The profit margins of multinational companies importing medicines into India have been hit with the National Pharmaceutical Pricing Authority starting strict scrutiny of price approval applications for imported products.

The authority last month asked the companies to charge only 35 per cent of the landed cost of the drug as mark-up instead of 50 per cent. The Drugs Price Control Order, 1995, permits up to 50 per cent mark-up. The landed cost is the price paid by the company at the port of entry.

The NPPA has also restricted the mechanism to select products, ending the earlier practice where all drugs used to come under the measure.

For instance, the NPPA has refused to allow Swiss multinational Novartis [Get Quote] 50 per cent mark-up for its AMD (Age-related Macular Degeneration) medicine Vitalux. Eli Lilly's several monocomponent insulin formulations have also been refused 50 per cent mark-up.

Ajit V Dangi, director general, Organisation of Pharmaceutical Producers of India, said the directive could disturb the budgets of the pharmaceutical companies.

"The budgeting exercise for the next year and fixing of regionwise sales targets will begin from next month. The NPPA decisions have made projections difficult. There has to be continuity and certainty in policies for the industry to thrive."

He said the recent NPPA directives, including a cut in the mark-up level and bringing more non-scheduled drugs under price control, had made India a complex market.

The NPPA's interventions to contain drug prices is driven by Chemicals and Fertiliser Minister Ram Vilas Paswan. The authority, which used to fix and monitor the prices of the medicines that came under mandatory price control, is not keeping an eye on the entire basket of drugs.

Its recent moves include the decision to bring down the maximum allowable annual price increase to 10 per cent from 20 per cent.

While multinational companies question the NPPA's move, Paswan is known to have succeeded in winning over domestic pharmaceutical firms. The Indian Drugs Manufacturers Association has accepted the minister's decision to cap the annual price increase at 10 per cent from the earlier 20 per cent.

"We have agreed to the minister's decision keeping in mind the larger public interest. The minister has also assured us that the decision will be applicable from April 2006 and not from January, as decided earlier," said Dara Patel, secretary general, IDMA.

The NPPA has issued 376 notices to drug companies in 2007. Out of these, 229 are cases in which the price has been increased by more than 20 per cent and 147 cases where the price increase is over 10 per cent.