Dated: 28th June, 2000

METHODOLOGY / PROCEDURE FOR PRICE
FIXATION / REVISION OF BULK DRUGS

As per par 3 of DPCO, 1995 prices of scheduled bulk drugs are fixed by the NPPA to make them available at a fair price from different manufacturers. These prices are fixed from time to time by notification in official gazette.

Following steps are involved in fixation/revision of bulk drug prices :-

Step 1 : Identification of bulk drugs :

Bulk Drugs are taken up for study on following basis :-

• Whose validity period is due to expire.
• Request from the concerned manufacturer/company.
• Drug produced in the country for which no price has been notified under DPCO, 1995.

Step 2 : Collection of data :

Data is collected by issuing questionnaire/Form I of DPCO, 1995/cost-audit report etc. and verification by plant visits, if required.

Step 3 : Preparation of actual cost statement :

Actual cost for the year for which data is submitted is prepared based on data submitted / collected & verified during plant visit.

Step 4 : Preparation of Technical Parameters :

Technical parameters are prepared based on data submitted, collected and verified during plant visits. Plant capacity is assessed considering 330 working days for normal operation of plant leaving 35 days for scheduled maintenance of plant. The achievable production level is considered at 90% utilisation of assessed capacity allowing 10% production loss on account of unforseen break down and non-scheduled maintenance.

Step 5 : Preparation of Estimated Cost :

The estimated cost for the pricing period are then prepared based on actual cost & the technical parameters. While projecting the future cost, an increment is recognised at 5% per annum in respect of salaries & wages. Wage agreement, if any, which has been finalised and signed is also recognised while preparing the estimates. In respect of other overheads of fixed/semi variable nature, increase at 2.5% per annum is made to cover the normal incremental effects. The customs duty and other taxes as per the current budget are considered.

Step 6 : Calculation of Fair price of bulk drug :

Fair price is calculated by providing returns as specified in sub para (2), para 3 of DPCO, 1995.

While fixing the maximum sale price of the bulk drug, a post tax return of 14% on networth or a return of 22% of capital employed or in respect of a new plant an internal rate of return of 12% based on long term marginal costing is considered depending upon the option exercised by the manufacturer of the bulk drug. In case, the production is from basic stage, additional 4% return is considered on net worth/capital employed.

Step 7 : Fixation of maximum sale price of the drug :

When the number of manufacturers of the said drug is more than one, the maximum sale price is fixed at 2/3rd cut off level or weighted average price, depending upon the situation.

Step 8 : Notification of bulk drug price in official Gazette.

Note : The fair price may be further revised, if asked for by the manufacturers, based on escalation formula for change in major raw materials and utilities rates.

(Dr. P. V. Appaji)
Director (M&S)