Supreme Court backs NPPA on capping drug prices

NEW DELHI: The National Pharmaceutical Pricing Authority is justified in clamping ceiling prices on drugs even without first fixing the rules, the Supreme Court ruled on Friday.
A bench of Justices Madan B Lokur and RK Agrawal made the observation while ruling on cases related to four formulations of Cipla and one of Dr Reddy's Laboratories. Legal and industry experts said the ruling would set the precedent for similar cases pending in courts.

More than Rs 3,500 crore claimed by NPPA from the industry for overpricing has been stuck in various courts for nearly two decades, with the companies challenging the demand. Cipla alone is facing claims of Rs 1,768.51 crore, according to its latest annual report.



In a stock exchange filing, Cipla said the top court decided in favour of the government in the case. “Other petitions filed in the Bombay High Court on completely separate sets of grounds relating to alleged overcharged amounts are pending and are still subject to the interim stay granted by the Hon’ble Supreme Court in July, 2016.” it added.

Dr Reddy’s did not respond until press time Friday to ET’s queries on the court order.

The government approached the Supreme Court in 2005 after the Allahabad High Court passed a verdict in favour of Cipla, which had challenged NPPA over price notifications of four formulations—salbutamol, theophylline, ciprofloxacin, norfloxacin. The high court had invalidated 40 of NPPA’s notifications in 2004.

Dr Reddy’s approached the court arguing that the ceiling price of antibiotic norfloxacin formulations couldn’t be fixed prior to setting the maximum sale price of the bulk drug norfloxacin.

At the Supreme Court, the government said the companies were not cooperating with the rules and delayed sharing the data required to fix these guidelines, a lawyer aware of the proceedings added. The companies argued that the agency’s pricing methodology was faulty, done "mechanically" and "without application of mind".

The 94-page court order said the government is justified in issuing various price fixation and revision notifications for formulations without determining the guidelines for packing material, conversion and packing costs as well as process loss of packing and raw materials. It is also justified in doing so without first fixing the sale price of a bulk drug used to make the formulation, the bench said.

The judgment has significant implications for the industry, said DG Shah, secretary-general of the Indian Pharmaceutical Alliance that represents around 20 top drug firms including Cipla and Dr Reddy’s. “This will impact even the 1979 cases of all multinationals and many other Indian companies. NPPA will rely on this judgment and initiate recovery proceedings,” he told ET.