US embassy cable - 05BRASILIA804

UNCLAS SECTION 01 OF 02 BRASILIA 000804 
 
SIPDIS 
 
SENSITIVE 
 
DEPT FOR WHA/BSC AND EB/TPP/IPE 
STATE PASS TO USTR FOR SCRONIN AND BPECK 
STATE PASS TO USPTO/OLIA 
USDOC FOR 4332/ITA/MAC/WH/OLAC/JANDERSEN/ADRSICOLL/MWAR D 
USDOC FOR 3134/ITA/USCS/OIO/WH/RD/DDEVITO/DANDERSON/EOS LON 
USDOC PASS TO NIST/CARPENTER 
NSC FOR KBREIER 
 
E.O. 12958: N/A 
TAGS: KIPR, ETRD, BR, Trade 
SUBJECT: BRAZIL THREATENS COMPULSORY LICENSING OF AIDS 
PHARMACEUTICALS, AGAIN 
 
REF: 04 Brasilia 1412 
 
1. (U) SENSITIVE BUT UNCLASIFIED 
 
2. (U) Summary. Faced with rising expenditures and supply 
shortfalls, on March 14, Brazil's Health Minister Costa 
sent letters to major multinational pharmaceutical 
companies that supply key drugs for the GoB's program to 
treat HIV/AIDS asking that they agree to voluntary licenses 
for local production.  The companies must respond by April 
4, and have been threatened with the prospect of compulsory 
licensing should they refuse to negotiate voluntary 
licenses.  The seriousness of this latest GoB threat is 
unclear as is Costa's longevity as Health Minister.  End 
Summary. 
 
3. (U) On March 14, Brazil's Minister of Health, Humberto 
Costa, sent letters to manufacturers of several key 
HIV/AIDS anti-retroviral drugs requesting they grant 
voluntary licenses for local production.  According to news 
reports, Costa sent letters to Abbott (lopinavir and 
ritonavir), Merck, Sharp & Dohme (efavirenz), and Gilead 
Science Inc. (tenofovir). According to Gabriel Tannus, 
Executive President of Interfarma, the local association of 
multinational research based pharmaceutical companies, 
Roche also expected to receive a letter. 
 
4. (SBU) In Costa's letter to Gilead, which the company 
shared with post, he couched the request for voluntary 
licensing of tenofovir (marketed as Viread) in terms of the 
need to guarantee the sustainability of Brazil's HIV/AIDS 
program given expanding patient loads and costs.  The 
letter states that if hypothetically there is a 
"satisfactory conclusion to the negotiations for the 
concession of the voluntary license, the Ministry of Health 
will be prepared to offer payment of royalties on the net 
price of the generic medicine."   While the tone of the 
letter was measured, in subsequent statements to the press, 
Costa threatened to compulsory license the HIV/AIDS drugs 
produced by these companies should they refuse to grant 
voluntary licenses.  The companies were given 21 days, 
i.e., until April 4, in which to reply to the ultimatum. 
 
BACKDROP 
 
5. (U) Brazil's well-respected HIV/AIDS program is 
straining to make good on its goal of universal access to 
free HIV/AIDS medicine.  The Ministry of Health (MoH) 
estimates that this year the number of patients it treats 
will rise from 150,000 to 180,000.  Government expenditures 
for medicines are expected to climb from 550 million reais 
(app. USD 204 million) to 900 million reais (app. USD 333 
million), increasing by more than 60 percent.  Imported 
anti-retrovirals reportedly account for 80 percent of the 
Ministry's total estimated expenditures for HIV/AIDS 
medicines, with the drugs from Abbott, Merck and Gilead 
targeted by the MoH accounting for 67 percent of the 
imports, at a cost of around 473 million reais (app. USD 
175 million). 
 
6. (U) Over the last several years, the GoB has 
successfully used threats of compulsory licensing to 
pressure multinational pharmaceutical companies to reduce 
prices for anti-retroviral drugs.  Despite declining per 
unit prices for a number of the drugs, in November 2004, 
the coordinator of Brazil's Sexually Transmitted Diseases 
and AIDS Program within the MoH, Pedro Chequer, announced 
the GoB's intention to break HIV/AIDS patents in 2005, 
claiming the GoB had to move into production or face 
collapse of Brazil's system of free distribution of 
HIV/AIDS drugs. 
 
REAL THREAT OR MORE POSTURING? 
7. (SBU) However, in a March 17 meeting with Econoff, DSCO, 
and CS analyst, Tannus argued that the GoB's main aim is 
still to secure price reductions for the purchase of 
patented drugs.  According to Tannus, Brazil's government- 
owned labs remain incapable of producing these drugs, at 
least to an acceptable quality standard.   Even if the labs 
were capable of production, he noted the difficulties the 
GoB would have in pursuing either type of licensing 
arrangement.  To arrive at an agreement for a voluntary 
license, Tannus explained the GoB would be forced to accept 
exacting demands by the pharmaceutical companies in terms 
of input quality and process, since the companies remain 
jointly liable for the quality of the end product.  He 
noted that voluntary license negotiations between the GoB 
and Merck have been on-going for over one year.  Tannus 
claimed the process for securing a compulsory license would 
also be lengthy (10-12 steps) and complex, and would pose 
potential risks for Brazil in terms of its ability to 
secure an adequate supply of quality drugs for its short- 
to medium-term needs. 
 
8. (SBU) As recently as January, the GoB faced a critical 
shortage of HIV/AIDS drugs.  According to Tannus, the GoB 
found itself unable to restock by purchasing low cost 
generics from India and Argentina due to quality problems. 
Desperate, the GOB even sought for the temporary loan of 
certain HIV medicines from the Governments of Mexico and 
Argentina.  In the end, the multinational pharmaceutical 
companies agreed to provide an emergency supply at prices 
used in their previous contracts, rather than charging a 
premium.  It is now time for new price/contract 
negotiations.  While typically the GoB has negotiated 1- 
year contracts, they are now seeking 6-month contracts. 
Some pharmaceutical companies have speculated that the GoB 
still hopes it can establish a substitute supply of generic 
drugs from India, negating the need for longer-term 
contracts with the multinationals. 
 
9. (U) Costa's motivation for pressing on voluntary 
licensing is unclear. Although Costa survived the Vampire 
blood scandal in 2004 (reftel), his ministry's purchasing 
department is reportedly paralyzed due to fear of another 
investigation of purchasing practices.  This has left many 
hospitals without supplies ranging from cotton swabs to 
large equipment purchases.  Despite a recent strong 
performance in intervening to deal with problems in Rio de 
Janeiro's hospitals, it was rumored that Costa might lose 
his position as Health Minister in a ministerial shake-up 
expected this week to make room for other parties, but that 
President Lula now appears to have postponed.  Costa may 
have used the licensing threat to better position himself 
politically in anticipation of his exit from the GoB; where 
this threat now leads will likely depend on whether he 
retains his position as Minister of Health. 
 
10. (U) Post will closely monitor developments.  Abbott and 
Merck have not contacted Mission regarding Costa's letter; 
Joe Steele, Vice President - International for Gilead will 
meet with the Ambassador in Brasilia on March 30. 
 
DANILOVICH