It may sound intimidating, but if foreign companies are willing to do the legwork, there are many good reasons to consider launching a medical device plant in India. Few statistics on the country’s device market are available but, with the help of our medical partner who has been in India for more than 10 years, we estimate the market to be about $2 billion, growing at 15% per year. The market’s growth has been driven by an increase in both government and private sector expenditures in healthcare, increased coverage of medical insurance, and rising incomes.
There is also a need to cater to a price-sensitive market. Our company estimates that more than 60% of India’s sophisticated medical devices are imported. Indian manufacturers, which in general, are small and undercapitalized, struggle to meet this demand. International companies looking to corner this market will find a good availability of raw materials and equipment in India, as well as a trained labor force with technical and managerial personnel.
Another source of encouragement is the recent introduction of product registration for certain implants and other devices. International-level standards for drug and device manufacturing have also been mandated. All of these factors, combined with the desire of the Indian government to promote domestic manufacture, should enable international companies to start device-manufacturing plants in India.
Incentives for Companies
To reduce its dependence on imports, the Indian government allows a foreign company to set up a 100% subsidiary or a joint venture in India for manufacturing. Manufactured medical devices can be sold in India or overseas, and the patenting of devices and registration of trademarks are permitted. As of now, there are no mandatory medical device price controls. A foreign-owned, but Indian-registered company, is treated the same as any other company in India regarding laws, tariffs, taxes, and procedures.
Companies that manufacture for export only, or primarily for export, benefit from the Ministry of Commerce’s Export-Oriented Unit (EOU) plan. The import of raw materials and capital goods is duty free, and locally procured raw materials and capital goods can be purchased without paying excise taxes on them. The government also compensates exporters for other indirect taxes on both local and foreign resources. In order to qualify, the company must cross a threshold value with their exports. The company must also be registered with the Federation of Indian Export Organizations (FIEO), and the Ministry of Commerce.
Choice of State
Device makers wishing to take advantage of the government’s incentives should carefully consider where to locate a manufacturing plant. This critical decision should be evaluated not only from logistical and cost viewpoints, but also in terms of the attitude the concerned state’s government takes toward industry. Certain Indian states are keen to promote manufacturing and make it easier for companies to obtain developed land. The land could be within a government or private industrial park, an Export Processing Zone (EPZ), or a Special Economic Zone (SEZ). Some states have Pharmaceutical SEZs but restrict them to chemical production, so device factories may not qualify. However, Tamil Nadu in South India has plans to establish a Pharmaceutical and Medical Device Zone and other states are likely to follow its lead.
Besides land, the state government can take an active role in giving various clearances related to building, pollution control, electricity, water supply, and registration under labor laws. The state’s drug control (SDC) authorities play a key role in drug and device regulation. It is advisable for a company to locate in a proindustry state and to maintain contacts with its department of industries before and during the construction of a facility to minimize delay.
Regulation of Devices
The principal legislation for drug and device products in India is the Drugs and Cosmetics Act of 1940 (DCA). Both state and national authorities share the work of medical regulation. Under the DCA, there is no definition of “devices” and all regulation is of “drugs,” but there is an amendment to the DCA under review that would define devices and create a central drug authority, similar to FDA, that controls both drugs and devices.
Over time, several devices have been notified or referred to in the legislation. These include sutures, gauze, syringes, diagnostic kits, etc. In October 2005, a number of implantable device categories—intraocular lenses, catheters, stents (drug eluting or otherwise), IV cannulae, bone cements, heart valves, orthopedic implants, internal prosthetic replacements, and scalp-vein sets—were regulated as drugs. Both import and local manufacture of these devices require licenses. Although there are slight variations in the approval process across categories, this article is based on the rules for the items notified in 2005. By the fall of 2008, 31 facilities had been licensed for manufacture of these implant devices.
A potential device manufacturer would be well advised to make a drug regulatory plan that identifies the critical regulatory activities and their potential time frames. This plan should be integrated with the overall project plan. Unforeseen regulatory issues might cause delays and incur substantial cost implications. Before construction begins, it would be prudent for a company to engage the relevant government departments and professionals who are familiar with manufacturing regulations. This stage should include the elimination of doubt as to whether the proposed product is a “drug” or “new drug,” a determination of whether prior product approval and clinical trials are required, and issues of compliance with Indian GMP. Matters should be discussed in person before exchanging written correspondence, but major issues should be clarified later in writing.
Manufacture of medical devices falling under the drugs classification requires a specific license under the DCA. Manufacture is widely defined and includes packaging, labeling, and assembling. The Drug Controller General of India (DCGI), located in New Delhi, is the final license-approving authority, but the drug controller of the specific state in which the plant is located assists with the registration process. The foreign manufacturer needs to be in contact with these agencies as soon as possible and must clarify whether the product is a drug or otherwise. If it is not a drug, then there is no requirement for licensing under DCA. If the product is deemed to be a “new drug” (one which is not in use in India or which has been used for less than four years), the DCGI may require clinical trials and dossier approval before granting a license for manufacture. In such cases, or where there is no international classification or approval for the product (such as FDA, CE, Japanese, Canadian, or Australian), the DCGI may set up an expert committee to look into the subject.
It must be noted that licensing under DCA is quite separate from any other approval, such as the approval required for building plans, environmental clearance, or corporate laws. There are no statutory time lines for approval or denial of permits under DCA, unlike the practices in some other jurisdictions. However, the past experience of foreign manufacturers shows that the actual time for approval is not unreasonable. A plant could be ready for manufacture within a year, assuming that prior product approval or clinical trials are not required.
A license to manufacture notified devices requires compliance with the relevant parts of Schedule M and Schedule M III of DCA, which embody GMP. While Schedule M is meant for drugs and devices, Schedule M III is only for devices. It should be noted that large parts of these schedule, in particular Schedule M III, are general purpose in nature and are not substantially different from GMP and quality assurance standards elsewhere in the world. But certain prescribed standards, such as those pertaining to air quality and the minimum floor area of facilities, may be more stringent than those usually required for devices. The licensing authorities are permitted to relax requirements in these schedules depending on the individual circumstances. The licensee must also comply with the requirements of Rule 76, which mandates the qualification and experience requirements for the key technical personnel in the plant.
Application for manufacturing license
The application for a manufacturing license is in Form 27. This also includes a dossier that contains details about the facility and product, including the site master file, product specifications, ISO and other standards and certifications, the manufacturing process, and particulars of technical personnel. The total application fee is about $160 ($137 for license, $33 for inspection). The license grants the authority to manufacture the specific devices applied for––not manufacturing devices in general. Although manufacturing of a complete product range may not take place initially, it is possible to apply to manufacture a family of products at one time. Up to 10 items may be applied for together; any additional items would entail a fee of about $7 each.
The application has to be submitted to the state drug controller and the zonal office of DCGI. At the time of the application, the plant should be ready for inspection or should be able to be ready within a short period. It also must be GMP compliant and have a competent technical staff; specifically, the head of the testing unit and the executive in charge of manufacture should be in place. The names of the competent technical personnel have to be included in Form 27. Certain states require the personnel to be licensed through a locally conducted examination. Additionally, some states require that the plant layout be submitted for formal approval before construction is started.
After Form 27 has been submitted, DCGI, SDC, and a technical expert conduct a joint inspection. Usually the first inspection takes a few days to finish, but there is no set time. The qualifications and experience of the manufacturing staff will be verified during this time. Sample batches of product are required and will also be examined. Inspectors could have queries and may ask for remedial action. If so, the plant would be subject to re-inspection. The products from the sample batch can be sold later on the market if they are of appropriate quality. The trial runs conducted before a full-fledged manufacturing license is obtained require a separate test-manufacturing license. If items classified as drugs are needed for trial production, the manufacturer must get a wholesale drug license. This allows the device maker to receive and store drugs until a regular manufacturing license is obtained.
Receiving and maintaining a license
There is no specified time period for receiving a license (Form 28). It could take up to six months after inspection. In part, this could be due to clarifications, correspondence, rectification, and reinspection. If there is no issue with the plant inspection and the documentation submitted with the application, the license could be received even earlier. Form 28 is valid for five years from the date of license unless it is revoked, cancelled, or suspended for any reason. Once licensed, the factory is subject to inspection, sampling, and testing of product by the drug control authorities at any time. The license permits the holder to manufacture, stock, and distribute devices from those premises and to stock drugs as raw materials. Distributors and retailers handling the device require sale and stock licenses.
Raw materials, whether drugs or otherwise, purchased in India do not require a purchase license. However, a registration certificate from DCGI is required specifically for each overseas manufacturer, manufacturing site, and product. This involves detailed dossier submission by the foreign manufacturer. A fee of $1500 for each manufacturing site and $1000 for each product from a site must be paid. Fees of up to $5000 may also be charged for an inspection visit to each foreign site.
The overseas manufacturer must appoint an Indian importer. This importer obtains the drug import license on the basis of the registration certificate. The device manufacturer can purchase the drug directly from overseas as an importer or purchase it locally through an authorized Indian importer. Registration certificates, but not import licenses, can be waived in certain circumstances, such as cases in which the material is used for export. Registration is a long lead-time activity. Because it has to be done by the overseas manufacturer, it should be started well in advance. The DCA does not govern the purchase of machinery whether from India or overseas.
Sales can be made freely within India to licensed distributors or retailers. Export sales require a No-Objection Certificate (NOC) Manufacturers can easily obtain an NOC by submitting to the DCGI an application that demonstrates a valid license (Form 28) with Schedule M and Schedule M-III compliance. If necessary, the DCGI would also issue a Free Sales Certificate (FSC). The regulatory authorities in importing countries frequently require an FSC to ensure that the medical product is licensed in India.
Other Permits and Approvals
Besides approvals under DCA, a manufacturing unit would need permissions and registrations from other government departments at the national or state level relating to Indian product standards, import-export procedures, EOU license, building permits, environmental-related approval, factories registration, boilers, income-tax, VAT, excise duty, company law, and specific industry regulations. The company must comply with various labor laws, including those related to minimum wage, provident fund, gratuity, health insurance, profession tax, equal remuneration, etc.
Opening a manufacturing plant in India is not the right choice for every device company. A small company may not benefit from the enterprise unless there is a large market in India for its specific product. Companies should also determine the number of Indian players that would compete with their products. If strong local competition exists, manufacturers may want to consider forming a joint venture with Indian companies to reduce the risks. Additionally, device makers planning to export products to their home countries should analyze the cost of exportation and demand in the home country to make sure it is a profitable undertaking.
Regulation has not proved to be an impediment for manufacturing in India. In fact, the stringent standards tend to favor companies, concerned about quality assurance, that can make higher investments and produce on a large scale for both local and export purposes. A manufacturing facility in India provides the opportunity to lower unit costs and increase overseas margins while, at the same time, reduce prices for the Indian market.
Ames Gross is president and founder of Pacific Bridge Medical. He helps medical companies with business development and regulatory issues in Asia.
Momoko Hirose is vice president of Pacific Bridge Medical.