New Delhi: Drug maker Cipla Ltd has received a government order asking it to pay a penalty of Rs748 crore for allegedly overcharging for five drugs and violating government rules setting prices for these. The demand is “not tenable” and contrary to the orders of the Supreme Court, Mumbai-based Cipla said in a regulatory filing with the Bombay Stock Exchange (BSE).
“The company has been asked to respond to the notice within 15 days from its receipt. We are preparing a reply to National Pharmaceutical Pricing Authority (NPPA, the government agency that regulates drug prices) asking for the technical ground of the notice at this point in time,” said Amar Lulla, managing director, Cipla. “Let the government respond to our query and we will act accordingly.”
Lulla added Cipla would respond to the order in two days. The government hasn’t set a deadline for the payment. The drugs for which the company is being accused of overcharging are antibiotics ciprofloxacin, norfloxacin, cloxacilin and two combination variants of these.
The order relates to a 2003 case when NPPA penalized Cipla and a few other drug makers for overcharging; the companies approached the Supreme Court that directed them to pay half the penalty and fight the case, which is still in progress.
NPPA chairman Ashok Kumar declined comment on the Cipla notice as “the matter was sub judice”. A senior official from the ministry of chemicals and fertilizers said drug makers owed over Rs1,000 crore to the pricing regulator in 397 cases since 1997 for what he called “overcharging customers”.
“The demand is bound to have a negative impact on the stock and may draw the company into a legal battle, a scenario that will not please investors,” said K.K. Mital, who helps manage stocks at Escorts Asset Management. “This does place a heavy demand on the company.”
Cipla shares fell Re0.35 or 0.2% to Rs232.25 on BSE.
While NPPA had earlier demanded Rs180.37 crore in penalties—half the Rs360.75 crore which was allegedly overcharged by Cipla—it has now demanded the entire amount along with interest aggregating to Rs748.27 crore, the company’s statement said.
The government is increasingly tightening reins on medicine prices since last year. It has suggested cost-based price control for 354 drugs, bringing any drug under NPPA’s scanner whose price increases by more than 10% in a year, and plans to introduce price negotiations on patented drugs.
Bloomberg contributed to this story.