The pharmaceutical industry is to hold an urgent meeting with the National Pharmaceutical Pricing Authority (NPPA) before it decides to entrust pharmaceutical costing work with the Cost Accounts Branch (CAB) of the Ministry of Finance. NPPA had last week decided to seek the finance ministry help although it had agreed with the industry to have an independent costing agency outside the government.

The industry representation, in this regard, is to ensure that the government agency takes a realistic and neutral view for collecting the cost data. The industry had in fact short listed names of consulting firms like PriceWaterhouse, Earnst &Young and Anderson to suggest to NPPA for appointing as the independent agency to study the conversion and packaging material costs before fixing the MAPE for pharma companies. These consulting firms do have adequate expertise in pharmaceutical costing.

While commenting on the current industry view, Ajit Dangi, secretary general, Organisation of Pharmaceutical Producers of India (OPPI) said, "Since we wanted the government to have a realistic cost analysis taking actual cost acceleration, competitive market scenario and fresh challenges in a globalized industry perspective into consideration, the costing should be conducted by an independent and professional agency. So, we want to ensure the government agency, if the NPPA entrust them for the job, to make the analysis independently by considering all these aspects."

The exercise is to frame the new norms for raw material conversion costs (CC) and packaging costs (PC). The industry had also suggested names of 20 pharmaceutical companies representing small, medium and large scale industry, to the NPPA to study the cost. These firms are already following the revised cGMP norms besides having the state of the art facility with upgraded technologies. The companies selected for the cost study are Apex laboratories, Astral pharma, Aurobindo, Aventis, Blue cross, Zydus Cadila, Dr Reddy's, FDC Ltd., GSK, Indswift, Ipca, J B Chemicals & Pharma, Lupin, Micro Lab, Pfizer, Ranbaxy, Unichem, USV, Wockhardt, and Wyeth Lederle.

According to Dara B Patel, joint secretary general, Indian Drug Manufacturers Association (IDMA), the NPPA is yet to communicate to the industry associations officially about the assignment of CAB for any other agency for the cost analysis. "However, if the government entrusts the government agency itself for the work, it will be totally against the discussion what we had with the NPPA on 5 July, 2002, in this regard," Patel said.

Patel added that the industry has submitted its suggestions to the NPPA and the Authority had also agreed with it in principle while the industry met them in Delhi. "So, the industry is all set to reconfirm the names of the independent consulting firms for the job to the NPPA as it was discussed and agreed in the meeting," Patel said.

However, while speaking to Pharmabiz.com, NPPA sources confirmed that the NPPA decision to appoint Cost Accounting Branch of Finance Ministry is appropriate as it had only agreed with the industry to appoint an independent agency other than NPPA for costing. It is learnt that the industry-NPPA meeting had also agreed on sharing the cost of the independent costing.

The evaluation of the actual pharmaceutical raw material conversion costs (CC) and packaging costs (PC) is important to work out the maximum allowable costs of pharma products for the purpose of price fixation. This new independent study was mooted by IDMA and OPPI in the earlier Industry-NPPA joint meet.

Packaging materials (PM) cost is a major component of pharmaceutical production process, as conversion costs of drugs and more significant than the packaging charges (PCs). The NPPA had first notified the CC and PC norms in July 1999 and these norms were re-notified in July 2000 with no major change. The costing formula in Para 7 of the Drug Price Control Order (DPCO) takes into account cost of components like (drug) material cost, conversion cost, packaging material cost and permits a 100 per cent ex-factory cost which includes manufacture's margin and trade margins.

Of this, the costing of packaging materials has not yet been standardized and notified, although the government says that the costing is now done as per internal norms sticking to the international standards. While the PC norms notified earlier are principally about the expenses incurred on bulk transportation of medicines, packaging materials norms are the costs involved in purchase and use of packing materials. However, with the government's hitherto system of internal norms has been creating controversy over lack of incentive to superior packaging of drugs.