US embassy cable - 05BRASILIA1507

UNCLAS SECTION 01 OF 03 BRASILIA 001507 
 
SIPDIS 
 
DEPT FOR WHA/BSC AND EB/TPP/IPE 
USTR FOR SCRONIN AND BPECK 
USDOC FOR 3134/USFCS/OIO/WH/EOLSON 
USDOC FOR 4332/ITA/MAC/WH/OLAC/MWARD 
NSC FOR KBREIER 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: KIPR, ETRD, ECON, IPR & Biotech 
SUBJECT:  AMBASSADOR MEETS WITH U.S. PHARMACEUTICAL FIRMS 
THREATENED WITH LICENSING 
 
REF: A) BRASILIA 804, B) RIO DE JANEIRO 744, C) BRASILIA 
 
1363 
 
1. (SBU) Summary.  On May 24 and 25, U.S. pharmaceutical 
companies Gilead Sciences, Abbott Laboratories, and Merck 
separately reported to Embassy on their negotiations with 
Brazil's Ministry of Health (MoH) over its demands that 
they acquiesce to licensing production of certain HIV/AIDS 
drugs (reftel A).  Gilead reps told Ambassador they 
believed pressure from the USG and from Brazilian economic 
ministries were forcing the MoH to moderate its posture; 
they also expressed guarded optimism that efforts to 
further inform the MoH regarding potential negative 
economic and public health costs associated with local 
production, particularly through compulsory licensing, 
would eventually convince the MoH to abandon its insistence 
on licensing.  Abbott reps were encouraged by the interest 
expressed by GoB ministries in the company's plans to 
invest in local production of its HIV/AIDS treatment drug, 
Kaletra.  Meanwhile, Merck appears to be banking on a plan 
to manufacture certain AIDS drugs locally, but have them 
packaged by a GOB lab.  Despite MoH demands, none of the 
companies have yet entered into voluntary license 
negotiations with the ministry.  All acknowledged that the 
issue is as much political as economic making the eventual 
outcome difficult to predict.  Possible movement in the 
Brazilian Chamber of Deputies on draft legislation that 
would make AIDS drugs and their production processes un- 
patentable would only further complicate an already 
complicated situation.  End Summary. 
 
Gilead Focuses on Pricing and Supply 
------------------------------------ 
 
2. (SBU) Gilead's International VP Joe Steele and his 
delegation met with Ambassador on May 24 following a new 
round of discussions with the Ministry of Health.  Gilead 
had presented a proposal to the MoH designed to address the 
two concerns the ministry had previously identified as 
underlying its interest in licensing local production of 
Gilead's Viread (tenofovir): i.e., reliability of supply 
and price.  While Gilead's proposal did not touch on 
voluntary licensing, it offered volume price reductions to 
achieve a MoH targeted per capsule price, and a company 
promise to maintain a 6-month rotating stockpile dedicated 
to MoH needs.  Reading body language, the Gilead reps 
thought MoH officials were impressed with the proposal, 
although it was not discussed in detail.  MoH officials 
noted their continuing interest in licensing, promising to 
provide Gilead with a written proposal on or before May 31. 
 
3. (SBU) Steele said the tone of the MoH meeting was 
improved compared to their last meeting April 27; he 
thought the new tenor indicated a realization by the 
ministry that licensing, whether voluntary or compulsory, 
is a complex matter with potential pitfalls, not least of 
which would be the cost and difficulty of getting 
government plants to make sufficient quantities of high 
quality drugs.  Steele thought that pressure from the USG 
and from Brazilian economic ministries was forcing the MoH 
to moderate its posture.  Gilead, he added, would continue 
to inform the supportive ministries, such as the Ministry 
of Development, Industry, and Trade (MDIC), Foreign 
Relations (Itamaraty), and Finance (Fazenda) on his 
company's efforts to address MoH concerns. 
 
4. (SBU) Upon receiving the MoH licensing proposal, Gilead 
hopes to be able to better formulate arguments for why its 
approach of providing a lower-priced, Gilead-manufactured 
product would be better for Brazil's HIV/AIDS treatment 
program than local production through licensing.  Steele 
expressed guarded optimism that if a precipitous decision 
could be avoided, over time the company could convince the 
MoH that licensing the production of Viread would not be in 
Brazil's best interests.  Ambassador committed to 
continuing Embassy support, but pointed out that the 
political sensitivity of the issue cast doubt on whether 
the MoH would back down on its licensing demands. 
 
5. (SBU) Drawing on its own swift transformation into one 
of the top biotech pharmaceutical companies, Steele said 
his firm would not be averse to working with the GoB to 
develop a plan for development of an R&D based 
pharmaceutical industry in Brazil.  He believes GoB 
officials incorrectly equate production of generics with 
development of a "pharmaceutical industry."  The latter, he 
emphasized, can only be built on a solid foundation for 
protecting intellectual property.  Steele noted that Brazil 
is well positioned to develop a pharmaceutical industry 
given existing technical talent, adding that India, based 
on this realization, has already embarked upon such a path. 
 
Abbott Highlights Investment Plans 
---------------------------------- 
 
6. (SBU) On May 25, Abbott's President in Brazil, Santiago 
Luque Suescun, met with Ambassador to review his company's 
situation.  Unlike Gilead, Abbott has had a long-standing 
presence in Brazil.  Abbott's Brazilian subsidiary was 
established in 1937 and currently employees 1,000 people. 
Abbott's response to the MoH licensing threats also differs 
in that it has chosen to focus on its plans to invest in 
Brazil for local production of the AIDS treatment drug 
Kaletra, rather than address pricing issues.  According to 
Suescun, Abbott had discussed its investment plan with the 
MoH a number of months ago and was surprised to receive the 
March 14 MoH letter demanding a voluntary license for 
Kaletra.  Abbott's response, supported by headquarters, has 
been to enhance the investment plan. 
 
7. (SBU) Under Abbott's proposal, the new Brazilian plant 
would manufacture finished product (the active ingredient 
formulation would take place in Italy) to supply not only 
the Brazilian market, but also the rest of Latin America 
and potentially Canada.  FDI is projected at USD 53.3 
million between 2007 and 2009, and Abbott estimates a 
positive trade impact of USD 247.5 million between 2007 and 
2011. 
 
8. (SBU) Abbott has been encouraged by the interest the MoH 
has stated in the project (Suescun noted that MoH 
Infectious Disease Director Jarbas Barbosa commented three 
times that it was a good project); Suescun will present the 
details of its investment plan to officials in MDIC and 
Finance ministries next week.  Post also suggested Suescun 
meet with MRE officials Antonio Simoes, in the minister's 
staff, and Otavio Brandelli, who has been involved in 
inter-ministerial discussions on the licensing issue. 
According to Suescun, MoH officials have not pressed Abbott 
to submit a pricing proposal nor have they provided them 
with a licensing proposal in writing.  Suescun offered his 
best guess that, in the end, the MoH will put together the 
concessions it has been able to extract from each of the 
three target companies -- investment in local production 
from Abbott, substantially lower pricing from Gilead, and 
probably some form of local production from Merck - as a 
package to present to the public. 
 
Merck - Some Form of Local Production Possible 
--------------------------------------------- - 
 
9. (SBU) Finally, on May 25 the third company faced with 
the prospect of licensing  - Merck - contacted post by 
telephone to outline its strategy for countering the GOB 
threat.  Joao Sanches, Merck's Sao Paulo-based Corporate 
Communication Director, told us that his firm hopes to drum 
up support among the economic ministries for a proposal to 
have Merck manufacture certain AIDs drugs locally but have 
them packaged by a GOB-owned lab.  Only after promoting 
this proposal with the economic ministries would Merck 
officially broach the issue with the MOH. 
 
Comment 
------- 
 
10. (SBU) On the positive side, the MoH is submitting to an 
inter-ministerial discussion with MDIC, Finance and MRE, 
ministries that are not supportive of its stance.  It is 
our understanding that once negotiations with the companies 
are "complete," the discussion will move to the ministerial 
level where arguments in favor of broader, longer-term 
economic interests may be brought to bear.  We continue to 
believe that to resonate with the GoB, the arguments will 
need to provide a sound analysis as to why compulsory 
licensing would be damaging to Brazil's economic and public 
health interests.  Concomitantly, the companies will also 
have to demonstrate that they plan to make good-faith 
efforts to address the supply/pricing needs of Brazil's 
HIV/AIDS treatment program. 
 
11. (SBU) However, the decision will ultimately be made by 
President Lula within a rather harsh political environment. 
Dozens of NGOs have denounced the GoB for delaying in 
breaking the patents, delivering a mock "spine" to the 
Brazilian Embassy in Washington in protest on May 13. 
Pedro Chequer, head of Brazil's Sexually Transmitted 
Diseases and AIDS Program in the MoH, was reportedly in the 
Brazilian Chamber of Deputies the week of May 23 
encouraging lawmakers to pass legislation that would make 
AIDS drugs and their production process un-patentable under 
Brazilian industrial property law.  (On June 1, the 
Chamber's committee for constitutional and justice affairs 
approved the bill; the likely next stop for this measure 
will be the Brazilian Senate, where it will need to pass 
through the full range of committees and the Senate 
plenary.)  Embassy will continue to monitor the GoB 
deliberations as well as to provide input through 
appropriate GoB interlocutors. 
 
DANILOVICH