How to structure this contract
- Split conversion from materials. Escalate the conversion part of the price only. Materials pass through at cost.
- Name the series exactly. BLS PPI Pharmaceutical Preparation Manufacturing, PCU325412325412.
- Fix the base month and the reading. Same month each year, and the same kind of reading (final or preliminary) on both sides.
- Set the date and any cap. Once a year on a fixed date, usually January 1.
What real contracts do
We read 94 contract manufacturing and supply agreements that 74 drug companies have filed with the SEC, each with a price adjustment tied to the pharmaceutical PPI. They follow one pattern closely:
- Once a year. 87 of the 94 adjust annually. 41 name January 1 as the effective date.
- Conversion only. 81 apply the index to the manufacturing or conversion part of the price: labor, utilities and overhead. Active ingredients and components are usually passed through at actual cost.
- Mostly uncapped. About a third (35 of 94) have a cap. Where the cap is shown, it is 3% to 5%. Most of the rest are redacted in the filing.
- Mostly increase-only. Only 20 of the 94 mention a price decrease. A falling index usually leaves the price where it is.
Name the series exactly
The 94 contracts describe this index in 77 different ways: "the PPI", "the Pharmaceutical PPI", "Producer Price Index pcu325412325412", "Producer Price Index for Finished Goods, Pharmaceutical Preparations" and many more. Only 50 of them include the series code.
That matters because BLS publishes several pharmaceutical price indexes. A clause that says "the PPI" or "the pharmaceutical PPI" leaves room to argue about which one applies, and they do not move together.
Use one unambiguous citation:
the Producer Price Index for Pharmaceutical Preparation Manufacturing, series PCU325412325412, published by the US Bureau of Labor Statistics, not seasonally adjusted
The base month changes the answer
Most clauses compare one month of the PPI with the same month a year earlier. Which month is picked matters more than people expect.
For a price increase effective January 1, 2027, using published PCU325412325412 values:
| Clause compares | Earlier value | Later value | Increase |
|---|---|---|---|
| July 2025 to July 2026 | 915.197 | 928.817 | 1.49% |
| Aug 2025 to Aug 2026 | 918.330 | 929.212 | 1.18% |
One month apart, the result differs by 0.3 percentage points. On $5,000,000 of annual conversion spend, that is $74,410 against $59,249, a gap of $15,161.
Neither month is wrong. The point is to fix one month in the contract and use it every year, so neither side can pick the month that suits them.
The preliminary vs final trap
BLS publishes each PPI value as preliminary, then revises it four months later with late survey responses and corrections. After that the value is final.
A common clause wording compares the preliminary August PPI of the prior year with the final August PPI of the year before. 15 of the 94 contracts use this wording or close variants of it.
The two readings are not like for like. One has been revised and the other has not. If the August figure is later revised down, the increase was paid on a number that no longer exists. If it is revised up, the supplier undercharged.
Two clean fixes:
- Final to final. Wait for the revision, and compare the final value for the later month with the final value a year earlier. The adjustment happens four months later, but it never changes.
- First release to first release. Compare the values as first published in both years, and record the release date of each. The contract then points at fixed numbers that anyone can check.
Whichever the contract uses, record the actual index values and the date each was published. That is what settles a dispute later.
EU and other sites
A handful of agreements (4 of 94) use a European consumer price index, such as the euro-area HICP or Italy's ISTAT CPI, for products made at a European site. The structure is the same: an annual change applied to the conversion price. Match the index to the country where the manufacturing cost is incurred, not where the buyer is based.
Worked example
These figures use published BLS values. The August 2026 value is preliminary: it was first published in September 2026 and will be revised four months later, in January 2027.
A contract with $5,000,000 of annual conversion spend, adjusted each January 1 by the August-to-August change in PCU325412325412:
- August 2025: 918.330
- August 2026: 929.212
- Change: 929.212 ÷ 918.330 − 1 = 1.18498%
- Increase from January 1, 2027: $5,000,000 × 1.18498% = $59,248.85
Run this with live values: the calculator opens with PCU325412325412 loaded and August 2025 as the base month.
Live index data
- US PPI: Pharmaceutical Preparation Manufacturing: current value, year-over-year change, and a free calculator
- US CPI-U: All Items: for contracts that use consumer inflation instead