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 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 DPCO Contd…
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 DPCO Contd…

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. Item Drug (Prices Control) Order

1979 1987 1995

1 No. of Bulk Drugs 347 142 74

under Price Control

2 Internal rate of 14% on net Same under 1995, but for

Return worth or 22% on basic stage manufacture
capital Employed 18% on Net Worth or
26% on capital Employed

3 No. of Categories of 3 2 1
Drugs

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 90% 70% 50%

(approx.)
 GENESIS OF NPPA
z National 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 National
Pharmaceutical 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.”

z 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 DEVELOPMENT
z For 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.

z For imported medicines, MRP (inclusive of all taxes) mandatory

from 1st March,2007.

z NPPA issued compendium of prices of bulk drug and

formulations.

z 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 Contd…

z 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.

z 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
IMPLEMENTATION OF DPCO’95
z Fixing of Maximum Sale Prices of Bulk Drugs specified in
the first schedule (Para 3 of DPCO’95)

z To direct manufacturers of bulk drugs to sell bulk drugs to

other manufacturers of formulations (Para 6 of DPCO’95).

z To fix the retail / ceiling price of formulation (Para 8 & 9 of

DPCO’95).

z 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/
DISTRIBUTOR/DEALERS OF DRUGS IN THE
IMPLEMENTATION OF DPCO’95

z 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)

z Manufacturers to furnish information in relation to the Non-Scheduled

Bulk Drugs in Form-II (Para 5 of DPCO’95)

z 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/
DISTRIBUTOR/DEALERS OF DRUGS IN THE
IMPLEMENTATION OF DPCO’95 Contd…

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)]

z 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/
DISTRIBUTOR/DEALERS OF DRUGS IN THE
IMPLEMENTATION OF DPCO’95 Contd…
z 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)

z 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/
DISTRIBUTOR/DEALERS OF DRUGS IN THE
IMPLEMENTATION OF DPCO’95 Contd…

z 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
THE IMPLEMENTATION OF DPCO’95

z 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).

z 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
THE IMPLEMENTATION OF DPCO’95 Contd…

z 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).
z Powers of entry, search and seizure: Any Gazetted
Officer 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
z 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.

z 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 :