[Ip-health] Council on Hemisphic Affairs on Brazilian CL dispute

[Mike Palmedo]

http://www.harolddoan.com/modules.php?name=3DNews&file=3Darticle&sid=3D4812

Multinational Pharmaceutical Company Backs Down

July 28 2005
Council On Hemispheric Affairs
This analysis was prepared by COHA Research Associate Phil Morrow.

On June 24, Brazil issued an ultimatum to the Illinois-based
pharmaceutical corporation Abbott Laboratories that it must lower the
price it charged for the AIDS medication Kaletra, or the government
would move to break the patent and manufacture the drug generically in
its own laboratories. Abbott was given ten days to respond with a more
favorable price, and on July 9, media reports indicated that it had
reached an agreement with Brazil. In spite of the apparent compromise,
the wrangling over Kaletra is likely to produce reverberations in future
relations between Brazil and U.S. administrations, with the latter being
under increasing pressure by the U.S. Chamber of Commerce to assertively
and extraterritorially defend the intellectual property rights of
American industries.

Brazil, Leader in AIDS Treatment

Brazil=92s comprehensive AIDS treatment program, first introduced in 1996,
has been extolled as a model to be employed by developing countries
across the world in their fight against the disease. Dramatic
statistical evidence indicates that Brazil=92s efforts are worthy of the
praise: in 1995, there were 12.2 AIDS deaths per 100,000 people, whereas
in 2000, only 6.3 people per 100,000 were killed by the disease.
According to the United States Agency for International Development
(USAID), in 1998, Brazil had the second highest number of documented
AIDS cases in the world. In 1995, the World Bank projected that in
excess of 1.2 million people would be HIV positive by the year 2000. As
a result of its Herculean prevention efforts, only 600,000 Brazilians,
50 percent of the projected figure, are now living with AIDS or HIV.

The pillar of the program is the government=92s distribution of free
anti-retroviral drugs to 170,000 patients. In order to keep costs down,
Brazil manufactures generic AIDS drugs in its state-owned plant Farma
Manguinhos. However, Brazil cannot produce generic drugs at will; it is
constrained by its obligations to the World Trade Organization (WTO),
which it joined in 1997. As a member, it agreed to abide by patent laws
in effect for pharmaceuticals, limiting its copying operations to drugs
commercially distributed before 1997.

Patent Rights versus Prevention Efforts

Since the first AIDS medications were introduced, scientists have
continued their search for more effective treatments. For drug
companies, significant sums of money are expended on the research and
development (R&D) phase of a medication=92s proprietary life-span. Patents
provide a drug company with the exclusive right to control the release
of its product into the public domain for a predetermined time period.
The fact that a corporation holding a patent is insulated from
competition for a fixed period allows it to charge consumers a high
price for a particular medication, even though its associated
manufacturing costs are extremely low. Pharmaceutical companies justify
this large windfall on the grounds that they, as for-profit entities,
must recoup the money spent in R&D. The logical extension of this
argument is that if companies are not sufficiently assured that their
patents will be respected, they will not bother to develop new
medications as there will be no financial incentive to do so.

Conversely, AIDS activists and humanitarian organizations have
criticized pharmaceutical companies for their self-serving business
practices in countries where poverty and lack of development make
combating diseases like AIDS an exceedingly difficult task. In the late
1990s, respected NGOs such as M=E9decins Sans Fronti=E8res (Doctors without
Borders) and Oxfam publicly lambasted the pharmaceutical giants for the
prices they charged for AIDS medications in Africa. Similarly, Sezifredo
Paz of the Brazilian Consumer Protection Institute commented in Brazzil
magazine that =93intellectual property of medicines gets in the way of
public health and universal access to remedies, due to high prices.=94

Both sides of the debate on the breaking of pharmaceutical patents claim
that international trade law supports their position. In November of
2001, at the Doha Ministerial, the WTO issued a =93Declaration on the
TRIPS agreement and public health,=94 a move designed to assuage the
concerns of member countries who felt that intellectual property laws
were hampering their efforts to contain deadly diseases. As part of the
agreement, the WTO recognized that =93each member has the right to
determine what constitutes a national emergency=94 and asserted that
=93public health crises, including those relating to HIV/AIDS,
tuberculosis, malaria and other epidemics, can represent a national
emergency.=94 As such, =93each member has the right to grant compulsory
licenses and the freedom to determine the grounds upon which such
licenses are granted.=94

The Brazilian government believes that its AIDS problem is sufficiently
grave to constitute a national emergency in accordance with the
Declaration, providing it with reasonable grounds on which to break the
patent held by Abbott. Unsurprisingly, this is not the view held by
Abbott, American and European pharmaceutical companies, and other
professed defenders of intellectual property rights. Many observers
claim that the passage of the legislation, with its implication that the
patent would be broken and a license fee paid, was nothing more than a
negotiating tactic employed by Bras=EDlia to force Abbott=92s hand. Most
likely, there is more than a grain of truth to this explanation. Since
the Doha Declaration, no pharmaceutical patent has been broken. For the
majority of developing nations, a cost benefit analysis would reveal
that breaking a pharmaceutical patent is not worth the inevitable
punitive economic backlash from the United States and its private sector
allies.

Sultans of Spin: The Corporate Lobby and the Brazilian AIDS Problem by
Numbers

As personnel from Abbott Laboratories strategized behind closed doors,
their private-sector affiliates and the think tanks which they help fund
employed the OP/ED pages of the Wall Street Journal and Washington Times
to launch broadsides against the Brazilian government. Robert Goldberg,
Director of the Center for Medical Progress at the Manhattan Center, a
prominent rightwing think tank, discounted Brazil=92s argument that it
intends to break the patent to make medications affordable, because its
AIDS infection rate of 0.6 percent is roughly equivalent to that of the
United States at 0.5 percent. Similarly, Mary Anastasia O=92Grady, perhaps
the U.S.=92 most reactionary columnist today, writing in the Wall Street
Journal, posited that Brazil=92s breaking of the patent will have
disastrous effects on both its economic development and future R&D for
needed vaccines. She scathingly grouped Brazil=92s efforts to protect
intellectual property with those of traditional Washington pariahs Iran
and Cuba, as well as the recently disfavored Venezuela, in her latest
fulminations.

Goldberg and O=92Grady examine AIDS from a calculating, detached
perspective, much like the analysts that refer to civilian war
casualties as =93collateral damage.=94 Yet, even a cursory examination of
relevant economic statistics can quickly discount Goldberg=92s comparison
of Brazil to the United States. Brazil=92s GDP per capita for 2004 was
estimated to be $8,100 compared to the United States=92 $40,100 for the
same indicator. Moreover, according to USAID, Brazil=92s income
distribution =93continues to be among the world=92s worst.=94 In 2003, the
Economist reported that the poorest fifty percent of Brazil=92s population
accounted for only ten percent of the national income. Just as Brazil
lags far behind the United States in terms of economic clout and wealth
distribution, its infrastructure very much reflects the skewed condition
of a developing country. Fifty million of Brazil=92s 186 million
inhabitants live in the rural areas while millions more impoverished
citizens reside in urban favela shanty towns. With the exception of
agribusiness barons and their servitors, those who live in Brazil=92s
countryside are desperately poor and many are forced to survive on less
than $1 per day.

The Brazilian government, as part of its AIDS treatment programs, spends
$2500 per year per patient for drug cocktails, including a total of $107
million annually on Abbott=92s Kaletra. Taxpayers in Brazil, as in any
other country, are entitled to expect that the government act as a
responsible steward of public money. If the government could spend less
while maintaining the high quality of its AIDS programs, then it
behooves it to explore any such option. Specific details of the deal
reached between Abbott and the Brazilian government have not been
announced, but the annual amount that Brazil pays to Abbott will be
frozen for the next six years, allowing for $259 million to be saved.

Many of the hysterical ululations coming from the property rights lobby
accuse Brazil of =93drug patent theft=94 (copyright O=92Grady and the Wall
Street Journal). Yet, although Brazil does not seem poised to break
Abbott=92s patent, many would argue, as the New York Times did in a recent
editorial, that the South American nation was working within the rights
accorded to it as a member of the WTO. If Abbott genuinely believed that
Brazil was acting in violation of WTO rules, then it likely would not
have backed down over the perceived hijacking of its intellectual
property. Or, even if Abbott was aggrieved over Bras=EDlia=92s actions, the
company made a pragmatic decision to retreat from a direct confrontation.

It is in the above context that Abbott=92s decision to broker a deal with
the Brazilian government must be analyzed. In 2004, Abbott=92s net sales
were $19.6 billion =96 an amount far in excess of the GDP of many small
nations. On July 14, the Financial Times quoted Abbott as saying that
its =93Brazilian business was small compared to worldwide sales of
Kaletra=94 and that it =93continued to expect good growth for its Aids
treatments.=94 Therefore, it seems as though the revenue generated by
Kaletra in Brazil represents little more than a drop in the bucket for
Abbott. The company is performing well financially and globally; its net
income for the second quarter of 2005 was up 38 percent from the same
period last year.

The role of pharmaceutical companies in AIDS treatment programs is an
extremely sensitive topic. If Abbott had refused to compromise with the
Brazilian government, then it could have become embroiled in a
controversy that would have generated substantial negative publicity
that shareholders and executives would certainly wish to avoid.
Moreover, by appearing flexible in its dealings with Brazil, Abbott
feels that it has enhanced its reputation for =93global citizenship,=94 a
quality with which the company, as its website suggests, is keen to be
associated.