Price Control Exemptions for Newly Patented Drugs

Earlier in February, I had written about a petition filed by AIDAN challenging Paragraph 32 of the Drug (Prices Control) Order 2013 (DPCO) and the Drug (Prices Control) Amendment Order, 2019. Para. 32 of the DPCO creates a provision for the exemption of certain drugs from price control. One of the exemptions under Para. 32, brought in through the 2019 amendment, is for ‘new drugs’ patented under the Indian Patents Act, 1970. The latest provision, after the amendment, reads –

“32. Non-application of the provisions of this order in certain cases –

(i) a manufacturer producing a new drug patented under the Indian Patent Act, 1970, for a period of five years from the date of commencement of its commercial marketing by the manufacturer in the country”

Given that the 2019 amendment is still in its nascent stages, there have been several concerns regarding its application, particularly with regard to if the new provision for exemption is self-invocatory. Several pharma companies have come under the National Pharmaceutical Pricing Authority’s (NPPA) scanner for exempting themselves from price caps without the authority’s approval, after having been granted a patent for their drugs. These pharma companies which includes Lupin, Abbot Healthcare, Sun Pharma and Glenmark have filed different petitions in High Courts concerning the interpretation of the exemptions granted under Para. 32 and if the same is self-invocatory. In this post, I will first summarize the proceedings in the cases and then address the matter of self-invocation of the exemption.

Glenmark Pharmaceuticals Ltd v. Union of India[January 29, 2020]– Glenmark, in its petition filed in the Delhi High Court challenged the show cause notice and communication it received from NPPA holding Glenmark liable for failing to make an application for seeking exemption under Para. 32 of the DPCO. Presently, NPPA has submitted that it would grant an opportunity of hearing to Glenmark to determine if it is entitled to the benefit under Para. 32 of the DPCO and the Court has not given effect to the show cause notice issued by the NPPA.

Lupin Ltd v. Union of India [February 27, 2020] – Lupin filed a petition in the Delhi High Court raising a question in respect of the interpretation of Para. 32 of the DPCO. Lupin claimed that it had launched a fixed-dose combination (FDC) of Empagliflozin and Metformin Hydrochloride, a drug for diabetes, without seeking the prior permission of NPPA on the premise that the product was patented. NPPA argued that there was an obligation on Lupin to apply for an exemption under Para. 32(i) prior to launching the product itself and that Lupin could not have made a presumption that it was entitled to the exemption. The judge observed that the question to be addressed was whether in order to avail of an exemption under Para. 32(i), prior approval is needed or any manufacturer as defined under Para. 2(n) of the DPCO could launch a product merely after an intimation to the NPPA if the pharmaceutical product has been granted a product patent in India. For the same, the Court has directed NPPA to file its stand with respect to the interpretation and ordered that no coercive measures should be taken against Lupin with respect to the prices. It is also interesting to note here that the Court uses the term product patent in this case though the 2019 amendment to the DPCO removed the term ‘product patent’ from Para. 32(i). This, however, does not affect the outcome of the order.

Sun Pharma Laboratories Limited v. Union of India [March 03, 2020] – Sun Pharma filed a petition in the Gujarat High Court to contest show cause notices issued by NPPA regarding the price exemptions claimed by Sun Pharma under Para. 32(i) of the DPCO. The primary contention, in this case, was regarding the application of Para. 15(5) of the DPCO, which states – “Where existing manufacturer of scheduled formulation fails to apply for prior approval of the price of the new drug in Form-I, such manufacturer shall be liable to deposit the overcharged amount over and above such price fixed..”. Sun Pharma argued that the drug in question, Oxramet’s patent was granted to Bristol-Myers Squibb in 2009, who entered into an assignment deed with Astra Zeneca AB in India and Astra Zeneca, in turn, entered into an agreement with Sun Pharma for the distribution of such tablets. Sun Pharma successfully argued that it was only a distributor of the drug and Astra Zeneca was the manufacturer and hence Para. 15(5) would not be applicable to them and cannot be held liable. Accepting this, the Court granted interim relief in the case.

Abbot Healthcare Pvt. Ltd v. NPPA [June 18, 2020] – Most recently, Abbot filed a petition in the Delhi High Court seeking a declaration that Abbot’s drug formulation which was the subject matter of a show cause notice issued by NPPA for violating DPCO 2013 was exempt from the same per the application of Para. 32(i) of the Order. Abbot’s counsel argued that there is no necessity of a prior application for grant of exemption under Para. 32(i) of the DPCO as its wording shows that the same has an automatic application in case a new drug, patented under the Indian Patents Act, is made available commercially. NPPA’s counsel argued that there is no automatic application and for Para. 32(i) to be made applicable, an examination is required by NPPA to ascertain whether the drug in respect of which an exemption is claimed is a new drug or not. NPPA’s counsel sought time to file a counter-affidavit and this case has been listed with the abovementioned Lupin petition given that they concern the same matter.

Does the DPCO Allow Self-Invocation?

The proviso to Para. 32 of DPCO 2013 reads “provided that the provision of this paragraph shall apply only when a document showing approval of such new drugs from Drugs Controller General (India) is produced before the Government.” The “new drug” referred to in this paragraph has the same meaning as assigned under Rule 122E of the Drugs and Cosmetics Rules, 1945. A text-based reading of the 2019 Amendment along with the proviso requires that the Drugs Controller approve of any claim regarding a new drug. Given this approval requirement, a newly patented drug qualifies to be considered for the exemption, but it is not automatically granted the exemption. Given the proviso, it is quite a bit of a jump to claim that the exemption applies automatically.

An Alternative Reading?

The pharma companies claiming the exemption seem to read the same provision as the exemption being granted automatically upon the fulfillment of the relevant provisions under Para. 32 by the manufacturer, in these cases, the requirement is that of a patent being granted under the Indian Patents Act. The exemption granted under Para. 32 of the DPCO is much broader than what the previous price control orders have offered. Meeting the requirements under Para. 32, such as being a newly patented drug [32(i), a new drug created by a new process developed through indigenous R&D [32(ii)], a new drug involving a new delivery system developed through indigenous R&D  [32(iii)] or a drug for treating orphan diseases [32(iv)], can be understood to grant the exemption under an expansive reading. Further, the wording is also such that the required approval is concerning whether a particular drug is a ‘new drug’ and not an approval of the exemption as such. So once a formulation is classified as a ‘new drug’, it would fall within the purview of Para. 32 which exempts the application of the Order to those drugs.

Conclusion

The inconsistency in the language within the different clauses of Para. 32 and also with respect to Rule 122E, leaves open many questions with respect to how the exemption should be applied. Since NPPA has already accused these companies of bypassing regulations and the courts have sought guidelines from NPPA with respect to Para. 32’s interpretation, the alternative reading in favor of self-invocation may not gain much traction. Further, self-invocation by pharma companies also goes against the spirit of the DPCO which is to ensure that essential medicines are available at a reasonable price. The multiple petitions only highlight the rather poorly drafted amendment that does not seem to be cognizant of the interpretational challenges it creates.