The National Pharmaceutical Pricing Authority (NPPA) has short listed three top consulting firms, namely, PriceWaterhouse, Earnst & Young and Anderson to be appointed as the proposed independent costing agency to study the conversion and packaging material costs before fixing the MAPE for pharma companies, it is learnt. These consulting firms do have adequate expertise in pharmaceutical costing.

The exercise is to frame the new norms for raw material conversion costs (CC) and packaging costs (PC). The study of both conversion costs and packaging material costs will be undertaken on the basis of the data with 20 pharma companies selected by NPPA for the purpose. 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, according to sources, is a mix of large, medium and small-scale units.

According to informed sources, the industry and the government would share the expenditure of the study, if NPPA makes a demand for the same. The study is expected to begin next month as the NPPA wanted to have the norms ready by the end of this year.

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 move follows a recent representation made by the industry associations like Indian Drug Manufacturers Association (IDMA) and the Organization of Pharmaceutical Producers of India (OPPI) in an industry-NPPA joint meeting recently.

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, the government's hitherto system of internal norms has been creating controversy over lack of incentive to superior packaging of drugs.

Drug industry circles point out that different companies use different packing materials and adhere to different standards for the same formulation, resulting in considerable disparities in cost of packaging among them. NPPA should hence notify permissible cost close to the industry average, they say. "Although it is desirable for the regulator to accept the mean, we find that in most of the cases, the NPPA ceilings on cost of packaging is on the lower side, and in some cases equivalent to the lowest in the industry," says IDMA sources.

Many in the drug industry apparently believe that the NPPA's inflexibility has become a disincentive to companies adopting superior packaging standards. They point out that by raising the level of packing standards, the threat of spurious drug rackets could be minimized as it would be difficult for the spurious drug makers to mimic the latest technology packaging that are somewhat copy-proof and pilfer-deterrent.

However, the plan to appoint an independent agency would bring an actual cost evaluation method which is much better the normative way based on internal analysis, the industry associations feel.