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Govt proposal to scrap loan licensing in draft pharma policy note faces flak

LiveMint logoLiveMint 10-09-2017 Isha Trivedi

Mumbai: The government’s proposal to discontinue third-party manufacturing or loan licensing in the pharmaceutical sector was criticized by the industry on grounds that such a move would lead to revenue loss for small and medium enterprises (SMEs), disrupt supplies, as well as make installed capacities redundant.

In a loan licensing contract, a company manufactures its product at other’s premises or plants and then markets it under its own name.

The new draft pharmaceutical policy document prepared by the department of pharmaceuticals, under the ministry of chemicals and fertilizers, states that loan licensing raises many quality maintenance and assurance issues.

Hence, it is proposed to be phased out over three years or be allowed for only up to 10% of the total production of a company.

In a representation made to the government last week, Deepnath Roy Chowdhury, national president of industry body Indian Drug Manufacturers Association (IDMA), said, “Loan licensing has been a great help to pharma SMEs who are good in manufacturing but unable to market their products. Such units are in large numbers and curtailing loan licensees will be disastrous.”

IDMA said that more than 40% of drug production is generated through loan licensing. The manufacturing plant offering loan licences is also subject to approval from regulatory authorities on quality adherence and hence quality should not be any concern for the government.

D.G. Shah, secretary general of industry lobby group Indian Pharmaceutical Alliance (IPA), said in a written submission to the government that phasing out of the system of loan licensing and contract manufacturing will make installed capacities redundant and lead to unemployment.

If loan licensing is phased out, pharma companies will have to manufacture more drugs in-house and for that capacities will have to be increased.

“The investment for creating new capacities for in-house production will further increase product cost,” Shah said.

On 30 August, various stakeholders and government officials had met to discuss the draft pharmaceutical policy proposals.

“Loan licensing is an opportunity for both the manufacturing and marketing company. This restriction (proposal to discontinue loan licensing) suddenly creates an impact on the balancing equilibrium. The advantage of leveraging existing manufacturing capabilities for more products and vice versa will be affected. Overall, the cost advantage of getting a low-priced product for patients will become increasingly difficult,” C.T. Renganathan, managing director of RPG Life Sciences Ltd, said.

For multinational companies operating in India, such a measure would be negative as the percentage of drugs manufactured through loan licensing or third parties out of their total production ranges from 50-90%, said a Mumbai-based analyst on the condition of anonymity.

“Loan licensing has served as an important instrument to forward the government’s ‘Make in India’ programme and helped in the growth of MSME manufacturers. At GSK, some of our specific dosage forms are manufactured by our CMOs (Contract Manufacturing Organisation). A significant portion is manufactured in house,” A. Vaidheesh, managing director, GlaxoSmithKline Pharmaceuticals Ltd, said.

In a note dated 29 August, brokerage firm CLSA said the proposal for abolishing loan licensing is unlikely to be implemented in the current form as it could impact livelihood at SMEs.

Even if it is implemented, enough time is expected to be given to the industry to make the transition.

IDMA said in the representation that outsourcing of drugs or companies getting products manufactured through third parties is a global practice and the government should allow it to continue in India as well.

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