Giving a major reprieve to domestic drug majors, the National Pharmaceutical Pricing Authority (NPPA), which is in the process of computing the liabilities of the drug companies for overcharging, has decided to give differential treatment to the manufacturers who source their own bulk drugs for their formulations and the ones who outsource it, when it comes to the bulk drug price component.

The NPPA has noted that if the cost of production of a bulk drug is below the notified price, that would not make the company liable to deposit a notional difference with the Drug Prices Equalization Account (DPEA). However, the drug companies who purchase the bulk drug at a price below the notified price is bound to deposit the difference as "a manufacturer who purchases bulk drugs below the notified price makes an unintended profit."

According to the internal guidelines prepared by NPPA for compounding the liabilities of drug companies, the manufacturer who produces bulk drug below the average price cannot be considered at par with the manufacturer who purchases the bulk drug at a lower price as the former which is producing "below the average price is efficient" and the latter is making an "unintended profit."

"The two cannot be treated on the same basis particularly in the absence of specific statutory sanctions therefore," it noted. The NPPA has noted that Section 7 (2) of the DPCO 1979 understandably governs a situation where the bulk drug is purchased from another at a price below the notified price, it cannot be extended by analogy to a captive consumption of bulk drug. "However, if the notified price of the bulk drug was reduced subsequently, so as to fall below the price of the bulk drug allowed in formulations, the manufacturer of formulations would be liable to pay the differences under para 7 (2)," it noted.

The NPPA has noted, "if a manufacturer has liability under para 7
(2) from 1-11-1980 to 25-6-1983, this period would be broken into spans from 1-11-1980 to 31-3-1981, 1-4-1981 to 31-3-1982, 1-4-1982 to 31-3-1983 and 1-4-1983 to 25-6-1983. The weighted average procurement price and liability under para 7(2) of DPCO 1979 based thereon would be computed for each of the aforesaid period separately. The addition of all these figures would be the total liability." It has also been clarified that if there has been any price revision in any of the financial years for which liability has been calculated, then that particular financial year will be divided into two parts for the purpose of calculating the weighted average procurement price. In case of two price revisions in one particular financial years, the weighted average procurement price figures will be calculated after dividing that financial year into three periods and calculating the figure for each of the three periods and so on.