So higher production or better capacity utilisation means that the component of this cost per unittablet or capsule comes down because the same costs are allocated on a larger number of products.
This component of cost is manufacturer dependent. Fancy packing versus utilitarian packing,determines this component of the cost. Packing should be determined, if you want to keep the costslow, by the need to maintain the medicine unaffected by the environment and not so much for beingattractive. Strip packing or blister packing is costlier than bulk packing. The additional cost of blister pack – inthe author’s experience at LOCOST given current costs of strip packing material like aluminum foils,etc., -- over bulk packing is around Rs 50-100 per 1000 tablets, that is, a strip packed tablet shouldcost a maximum of 10 paise over the bulk packed one. That is if the bulk pack of paracetamol costsRs 150 per 1000 tablets the strip pack should not cost more than Rs 2.50 per 10 tablets, i.e., Rs 250per 1000 tablets.
Laboratory/Quality Control Costs
Like manufacturing costs, these costs too are a fixed cost to a very large extent. Increased efficiencyand capacity utilisation bring down the unit cost per tablet or capsule. There is a wrongly held belief that price is related to quality. This is true only to a certain extent. Aswe mentioned earlier, these costs for quality control are fixed and do not vary much and therefore donot contribute very much to the cost of the medicines.
There are manufacturing losses incurred during the process. There are also samples to be drawn for testing, statutory samples to be maintained with the manufacturer during the life of the product.Considering all these, the average yield in the case of tablets or capsules is around 98 %. In the caseof syrups the losses are slightly higher - around 5 %, i.e., the yield is 95 %. These losses will alsohave to be factored in while calculating costs.
These costs add up to a substantial portion of the costs. These include margins given to wholesalersand retailers. The costs of the medical representatives, the gifts and free samples given to the doctors,all add up to the cost of the medicine. The usual margins for top-selling brands are supposed to be: 2 to 5 % for the wholesalers and 8 to 16% for the retailers. In many cases as in generics, especially branded generics, the margins are muchhigher. As shown in the other chapters of this book, the pricing of many top-selling brands revealsthat the bare ex-factory costs as calculated by the procedure indicated in this chapter and the retailprice is of the order of even 2000 to 5000 percent. This means actually a lot more margins are madeand shared down the trading chain. Similarly in case of OTC products, which involve a push by thechemist, the margins are much much higher.
Please note that manufacturing costs (that isconverting the powder to the tablet form) for costly material like prednisolone, and for one thatis much less costly like parcetamol, is about the same.
Taxes And Excise Duties
After the manufacturer decides on his/her ex-factory price of the medicine, excise duty is levied(some essential drugs are exempt however) when the goods leave the factory premises. This ratevaries depending upon the manufacturer. Small-scale units are allowed to pay 9.6 % up to a limit (up