Third Party Manufacturing in Pharma: Complete Guide 2024

Third Party Manufacturing – The pharmaceutical industry represents one of the lynchpins of its industrial scenario, and it is of immense importance for India in the global pharmaceutical market. India has been famous for the large-scale production of generic drugs; it is often called the “pharmacy of the world.” This title complements its huge contribution to the world’s health by manufacturing low-cost medicine that is exported to all corners of the globe.

Third party Pharma Manufacturing Company

The advantages of producing pharmaceuticals in India are manifold:

  • It is cost-effective in terms of low labor costs and abundant raw materials; hence, it automatically enjoys a better competitive edge over its competitors.
  • A strong base of pharmaceutical education and training ensures a continuous flow of skilled manpower to support innovation and maintain operational efficiency.
  • It also creates an attractive condition for a global hub in manufacturing through governmental policy support and export incentives.

Market Statistics of Pharma Manufacturing in India

The sector for pharmaceuticals in India is not only a large one but also among the most growth-oriented in the nation’s economy. The growth rate of around 10–12% per annum has been going on in the recent past, showing significant contributions to the GDP of India as a CAGR. The industry size is over $40 billion and is expected to reach around $65 billion by 2024. Several factors drive this staggering growth. Some of the initiatives are being undertaken by the government, like ‘Pharma Vision 2020’, which envisages India as a world leader in end-to-end drug manufacturing.

The pharmaceutical production in the country has high export potential, with more than 50% of the production being exported to over 200 countries, including highly regulated markets like the USA and Europe. Going forward, the sector will register significant growth on the back of the continuous improvement of biotechnological studies, increased research and development investments by major companies, and a growing domestic market propelled by an increase in healthcare spending and the rising prevalence of chronic diseases.

Key Advantages of Third Party Manufacturing

The strategic approach that have gained importance in the Indian pharmaceutical sector is third-party manufacturing. It has several benefits to offer to the company.

  • Cost-effectiveness: Outsourcing production may be a better option because companies will save a lot on capital and operational outlays, for instance, hiring labour, maintenance, and equipment. Such an amount of saving can be redirected towards more critical areas like research and development, and marketing.
  • Focus on core competencies: Outsourcing manufacturing activities to third parties allows pharmaceutical companies to focus on the core areas of drug development and marketing strategies. Experienced manufacturers can take care of production-related complexities, which may result in better products and more effective marketing campaigns.
  • Scalability: Businesses can scale their production up or down without making large investments in capital or waiting a long time to put their infrastructure in place.
  • Flexibility: This business model provides an opportunity to adjust quickly to the changing market demands and regulations, which is very crucial in a fast-evolving industry like pharmaceuticals.
  • Quality Assurance: Outsourcing does not necessarily mean a compromise on quality. Most third party manufacturers ensure stringent quality standards, such as GMP and WHO-GMP, for their products manufactured under their aegis, to meet all domestic and international quality requirements.

Complete the Whole Process and Details Needed for Third Party Manufacturing.

  • Initiation: It is usually initiated by a need for increased production capacity or a desire for the company to diversify its product lines without directly embarking on an investment in manufacturing infrastructure. Sometimes it is driven by specific product needs, technological requirements, or plans for market expansion.
  • Selection of Manufacturer: Of course, the right selection of a manufacturing partner is, however, based on elements such as regulatory compliance, production capacity, technological prowess, and past performance. In place, there must be a very thorough audit and due diligence process.
  • Details of the Agreement: The agreement between a company and a third-party manufacturer should clearly spell out the product specifications, batch sizes, delivery schedules, cost structures, and quality requirements. It should also describe the roles and responsibilities of each party to detail out the process in a very transparent manner for ensuring accountability.
  • Production Cycle: Starting from the time an order is placed to the time it is delivered, the cycle flows through procurement of raw materials, formulation, processing, packaging, and the last quality check before the shipment. Each of the stages requires detailed planning and monitoring in a way that it is kept within the agreed timeline and standards.
  • Post-Production: The logistics, distribution and market feedback start post-manufacturing. The critical value achieved through efficient coordination here is to get the end product in the best possible situation to reach its targeted markets and in a state of readiness to be distributed.

    The rest of these details of these processes will be unfolded with the proceeding sections like documentation, legal, pricing, FAQs, and conclusion as to how it will help in the overall strategy of the pharmaceutical companies in third-party manufacturing. The detailed approach will only stand in evidence to the very comprehensive nature of third-party manufacturing in the pharmaceutical sector, the Indian market in particular being dynamic and growing.

Estimated Price Comparison: In-House vs. Third Party Manufacturing

Drug Type In-House Manufacturing Cost (INR) Third Party Manufacturing Cost (INR)
Generic Tablets ₹12,300,000 ₹8,200,000
Capsules ₹9,840,000 ₹6,560,000
Injectable ₹16,400,000 ₹12,300,000
Ointments ₹7,380,000 ₹5,740,000

Note: All figures are approximate and provided to illustrate an example of the cost difference between in-house production and third-party manufacturing. This figure includes the entire manufacturing process from ingredients to placing the product in packages.

This table provides a snapshot of the financial benefits that can be achieved through third-party manufacturing, demonstrating significant savings across various product types. These cost efficiencies play a crucial role in the strategic decisions of pharmaceutical companies, particularly those looking to optimize their production expenditures and enhance their competitive edge in the market.

Documentation and Legal Aspects in Third Party Pharma Manufacturing

  1. Mandatory Documents:

    • Manufacturing License: Both the client and manufacturer must possess valid licenses issued by the State FDA.
    • Product Approval: Each product must have approval from the CDSCO for market distribution.
    • GMP Certificate: Ensures that manufacturing meets quality standards.
    • Batch Records: Detailed documentation of the manufacturing and packaging processes.
    • Master Formula Record: Contains the detailed formula and manufacturing process steps.
  2. Regulatory Compliance: Adherence to the Drugs and Cosmetics Act ensures safe, effective, and quality drug distribution.

  3. Intellectual Property: NDAs are typical to protect proprietary information and intellectual rights.

  4. Risk Management: Agreements should include liability clauses and mechanisms for dispute resolution and indemnity. Regular audits ensure compliance and mitigate risks related to quality control and regulations.

This rigorous attention to documentation and legal standards is crucial for maintaining the integrity and reputation of both parties within the Indian pharmaceutical market, ensuring product safety and quality, and building trust with regulatory bodies and consumers.

FAQs on Third Party Manufacturing

Q 1.) Why choose third-party manufacturing?

Ans 1.) Outsourcing enables pharmaceutical companies to focus on core activities like R&D and marketing while reducing costs and enhancing revenue.

Q 2.) How does it impact lead time?

Ans 2.) Third-party manufacturing significantly shortens the time from development to market by avoiding the setup of new facilities.

Q 3.) What are the risks and how are they managed?

Ans 3.) Risks include quality discrepancies and supply chain disruptions, managed through stringent contracts, audits, and clear communication.

Q 4.) How is quality ensured?

Ans 4.) Quality assurance comes from using certified manufacturers and conducting regular audits and batch testing.

Q 5.) What trends influence third-party manufacturing?

Ans 5.) Increasing regulatory requirements, advancements in technology, and the need to reduce production costs are current trends.


Third-party manufacturing offers strategic advantages by improving operational efficiencies and allowing pharmaceutical companies to concentrate on innovation and market expansion. As the industry evolves, this model remains essential for companies looking to streamline operations and capitalize on global opportunities, maintaining competitive edges in a highly regulated and competitive market.