A Closer Look at the Requirements on Original Equipment Manufacturing (OEM) and 'Makloon' Products Based on the New Minister of Health Regulation on Marketing Authorization for Medical Devices, In Vitro Diagnostic Medical Devices and Household Medical Supplies 

Background

As we have discussed in our previous client alert, click here, the Minister of Health (MOH) issued Regulation No. 62 of 2017 on Marketing Authorization for Medical Devices, In Vitro Diagnostic Medical Devices and Household Medical Supplies (Regulation 62) on 29 December 2017.

Regulation 62 revokes MOH Regulation No. 1190/MENKES/PER/VIII/2010 on Marketing Authorization for Medical Devices and Household Medical Supplies (Peralatan Kesehatan Rumah Tangga or PKRT) (Regulation 1190).

Among others, Regulation 62 introduces two new terms:

  1. Original Equipment Manufacturer (OEM)
  2. Contract Manufacturing (Makloon1)

The concepts of OEM and Makloon are commonly known in practice. The MOH itself has acknowledged these concepts and allow such practice where a manufacturer can sub-contract the manufacturing of its medical devices to another party (albeit on a policy basis).

Before the issuance of Regulation 62, the MOH has never put in writing its view regarding OEM and Makloon activities for medical devices (read: based on a regulation).

Implications

Business actors need to pay more attention to the OEM and Makloon provisions stipulated under Regulation 62, as they might not have an "apple-to-apple" comparison with the views and policies that the MOH adopted before the issuance of Regulation 62.

Regulation 62 will prevail over the previous unwritten views or policies adopted by the MOH (i.e., on OEM and Makloon activities) in case there is discrepancy between them.

If business actors continue to carry out or engage in OEM and Makloon activities based on their pre-conceived understanding of OEM and Makloon (i.e., before the issuance of Regulation 62), then there is a risk that business actors might find themselves violating the provisions of Regulation 62.

Non-Toll Manufacturing (OEM) and Toll Manufacturing (Makloon) under Regulation 62

Definitions

Below are the descriptions of OEM and Makloon based on Regulation 62:

  1. Based on Article 1.13 of Regulation 62, "Makloon" means delegation of part or the whole of the manufacturing process of medical devices, in vitro diagnostic medical devices ("IVDs") or PKRTs from a Local Manufacturer2 that is also a Product Owner3 that holds a production certificate to another Local Manufacturer that holds a production certificate.
  2. Based on Article 1.14 of Regulation 62, "OEM" is a production activity that is done by a Local Manufacturer/Foreign Manufacturer4 based on the request of a PAK or PKRT company as the Product Owner using the trademark from the Product Owner.

In general practice, Makloon is basically a toll manufacturing activity, while OEM is basically a non-toll manufacturing activity.

Notable Requirements and Features (Comparison)

OEM
(Non-Toll Manufacturing)
Makloon
(Toll Manufacturing)
Ownership of the Product
  • The company who provides OEM services by manufacturing a product (OEM Provider) for and based on the request of another party (OEM Contractor) will be considered as the owner of the product.
  • The company who provides Makloon services by manufacturing a product (Makloon Provider) for and based on the request of another party (Makloon Contractor) will not be considered as the owner of the product.
         
  • Rather, the Makloon Contractor will be considered as the owner of the product.
Contractor The medical device wholesaler (Penyalur Alat Kesehatan or PAK) and PKRT company who own the product (i.e., Product Owners) are the contractors in an OEM arrangement. The Local Manufacturer who owns the product (i.e., Product Owner) and sub-contracts part of its manufacturing activity is the contractor in a Makloon arrangement.
Trademark
  • Both OEM Provider and Makloon Provider must manufacture the product using the trademark of the contractor.
Product Registration
  • May be applied and held by the Local Manufacturer who produces medical devices, IVDs and PKRTs through OEM (i.e., local OEM Provider)
       
  • May be applied and held by the PAK that is the Product Owner and has a cooperation agreement with the Local Manufacturer (i.e., local OEM Provider) on the manufacturing of the products
  • May be applied and held by the Local Manufacturer who manufactures a product based on request from a Makloon Contractor (i.e., Makloon Provider)
       
  • May be applied and held by the Local Manufacturer who sub-contracts part of its manufacturing activity to a third party (i.e., local Makloon Contractor)
Prohibition to Register Similar Products
  • Regulation 62 prohibits an OEM Provider from registering imported medical devices, IVDs and PKRTs that are of the same type as the medical devices, IVDs and PKRTs that they manufacture, including those that are manufactured on OEM basis (i.e., based on the request from OEM Contractors).
  • Further, PAK or PKRT importers that also provide OEM service (i.e., as an OEM Provider) locally are prohibited from registering medical devices, IVDs and PKRTs which type and specification are the same as the imported medical devices, IVDs and PKRTs that they import.
     
  • Regulation 62 states that an OEM Provider cannot perform OEM to manufacture medical devices, IVDs and PKRTs for OEM Contractor if those products have similar formula or design as with the products of the same type owned by such OEM Provider.
  • Similar with OEM, Regulation 62 prohibits a Makloon Provider from registering imported medical devices, IVDs and PKRTs that have are of same type as the medical devices, IVDs and PKRTs that they manufacture, including those that are manufactured based on the request from a Makloon Contractor.
Effective Period and Extension of Product Registration
  • The MOH will only grant product registrations for a maximum period of three years for medical devices, IVDs and PKRTs that are manufactured by a Foreign Manufacturer through an OEM (i.e., by an offshore OEM Provider).
       
  • Typically, these products are ordered by a local OEM Contractor. Once the offshore OEM Provider manufactures the products, the OEM Contractor will import the products to Indonesia. Accordingly, these products are basically imported OEM products.
         
  • Product registrations for imported OEM products may be extended once.
  • Regulation 62 does not have specific provisions on the effective period of the product registration of a Makloon product. Accordingly, the effective period of the product registration of a Makloon product is the same with the other products, which
    can be granted by the MOH for up to a maximum period of five years.
         
  • Regulation 62 does not have specific provisions on the extension of the product registration of a Makloon product. Accordingly, there should be no limitation on the same. In other words, the product registration of a Makloon product can be
    extended over and over again.
Responsibility
  • The OEM Provider who manufactures the products is responsible for the product in the market.
       
  • Further, the OEM Contractor
    (i.e., as the Product Owner)
    is equally responsible for
    OEM products in the market.
  • Both the holder of the product registration and the Makloon Contractor (i.e., in case the Makloon Contractor is not the holder of the product registration) are equally responsible for Makloon products in the market.

    
Conclusion

Regulation 62 provides quite descriptive provisions that describe how the MOH will treat OEM and Makloon products in practice. Business actors should be wary not to miss any provision under Regulation 62 that are not reviously covered in MOH's unwritten policy.

It remains to be seen whether the MOH will further regulate OEM and Makloon in a more specific implementing regulation. In the absence of such regulation, the MOH may develop new views on OEM and Makloon.


1 'Makloon' is an Indonesian term (derived from the Dutch language) that is commonly used in referring to contract manufacturing activity.
2 Based on Article 1.7 of Regulation 62, "Local Manufacturer" (Produsen) means a company in the form of a business entity that has a production certificate to manufacture (please see below), including to assemble and/or repackage medical devices, IVDs and PKRTs locally.
3 Based on Article 1.10 of Regulation 62, "Product Owner" is a company in the form of a legal entity or business entity that is the owner of the formula, design, trade name or trademark.
4 Based on Article 1.8 of Regulation 62, "Foreign Manufacturer" (Pabrikan) means foreign companies that produce medical devices, IVDs and PKRTs that have fulfilled quality management
system.

 

 

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