It is common practise for pharmaceutical companies to have their medicines manufactured – either whole or in part – through contract manufacturers. In such arrangements, the actual manufacturer obtains a license (in Form 25 or 28 under the Drugs and Cosmetics Rules, 1945 ("DCR"), depending on the product).The company's name is printed on the labelling as 'Marketer' in addition to the details of the manufacturer. Typically, the manufacturer is responsible for compliance with the requirements of the Drugs and Cosmetics Act, 1940, ("DCA") (labelling, quality etc.) while the marketer / distributor provides the artwork and other specifications. Further, the marketer obtains a wholesale license for their facilities rather than a repackaging license or loan licenses (in Forms 25-A or 28-A).
However, these arrangements have come under scrutiny from the authorities. In particular in the case of GlaxoSmithKline Pharmaceuticals Limited vs. The State of Bihar (2011) the Patna High Court upheld the lower court's decision which noted "as third party manufacturing agreements are concerned, there is no such arrangement in Drugs & Cosmetics Rules, 1945. There are only 3 ways of manufacturing of drugs as per Rules. (a) Own Manufacturing License (b) Repacking License (c) Loan License When any one wishes to avail on self of the manufacturing facilities owned by a licensee, one is granted a Loan License (25A or 28A) subject to the fulfilment of the conditions, prescribed under Rules" and that it was "unlawful to get their products manufactured under third party manufacturing agreement, bypassing the manufacturing norms, when the Rules have already provided such facilities to the desirous parties to get their products manufactured in some other licensee's factory under Loan License." Noting further that GlaxoSmithKline Pharmaceuticals Limited was liable for manufacturing, distributing and selling misbranded drugs (defined under Section 17(b) & 17(c) of the DCA) by violating the provisions of Rules - 75A (Loan licence), 96 & 97 (Labelling Rules) of the DCR, punishable under Sections 18(a)(i), 18(a)(vi), 18(b) & 18(c) of the DCA. These contraventions carry penalties of fines, confiscation of inventory, and imprisonment.
Per amendments to the DCR (in February 2020) the government has now granted legal recognition to drug distributors / marketers. From 1 March 2021 a 'marketer' is "a person who as an agent or in any other capacity adopts any drug manufactured by another manufacturer under an agreement for marketing of such drug by labelling or affixing his name on the label of the drug with a view for its sale and distribution". Other notable changes are that: (i) there is a requirement that the marketer and manufacturer enter into a written agreement (as opposed to conducting the business solely through POs etc.); and (ii) marketers would be responsible for quality of that drug as well as other regulatory compliances along with the manufacturer under the DCA.
Existing Liability of 'Marketers'
As a corollary to being granted legal recognition, drug 'marketers' ought to be mindful of the various statutes that typically govern the manufacture / sale of medicines outside of the DCA.
First, while such marketers may have been liable under consumer law even under the old regime, they can expect greater scrutiny under the Consumer Protection Act, 2019 where they may face claims for unfair trade practices, false or misleading advertisements, or product liability (given that such marketers typically exercise substantial control over the design / manufacture of the product). Such claims may result in refunds, compensation, damages, the issue of corrective advertisements etc.
Second, under the Drugs (Price Control) Order, 2013 ("DPCO") marketers were already included within the definition of 'manufacturers'. Under the DPCO, price control takes two broad forms: (i) where the Government fixes the ceiling pricing of notified drugs, specified in the National List of Essential Medicines ("NLEM") which are included in the First Schedule to the DPCO; and (ii) where the government restricts an increase in price by more than 10% in any 12 month period for notified drugs (but not included in the First Schedule). Non-compliance may result in the Government ordering a reduction of prices with penalties.
Third, marketers would need to adhere to advertising restrictions under the Drugs and Magic Remedies (Objectionable Advertisements) Act, 1954 which impose a blanket ban on advertising of prescription medicines, prohibit the advertising of medicines used in the treatment of certain specified diseases, and penalise false or misleading advertisements, through fines and / or imprisonment.
Speaking strictly with regard to the amendment – drug 'marketers' would need to enter into written agreements to ensure that their operations do not face hurdles. Additionally, the amendments do not address the question of past non-compliance and whether authorities would pursue action against companies for such non-compliance.
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