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The National Pharmaceutical Pricing Authority (NPPA) got a rap on its knuckles, with the Allahabad High Court ruling invalid a series of notifications issued by the pharma pricing body from 2000 to 2003 for calculation of retail prices of formulations.

The court also quashed the NPPA notice to Cipla for recovery of over Rs 200 crore in arrears for overcharging on some of the scheduled drugs, which have been brought back under price control.

The court, however, said NPPA can fix the price of formulations afresh in accordance with a properly formulated law.

The Allahabad High Court order, delivered recently, was in response to Cipla challenging the NPPA notice to it served through the inspector of drugs, Varanasi, regarding payment of arrears.

The court order will be a big relief for Cipla as, otherwise, it would've had to cough up Rs 100 crore (50% of the arrears) immediately. Significantly, the arrears calculated are only till June 2000, which means that if the NPPA seeks to recover the amounts for the remaining period too, Cipla might be required to pay several hundred crores.

The court quashed the NPPA notifications and its notice to Cipla on arrears on the ground that the pricing body followed a wrong methodology for fixing price revisions. While observing that factors such as material cost, conversion cost, packaging material and packaging cost are to be considered while calculating retail prices for drugs, the court said various costs keep changing and there has to be fresh application of mind every year by the pricing body for fixing retail prices. "The Drug Price Control Order (DPCO) 1995 contemplated an investigation and enquiry by the government every year, considering all the relevant factors and then fixing the norms to be used in all inputs," the court order stated. Sources said NPPA is currently studying the court order and would soon decide on appealing against the order.

Cipla was among half-a-dozen companies, including Ranbaxy and US Vitamin, which were found overcharging on seven scheduled drugs which were brought back under price control. While Cipla was slapped with a total bill of about Rs 200 crore (price differences calculated till June 2000), Ranbaxy was slapped with a bill of Rs 50 crore.
The companies were required to pay up 50% of the amount now as the case relating to bringing these drugs under price control is still pending in the Mumbai High Court for a final decision.

The drugs in question are ciprofloxacin, norfloxacin, doxycycline, salbutamol, theophylline, cloxacillin and glipizide. Cipla manufactures and markets three to four of these drugs. The Allahabad High Court order also observed that before fixing the price every year, representations of the pharmaceutical industries should also be considered.

The government counsel had argued that the government had made several attempts to collect information from pharma industries in 2002, but as there was no cooperation from the industry, the norms notified in 1999, which had a cushion for inflation, were notified in 2000, '01 and '02. Cipla, however, denied having any knowledge of such information being sought from the pharma industry.

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