[Ip-health] IP-Watch: Brazil Takes Steps To Import Cheaper AIDS Drug Under Trade Law

[Thiru Balasubramaniam]

http://ip-watch.org/weblog/wp-trackback.php?p=3D614

7 May 2007

Brazil Takes Steps To Import Cheaper AIDS Drug Under Trade Law


By Tove Iren S. Gerhardsen

The government of Brazil has issued a license that will allow the
importation of cheaper versions of a patented HIV/AIDS drug after
negotiations failed to bring about agreement on price reductions with
Merck, the US company holding the patent. Merck said it was =93profoundly
disappointed,=94 as Brazil=92s action sparked a flurry of positive and
negative reactions.

This is the first compulsory license issued in Brazil after several
threats to do so since 2001 resulted in lower prices for other drugs,
sources said.

In 2001, a World Trade Organization (WTO) ministerial declaration on
public health and trade law - called the Doha Declaration on the TRIPS
Agreement and Public Health - reinforced countries=92 liberties to decide
when public health concerns come before intellectual property rights.

A compulsory license is legal under the WTO Agreement on Trade-Related
Aspects of Intellectual Property Rights (TRIPS) if, =93prior to such use,
the proposed user has made efforts to obtain authorisation from the
right holder on reasonable commercial terms and conditions and such
efforts have not been successful within a reasonable period of time,=94
according to Article 31. But the same article of TRIPS also states that
this requirement may be waived in cases of =93national emergency or other
circumstances of extreme urgency or in cases of public non-commercial
use.=94

The Doha Declaration Article 5(b) states that: =93Each member has the
right to grant compulsory licenses and the freedom to determine the
grounds upon which such licenses are granted.=94

The product in question is the HIV/AIDS drug, efavirenz (Stocrin),
marketed by Merck, and currently used by 38 percent of AIDS patients in
Brazil as part of their treatment, the Brazilian Health Ministry said
in a statement.

A Brazilian health official told Intellectual Property Watch that
Brazil has three steps in its patent law, which incorporates the TRIPS
agreement, that have to be adhered to before a compulsory license is
issued.

First, it had to declare in a decree that the product in question was
of public interest, which the Brazilian government did in Decree No.
886 on 25 April. Secondly, the government was required to start
negotiations with the company, in this case Merck, =93to push down the
price,=94 he said. And thirdly, the government would have to issue
another decree if the price negotiations failed and it wanted to issue
a compulsory license.

In this case, after the decree was issued and during the price
discussions, =93the laboratory offered a discount of 30 percent on the
current price of US$1.59 per tablet paid by the federal government,=94
the health ministry. =93This proposal was considered to be
unsatisfactory, since Brazil would be able to obtain the product
elsewhere for US$0.45.=94

Chilling Signal to Researchers or Heroic Action to Save Lives?

There appears to be a general agreement that Brazil is adhering to
international trade law in what it has done. Brazil received broad
praise among health advocates for its action. But it has not been
spared sharp reactions from the research-based pharmaceutical industry,
which sees Brazil=92s choice to use the trade provisions as a threat to
its business model.

=93This expropriation of intellectual property sends a chilling signal to
research-based companies about the attractiveness of undertaking risky
research on diseases that affect the developing world, potentially
hurting patients who may require new and innovative life-saving
therapies,=94 Merck said in a statement. =93As the world=92s 12th largest
economy, Brazil has a greater capacity to pay for HIV medicines than
countries that are poorer or harder hit by the disease.=94

But Peter Drahos, professor at Australian National University, said on
the ip-health listserv that, =93Brazil=92s action will not =91break=92 Merc=
k=92s
Brazilian patent. The patent has not been revoked by the Brazilian
government. The patent continues to operate and Merck remains its
owner. Merck will receive royalties based on its use.=94

The company said it remains open to negotiation. =93Merck has attempted
to negotiate in good faith with the government of Brazil, but a fair
offer on Stocrin has been rejected,=94 it said. =93While we remain flexible
and committed to exploring a mutually acceptable agreement with the
Brazilian government to help the country achieve its objective of
universal access to treatment, we believe their action is not in the
best interests of patients in Brazil and around the world.=94

Some sources have suggested that while industry appears to be
responding to larger developing country markets such as Brazil or
Thailand, the forcefulness of their response may have a discouraging
effect on smaller economies considering similar public health actions
but lack the legal or political resources to defend themselves on the
global stage.

The Geneva-based International Federation of Pharmaceutical
Manufacturers and Associations echoed Merck=92s view: =93Although permitted
under specific conditions by the WTO TRIPS agreement, compulsory
licensing is not a solution to improve access to medicines. Improved
access can only be assured by adequate financing and collaboration with
the innovative companies that develop new therapies,=94 it said.
=93Compulsory licensing is a confrontational approach, and may be aimed
to benefit local government-owned companies=92 commercial interests.=94

Daniel Christman, senior vice president for international affairs at
the US Chamber of Commerce, warned that the decision could divert
investment from Brazil. =93Brazil is working to attract investment in
innovative industries that rely on IP, and this move will likely cause
investments to go elsewhere,=94 he said. Christman also noted that the
action followed just days after the Office of the US Trade
Representative upgraded Brazil in USTR=92s annual Special 301 report on
trading partners protection of US intellectual property rights. The
upgrade was related to Brazil=92s efforts against piracy and
counterfeiting.

Others welcomed Brazil=92s decision to go beyond the threats to actually
issue a compulsory license. =93Brazil achieved lower prices in the past
using the threat of CL. However, there has certainly been an erosion of
the power of the threats since none of them actually led to a CL. In
addition, the prices offered by the companies were clearly not the
lowest possible - as the last offer made by Merck in Thailand after the
CL was issued has shown,=94 Ga=EBlle Krikorian, Researcher at CRESP
(Research Center on Health, Social and Political Issues), a research
unit in association with the University of Paris, told Intellectual
Property Watch.

Thailand offered three compulsory licenses in late 2006 and early 2007
for two HIV/AIDS drugs (including efavirenz) and a heart disease drug
(IPW, Public Health, 12 March 2007). Among other countries that have
issued CLs for pharmaceuticals are Canada, Indonesia, Italy, Malaysia
and Mozambique, the Brazilian Health Ministry said.

On why Brazil has not issued a CL before, Krikorian said, =93The most
obvious reason is the fear of an open conflict with the United States.
The Thai case, and the recent 301 list report (IPW, US Policy, 30 April
2007), indeed shows that despite the Doha Declaration and all the
commitments made, the US is ready to be extremely aggressive with
countries with producing capacity that use CL for medicines.=94

Others highlighted Brazil=92s role in bringing down prices of HIV/AIDS
drugs over the past years. Thiru Balasubramaniam from Knowledge Ecology
International (KEI) said Brazil=92s AIDS programme had contributed
significantly to the, =93remarkable price drop from $10,000 to around
$130 for the cost of antiretroviral (HIV/AIDS drugs) combination
therapy over the last seven years.=94

Ellen t =91Hoen of M=E9decins Sans Fronti=E8res told Intellectual Property
Watch that this should be a lesson for other developing countries that
one actually gets lower prices by issuing a compulsory license instead
of only threatening to issue one, and said this was also reflected by
the Thailand case.

She said Brazil had achieved a price for efavirenz of $580 per patient
per year earlier when it had threatened to use compulsory license. But
this was too expensive compared with the price for generics (Thailand
was offered $244 per patient per year after it issued a CL), and thus
Brazil has paid too much for too many years, she said. Both Brazil and
Thailand have programmes for universal access to HIV/AIDS drugs.

=93With Brazil and Thailand expanding the market for generic versions of
efavirenz, greater economies of scale should push prices down further,
eventually to less than $.24 per day,=94 KEI director James Love said.

The Brazilian Health Ministry said the license =93enables the ministry of
health to import generic versions of efavirenz from laboratories that
are pre-qualified by the World Health Organization,=94 adding that three
Indian generic companies meet this requirement at the moment.

Tove Gerhardsen may be reached at tgerhardsen@ip-watch.ch.

---------------------------------
Thiru Balasubramaniam
Geneva Representative
Knowledge Ecology International (KEI)
voice +41.22.791.6727
fax +41.22.723.2988
mobile +41 76 508 0997
thiru@keionline.org