The Central Government is likely to raise the Maximum Allowable Post-manufacturing Expenses (MAPE) for pharmaceutical products to 150 per cent from the current level of 100 per cent in the policy being finalised, it is learnt.

The move is aimed at compensating the pharmaceutical industry under as there is a proposal to bring all essential drugs under price control. Further, this could ensure pharma companies continue to manufacture all essential medicines, thanks to the scope for margins by increased MAPE. At present, 34 out of the 74 price controlled drugs have been either discarded or being phased out by the manufacturers due to lack of attractive margins.
For example, very few manufacturers now make a 50 paise Septran, as most of them find it more rewarding to make a non-price controlled ciprofloxacin, which is sold for about Rs 5 per tablet.

The government is also likely to announce a few more fiscal incentives helpful to the growth of the industry, now disgusted with some of the policy initiatives detrimental to their interests at a crucial time. The Union Minister for Chemicals and Petrochemicals is likely to come up with a statement on this shortly, senior industry sources told Pharmabiz. They indicated the announcement would have some incentives demanded by the industry like dropping the idea of de-branding, as a balancing act to accept the price control and other recommendations of the Task Force.

It may be noted the likely increase in MAPE is far away from the increase demanded by the industry. While reacting to the Task Force report, IDMA had demanded an increase in MAPE to 200% and CIPI had demanded an increase to 300% as a compromise or compensation for accepting the price control.

As reported by Pharmabiz earlier, industry had noted as per the 1979 DPCO, the MAPE was 100% and the total trade margins allowed were 14% in case of ethical products and 12% in case of non-ethical products on retail prices. In the new DPCO, the same margins were increased to 24% (16% retail margin + 8% wholesale margin / Distributors margin) and the gross realization was reduced due to this increase in trade margins. Considering total MRP works out to 200, with 100 plus MAPE of 100, the gross realization was only Rs 172, when calculating 200 - 14% trade margin as per DPCO 1979. As per current DPCO, the gross realization is only Rs 152, which is 200 - 24% of the trade margin as per current DPCO. Thus the gross realization has been reduced by 20 and hence, an additional 20% mark up should be brought in to make it on par with 1979 DPCO margins.

Another argument was that, earlier, majority of the bulk drugs were imported and the import duty used to range from 50% to 75%. Now, majority of the products are manufactured in India and import duty has been reduced to 5-15%. This has resulted in much lower margin (MAPE) for the end product. As per the earlier import duty structure, if the landed cost of the product was Rs 100, then the total price would be Rs 150, with 50 % import duty. With 100% mark up, the price would be Rs 300. As per the current import duty structure, the price for the same product is only Rs 220 considering 5% import duty and 100% mark up, which works out to a difference of 40% mark up.

Further, Additional Trade margin on further 100% mark up works out to 24%, free replacement of expiries (consumer protection) is about 4%, increase in freight and transport cost due to increased oil prices is about 4% and the cost of expenses in R & D and product development to meet the post GATT challenges works out to 3%, Additional cost due to pollution control, ESIS etc. 3%, new fringe benefit taxes that has been imposed will have an impact of almost 2%.