To Regulate or Not To Regulate DPCO 2013 and The Modi-Mundi Pharma Case

Drug price control has been a source of considerable agony to the pharmaceutical industry. Price caps on drugs, though flowing from a larger public interest perspective, has the power to throttle growth of the industry and limit availability of new life saving-drugs to the public at large. It is much to the chagrin of the major players and their business models. The Government has of course adopted the public comes first policy, which has also seen considerable support by the courts. Right or wrong depends on which side of the street one is on.

Price control as a measure has met with its fair share of challenges and is, as a policy issue, here to stay. Interpretation of price control regulations (DPCO) on the other hand is still a topic for many a contentious litigation before courts. The most recent one is a case where the Hon’ble Delhi High Court on July 17, 2018, passed a judgment in the case of Modi-MundiPharma Pvt. Ltd. v Union of India & Ors[1]. Here, the court opined that drugs developed through incremental innovation or a novel drug delivery system could only be included under the National List of Essential Medicines 2015 (NLEM) for the purpose of fixing the ceiling price, procurement etc. if they were explicitly listed. In other words, the court clarified on what kind of drugs are included.

To provide some background, the Essential Commodities Act, 1955 (EC Act) is a central legislation to regulate the prices of essential commodities such as grains, foodstuffs or drugs sold to consumers. In exercise of its powers under Section 3 of the EC Act and as per the National Pharmaceuticals Pricing Policy-2012 (NPPP 2012), the Central Government has enacted the Drugs (Prices Control) Order, 2013 (DPCO 2013), which lays down the manner for regulating ceiling prices of scheduled drugs.

In pursuance of this, the NLEM is a list of all the medicines declared by the Government to be essential medicines and is appended as Schedule I to the DPCO 2013. All medicines which are listed under the NLEM are called “scheduled formulations” and non-listed ones are accordingly called “non-scheduled” formulations. A Committee of experts constituted by the Director-General Health Services (DGHS) prepares the NLEM as a tool to achieve low cost and high quality healthcare and accordingly, medicines deemed to be ‘essential’ are to be made available to consumers at fair prices. We give below an overview of the DPCO mechanism as it exists today.

The Petitioner, a pharmaceutical company approached the Delhi High Court against the order passed by the National Pharmaceutical Pricing Authority (NPPA) in relation to fixation of the ceiling price of the formulation “Tramadol 100mg CR 10” ( Tramadol CR 10).

The Petitioners contended that Tramadol CR 10 was only listed in the NLEM 2015 in the Capsule and Injection forms whereas their formulation uses a Continuous Controlled Release Dual Mechanism Drug Delivery System (CR-Technology), which was not specifically included in the NLEM-2015 and, thus, not a ‘scheduled formulation’ within the meaning of the DPCO-2013.

Formulations are defined under the DPCO 2013 as follows:

  1. Scheduled formulationmeans any formulation, included in the First Schedule whether referred to by generic versions or brand name.
  2. Non-scheduled formulation” means a formulation, the dosage and strengths of which are not specified in the First Schedule.

The Petitioner relied on Explanation (2) the NLEM 2015 in support of its claim to state that innovations such as sustained release/control release are included in the Scheduled Formulation, only if specifically included in the NLEM.

The Respondents on the other hand contended that merely because the dosage form was not included, the formulation itself would not be outside the ambit of the price ceiling by the NPPA. The entire thrust of the argument put forth by the Respondents was that if a manufacturer tweaks or modifies its product in terms of either composition or mode of administration, it would not result in the medicine’s exclusion from the purview of price control regime under the DPCO.

Explanations (1) and (2) to the NLEM 2015[2] are at the core of the present controversy. The essence of Explanation (1) is that in case of every drug that is included in the NLEM, a dosage form is listed alongside. In the case of any other dosage form of the same medicine (i.e. tablet, capsule, sachet etc), assuming it is the same strength of the medicine and route of administration (i.e orally, intravenously etc.) without significant difference in terms of pharmacokinetics or pharmacodynamics or efficacy-safety from the listed medicine, then such drug shall be deemed to be included in the list of scheduled formulations under DPCO.

As an extension of this, Explanation 2 provides that formulations developed through incremental innovation (an additional innovation over an existing quality) or novel drug delivery systems (continuous/ sustained release) cannot be included unless specifically mentioned in the list alongside the medicine. Inclusion has to be specific to the product, its dosage, form of use and special characteristics that differentiate it from others.

The Hon’ble Delhi High Court looked at the Report of the ‘Core Committee for Revision of National List of Essential Medicines 2015’ in order to ascertain the intent behind both the explanations. It concluded that if there is an improved formulation, developed through incremental innovation involving technology, to overcome certain disadvantages associated with the use of conventional formulations, the same would not be read as part of the NLEM 2015 unless specifically mentioned.

In view of this, the petition was allowed and Tramadol CR10 was removed from the purview of the impugned notification ceiling its price. Whether or not the government appeals against this judgement, is something that time will tell although given the governments aggressive stand in dealing with cases where its powers to regulate the industry are challenged, it may not be surprising to see an appeal on this issue.

It must be noted here that, even though a drug might not be part of the NLEM, it would still be subject to the monitoring of prices, because an increase of Maximum Retail Price (“MRP”) cannot be more than 10 percent in a year by virtue of Paragraph 20 of the DPCO 2013. This gives power to the NPPA to monitor prices of non-scheduled formulations.

 This judgement is a welcome move for the pharmaceutical industry as it encourages innovation, research and development for the sector pertaining to incremental innovation or novel drug delivery systems, especially in light of the strict regulatory framework that defines the pharmaceutical sector in India.

The Hon’ble Delhi High Court has adequately clarified the Explanations to the NLEM 2015, inserted in the NLEM via amendment in 2016. It is to be noted that the Hon’ble High Court has also followed a consistent approach in interpreting the aforesaid provisions as seen from the Indoco Remedies case, which was decided soon after wherein the question of what constitutes this significant difference between formulations, came up before the Delhi High Court in Indoco Remedies vs. Union of India[3]. Here the Petitioner was using a formulation, which had a diluted strength of Cetrizine in its syrup than the 5mg/ml strength of Cetrizine listed in the NLEM. The Court observed that mere quantitative differences would be insufficient to establish any material difference from the scheduled formulation and differentiated it from the Modi Mundi Pharma case. The court also stated that:

“It is impossible to accept that legislative intent was to exclude formulations from Schedule I merely on the basis of dilution or concentration in the strength of the medicines as specified.”

[1] W.P. (C) 11802/2016

[2] “(1) Any dosage form of a medicine, other than the dosage form included in this Schedule, but in same strength and route of administration, which does not have significant difference in terms of pharmacokinetics or pharmacodynamics or efficacy-safety profile over the dosage form mentioned in the list shall be considered as included. To elaborate, if a tablet is included, other dosage forms like conventional tablets and capsules are considered as included. However, such different dosage forms should be considered differently for purposes such as procurement policy, pricing, etc. This principle also applies to all other dosage forms e.g. oral liquid dosage forms, injectables, topical dosage forms, etc.

 (2) Innovation in medicine must be encouraged. 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. Such different formulations should be considered differently for purposes such as procurement policy, pricing, etc.”

[3] W.P. (C) 7597/2018