Violators of law… Drug Regulatory Authorities (DRAs)

Jagmohan Rai Agarwal

Revenue from contract manufacturing activity in the pharmaceutical sector is expected to hit $64 billion by 2016 and more than double between now and 2021, according to a report from Visiongain.

Manufacturing of finished dosage forms will drive this growth, with expected compounded annual growth of 8.7 per cent between now and 2016. Production of active pharmaceutical ingredients (APIs) remained the largest sector for the contract manufacturing industry worldwide last year, accounting for 71 per cent of the total market.

Similarly, a research report titled “Pharmaceutical Contract Manufacturing: A Global Strategic Business Report” released in March 2012 by Global Industry Analysts (GIA), points out that Pharmaceutical Contract Manufacturing (PCM) is emerging as a strategic option to an increasing number of pharma companies, owing to their ability to avail flexibility, quicker time-to-market, and lower scale-up costs. Outsourcing helps companies in cutting down on additional capacity in production networks.

The GIA report points out that pharma majors from developed markets are expected to outsource huge amount of manufacturing in order to concentrate on the core tasks of research, development and marketing. Pharma companies face increasing pressure to expand their product pipeline, and seek enhanced revenues and profitability, along with growing cost pressures and rising penchant to externalising fixed costs are expected to skew drug manufacturing towards outsourcing. Besides, players in the pharma industry are also pressed by rising penetration of generics, which makes outsourcing a more compelling alternative to provide them with cost savings. In such a scenario, the role of contract manufacturing, as well as contract developing companies is expected to become much more significant in the resource and cost optimised pharma industry.

These days ‘contract manufacturing’ in India, in the pharma sector has three options namely

1. Loan licensing
2. Third-party manufacturing
3. Franchise

Loan licensing other than Large Volume Parenterals (LVPs)

It is vide Notification no. F.1-16/57, dated 15.6.1957 that the provision for loan licenses was inserted by GOI as Rule nos. 69A and 75A in the Drugs and Cosmetics Rules 1945. The explanation given in those rules reads as under:

“For the purpose of this rule a loan license means a license which a licensing authority may issue to an applicant who does not have his own arrangements for manufacture but who intends to avail himself of the manufacturing facilities owned by a licensee in form 25 or in form 28 as the case may be.”

Today the market is flooded with products being manufactured on loan license system by those who have their own manufacturing facility at one or more than one places.

As per CDSCO’s website hundreds of loan licences have been granted/ renewed in favour of such companies who already have one or more than one facility of their own. This amounts to clear and gross violation of aforesaid provision of law and the violators are none other than State and Central Drug Regulatory officials.

The author addressed a letter dated January 31, 2012 to the Drugs Controller General India I/C and to all the State Drug Regulatory Authorities on the subject drawing attention to this violation of the Drugs and Cosmetics Rules

The letter observes ‘that almost all the State Licensing Authorities and even the Central Licensing Authority/Central Approving Authority in the country are engaged in violating provisions of Explanation to Rule 69-A (1), 75-A (1), 138-A (1), 153-A (i) and 76, (particularly in granting/renewing loan licences to manufacture for sale or for distribution of Large Volume Parenterals in form 28A of Rules).’

The letter reasons that ‘all the concerned authorities, whether sitting or retired, who have violated said rules, have rendered themselves liable for suitable criminal/civil legal action against all of them at appropriate forum. The ‘act’ of such officers cannot be termed as having done in ‘good faith’ and in fulfillment of their lawful duty.’

The author goes on to say, “It is expected that all such loan licences issued in violation of aforesaid rules, be cancelled within 30 days from receipt of this letter and names of officers, whether sitting or retired, who have knowingly violated the Law, are recommended to the Lokayukta/CBI for suitable action against them.”

It is surprising to note that far from replying, none of the State Drug Regulatory Authorities acknowledged the letter. The only reply received from Dr K Bangarurajan, Deputy Drugs Controller (I) of the office of the DCGI (File No. X-11050/LVP/MISC/2012-D, Central Drugs Standard Control Organization, Directorate General of Health Services, (LVP Division)) addressed to all State Licensing Authorities mentioned the receipt of an application from the author and requested them to take appropriate action in the matter and inform the DCGI’s office as well.

The letter addressed to DCGI/State Regulatory Authorities rose following two violations by all of them:

1. Grant / renewal of loan licences, other than LVPs in violation of rules.
2. Grant / renewal of licence to manufacture for sale of LVPs in absence of any provision in law.

The answering officer in CDSCO very conveniently ignored first part of the letter and for the second part transferred the responsibility on state authorities.

Out of the list almost every loan licencee has one or more than one facility of its own. The data also shows public sector undertakings as loan licencee in various states.

As per CDSCO website information from Andhra Pradesh, Jharkhand, Orissa, Punjab, Karnataka and Uttarakhand were awaited, whereas information as regard to original licencee from Haryana and loan licencee from Bihar are awaited.

The following minutes of the Drugs Consultative Committee (DCC) are relevant to be mentioned:

Item 3(f)-21st DCC- 8-9.11.1979: Consideration of report of sub-committee appointed to study the problems created by the loan licensing system and suggest changes in the Drugs and Cosmetics Rules to remedy them.

The consensus view of the committee was that loan licensing system should continue with certain restrictions. The committee unanimously agreed to the following restrictions being imposed on loan licensing system:-

1. Drugs and Cosmetics Rules should be suitably modified so as to require that after two renewals the loan licencee must set up facilities for manufacture of all categories of drugs covered by loan licence.
2. Not more than six units should be given loan licencee with a single manufacturer.
3. Not more than 10 items per unit should be allowed to be manufactured against a loan licence.
4. No loan licence should be granted to any unit on more than one parent firm.
5. That sub-committee has recommended that no loan licence should be granted for the manufacture of immunological products, surgical dressing, blood and its products, transfusion solutions, medicinal gases, disinfectants, cardiac glycosides, ecobolic preparations, antibiotic parenteral preparations, narcotic and psychotropic preparations, and also for repacking of drugs. The committee recommended that ophthalmic preparations and injections should also be included in the list of items not permitted to be manufactured against a loan licence.
6. Loan licensing system should not be exploited by manufacturers having facilities for manufacture to increase their production capacity. Loan licence is essentially meant for parties who do not have their own manufacturing facilities and have, therefore, to avail of the manufacturing facilities of other firms.

Item no. 21: 21st DCC- 8-9.11.1979: Consideration of the question of the grant of loan licence for sterile powders, whole human blood and blood products:

The committee unanimously agreed that sterile products, whole human blood and blood products should not be licenced against loan licences.

Item no. 27- 22nd DCC- 10th July 1981: No new loan licences for injections should be issued and no strip packing should be allowed on loan licence.

The chairman stated that no exemption should be given in respect of ophthalmic sterile preparations and practice followed in respect of gamma radiation and sterilisation should continue.

The chairman stated that whenever a decision has been taken in the DCC, the same should be uniformly implemented. If any member has any difficulty, he should refer the matter to the chairman for clarification.

Item No. 50- 29th DCC – 6-7.01.1994: Consideration of framing uniform policy pending abolition of loan licensing system with regard to manufacture of drugs in units other than the parent firm.

DC, Orissa requested members to devise ways and means to curb the practice by which those manufacturers who did not have their own facilities but were still getting certain items manufactured from the companies who have adequate facilities to produce those drugs. Thus the parent manufacturer was mentioning on their label as if they were marketing the product manufactured on behalf of other units.

The members joined with DC, Orissa in expressing the concern that this was another way of circumventing loan licensing system. Commissioner, FDA, Maharashtra informed that they were granting loan licenses as per the court directions. The fresh licenses or renewal of licenses were being granted subject to the clearance of court case or decision taken by Supreme Court or amendment, if any, made with regard to notification whichever was earlier. (Detail of court case referred by Commissioner, FDA, Maharashtra have not been quoted in the minutes).

The chairman felt that no retrogrative steps should be taken for this matter specially with regard to grant of loan licences for LVPs and bulk drugs in view of the earlier decision reached by the DCC. Further, DC (AP) and FDC, Gujarat informed the chairman that loan licenses relating to bulk drugs had been stayed by the courts in their State. (no detail of court cases are available in the minutes).

After discussion the chairman requested Commissioner FDA, Maharashtra to give a write up on the manner of grant or renewal of loan licenses in his State so that the same could be circulated for information and necessary perusal by the other members.

Another aspect related to availability of counterfeit/fake/spurious medicines is easily availability of printed packaging materials of the principal unit(s) either at the manufacturing site or at local vendor.

Therefore, it is clear that the explanation attached to the above rules is being flouted / overlooked / violated knowingly. It is therefore high time that either the law be enforced in its true spirit or provision of loan license be abolished in the country.

Compilation of original and loan licenses granted (Source: CDSCO web site, accessed between January/ February 2012)
S. No	Name of state	No. of original licencee	No. of loan licencee
01	Assam	21	01
02	Bihar	224	NA
03	Chhatisgarh	10	01
04	Delhi	61	55
05	Goa	68	157
06	Gujarat	806	767
07	Haryana	NA	64
08	Himachal Pradesh	299	418
09	Jammu & Kashmir	47	09
10	Kerala	99	115
11	Madhya Pradesh	287	177
12	Maharashtra	565	956
13	Rajsthan	125	78
14	Sikkim	14	13
15	Tamil Nadu	446	119
16	Uttar Pradesh	483	26
	TOTAL	3555	2956 (83.15%)

Loan licensing of ‘LVPs’

It is vide GSR 119 (E) dated 11.3.1996, a licence to manufacture for sale or for distribution of drugs specified in Schedule C and C(1) other than LVP, sera and vaccines, drugs specified in Part X-B and Schedule X shall be issued in Form 28 and a licence to manufacture for sale or distribution of drugs specified under Schedule C and C(1) (other than LVP, sera and vaccines, drugs specified in Part X-B) and Schedule X shall be issued in Form 28B. A licence to manufacture for sale or distribution of large volume parenterals, sera and vaccines shall be issued in Form 28-D was inserted.

It is worth evaluating that a licence in Form 28 is prescribed to be issued for drugs specified in Schedule C and C(1), other than large volume parenteral, sera and vaccines and a licence in Form 28-D is prescribed to be issued to manufacture for sale or distribution of large volume parenterals, sera and vaccines.

An explanation, similar to Rule 69-A, is part of Rule 75-A for the purpose of issue of licence in Form 28-A (Rule 76-A) for drugs specified in Schedule C and C(1), excluding those specified in Part X-B and Schedule X.

Explanation: For the purpose of this rule, LVPs shall mean the sterile solutions intended for parenteral administration with a volume of 100 ml or more (and shall include anti-coagulant solutions) in one container of the finished dosage form intended for single use.

It is interesting to note that there is no procedure and / or provision in any of the rules prescribing issuance of loan licence to manufacture for sale or distribution of large volume parenteral, sera and vaccines. The legislature has neither prescribed any fee nor the form for that purpose.

As per the website of CDSCO one of the functions undertaken by Central Government i.e. CDSCO is:

“To approve licences to manufacture certain categories of drugs as Central Licence Approving Authority (CLAA) i.e. for blood banks, LVPs, sera and vaccines.”

The procedure for grant or renewal of licence to manufacture LVPs, sera and vaccines under Drugs and Cosmetics Rules 1945 is also available on the website of CDSCO. Here also there is no mention of procedure for issuance of loan licence to manufacture large volume parenterals.

Now let us examine minutes of various meetings of Drugs Consultative Committee on the subject:

1. 34th DCC August 2000: Item no. 14: Consideration for the amendment to the concerned Rules under Drugs and Cosmetics Rules 1945 to make provision for the manufacture of LVPs under loan licence.

   “Considering the specific technical expertise and specialised facilities required for manufacturing quantity (quality) products which are to be formulated as LVPs, the DCC unanimously accepted the recommendation of the sub-committee for the amendment of the concerned Rules under the Drugs and Cosmetics Act so as to regularise the manufacturing of LVPs under loan licence till such time that loan licensing is an integral part of rules. It was agreed that there has been an omission in the forms pertains to CLAA in this regard and many drug formulation in large volume continue to be manufactured under loan licence arrangement as such skill may not be available with many industries. This correction however, needs limited to LVPs.”

2. 36th DCC June 2005:

1. Agenda no. 13: Documents to accompany with the licence for the grant/renewal sent for approval of CLAA to manufacture LVPs.

   “The large volume parentrals are sensitive products and therefore approving the grant of licence/renewal of the licence /permission for the manufacture of additional products requires detail information on facilities for manufacturing and testing.”

   “The LVPs, vaccines, blood products and recombinant products are sensitive products. Grant/renewal of the licence and permission for the manufacture of these products are to be duly approved by the CLAA. This requires that at the level of SLA, it should be ensured that all the documents are in order and are sent to CLAA.”

b. Agenda No. 40: Loan licensing of large volume parenterals:

Loan licences for products specified for a Schedule C and C (1) are issued under Rules 75-A, 76-A and 78-A. Incidentally all large volume parenterals also fall under category of Schedule C drugs. Some states are issuing loan licences on Form 28-A without taking approval from Central Licence Approving Authority, which is mandatory under Rule 68-A. This has created a great confusion because in the case of host firm the licence is issued by licensing authority and finally approved by CLAA but for a Loanee firm who is enjoying facilities on the same host firm, no such approval is required from CLAA. Even in additional products, in case of the host firms are granted after approval of CLAA but for Loanee firm they are sanctioned by SLA only. So this flaw in the law has to be rectified and if the loan licensing of LVPs is permissible then specific forms for applications and licence should be prescribed for the loanee firms also. At present, there seems to be no such provisions in rules and no forms have been prescribed for loan licence in respect of LVPs.

DCG(I) explained the members that the loan licences which are granted for the purpose of utilising spare capacity of a licenced manufacturer and does not involve any manufacturing activity and the quality of product is taken care of by the principal manufacturer who is already approved by SLA or the CLAA as the case may be. Requests were received from many SLAs that the grant or renewal of loan licences for the manufacture of LVPs should be permitted by SLAs or separate provision should be created for processing such applications by CLAA even though it does not involve any establishment of a manufacturing activity. He added that CLAA undertakes the following activities before the approval of licence.

1. Verification of statements of the manufacturer in respect of manufacturing premises, technical staff, manufacturing facilities etc.
2. Inspection of the establishment.
3. Acceptance or rejection of the application on the basis of the report of the licensing authority.

All these requirements are practically non existence in the case of loan licences. It was, therefore felt that a provision should be created in Rule 75-A and 78-A so as to facilitate SLAs for grant of loan licences for LVPs.

After deliberations, DCC agreed to the proposal and recommended that Rule 75-A and 78-A may be suitably amended so that loan licences for LVPs could be granted by the State Licensing Authorities. However, it was agreed that a formal NOC would be obtained from CLAA before processing any application for loan licensing any CLAA item.

3. 37th DCC December 2006: CLAA Scheme: Abstract:

CLAA scheme exists for more than 13 years. Major area of concern:

1. Non compliance but continue to be valid.
2. Loan licensing of CLAA product without CLAA approval.

“As a principal decision was already taken to permit loan licensing for large volume parentrals, the DCC has agreed to process a loan licence application in 27-D and recommended in 28-D specifically mentioning that the application is for loan licence and mention the name of loan licensor and licencee pending creation of new form.”

As per data available on CDSCO website numbers of loan licences to manufacture LVPs have been granted/renewed in various states under the nose and knowledge of CDSCO. It is not enough, as loan licences to manufacture LVPs have been issued to firms who have their own facility to manufacture LVPs either within or outside the state.

Recent amendment: It is vide Gazette Notification GSR 574 (E) dated 17.7.2012 the Ministry of Health and Family Welfare, Government of India, the Drugs and Cosmetics Rules have been amended.

1. Rule 75 A (a), after sub-rule (1) sub-rule (1A) has been inserted, vide which form 27DA has been prescribed for application for grant or renewal of loan licence to manufacture for sale or distribution of drugs in large volume parenterals, sera and vaccine and Recombinant DNA (r-DNA) derived drugs.
2. Form 28DA has been prescribed for grant of loan licence to manufacture for sale LVPs, sera and vaccine and r-DNA derived drugs.
3. Form 26 J has been prescribed for renewal of loan licence for LVPs, sera and vaccine and r-DNA derived drugs.

Above amendment has been incorporated in a hurry and without any valid reasoning. Further it is noticed that loan licences already granted and renewed from time to time prior to said amendment, had no legal sanctity. Even after above amendment the provision of ‘Explanation’ attached to relevant rules, reproduced below, is being violated.

“For the purpose of this rule a loan license means a license which a licensing authority may issue to an applicant who does not have his own arrangements for manufacture but who intends to avail himself of the manufacturing facilities owned by a licensee in form 25 or in form 28 as the case may be.”

It is also interesting to consider that while replying to authors letter on March 2, 2012, the office of CDSCO, New Delhi, knowingly suppressed about the Draft Rules vide GSR 557 (E) dated 21st July 2011, already published in the Gazette of India dated 21st July 2011.

Thus it is evidently clear from above facts that state licensing authorities hand in gloves with Central Drugs Standard Control Organization (CDSCO)/DCGI/DCC have jointly and severely violated the law of the land in granting/renewing loan licences to manufacture LVPs prior to amendment of rules.

Where is the law, where are the law abiding people, where are the law enforcing authorities, where are our political leaders?

(Exceptions are always there)

Third party

Under this arrangement the firm/unit (A), normally renowned and brand leader, enters in to an MoU, with the manufacturing company (B), mostly an SME, where B agrees to manufacture generic/patent-proprietary products of A in the manufacturing facility belonging to B, at agreed terms. Firm ‘A’ purchases such manufactured products from ‘B’ on the basis of wholesale drug licence. ‘B’ obtains permission of those products in its license, if not already licensed.

In the packaging material the logo and name of ‘A’ is printed more prominently than the name/address of ‘B’ for obvious reasons to cheat the public and medical profession as if the product is manufactured by ‘A’ the printed packaging materials and raw materials, is procured by ‘B’.

‘A’ makes such arrangement with number of companies thus the printed packaging material of ‘A’ is easily available at many places.

There is, in most of the cases, no account of such printed packaging material is maintained even after the third party arrangement is discontinued.

There is no provision in law for this arrangement and is being adopted only to avail manufacture of products at a cheaper cost, to avoid legal responsibility under the Drugs and Cosmetics Act/Rules and also to save government revenue wherever possible.

An SME like ‘B’ has been thrown out of open market and government business, has upgraded its unit to comply GMP norms under pressure investing huge sum to keep the licence / unit alive, who is under stress to meet monthly bills of the unit, arrange payment of interest and other dues of financial institutions/market, maintain the livelihood of staff/labour, keep the mouth shut of 32 government departments, and at last to maintain the average status of his family, in most of the cases such companies like ‘B’ are forced to become slave of units like ‘A’.

If a detailed enquiry is conducted it will be revealed that every second product falls within above two categories.

Glaring Judgment of Patna High Court between GlaxoSmithkline Pharmaceuticals Ltd. & others Vs State of Bihar & another in Cr.Mis.No. 37985 of 2004 decided on 22nd February 2011 [2012(1) Drug Cases, 16]:

1. Drugs and Cosmetics Act 1940 and Rules 1945- sections 27(d), 18(a)(i), 18(a)(vi), 18(c) – cognizance taken for violation of the provisions of-appeal against- Rules 75A, 96, 97, section 17(b)- complaint filed against the accused persons including petitioners alleging that the seized drugs were manufactured by violating the provisions of loan licences and labeled by violating labeling rules 96 and 97 and logo and name of the intended purchaser (GlaxoSmithkline Pharmaceuticals Ltd- as a wholesaler), featured on the labels of the drugs and carton of drugs attract provision of misbranded drug-the fact not disputed that M/s GlaxoSmithkline Pharmaceuticals Ltd. had purchased drugs from M/s Emcure Pharmaceuticals Ltd. as whole seller and as such there was no requirement to mention this fact on label of drugs in question that too in the letter bolder than the letters in respect of manufacturer over the label on the drug in question-no interference with the order of the cognizance- petition dismissed.
2. Drugs and Cosmetics Rules 1945- no provisions in the Act under which the name and logo of the intended purchaser (Wholesaler), who purchases drugs from the manufacturer could appear on the labels of the drugs purchased.

(Author is not aware whether appeal, if any, is filed and pending before Hon’ble Supreme Court against the aforesaid order/ judgment.)

Illegal practice, permitted by the regulatory, lead to production of ‘As’ medicines by unscrupulous persons.

FRANCHISE:

Manufacturing company ‘A’ enters in to product wise MOU for franchise with any person ‘B’, not necessarily a manufacturing unit.

‘B’ then negotiates with number of manufacturing units and gets the agreed products of ‘A’ manufactured and continues its marketing himself without any check or monitoring or control by the brand owner ‘A’. ‘B’ is authorised to print name and logo of ‘A’ as per its sweet will which normally is more prominently printed obviously to misguide the patient and medical profession as if the product is manufactured by ‘A’ in its own manufacturing unit.

One can imagine the hazardous effect this system would bring in this noble profession.

Number of advertisements can be seen either on internet or in print media where services either as third party arrangements and/or franchise are offered. And the regulatory (authority) is pretending unawareness of its serious consequences.

It is an alarming situation and the present regulatory and governments much awake to check and forthwith stop such root cause of the problem being faced by the profession.

Remember that the greatest crime is to compromise with injustice and wrong.

Subhash Chandra Bose

About the author Jagmohan Rai Agarwal, M.Pharm (1968), has nearly 37 years of industrial experience in the SSI sector and has been part of various industry fora Founder President of M.P.Pharmacy Graduates’ Association (MPPGA), M.P.Pharmaceutical Manufacturers’ Organisation (MPPMO), M.P. Small Scale Drug Manufacturers’ Association (MPSDMA), Ex President Indian Pharmaceutical Association, M.P. State Branch, Indore (IPA), Ex Vice Chairman Confederation of Indian Pharmaceutical Industries (SSI) (CIPI).

He has recently submitted his Ph.D. thesis on the topic: “Enforcement of Drug Laws-Globalization vis-à-vis Indian Drug Laws”.

The author can be contacted at sharda_jollo@yahoo.co.in