India: Price Fixation Of Drugs – Company -Wise MAT Vis-À-Vis Individual Drug-Wise MAT

Last Updated: 15 March 2017
Article by Rajdutt S. Singh

Most Read Contributor in India, December 2018

The calculation methodology of the fixation of price for drugs is a complicated one and recently we have come across yet another case of using incorrect methodology for price fixation of scheduled formulation by National Pharmaceutical Pricing Authority ("NPPA"). In this case, while entertaining review application under Para 311 of the Drugs (Prices Control) Order, 2013 ("DPCO"), the Department of Pharmaceutical ("DoP") held that NPPA has erred in taking the company-wise percentage of moving annual turnover ("MAT").

M/s Sun Pharmaceuticals Industries Ltd. ("Petitioner") filed a petition under Para 31 of the DPCO against notification S.O. No.1686(E) dated 09.05.2016 ("NPPA Order") issued by NPPA for fixing the ceiling price of "Ciprofloxacin 500 mg tablet" and "Ciprofloxacin 250 mg tablet".

Succinctly, NPPA is empowered to fix/regulate the prices of drugs under the DPCO. Drugs are mainly divided under 2 categories (i.e. Scheduled Formulations and Non Scheduled Formulations). Scheduled Formulation means any formulation, included in the First Schedule (Schedule appended to the DPCO) whether referred to by generic versions or brand name. On the other hand, Non Scheduled formulation is defined as a formulation, the dosage and strengths of which are not specified in the First Schedule. The DPCO mandates that NPPA has to follow the methodology provided under Para 4 (1) of the DPCO.

NPPA vide its Order dated 9.05.2016 fixed the prices of the aforesaid Formulations of the Petitioner and being aggrieved by the NPPA Order, the Petitioner challenged the NPPA Order. The Petitioner inter alia contended that

  1. the working sheet showing calculation of ceiling price displayed on the website of NPPA was not correct;
  2. certain packs, having 1% Market Share or above (which were considered in calculating ceiling price of the Petitioner's aforesaid Formulations) should not have been included, as either they were Innovative tablets like Once a Day Extended Release Tablets or they were discontinued/seem to be discontinued; and
  3. Petitioner's other formulations' prices were wrongly clubbed by NTPA with plain ciprofloxacin 500 mg tablets.

On the other hand, NPPA contended inter alia that DPCO does not distinguish common and innovative category for the aforesaid Petitioner's formulations. Further, while fixing the ceiling price of ciprofloxacin tablet 500 mg, all variants of the tablet have been taken into account.

The DoP observed that:

  • NPPA has erred in taking the company-wise percentage of MAT instead of individual brand and generic versions-wise MAT (having market share of more than 1%).
  • This is in gross violation of Para 4(i) of the DPCO, 2013, which gives the methodology of calculating the ceiling prices of Scheduled formulations.
  • Para 4 (i) of the DPCO does not provide for calculating the ceiling prices of company-wise MAT percentages, but on individual brand and generic versions having market share of more than 1%.

Thus, the DoP directed NPPA to adopt the correct methodology in all such cases of calculating the ceiling price of scheduled formulations as per Para 4(i) of DPCO and provisions of the First Schedule by including market shares of only generic/brands and not company-wise MAT percentage and to re-fix the ceiling prices of Petitioner's aforesaid drugs.

The DoP also directed NPPA to comply with the provisions of First Schedule as per which the formulations developed through incremental innovation or novel drug delivery systems like lipid/ liposomal formulations, sustained release/controlled release etc. should be considered as included only if specified in the list against any medicine.

Conclusion

NPPA has to follow the methodology provided under Para 4 (1) of the DPCO for fixation of prices of Scheduled Formulations. Further, in case NPPA does not follow the said methodology, the same may be challenged by an aggrieved party by filing an application under Para 31 of the DPCO. Further, NPPA has to keep in view the First Schedule while taking into account the innovative drugs for calculation of ceiling price of a scheduled formulation having same strengths and dosages.

Footnotes

1. Para 31: Power to review.– Any person aggrieved by any notification issued or order made under paragraphs 4, 5 and 6 of this Order, may apply to the Government for a review of the notification or order within a period of thirty days of the date of publication of the notification in the Official Gazette or the receipt of the order by him, as the case may be, and the Government may make such order on the application as it may deem proper..."

Para 4: Calculation of ceiling price of a scheduled formulation.– (1) The ceiling price of a scheduled formulation of specified strengths and dosages as specified under the first schedule shall be calculated as under: Step1. First the Average Price to Retailer of the scheduled formulation i.e. P(s) shall be calculated as below: Average Price to Retailer, P(s) = (Sum of prices to retailer of all the brands and generic versions of the medicine having market share more than or equal to one percent of the total market turnover on the basis of moving annual turnover of that medicine) / (Total number of such brands and generic versions of the medicine having market share more than or equal to one percent of total market turnover on the basis of moving annual turnover for that medicine.)

Step2. Thereafter, the ceiling price of the scheduled formulation i.e. P(c) shall be calculated as below: P(c) = P(s).(1+M/100), where P(s) = Average Price to Retailer for the same strength and dosage of the medicine as calculated in step1 above. M = % Margin to retailer and its value =16

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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