EU’s Falsified Medicines Directive (FMD) is being rolled out, which already covers most European member states (excluding Greece, Italy, and the UK—a former EU member). Likewise, similar regulations are being rolled out in European non-EU states such as Switzerland and Russia. The timeline of the rollout for most EU states was concluded in 2019, while the remainder is expected to conclude by 2025 at the latest. The US’s rollout of end-to-end serialization, the Drug Supply Chain Security Act (DSCSA), is the primary reason the US supply chain is adopting serialization with final deadlines by 2023 for an end-to-end, interoperable system. Thus, most of these markets have high penetration rates, given stringent regulatory requirements for serialization and Track and Trace (T&T) software.

Regulations for serialization impact cold chain products as well as non-cold chain. Cold chain items from production to distribution are subject to Service Level Agreements (SLAs) for condition-based monitoring, as well as geolocation tracking. This creates ample room for IoT services. Aggregation is another key aspect of serialization which is driving adoption of IoT solutions in inventory management. Aggregation is where scanning a logistic unit, such as a pallet, will detail the contents contained within the pallet such as a carton or case. This process is automated through barcodes, avoiding the need to open boxes to scan each package individually. Some jurisdictions officially mandate aggregation while others do not. However, many firms still implement aggregation since it improves process efficiency. Aggregation leverages inventory management capabilities including barcode scanners and Personal Digital Assistants (PDAs) to scan and display information on items contained within a given logistics unit.

Serialization regulations can directly impact asset visibility by creating a compliance baseline from which additional requirements for real-time asset visibility are met. For example, in Transport and Logistics (T&L), regulations incentivize suppliers to adopt digital solutions, enabling deployment of IoT devices. Especially in asset tracking use cases with the ability to use Radio-Frequency Identification (RFID) tags to locate and record movements of input raw materials as well as finished goods that are to be dispatched. Another use case within T&L is condition-based monitoring, which includes temperature and humidity sensors as well as shock sensors which detect and relay sudden jolts during transportation to the IoT system operator, thus providing asset visibility in real-time.

The unsaturated market for serialization is predominantly manifested in emerging markets as well as some developed markets—particularly those that have been delaying rollout of serialization regulations. For emerging markets, the total market size of cold chain products and high-value pharmaceutical products is lower than developed markets, which reduces the market size for IoT products and services. However, given that most counterfeit medicines circulate in developing countries, there is added impetus for regulators to implement serialization whether it’s end-to-end in the supply chain or only at select points. This trend is manifesting in some of the sizeable pharmaceutical markets in the Middle East, Asia-Pacific, and Latin America, namely the United Arab Emirates, Brazil, and Turkey, while China and India are also rolling out serialization systems. The IoT opportunity is smaller at present. Key drivers of technology adoption include rollout of Low-Power Wide-Area (LPWA) technology in China, creating opportunities for players across the IoT value chain, with early entrants likely to gain traction and grow not through increasing market share at a competitor’s expense, but through an expansion in the size of the total market.

Cold chain products are a persistent and prevalent phenomenon in developed markets like that of Europe and North America, thusly condition-based monitoring (CBM) is a key IoT use case for these products. Another IoT use case gaining traction is asset tracking with tagging used to track the location of products. In Europe and North America, the prevalence of digitized business operations (Enterprise Resource Planning (ERP) and Warehouse Management System (WMS) software) allows transaction and delivery record-keeping to be integrated into that software via customized modules and Application Program Interfaces (APIs). Real-time Track and Trace (RTT) is greatly complemented by IoT CBM products with their remote sensing capabilities. While the logistical infrastructure supporting cold chain medicines is not easy for developing countries to rollout (as evident by during the COVID-19 vaccine rollout in developing countries), it is increasingly observed from regulatory trends that Track and Trace will be required in some form other than real-time, due to the new record-keeping requirements mandated by law (i.e., serialization regulations for pharma).

In summary, the regulatory landscape is rapidly evolving in developing countries with increasing pressure to implement baseline improvements, such as serialization, not only to access export markets in Europe and North America, but also to re-assure concerns of domestic consumers about counterfeit medicines. The IoT opportunity will likely accelerate in markets that have already matured in serialization and traceability system rollouts such as Europe and North America. Established digital record-keeping systems for pharmaceutical businesses will naturally extended to IoT use cases like condition-based monitoring and asset tracking, driven by a regulatory environment which often incorporates digital traceability record-keeping or is based entirely upon this digital requirement. While many emerging markets are catching up in terms of serialization and traceability, implementing an end-to-end IoT solution will be more of a longer-term proposition as paper-based records kept by companies would first transition to digital IT business systems (like ERP and WMS) so that inventory management and OT systems are then modernized with IoT technology.