Dated: 28th June, 2000

Procedure for Pricing of Formulations

Prices of formulations based on scheduled bulk drugs are fixed in two ways viz.

(i) based on applications of the manufacturers and
(ii) on suo-motu basis.

As per para 8 (2) of Drug (Prices Control) Order (DPCO), 1995, a manufacturer using scheduled bulk drug in his formulation is required to apply for fixation of price of formulation within 30 days of fixation of price of such bulk drug (s).

Applications received in NPPA from manufacturers in Form III and importers in Form IV of DPCO are considered for price fixation. As per para 8(4), the time frame for granting price approval on formulation is 2 months from the date of receipt of the complete information from the company.

Procedure :

A.(a) Examination of Technical Parameters : Checking the Quantity of Bulk Drug as per label claim. The overage claim is allowed as per batch production record or norms fixed by Govt.

(b) Examination of Prices of Bulk Drug : When notified price of bulk drug exists, the notified price or actual price is considered. In the case of imported bulk drug used in the formulation, weighted average import price is considered vis-à-vis the price submitted by the applicant. For non-scheduled bulk drug used, the available information on prices are applied.

(c) Examination of Excipient claims : Excipient claims given in the application are examined and allowed after referring to information available in NPPA.

(d) Examination of PL, CC, PC and PM cost : The process loss (PL), conversion cost (CC) and packing charges (PC) are considered as per the norms notified in the Gazette vide S.O. 578(E) dated 13.07.99.

The packaging material cost (PM) cost is allowed as per the actual claim supported by invoices and after referring to information available with NPPA.

(e) Application of MAPE : Maximum allowable post manufacturing expenses (MAPE) is given at 100% on the ex-factory cost for indigenous formulation, while MAPE upto 50% of the landed cost is allowed for imported formulation.

(f) Working out the retail price : The retail price of formulations are worked out as per the formula given in para 7 of DPCO, 1995 viz.

“R.P. = [M.C. +C.C.+P.M.+P.C.] x [1+MAPE/100] +E.D.”,

where –
R.P., M.C., E.D. respectively denote retail price, material cost, excise duty and the other symbols as denoted earlier.

(g) Treatment of Taxes : For bulk drugs used in formulation, all the statutory taxes are considered at the actuals and net of MODVAT. Allowance upto 8% on the notified price of scheduled bulk drugs is considered on this account. The excise duty element is worked out in NPPA based on companies claim. Allowance is made for 16% margin on price to retailer (as per DPCO, 1995) and 8% margin to wholesaler as per practice, both on the ex-factory price, which is the assessable value.

The prevailing excise duty rate is applied to the said assessable value. For ceiling packs, notified prices are exclusive of excise duty. Manufacturers are required to work out the excise duty.

B. Suo – Motu Cases : If the manufacturers or companies do not apply for revision of formulation prices as required under Para 8(2) of DPCO, 1995 within a period of 30 days of price reduction of bulk drug or fall in other statutory levies, steps are taken for suo-motu revision. Broadly the procedure given above is followed.

C. Notification of ceiling prices in the Gazette of India : Ceiling prices are fixed or revised under Para 9 of DPCO, 1995 for commonly marketed standard pack sizes of price control formulations. It is obligatory for all, including small scale units, to follow the ceiling prices which are notified in the Gazette of India (Extraordinary). The ceiling prices are usually notified as exclusive of excise duty, local tax etc. but maximum retail price (MRP) printed includes excise duty.

D. Pro-rata price : NPPA has issued notification no. S.O.83 (E) on 27.01.98.on pro-rata pricing. As per this notification, the manufactures of all the scheduled formulation pack sizes different from the notified pack sizes under sub-paragraph (1) and (2) of the paragraph 9 of the DPCO, 1995, shall have to work out the price for such pack sizes, in respect of tablets and capsules of the same strength or composition packed in different strips or blisters, on pro-rata basis of the latest ceiling price fixed for such formulations.

E. Non-ceiling Price Order : Non-ceiling Prices are fixed under Para 8 (1), (2) and (4) and Para 11 of the DPCO, 1995. They are specific to particular pack size and dosage form of scheduled formulation of a particular company. Hence they are pack specific and company specific. The prices fixed for non-ceiling packs are communicated to the respective firms by issuing office orders. In such order, usually excise duty element is shown separately. However, local taxes are not included in Non-ceiling price.

These orders are available on the web-site ‘www.nppaindia.com‘ to the public.

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