Loan License Concept
What is Loan License concept? How is it different from Third Party manufacturing?
Historically, many pharmaceutical companies have turned to the contract manufacturers for achieving more efficiency in cost, capacity and time-to-market, or to acquire specific expertise not accessible in-house. In today’s scenario of advancements, the principal to principal or loan license agreements are very much admired in India. In this type of contact, the marketing company who is not having its own premises for the manufacturing, gets the facilities of manufacturing its products at other’s premises or plant and then market it under its own name. Itâs an opportunity for both the marketing company and the manufacturer itself. Companies not having enough space for the installation of manufacturing premises, gets benefited by saving their cost of installation and leveraging the existing manufacturing capabilities for more production.
Loan license manufacturing agreements are entered in by the advertising or marketing companies with the manufacturing companies in order to get the product specifications by using manufacturer’s specialty in technical know-how for a particular brand or trade mark of a marketing company. Here the marketing company gets benefited by the manufacturer’s expertise in the product’s technical specifications.
Loan license agreement
According to the section 138a in the Drugs and Cosmetics rules, 1945, Â a loan license refers to a license or a document which an authorized licensing authority may issue in favor of an applicant who does not acquire his own manufacturing arrangements but seeks to benefit himself of the manufacturing facilities.
When a company wants to avail itself of the manufacturing facilities under a loan license agreement in another licensee’s manufacturing unit, certain legal obligations or commitments and responsibilities has been put upon as prescribed under rule 76, 76a & 78a of drugs & cosmetics rules, 1945. In this agreement, the license seeker must have the marketing authorization of the drug appropriately licensed to manufacture and market. It is basically, outsourcing of manufacturing related activities. The pharmaceutical companies outsource a broad range of manufacturing activities including active ingredient manufacturing, formulation, stability testing, manufacturing of chemical intermediaries, primary and secondary packaging, labelling, clinical trial supplies, etc. As per the analysts, the total share of manufacturing through Loan license or third party manufacturing of many multinational companies (operating in India) ranges from 50-90% of their total production.
Also, a ‘Loan License’ agreement is serving as the best example and an important instrument in forwarding the Governmentâs ‘Make In India’ program & helping in the upward growth of MSME manufacturers.
Under a loan license agreement, the responsibility of product specification know-how and its trademark are transferred to a manufacturing company to use manufacturing facilities and its staff. The manufacturer, manufacture the drug under the supervision of a company that has got a Loan License under Form 28. The quality, efficacy of the drug and safety during the production are responsibilities of the Loan license holder. The label of the product clearly delineates the product manufactured by the name of loan licensee with the place where the product is manufactured by the licensee manufacturing company.
 Third party manufacturing
Third-party manufacturing is mentioned to the outsourcing of pharmaceutical products or to get products manufactured by other manufacturing units with their own brand names. In the current situation, it is a favored strategy among all marketing companies. Even multinational companies are also have been preferring this concept to manufacture their products. Third-party manufacturing business comes with both benefits as well as can cause hurdles. Manufacturing a product by cutting down the cost does not mean that quality also needs to be compromised. Third-party should promise to serve cheaper products without any quality compromise. Only then the business can be run successfully and flourish. Third-party business is beneficial if a company is in a developmental stage and it needs to grow and develop.
6 STEPS FOR THIRD PARTY MANUFACTURING:
Select the products and request the rates.
Settle the order quantity and composition.
Raise the purchase order.
Finalize the artwork.
Submit the documents.
Delivery of the goods.
Loan Licensing V/s Third Party Manufacturing
For the persons having non-technical background, it is quite confusing to discriminate/separate Loan licensing method of manufacturing from Third party manufacturing.
- Under Loan Licensing, it is likely to begin own manufacturing without getting involved in the installation of manufacturing premises or without setting up the manufacturing unit.
Suppose, imagining an example:
You owns a pharmaceutical marketing company and desires to manufacture your own medicines but donât actually want to set up your own pharmaceutical manufacturing plant. So in this case, you will turn towards an already existing licensed manufacturing plant and ties-up with it for the technical facilities. Here you will then apply for the loan license to the drug authority.
The concerned Drug authority will issue the Pharmaceutical marketing company a separate license to get the desired drugs manufactured by the manufacturing unit and access all the advantages of the production plant.
In loan licensing, you will lease a particular space in the already existing plant to manufacture your own products with your own brand names. Here, the loan license holder company will provide the marketed by and manufactured by name with the address of the hired production unit.
In loan licensing method, you will manufacture the drugs and market it. The technical persons and the workers in the unit will be of manufacturing company but the manufacturing will be handled by you and you can send any of your authorized person to have an eye on the manufacturing process.
Documentation: In loan licensing agreement, the marketing company get the loan license from the state Drug Authority file is to be submitted to the authority including the details of manufacturing License Details, List of authorized ingredients, name of technical persons, Details of machinery being used in the unit, site plan etc. Two more important documents that a pharmaceutical marketing company should posses are drug license and GST.
Raw Material: In this type of manufacturing process, the responsibility of acquiring raw materials would be of Loan licensee as the same is working as a manufacturer in the manufacturing unit.
- In the Third party manufacturing method you just need to place the order to the manufacturing unit with your brand name and company name. The manufacturer then manufactures the goods and supply to you in the ready to sell form. You can now distribute your goods to your CNF and distributors.
This method is the simplest one to get your products manufactured from a pharmaceutical manufacturer. In this method a very less documentations are required.
Suppose you are in desire of starting your own marketing company and you want to manufacture your product or If you are a manufacturer but donât have the approval of some particular drugs, then you will tie up with a Pharma manufacturer to manufacture goods for you with your own brand name and marketed by address.
In the third party manufacturing you would not be able to mention the name of your marketing in place of the manufacturing company name, but you can use the name of your company in place of the marketed by company name. Here the possession or ownership of the brand name would be property of the marketing company. The quality and efficacy of the drugs will be the responsibility of the manufacturing company.
Documentation: In third party manufacturing, mainly the wholesale or distribution drug license and GST is required.
Raw material: Here the responsibility of procuring raw material would be on part of the pharmaceutical  manufacturing company and not the marketing company.
Both concepts are equally good and have their own pros and cons. Anyone wants to start his own pharma company, should assess and analyze every aspect of both concepts and proceed further considering his or her investment scale and financial conditions. If you can invest much in your start-up, you should go for Loan-License option, and if your resources are limited, you should go for Third Party initially.
Loan License Concept
What is Loan License concept? How is it different from Third Party manufacturing?
Historically, many pharmaceutical companies have turned to the contract manufacturers for achieving more efficiency in cost, capacity and time-to-market, or to acquire specific expertise not accessible in-house. In today’s scenario of advancements, the principal to principal or loan license agreements are very much admired in India. In this type of contact, the marketing company who is not having its own premises for the manufacturing, gets the facilities of manufacturing its products at other’s premises or plant and then market it under its own name. Itâs an opportunity for both the marketing company and the manufacturer itself. Companies not having enough space for the installation of manufacturing premises, gets benefited by saving their cost of installation and leveraging the existing manufacturing capabilities for more production.
Loan license manufacturing agreements are entered in by the advertising or marketing companies with the manufacturing companies in order to get the product specifications by using manufacturer’s specialty in technical know-how for a particular brand or trade mark of a marketing company. Here the marketing company gets benefited by the manufacturer’s expertise in the product’s technical specifications.
Loan license agreement
According to the section 138a in the Drugs and Cosmetics rules, 1945, Â a loan license refers to a license or a document which an authorized licensing authority may issue in favor of an applicant who does not acquire his own manufacturing arrangements but seeks to benefit himself of the manufacturing facilities.
When a company wants to avail itself of the manufacturing facilities under a loan license agreement in another licensee’s manufacturing unit, certain legal obligations or commitments and responsibilities has been put upon as prescribed under rule 76, 76a & 78a of drugs & cosmetics rules, 1945. In this agreement, the license seeker must have the marketing authorization of the drug appropriately licensed to manufacture and market. It is basically, outsourcing of manufacturing related activities. The pharmaceutical companies outsource a broad range of manufacturing activities including active ingredient manufacturing, formulation, stability testing, manufacturing of chemical intermediaries, primary and secondary packaging, labelling, clinical trial supplies, etc. As per the analysts, the total share of manufacturing through Loan license or third party manufacturing of many multinational companies (operating in India) ranges from 50-90% of their total production.
Also, a ‘Loan License’ agreement is serving as the best example and an important instrument in forwarding the Governmentâs ‘Make In India’ program & helping in the upward growth of MSME manufacturers.
Under a loan license agreement, the responsibility of product specification know-how and its trademark are transferred to a manufacturing company to use manufacturing facilities and its staff. The manufacturer, manufacture the drug under the supervision of a company that has got a Loan License under Form 28. The quality, efficacy of the drug and safety during the production are responsibilities of the Loan license holder. The label of the product clearly delineates the product manufactured by the name of loan licensee with the place where the product is manufactured by the licensee manufacturing company.
 Third party manufacturing
Third-party manufacturing is mentioned to the outsourcing of pharmaceutical products or to get products manufactured by other manufacturing units with their own brand names. In the current situation, it is a favored strategy among all marketing companies. Even multinational companies are also have been preferring this concept to manufacture their products. Third-party manufacturing business comes with both benefits as well as can cause hurdles. Manufacturing a product by cutting down the cost does not mean that quality also needs to be compromised. Third-party should promise to serve cheaper products without any quality compromise. Only then the business can be run successfully and flourish. Third-party business is beneficial if a company is in a developmental stage and it needs to grow and develop.
6 STEPS FOR THIRD PARTY MANUFACTURING:
Select the products and request the rates.
Settle the order quantity and composition.
Raise the purchase order.
Finalize the artwork.
Submit the documents.
Delivery of the goods.
Loan Licensing V/s Third Party Manufacturing
For the persons having non-technical background, it is quite confusing to discriminate/separate Loan licensing method of manufacturing from Third party manufacturing.
- Under Loan Licensing, it is likely to begin own manufacturing without getting involved in the installation of manufacturing premises or without setting up the manufacturing unit.
Suppose, imagining an example:
You owns a pharmaceutical marketing company and desires to manufacture your own medicines but donât actually want to set up your own pharmaceutical manufacturing plant. So in this case, you will turn towards an already existing licensed manufacturing plant and ties-up with it for the technical facilities. Here you will then apply for the loan license to the drug authority.
The concerned Drug authority will issue the Pharmaceutical marketing company a separate license to get the desired drugs manufactured by the manufacturing unit and access all the advantages of the production plant.
In loan licensing, you will lease a particular space in the already existing plant to manufacture your own products with your own brand names. Here, the loan license holder company will provide the marketed by and manufactured by name with the address of the hired production unit.
In loan licensing method, you will manufacture the drugs and market it. The technical persons and the workers in the unit will be of manufacturing company but the manufacturing will be handled by you and you can send any of your authorized person to have an eye on the manufacturing process.
Documentation: In loan licensing agreement, the marketing company get the loan license from the state Drug Authority file is to be submitted to the authority including the details of manufacturing License Details, List of authorized ingredients, name of technical persons, Details of machinery being used in the unit, site plan etc. Two more important documents that a pharmaceutical marketing company should posses are drug license and GST.
Raw Material: In this type of manufacturing process, the responsibility of acquiring raw materials would be of Loan licensee as the same is working as a manufacturer in the manufacturing unit.
- In the Third party manufacturing method you just need to place the order to the manufacturing unit with your brand name and company name. The manufacturer then manufactures the goods and supply to you in the ready to sell form. You can now distribute your goods to your CNF and distributors.
This method is the simplest one to get your products manufactured from a pharmaceutical manufacturer. In this method a very less documentations are required.
Suppose you are in desire of starting your own marketing company and you want to manufacture your product or If you are a manufacturer but donât have the approval of some particular drugs, then you will tie up with a Pharma manufacturer to manufacture goods for you with your own brand name and marketed by address.
In the third party manufacturing you would not be able to mention the name of your marketing in place of the manufacturing company name, but you can use the name of your company in place of the marketed by company name. Here the possession or ownership of the brand name would be property of the marketing company. The quality and efficacy of the drugs will be the responsibility of the manufacturing company.
Documentation: In third party manufacturing, mainly the wholesale or distribution drug license and GST is required.
Raw material: Here the responsibility of procuring raw material would be on part of the pharmaceutical  manufacturing company and not the marketing company.
Both concepts are equally good and have their own pros and cons. Anyone wants to start his own pharma company, should assess and analyze every aspect of both concepts and proceed further considering his or her investment scale and financial conditions. If you can invest much in your start-up, you should go for Loan-License option, and if your resources are limited, you should go for Third Party initially.
