How to Start Third Party Pharma Manufacturing – Third Party or contract manufacturing is referred to the outsourcing of pharmaceutical products or to get products manufactured from other manufacturing units with your own brand names. In the current time, it is a very popular strategy for your business. Even, pharma companies having their own manufacturing plants are gotten manufactured their pharma products from other manufacturers. Here down we have given the complete details about How to Start Third Party Pharma Manufacturing.
Multinational companies are also preferring this concept to manufacture their products. It comes with lots of benefits. Pharmaceutical third party/contract manufacturing is an easy way to expand your business whether you want to start pharma marketing company or you want to expand your manufacturing business by the manufacturing of other companies products along with own products. Majority of Pharma marketing companies are involves in third party manufacturing.
Table of Contents
Process of Third Party Manufacturing
This strategy provides an easy solution for manufacturing pharma products of your own brands.
1. Choose Company Name:
Choosing a name for a new company is always a difficult and most important task. We trust a product by a name, A name associated with that product. When we see a logo, A Name comes in our mind. Before Choosing a name for any business think few facts:
- The name of your company should Satisfy Business Identity Need.e.g. in the pharmaceutical market, it may end or start with bio, pharma, cure, healthcare, life sciences, lab, laboratories, etc words.
- The company name should be Unique
- Letters in your business name play an important role. Make it short and simple so that it is easily rememberable and attract attention. In the first letter of company name, should have 3-8 letters. Letters may be less or more but the word should be a unique identity.
- Remember not to put any silent character in your business name. The silent character may create wrong pronunciation and misleading type image. Every person will pronounce the name differently and this will affect the brand image.
- The name should be technical. Pharma names should have suffix or prefix related to pharma.
- Last but not least, it should be unique in pronunciation and availability. No other firms should have resembled or similar name. Uniqueness creates a brand more easily than a similar name.
2. Apply for Company Registration
One can register the Pharma company in many ways. We are going to discuss documents and procedure required to register a pharma company.
- The drug license number is necessary
- Goods and Service Tax Number is require for sale tax purpose.
- Trade Mark registration is necessary for safeguard of your intellectual property.
You can register your company as:
- One Person Company
- Private Limited Company
- Limited Liability Company
- Public Company
- DSC (Digital Signature Certificate)
- DIN (Director Identification Number)
- PAN (Permanent Account Number) Card
- TAN (Tax Deduction and Collection Number)
- Identity Proof (Electronic ID / Aadhar Card / Passport / Driving License)
- Passport Photo
- DSC Form Download Format
- Address Proof (Bank Statement / Mobile Bill / Telephone)
- Identity proof and address proof is mandatory for all proposed directors of the company.
- Generate Digital Signature Certificate.
- All directors should have Directors Identification Number (DIN). One can apply online at www.mca.gov.in.
PAN cards and TAN is mandatory.
- NOC (Non-Objection Certificate) is required from the landlord of the premises to be proposed as a registered office. Landlord’s Identity proof and Address proof is a must.
- You have to choose a company name. It is recommend that you need to go with 5-6 names in order which you prefer.
- In case, your preferred name is not available, you can go to the next one in order. Apply online with available name. Fill Form 1A that are available at the ministry of corporate affairs website by visiting following location http://www.mca.gov.in/.
- After the company name approval, you have to apply for the incorporation of the company. Prepare a memorandum of association which will detail what is the company operation, list of directors, etc. Apply this also with Form 1.
- Fees for registration. Private Limited company fee is approximate 9500/- for 2 partners. Fees may vary.
3. Apply For Wholesale Drug License:
Licensing authority for wholesale drug license is Senior Drug Inspector / Drug Inspector and/or any person appointed by the state government for the purpose of granting wholesale drug license. Licensing Authority office is present mostly at district headquarter and/or maybe combined for more than one district. You have to submit your application at licensing authority for wholesale drug license.
Documents required for Wholesale Drug License File Submission:
- The required area of premises should be a minimum of 10 sq. meter (15 sq. meter for wholesale with Pharmacy/Retail), minimum 8’2″ height. Premises should be brick-built, plastered floor cemented.
- Experience person certificate or pharmacist registration certificate or appointment letter of a competent person
- Fees of Rs. 3000/- (For biological & Non-Biological)
- Copy of Address proof
- Ownership proof or Rent agreement in case of rented premises
- Refrigerator purchase bill photocopy with complete address
- Academic qualification certificate photocopy of EP/Pharmacist
- Date of birth certificate photocopy
- Affidavit of EP/Pharmacist
- Partnership deed for partnership firm
- Registration firm receipt copy for private registration firm and list of directors with address proof, Memorandum of an article of association, etc.
- Affidavit of proprietor/partners/directors
- Blueprint/layout plan of premises with a signature in 3 copies
- Adequate storage facilities required including cupboards with glass doors, racks, pallets, refrigerator, etc.
How to Apply
- After completion of all documents and requirement, you need to visit the licensing authority office for file submission.
- File submission is online in most of the state but in a few states, you still have to submit your file manually only.
- After online submission, you also need to submit your uploaded documents physically at the licensing authority office.
- Once the file submission process is completed, licensing authority will intimate you about premises inspection date and time through mail, phone number, letter and/or manually as applicable.
4. Apply for GSTIN (Goods and Service Tax Identification Number) Registration
Goods and Service Tax is an indirect tax which replaced all existing indirect taxes levied by the State and Center Government in India. It was applicable from 1st of July 2017. It was much-awaited tax reform that will help in One India, One Tax vision.
Documents required for applying for GSTIN:
- Digital Signature Certificate (Class II)
- Sales Tax Identification Number Copy
- Address Proof of Business Entity
- Proprietor/Partners/Directors Address Proof
- Aadhaar Card, PAN, and Image, etc
- Ownership Proof of Rent agreement
- Partnership deed or memorandum of association/certificate of incorporation
- Bank Statement and Bank Detail
How to Apply
1. Access the https://www.gst.gov.in/ URL. The GST Home page is displayed.
2. Click the Services > Registration > New Registration option.
The Application form is divided into two parts as Part A and Part B.
3. The New Registration page is displayed. Select the New Registration option.
4. In the I am a drop-down list, select the Taxpayer as the type of taxpayer to be registered.
5. In the State/UT and District drop-down list, select the state for which registration is required and district.
6. In the Legal Name of the Business (As mentioned in PAN) field, enter the legal name of your business/ entity as mentioned in the PAN database.
7. In the Permanent Account Number (PAN) field, enter PAN of your business or PAN of the Proprietor.
8. Fill the email address, mobile no and captcha text given on the screen and proceed.
9. OTP sent to the mobile number and email address are separate.
10 Varify both OTP for mobile and Email and proceed.
11. You will receive the TRN acknowledgment information on your e-mail address as well as your mobile number.
12. Alternatively, you can also click Services > Registration > New Registration option and select the Temporary Reference Number (TRN) radio button to log in using the TRN.
13. In the Temporary Reference Number (TRN) field, enter the TRN generated and enter the captcha text as shown on the screen.
14. Click the PROCEED button. The Verify OTP page is displayed. You will receive the same Mobile OTP and Email OTP. These OTPs are different from the OTPs you received in the previous step.
15. In the Mobile / Email OTP field, enter the OTP you received on your mobile number and email address. OTP is valid only for 10 minutes.
• OTP sent to the mobile number and email address are same.
• In case OTP is invalid, try again by clicking the Need OTP to be resent> Click here link. You will receive the OTP on your registered mobile number or email ID again.
Enter the newly received OTP again.
16. Click the PROCEED button.
17. The My Saved Application page is displayed. Under the Action column, click the Edit icon (icon in blue square with white pen).
• Notice the expiry date shown below in the screenshot. If the applicant doesn’t submit the application within 15 days, TRN and the entire information filled against that TRN will be purged after 15 days.
• The status of the registration application is ‘Draft’ unless the application is submitted. Once the application is submitted, the status is changed to ‘Pending for Validation’.
5. Make List of Desired Pharma products and Request for rates
Make a list of potential manufacturers, you can find their details through online research, referral, etc.
Send them an email or call them to request for their quotation which should include Product Cost, securities, the minimum quantity of delivery schedule, etc. Send quotation for minimum batch size and minimum possible rates at third party basis. We recommend you to send a query to many third-party manufacturers to get the best deal.
Here are some points to pick the best product which will yield profit.
- Make your budget list first: Before you proceed further, it is crucial to decide the financials. Is the price of the product chosen by you fits into the limit? If you are going to make multiple products, then the budget allocation has to be accurate. You need to decide the maximum limits with some margin for contingencies.
- Choose a Viable Product: Business viability of a product depends on how you perceive it. Are you going to manufacture a fast-moving product which has low profitability but needs to be produced in volume? Or you want a specialized product which has lesser demand but higher profitability. What you choose depends on how you want to run the business?
- Do all the Possible Market Research before starting Third party pharma manufacturing: The pharma market is lucrative, but it is equally competitive as well. If you take steps without analyzing the market, then it could be disastrous. Hire a marketing research company if you aren’t comfortable with the analysis part.
- Have Knowledge about the competition of the market product you choose: Get an understanding of your competitors who produce a similar product like you and sell in the same market segment. To overcome the competition; your product should have some unique thing that others don’t have.
6. Minimum Order Quantity (MOQ) for third party manufacturing
Finalize the order quantity of the selected product and write down your desired product composition. Few things to keep in mind:
- Minimum order quantity can be 500 boxes
- For Injections – 2000 Units
- For the syrup – 2500 Bottles
General MOQ is one lakh for tablet/Capsules and if the product is costlier then quantity could be 30000 to 50000 tablet per batch.
For liquid range, most of small and macro-sized pharmaceutical manufacturing companies MOQ is 2000 to 5000 pc.
7. Choose the pharmaceutical manufacturer to which you want to get manufactured your product.
Here are some Considerations in Choosing the Best Pharmaceutical Manufacturer to work with:
- Geographic Location: Provided there are CMOS in your area, start locally. The closer they are, the less onerous travel becomes.
- Capability: This is very critical. Does your manufacturing company have the capability and expertise required to manufacture your product? Do you want to be their first experience with a product such as yours? This all criteria should e kept in mind
- Quality and Compliance: Do they have a good track record with the FDA or other regulatory bodies? Have they had any recalls attributable to them – which is a very important factor? Have they had a recent inspection and will they share their report with you? You cannot overstate the importance of quality and compliance.
- Responsiveness: How quickly a CMO responds can be an indicator of future dealings. If they’re slow at the outset, why would they improve once they have your business? As you progress through your due diligence process, are all areas of their business as responsive as their Business Development group? Don’t forget that all their Business Development team wants is new business and typically, they will do whatever it takes to get it.
- Communication: Clear and open communication channels are key to a successful transfer or development of your product. Getting to know team members can give you valuable insight into how a company works and what they value.
- Scale: If your production requirements are relatively small, will your production be bumped in favor of a larger client, a more productive, or a more profitable product? Again, take a look around you, see what you are dealing with. So, it’s really important.
8. Quotation for your Required Products
After the selection of salt names and desired product for contract manufacturing, the manufacturing company will send you a quotation which will include all the information and costs that you will pay for your products. It will consist of the
- cost of the product
- cost of packaging material
- securities or insurances if any in case of very small batches.
A quotation will also include any miscellaneous charges that you would have to pay for the contract manufacturing process. There are two approaches: Open-book vs. Closed-book pricing.
9. Documents Required for 3rd Party Manufacturing which is asked by the manufacturer.
- The manufacturer will ask you to send an affidavit with respect to the brand name or trademark. This is generally for the purpose to specify that this brand name of the product belongs to you and you will be totally responsible for the brand name or trademark conflict and manufacturer will not responsible for any brand name conflict in future.
- Profile: (Brief Profile with Copy of PAN Card of the company and a Copy of Memorandum & Articles of Association in case of Pvt. Ltd or limited Company. Partnership deed/ Affidavit for proprietary in case of Partnership firm or Proprietorship firm.)
- Name, Address & Telephones with a copy of Aadhar Card and Pan Cards. ( Of all Directors, Partners or Proprietor both official and residential.)
- Copy of Resolution for Authorised Signatory to Deal: (For limited, private limited and partnership companies)
- Drug Licences : (Attested copy of Drugs Licenses to be provided)
- Sales Tax / TIN Registration Certificates. (Attested copy of Sales tax Registration Certificate to be provided)
- Agreement for Manufacturing. (specimen attached below)
- Certificate for Non-Resemblance: ( Specimen attached below)
10. Design and Packaging Material
- Finalize the design of packing material.
- Packing and design of the products make the first impression at the mind of customers.
- Printing and procurement of packing material depend upon you.
- You can procure packing material yourself or you can let manufacturer procure and print packing material for yourself.
- In another case, After the documentation, The manufacturing company will start the process and send you a little different design so that you can choose the best design for your products according to your needs.
- Select paper, tin, aluminum
- Once you approve the design, it will go to the printing for final packaging.
- They will print enough material for your products to maintain inventory level for your next order as it may be required in case of small batches.
- We will recommend you to procure packing material yourself but if you don’t have time and staff to look after the printing process, you should let it to the manufacturer.
11. Minimum batch size for pharma third party manufacturing?
- Batch size depends upon manufacturer and molecule you want to get manufactured.
- Big giants don’t take small batches whereas small manufacturers can even manufacture small quantity for you.
- Batch size also depends upon the cost of the product you want to get manufactured.
- Costly products can be manufactured in small batches whereas cheap products usually require a good number of quantity.
- Some manufacturers can even manufacture small batch size as 100 boxes for tablet/cap and 500 pc for liquid/syrup, 1000 pc for injections.
- For Non-Beta-lactum tablet and capsules items- minimum Batch size is 50,000 tablets, for Liquids, Ointments, Liquid injections, Dry injections minimum batch size is 5000 units, for costly Beta-lactum tablets and injections smaller batch sizes as per product.
Costing for third party manufacturing is calculated as per following mentioned product/process’s cost and price.
- Raw material cost: Involves Active ingredient/s cost and Excipients cost
- Packing Material Cost i.e. Box, foil, label, lami tube, etc. : PRIMARY (Printed Packaging Material- Foil, Cartons, Labels), & SECONDARY (PVC, Shippers, tape, packing slips, strips, etc)
- Manufacturing Process cost
- Quality assurance and Quality control cost
- Local Transportation
- Process loss for RM & PM.
- Labour Charges
- Profit Margin
13. Placing the order:
- After finalizing product composition and order quantities, you should place a purchase order to the selected third-party manufacturer.
- You should also request the manufacturer to confirm your products.
- After confirmation, the partial advance amount should be deposit to initiate the process.
While finalizing of your order, you should checkpoint listed below:
- Your Brand Name on carton & foil
- Packing details, Composition, Manufacturing details
- Design & Color combination
- Marketed By company name, logo & address on carton & foil
14. Days it takes in the manufacturing process:
Time depends on the availability of materials like packing material, raw material, excipients, etc. Usually, the manufacturing process will take 30-45 days for new product and 15-25 days in case of repetition. Most important, process duration also varies manufacturer to manufacturer. Few manufacturers take less time and few take more time to manufacture the product. Process includes:
- Formulation approval from DRUG department which takes about 5-7 days
- Procurement of Printed Packing material like foils, cartons, labels which takes 10-20 days
- Manufacturing Process: 12-15 days
- Transport: 2-8 days
Total time taken for the whole process is 40-50 days approximately. For repeat orders, the company will require 30-40 days.
15. Taxation and Outward Transport
- CST @ 2.0% is charged as per latest central Govt Exemption Notification.
- CENTRAL EXCISE: 0% is charged as per central Govt Exemption Notifications.
- OUTWARD TRANSPORTATION: Outward Transport is payable by the Party, the rates quoted by us are Ex-factory.
- TRANSIT INSURANCE: Transportation charges mostly bear by a marketing company or as per mutual agreement. All transported material should be secured under insurance which is generally 0.5% of total bill value.
- Goods and Service Tax: Most of Pharmaceutical And Ayurvedic Products has 12% Tax. Some essential medicines come under 5% tax slab.
Payment Term and Conditions:
- Deposit initial advance in manufacturer account and your third party Pharma manufacturing process has been started.
- Generally, manufacturers take 25% advance and remaining 75% against Performa invoice after completion of manufacturing of your products.
- Payment term also varies party to party.
- For older parties payment term as per mutual agreed term i.e. generally 45 days.
- For Newer Parties manufacturing is usually done at 25-30% advance and remaining payment against proforma invoice at the time of dispatch of the finished product.
16. Product Delivery:
- After the products are manufactured, you will receive a quotation from the manufacturer mentioning the details of the product and the remaining amount which has to be deposited.
- The manufacturer will book your product through transport or another mean (as you prefer) to your premises or location. Now the process has been completed.
- Your manufactured products will then be despatched through your preferred transporter after submission of documents & clearance of accounts.
I have provided the best information which I can in this blog about How to Start Third Party Pharma Manufacturing. Now you can read the blog and start your own third party manufacturing company. For more details contact pharmadda by writing us or filling our given contact form. You can also call us for instant replies on 9041446655.