Indian Pharmaceutical Industry: A Snapshot

=> Total pharma production approx. Rs. 54,000 crores (US $ 12 billion)

=> 4th in terms of Volume, 13th in Value (reflects low prices)

=> Growth of exports – approx. 22% per annum.

=> Growth of domestic market 8-10% per annum.

=> India’s rank in terms of USFDA approved plants – 1st (highest number of such plants outside USA are in India) about 100 plants.

=> Estimated market size by 2010 as estimated by Mckinsey and company = Rs. 1,00,000 crores (US $ 25 billion)

=> R&D spending to increase from 3% of sales to over 5% by 2007

=> India – emerging as the hub for Collaborative & contract research, Contract manufacturing, Co-development and Co-marketing.

BRIEF HISTORY OF DPCOBRIEF HISTORY OF DPCO

1962: The control on prices of drugs and pharmaceuticals in India was introduced for the first time in the wake of the Chinese aggression and declaration of emergency and accordingly the Drug (Display of Prices) Order, 1962 and the Drug (Control of Prices) Order, 1963 were issued under Defence of India Act.

1966: The Govt. introduced a system of allowing increases in prices by issuing Drug Prices (Display and Control) Order making it obligatory for the manufacturers to obtain price approvals from Govt. before increasing prices of any formulation.

BRIEF HISTORY OF BRIEF HISTORY OF DPCODPCO ContdContd……

1970 : In suppression of all orders issued earlier, The Drug (Price Control) Order, 1970 (DPCO,1970) was issued on 16th May 1970 under sec 3 of The Essential Commodities Act, 1955 with an objective to bring down prices of essential drugs, curbing excessive profit, promoting R&D and diversification of future development of the drug industry.

1979 : DPCO 1979 was issued empowering Govt. to fix maximum sale price of 347 indigenous manufactured scheduled drug, new bulk drugs, imported scheduled drugs and to fix retention price, common sale price and pooled price of scheduled bulk drug and to fix leader price of specified formulation as per schedule I & II.

BRIEF HISTORY OF BRIEF HISTORY OF DPCODPCO ContdContd……

1987: On the basis of Drug policy 1986, DPCO 1987 was issued where no. of bulk drugs under control was reduced to 142. The leader price concept in 1979 was renamed as Ceiling Price. The power to recover overcharged amount from the companies was also incorporated.

1995: DPCO 1995 (at present in force) was introduced under which the no. of drugs under price control was reduced to 76 ( 2 omitted and at present 74) and the Govt has been empowered to fix and revise the price of non-scheduled formulation also.

Comparative price control scenario under the various D.P.C.Os

S.No. Item1979 1987 1995

1 No. of Bulk Drugs under Price Control

347 142 74

2 Internal rate of Return

14% on net worth or 22% on capital Employed

Same under 1995, but for basic stage manufacture 18% on Net Worth or 26% on capital Employed

3 No. of Categories of Drugs

3 2 1

4 Mark up/ Maximum Allowable Post Manufacturing Expenses (MAPE) for Formulations

Category I 40% 75% 100%

Category II 55% 100% -

Category III 60% - -

5 Market Covered (approx.)

90% 70% 50%

Drug (Prices Control) Order

GENESIS OF NPPAGENESIS OF NPPANational Pharmaceutical Pricing Authority (NPPA) was conceived in 1994 as a part of liberalization process in the modified Drug Policy 1986 as :

“ In the light of the apprehensions expressed in the parliament on the likely spurt in the prices of medicines, it has been felt that it would not be desirable to allow automatically in the price mechanism. The Govt would set up an independent body of experts, to be called the NationalPharmaceutical pricing Authority, to do the work of price fixation. This expert body would also be entrusted with the task of updating the list of drugs under price control each year on the basis of established guidelines /criteria. This body would also monitor the prices of decontrolled drugs and formulations and oversee the implementation of the provisions of DPCO.”

NPPA came into effect and became fully functional with effect from 29th Aug. 1997.

MANDATE & FUNCTIONS OF NPPA(i) Fixation and revision of prices of scheduled bulk drugs and formulations;

(ii) Updating the list of drugs under price control;

(iii) Monitoring of prices of decontrolled drugs and formulations;

(iv) Monitoring of availability of drugs;

(v) Collection and maintenance of data on production, exports and imports, etc.;

(vi) Implementation and enforcement of the provisions of the DPCO;

(vii) Getting studies on pricing of drugs/ pharmaceuticals conducted;

(viii) Rendering advice to the central government on drug and pricing policies;

(ix) To deal with legal matters arising out of decisions of the NPPA.

MECHANISM OF PRICE FIXATION OF FORMULATION BY NPPA

PARA 7 OF DPCO,95 : CALCULATION OF RETAIL PRICE OF FORMULATIONS:-

(i) The prices of formulations are fixed as per formula prescribed in the DPCO viz

Retail .Price. = (Material cost . + Conversion cost.+ Packing material cost.+Packing charges) X (1+ % MAPE)+ Excise

Where MAPE = Maximum allowable post manufacturing expenses- means all costs incurred by a manufacturer from the stage of ex-factory cost to retailing .This is meant to cover distribution, promotion and profits. It is allowed upto 100%

ii) For imported medicines landed cost + 50% MAPE is allowed as price

Power to fix Retail Price/ Ceiling Price of Scheduled Formulations under para 8 & 9 respectively

MECHANISM OF BULK DRUG PRICE FIXATION BY NPPA:

As per para 3 of DPCO, 1995, bulk drug prices are fixed by the NPPA to make it available at a fair price from a to time by notification in the official gazette.

The following steps are involved in fixation/revision of bulk drug prices:

1. Collection of data by issuing questionnaire/Form I of DPCO, 1995 to the companies and from cost-audit report etc.

2. Verification of data by plant visits, when required.

3. Preparation of actual cost statement.

4. Preparation of technical parameters to be adopted for working out fair price of the bulk drug.

MECHANISM OF BULK DRUG PRICE FIXATION BY NPPA: Contd.

5. Preparation of estimated cost based on actual cost and technical parameters. Fair price is calculated by providing returns as specified in sub para (2), para 3 of DPCO, 1995 as opted by the individual manufacturer

6. Fixation of fair price of bulk drug by considering weighted average cost, 2/3rd cut-off level of

production assessed.

7. Notification of bulk drug price in official Gazette.

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

MONITORING OF PRICES OF SCHEDULED / NON-SCHEDULED MEDICINES BY NPPA

1. NPPA MONITORS THE PRICES OF MEDICINES BASED ON PRICE INFORMATION GIVEN IN THE MONTHLY RETAIL STORE AUDIT REPORT OF ORG-IMS.

2. MEDICINES FOR FURTHER ACTION ARE IDENTIFIED AS PER FOLLOWING CRITERIA.

a) MINIMUM ANNAUL SALE - Rs.1 CR

b) THE PRODUCT IS ONE OF THE TOP THREE OR HAS A MINIMUM 20% MARKET SHARE IN THE GROUP.

c) THE PRICE OF THE PRODUCT HAS INCREASED OVER 10% DURING PAST TWELVE MONTHS PERIOD

MONITORING OF PRICES OF SCHEDULED / NON-SCHEDULED MEDICINES BY NPPA

Contd…

3. VOLUNTARY REDUCTION OF PRICE BY MANUFACTURER IS ENCOURAGED.[ 26 co’s have voluntarily reduced the prices of 46 formulation packs]

4. ACTION FOR PRICE FIXATION/ REGULATION IS INITIATED, IF NECESSARY,IN PUBLIC INTERST, UNDER Para 10(B).

5. FIXATION OF PRICE UNDER CERTAIN CIRCUMSTANCES UNDER para 10b

The essential/ mandatory information required to be printed on the label of the medicine pack.

The following information is required to be printed on the label of a medicine under the Drugs and Cosmetics Act and DPCO, 1995.

a. Name of the formulation b. Composition of the formulation c. Pack Size d. Address of the manufacturer e. Manufacturing License Number f. Date of manufacture g. Expiry Date h. Maximum Retail Price (Including Local Taxes) w.e.f. 2nd October,2006

Enforcement Agencies

Who are the national level, state level and district level authorities that are responsible for enforcement of fixed prices?

The National Pharmaceutical Pricing Authority, the FDA/ Drugs Controller of the State, and Drugs Inspector of the District are the enforcing authorities at National/ State/ District Levels.

RECENT DEVELOPMENTRECENT DEVELOPMENTFor medicines produced on or after 2nd October,2006 – it is mandatory to print MRP (inclusive of all taxes) as per the Notification S.O. No.946(E) dated 26.6.2006 and Circular issued on 04.09.2006 by the Central Government.

For imported medicines, MRP (inclusive of all taxes) mandatory from 1st March,2007.

NPPA issued compendium of prices of bulk drug and formulations.

To create consumer awareness through advertisement in leading newspapers (English and Hindi) coverage through television and dissemination of information through website. Since April,2007 a 30 seconds awareness advertisement at prime time at around 8:15 pm between English & Hindi news is being telecast on the National Network of Doordarshan for this purpose.

RECENT DEVELOPMENT RECENT DEVELOPMENT ContdContd……

NPPA will continue to fix and notify the ceiling / non ceiling prices on the same lines as is being done at present. The onus to work out Excise Duty, Sales Tax / Value Added Tax (VAT) etc. and resultant MRP will be on the manufacturers.

MRP can differ for different areas depending on the local taxes. However since most states have adopted a common rate of VAT, Companies may have a uniform MRP throughout the country.

ROLE OF CENTRAL GOVT. IN THE ROLE OF CENTRAL GOVT. IN THE IMPLEMENTATION OF DPCOIMPLEMENTATION OF DPCO’’9595Fixing of Maximum Sale Prices of Bulk Drugs specified in the first schedule (Para 3 of DPCO’95)

To direct manufacturers of bulk drugs to sell bulk drugs to other manufacturers of formulations (Para 6 of DPCO’95).

To fix the retail / ceiling price of formulation (Para 8 & 9 of DPCO’95).

To recover overcharged amount due to charging of prices higher than those fixed or notified by the Central Govt. (Para 13 of DPCO’95)

ROLE OF MANUFACTURER/ ROLE OF MANUFACTURER/ DISTRIBUTOR/DEALERS OF DRUGS IN THE DISTRIBUTOR/DEALERS OF DRUGS IN THE

IMPLEMENTATION OF DPCOIMPLEMENTATION OF DPCO’’9595

Manufacturers to furnish information in relation to scheduled bulk drugs – the information in Form-I must be submitted by 30th September, every year (Para 4 of DPCO’95)

Manufacturers to furnish information in relation to the Non-Scheduled Bulk Drugs in Form-II (Para 5 of DPCO’95)

Giving effect to the prices fixed or revised by the Govt. and to display the same: the manufacturers or importers shall issue price list and supplementary price list in Form-V to the dealers, State Drug Controller, the Govt. with reference to prices fixed by the Govt. with respect to different price notifications (Para 14 of DPCO’95).

ROLE OF MANUFACTURER/ ROLE OF MANUFACTURER/ DISTRIBUTOR/DEALERS OF DRUGS IN THE DISTRIBUTOR/DEALERS OF DRUGS IN THE

IMPLEMENTATION OF DPCOIMPLEMENTATION OF DPCO’’95 95 ContdContd……

Every retailer and dealer shall display the price list and the supplementary price list, if any, as furnished by the manufacturer or importer, on a conspicuous part of the premises where he carries on business in a manner so as to be easily accessible to any person wishing to consult the same in respect of scheduled as well as non-scheduled formulations [Para 14 (4) and 15 (3)]

To display the prices of non-scheduled formulations in the form of price list: every manufacturer or importer shall issue a price list and supplementary price list in Form-V to the dealers, State Drug Controller and the Govt. indicating changes from time to time (Para 15 of DPCO’95).

ROLE OF MANUFACTURER/ ROLE OF MANUFACTURER/ DISTRIBUTOR/DEALERS OF DRUGS IN THE DISTRIBUTOR/DEALERS OF DRUGS IN THE

IMPLEMENTATION OF DPCOIMPLEMENTATION OF DPCO’’95 95 ContdContd……Control of sale prices of bulk drugs and formulations: any bulk drug or formulation shall not be sold at a price exceeding the price specified in the current price list or price indicated on the label of the container or pack thereof, whichever is less, plus all local taxes, if any applicable (Para 16 of DPCO’95)

Manufacturer, distributor or dealer not to refuse sale of drug: no manufacturer or distributor or dealer shall withhold or refuse the sale of drug without good and sufficient reason to the intending buyer. (Para 18 of DPCO’95)

ROLE OF MANUFACTURER/ ROLE OF MANUFACTURER/ DISTRIBUTOR/DEALERS OF DRUGS IN THE DISTRIBUTOR/DEALERS OF DRUGS IN THE

IMPLEMENTATION OF DPCOIMPLEMENTATION OF DPCO’’95 95 ContdContd……

Maintenance of records and production thereof for inspection: Every manufacturer or importer shall within six months from the close of the accounting year submit to the Government information in Form VI (Para 20 of DPCO’95)

ROLE OF STATE DRUG CONTROLLER IN ROLE OF STATE DRUG CONTROLLER IN THE IMPLEMENTATION OF DPCOTHE IMPLEMENTATION OF DPCO’’95 95

The State Drug Controller’s office needs to ensure that the price fixed by the Government are adhered to by the manufacturer and should also ensure that the information is submitted to them in Form-V (Price List), giving effect to the prices fixed or revised by the Government and verify its display and proof (Para 14 of DPCO’95).

Ensuring submission of price list of non-scheduled formulations: Every manufacturer has to submit the price list in Form-V State Drug Controller also needs to be looked after by the State Drug Controller’s office (Para 15 of DPCO’95)

ROLE OF STATE DRUG CONTROLLER IN ROLE OF STATE DRUG CONTROLLER IN THE IMPLEMENTATION OF DPCOTHE IMPLEMENTATION OF DPCO’’95 95 ContdContd……

Control of Sale prices of bulk drugs and formulations: It is the duty of the State Drug Controller’s office to see that the prices of bulk drugs and formulations are sold as per the price specified in the current price list or as indicated in the label of the container or the pack thereof whichever is less (Para 16 of PDOC’95).Powers of entry, search and seizure: Any GazettedOfficer of the Central or State Government authorized by a General or Special order can enter and search any place, seize any drug, and seize any document which has a bearing on he contravention of the DPCO’95. The provisions of Section 100 of Code of Criminal Procedure, 1973 (2 of 1974), relating to search and seizure shall, so far as may be, apply to searches and seizures under this Order (Para 21 of DPCO’95).

Salient Features of SSI Exemption

Government notified SSI Exemption notification no. S.O. 134 (E) dated 2nd March,1995 in exercise of the powers conferred by paragraph 25 of the Drugs (Prices Control) Order, 1995.

Every drug manufacturing unit registered as small scale industry unit with any Central Technical Authority or State Directorate of Industries (Development and Regulation), Act, 1951 (65 of 1951), has been exempted from the operation of paragraph 8 of the said Order relating to fixation of retail price of Scheduled formulation if such Scheduled Formulation is not covered under

paragraph 9 of the said Order relating to fixation of ceiling price of Scheduled Formulations subject to the following conditions :-

it is an independent unit/company and not a subsidary of or owned or controlled in any manner by any other undertaking which is not so exempted from the provisions of the Drugs. (Prices Control) Order, 1995;

the formulations are marketed by the concerned unit/company in their own brand name and trade marks or in the brand or trade name of any other small scale industry unit;

a declaration complying with conditions (i) and (ii) above alongwith a copy of Registration Certificate as a small scale industry unit is submitted to the Government within sixty days from the date of this notification in case of existing units and sixty days from the date of commencement of production in case of new units.

Notes :

The above exemption to a small scale industry unit or company will no longer be admissible as soon as it ceases to be a small scale industry unit/company.

1. The exemption is granted only to those products manufactured in their own factory under their own Registration Certificate or in the factory of any other small scale industry unit.

2. Unit/company availing exemption in violation of this Order shall be liable for penal action and to deposit dues to Government with retrospective effect.

Para 2 (f) “drug” includes-

(i) all medicines for internal or external use of human beings or animals and all substances intended to be used for, or in the diagnosis,treatment, mitigation or prevention of any disease or disorder in human beings or animals, including preparations applied on human body for the purpose of repelling insects like mosquitoes;

(ii) such substances, intended to affect the structure or any function of the human or animal body or intended to be used for the destruction of vermin or insects which cause disease in human beings or animals, as may be specified from time to time by the Government by notification in the Official Gazette; and

(iii) bulk drugs and formulations;

Para 2(a) “bulk drug” means any pharmaceutical, chemical, biological or plant product including its salts, esters, stereo-isomers and derivatives, conforming to pharmacopoeial or other standards specified in the Second Schedule to theDrugs and Cosmetics Art, 1940 (23 of 1940), and which is used as such or as an ingredient in any formulation;

Para 2(h) “Formulation” means a medicine processed out of, or containing one or more bulk drug or drugs with or without the use of any pharmaceutical aids, for internal or external use for or in the diagnosis, treatment, mitigation or prevention of disease in human beings or animals, but shall not include-

(i) any medicine included in any bona fide Ayurvedic (including Sidha) or Unani(Tibb) systems of medicines;

(ii) any medicine included in the Homeopathic system of medicine; and

(iii) any substance to which the provisions of the Drugs and Cosmetics Act, 1940 (23 of 1940) do not apply :