Manufacturing and Supply Agreements for Pharmaceutical Companies Operating in Kenya

Most pharmaceutical products sold in Kenya are not made by the company whose name appears on the box. A multinational marketing authorisation holder typically contracts a local manufacturer to produce under licence, or a Kenyan manufacturer produces for a foreign brand owner under a supply arrangement. Manufacturing and supply agreements for pharmaceutical companies operating in Kenya sit at the intersection of contract law, Pharmacy and Poisons Board (PPB) licensing rules, and product liability exposure, and getting risk allocation wrong at drafting stage is expensive to unwind once a product is on the market. This article covers how manufacturing relationships are structured, why PPB manufacturing licences cannot be assigned, quality and audit obligations, liability and recall allocation, and supply continuity and know-how licensing.

Structuring the Manufacturing Relationship

Two structures dominate the Kenyan market. In the first, a foreign pharmaceutical company appoints a Kenyan-licensed manufacturer to produce locally, either under a toll arrangement (the principal supplies active pharmaceutical ingredients and technical specifications, the local manufacturer supplies plant, labour and PPB compliance) or a full contract manufacturing arrangement where the local party sources most inputs itself. In the second, a Kenyan manufacturer with its own PPB registration supplies a product under a foreign brand, often to satisfy KEMSA’s preference for locally manufactured medicines. Either way, the agreement needs to state plainly who holds the PPB product registration, who holds the manufacturing licence, who is responsible for batch release, and who deals with the PPB on a query or inspection. Ambiguity here is the most common defect we see in draft agreements.

PPB Manufacturing Licences and Why They Cannot Be Transferred Between Parties

Under the Pharmacy and Poisons Act, Cap. 244, no person may manufacture a medicinal substance in Kenya without a manufacturing licence issued by the PPB under section 35A, and licence holders must comply with good manufacturing practice as prescribed by the Board under section 35B. The licence attaches to the licensed premises and the licensed entity, not to the product or brand, and is not an asset that can be assigned to a counterparty by private agreement. A foreign principal cannot simply “use” a Kenyan manufacturer’s licence as shared property; the agreement should record that the Kenyan party retains sole regulatory responsibility for the licensed activity, that the principal’s rights are contractual (technical oversight, quality approval, brand control) rather than regulatory, and that any change of manufacturing site or sub-contracting requires fresh PPB approval, not merely notice to the counterparty. The PPB’s guidelines for registration and licensing of premises set the minimum requirements for licensed facilities, and agreements should require the manufacturer to keep its licence in good standing as a continuing condition of supply, since these licences run on an annual cycle to 31 December.

Building GMP Compliance and Audit Rights Into the Contract

PPB licensing is a floor, not a substitute for the quality obligations a brand owner needs in the contract. A properly drafted agreement should incorporate, as binding terms, compliance with the PPB’s Good Manufacturing Practices Guidelines and its separate guidelines for establishing manufacturing facilities for health products and technologies. The agreement should also set out a technical or quality annex specifying batch documentation, deviation and change-control notification obligations, and the principal’s right to conduct scheduled and for-cause audits, with defined access, notice and remediation timelines. Audit rights matter because the PPB has shown an active enforcement posture, coordinating dozens of product recalls and closing non-compliant premises in recent years, so a principal without reserved audit access is relying entirely on the manufacturer’s regulatory standing to protect its brand.

Allocating Product Liability and Recall Responsibility

When a defective batch reaches the market, both the manufacturer and the marketing authorisation holder face exposure, but from different angles. The PPB has express statutory power to recall medical products and confiscate substances it believes are counterfeit or illegally imported, and can act against either party depending on where the defect originated. Kenyan contract law imposes no single default allocation of product liability between a contract manufacturer and a brand owner, so the agreement has to do that work. Well-drafted agreements separate liability by cause: manufacturing defects (contamination, incorrect formulation, packaging failures) sit with the manufacturer, while design, labelling or marketing defects sit with the brand owner. The agreement should fix who bears the cost of a recall triggered by each defect type, who controls communication with the PPB and distributors, and how indemnities and liability caps interact with product liability insurance. Reported Kenyan case law on this specific issue is sparse, so parties are largely free to allocate risk contractually, which makes the drafting more, not less, important.

Supply Continuity, Force Majeure and Licensing Manufacturing Know-How

Kenya imports the large majority of its active pharmaceutical ingredients, which makes supply continuity clauses more than boilerplate. Force majeure provisions should be drafted with API import disruption in mind, addressing port delays, foreign exchange restrictions on import payments, and supplier-country export controls, rather than relying on generic “acts of God” language a Kenyan court may read narrowly. Agreements should include buffer inventory obligations, notice periods for anticipated shortages, and a mechanism for qualifying an alternative API source without breaching the product registration, since a change of supplier can itself trigger a PPB variation requirement. Where a foreign principal licenses manufacturing know-how to a Kenyan manufacturer, the licence contract should meet the requirements of the Industrial Property Act, No. 3 of 2001, which governs licence contracts for patents and technology under Part X: contracts must be in writing, may be submitted to the Kenya Industrial Property Institute for registration, and are subject to restrictions on prohibited terms such as unreasonable export or resale restraints. Confidentiality clauses covering formulations should sit alongside the registered licence, since registration alone does not create trade secret protection for the underlying information.