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Drug manufacturing can be outsourced from a loan licensee

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Query: “What are the legal liabilities of a drug manufacturer in an event of a loan licensee at his premises is booked under D&C Act?

Can a drug manufacturer get his formulations manufactured from a loan licensee under third party arrangement?”

  According to Drugs & Cosmetics Act 1940 and Drugs & Cosmetics Rules 1945, a loan licensee is a manufacturer of drugs who may be a company or a unit or a body corporate or any other establishment having no drug manufacturing facilities, but who intends to avail himself manufacturing facilities owned by a licensee in Form-25.

Loan licensee is responsible for the quality of the drugs manufactured by him. The manufacturer whose facilities the loan licensee is availing is not responsible for the quality of the drugs manufactured by a loan licensee in his premises.

A person, whether he is a proprietor, firm or a company, having a license to manufacture for sale or distribution of drugs on Form-25 under Rule-69A has a right to manufacture his products in his own manufacturing premises or in the premises of another manufacturer. The loan license is defined under Rule 69-A and 75-A of the Drugs & Cosmetics Rules 1945.

A loan licensee/person using the premises and equipments and staff of another drug licensee is a manufacturer within the meaning of 69-A of the Drugs & Cosmetics Rule 1945. Before granting a loan license the licensing authority shall satisfy himself that the manufacturing unit has adequate equipments, staff, capacity of manufacturer and facility for testing before undertaking the manufacture on behalf of the applicants for a loan license.

Under third party agreements the Licensee or Loan Licensee firm/unit, normally renowned and brand leader, enters into a Memorandum of Understanding (MOU) with the manufacturing company and the manufacturing company agrees to manufacture generic/patent-proprietary products of a licensee or loan licensee in the manufacturing facility belonging to the manufacturing company at agreed terms.

There is no third party manufacturing agreement provision in Act and Rules. But there is no prohibition for manufacture of drugs on third party agreements by a licensee or loan licensee in the Drugs & Cosmetics Act 1940 and Drugs & Cosmetics Rules 1945.

Nationally acclaimed  expert on Drugs
and Cosmetics Act (1940)

GLS Pharma

Cubit Pharma