US embassy cable - 05BRASILIA1716

UNCLAS SECTION 01 OF 07 BRASILIA 001716 
 
SIPDIS 
 
SENSITIVE 
 
DEPT FOR WHA/BSC, WHA/EPSC, AND EB/TPP/IPE 
USAID FOR LAC/SAM 
DEPT PLEASE PASS TO USTR FOR SCRONIN, LEYANG, AND BPECK 
USDOC FOR 4332/ITA/MAC/WH/OLAC/JANDERSEN/ADRISCOLL/MWAR D 
USDOC FOR 3134/ITA/USCS/OIO/WH/RD/DDEVITO/DANDERSON/EOL SON 
NSC FOR KBREIER 
 
E.O. 12958: N/A 
TAGS: KIPR, ETRD, IPR & Biotech 
SUBJECT: BRAZIL GIVES ABBOTT TEN DAYS BEFORE BREAKING PATENT 
 
REF: BRASILIA 1507 (NOTAL) 
 
1. SENSITIVE BUT UNCLASSIFIED 
 
2. (U) Summary.  On Friday June 24, the GoB announced a 
declaration of "public interest" for Abbott Laboratories AIDS 
treatment drug "Kaletra," providing the legal basis for 
issuing a compulsory license.  The Ministry of Health (MoH) 
provided Abbott with 10 days in which to demonstrate that it 
would lower its price for Kaletra in order to avoid a 
compulsory license.  The declaration also noted that 
negotiations with Gilead Science, and Merck, Sharp & Dohme 
were continuing.  End Summary. 
 
3. (U) Last week the GoB put into motion a process that will 
enable it to compulsory license Kaletra, Abbott Laboratories' 
combination Lopinavir/Ritonavir drug for treating AIDS.  On 
Friday June 24, President Lula and Health Minister Humberto 
Costa announced a declaration of "public interest" for 
Kaletra, providing the legal basis for issuing a compulsory 
license (see para 12 for the text of declaration).  The MoH 
provided Abbott with 10 days in which to demonstrate that it 
would "meet the public interest," i.e. lower its price for 
Kaletra in order to avoid a compulsory license.  (Only on 
Monday, June 27, did Abbott receive a letter officially 
notifying it of the GOB's move.) The MoH claims that national 
lab Farmaguinhos would be able to produce Kaletra within a 
year for a unit price of $0.68 compared to a current unit 
price from Abbott of $1.17; the GoB expects Abbott to 
continue to supply Kaletra while Farmaguinhos gears up for 
production. 
 
4. (U) As previously reported, in March, the Ministry of 
Health sent letters to three U.S. pharmaceutical companies ) 
Abbott, Gilead Science, Merck ) threatening compulsory 
licensing if they refused to negotiate voluntary licenses for 
local production of their anti-AIDS drugs (reftel).  In 
justifying its actions, the MoH has argued that it must 
reduce costs given an expanding patient load in Brazil's 
national, free access, HIV/AIDS treatment program, noting 
that the three drugs produced by these companies account for 
roughly 66 percent of the GoB's budget for anti-retrovirals. 
All three companies have been negotiating with the MoH over 
the past several months, but with different approaches. 
 
5. (SBU) Friday's declaration stated that negotiations with 
Gilead and Merck are still continuing and singled out Abbott 
as the only one to have refused negotiations on both 
voluntary licensing and price.  The main thrust of Abbott's 
strategy to date has been to highlight its plans for a $53 
million investment for local production, although in 
conversations with Emboffs Abbott reps did note that several 
months ago they had offered the GOB price reductions of 11 to 
12 percent in their yearly negotiations.  Gilead prepared a 
proposal addressing reliability of supply and price issues; 
we do not have details of the last Merck proposal. 
 
6. (SBU) Post has been in contact with the companies since 
the declaration; all are still evaluating the latest GoB 
action and considering next steps.  However, we understand 
that Merck is contemplating taking a hard-line; refusing to 
cooperate with the GoB should it move to break any company's 
patent, not just Merck's.  Merck's local rep has a meeting 
scheduled with Vice-Minister of Health Barbosa on Wednesday, 
June 29 and we will seek to find out how that session goes. 
 
7.  (U) According to Brazil's legislation and regulations, a 
compulsory license may be issued for reasons of national 
emergency or public interest; if invoked for reasons of 
public interest, use of the compulsory license is restricted 
to "non-commercial use" (see para 13 for an unofficial 
translation of Decree 3,201/1999, as revised by Decree 
4,830/2003). 
 
8.  (SBU) There are several interesting points regarding the 
MoH's June 24 declaration, first among them, Brazil's 
decision to use "public interest" instead of national 
emergency as the basis for a potential compulsory license. 
Over the past several weeks, the pharmaceutical industry and 
intellectual property rights interest groups have criticized 
Brazil over its compulsory licensing threat arguing the 
absence of a national emergency given Brazil's low 0.6 
percent incidence rate for AIDS and its status as an advanced 
developing country.  By using a "public interest" argument, 
the GoB avoids having to refute such criticism.  According to 
Brazilian regulation, using this basis also limits production 
to non-commercial use.  The declaration also states 
explicitly that production would be to supply the domestic 
market only, not for export. 
 
9.  (SBU) Comment:  Given the formulation of the MoH 
declaration, it appears as if the GoB is being careful to 
construct a path toward compulsory licensing that it believes 
is within the bounds of the TRIPS Agreement.  However, we 
anticipate that Abbott would argue that the royalty payment 
offered by the GoB under a compulsory license would be 
inadequate; according to press reports, the GoB plans to 
offer a royalty of 3 percent based on the GoB's cost of 
production. 
 
10.  (U) Furthermore, the GoB's bottom line ) i.e., 
compulsory licensing no matter what or whether adequate 
reductions in price would stave off this threat ) is still 
unclear.  Press reports over the weekend quote Costa as 
saying that the GoB is not interested in breaking patents, 
but in guaranteeing supply of medicines for the national 
treatment program. On the other hand, he is also quoted as 
saying that the decision to compulsory license has been made, 
and that the June 24 declaration was a "mere formality." 
Meanwhile, according to the local press, Costa ) who after 
the June 24 declaration headed off to Geneva for a UNAIDS 
meeting ) has been recalled to Brasilia by President Lula. 
Speculation is that Lula will announce a ministerial reform, 
which will involve Costa departing the Ministry (for reasons 
unrelated to AIDs patents) ) to prepare for an expected run 
for Governor of Pernambuco state. 
 
11.  (SBU) Post is attempting to contact GoB interlocutors 
who may be able to shed light on the current thinking within 
the government, a task complicated by an impending cabinet 
shuffle; we suspect that the economic ministries may not have 
had been involved the decision to issue the declaration.  We 
hope to gain insight into GoB intentions toward Gilead and 
Merck; our understanding is that these companies have not 
been contacted recently by the MoH and given the Abbott 
declaration are grappling with what should be their next 
move. Post will report additional information as it becomes 
available and requests relevant guidance from Washington 
agencies. 
 
12.  (U) June 24 Declaration of Public Interest (English 
version as given on the MoH website, with divergence from 
Portuguese version noted): 
"The Ministry of Health of Brazil has declared the 
anti-retroviral drug Kaletra (Lopinavir/ritonavir), 
manufactured by Abbott Laboratories, to be of public 
interest. (The Portuguese version of the previous sentence 
states specifically that "The President of the Republic, Luiz 
Inacio Lula da Silva, and the Ministry of Health, Humberto 
Costa" made the declaration.)  As such, the Brazilian 
government will adopt obligatory licensing of the medication, 
in the case that the manufacturer does not provide the 
necessary requirements to guarantee the sustainability of the 
National STD/AIDS Program. 
An official notice sent this Friday to the Laboratory opens 
the door for the company to express its opinion on whether it 
will address this situation in the public's interest. 
The Laboratory will have 10 days from receipt of this notice 
to inform the Brazilian Ministry of Health that it is 
prepared to reduce the sales price of Kaletra to national 
production levels.  (The Portuguese version of the previous 
sentence states the company has 10 days to inform the 
Ministry of Health is it is disposed to respond to the public 
interest ) it does not explicitly refer to a reduction in 
the Kaletra sales price to national production levels.)  Its 
agreement will prevent the adoption of obligatory licensing. 
With the licensing, the government will be able to allow 
Farmanguinhos Laboratory, from Fiocruz (Oswaldo Cruz 
Foundation), to produce the medicine for exclusive public, 
and not commercial, use.  This measure is necessary to 
maintain the sustainability and the quality of the National 
STD/AIDS Program, which is responsible for guaranteeing life 
for close to 170,000 Brazilians this year. 
With the declaration of public interest, the Brazilian 
government is applying the flexibility laid out in 
international norms and Brazilian legislation, without 
breaking a contract.  (The previous sentence in the 
Portuguese version is as follows: The declaration of public 
interest will be instituted by means of a "Portaria 
Ministerial" (Ministerial decree/regulatory order), signed 
this Friday.)    The Ministry of Health is basing its 
adoption of the licensing on the TRIPs Accords (Trade-Related 
Aspects of Intellectual Property Rights), the Doha 
Declaration, the Patent Law (1996) and Decree 4.830/03. 
The Brazilian National STD/AIDS Program is a worldwide 
benchmark for treatment of HIV carriers and has as its goals 
the universal and free access to all resources available for 
the treatment of the disease, and for prevention and 
diagnosis at public hospitals. 
The number of patients using anti-retrovirals in Brazil has 
risen from nearly 36,000 in 1997 to 170,000.  Between 2004 
and 2005, more than 20,000 people participated in the 
Program.  There are 15 types of anti-retroviral medications 
that distributed free of charge.  Kaletra was introduced in 
2002 and is prescribed for patients who have already 
developed resistance to other medications. 
(Portuguese version of the last two paragraphs reads as 
follows : The National Program for Sexually Transmitted 
Diseases (STDs)/Aids, a global benchmark for the treatment of 
HIV carriers, incorporated around 20,000 more people between 
2004-2005 for the treatment with an anti-aids cocktail.  With 
this, the number of those benefiting will rise from 147,000 
to 170,000 by the end of this year.) 
 
To guarantee the use of the latest generation 
anti-retrovirals on all people, the Ministry of Health has 
increased by 50% the resources dedicated to the program, 
which started in 2004 at R$620.9 million, and in 2005 were 
increased to R$945 million (US$393.9 million).  Of this sum, 
almost one third (R$257 million) will be used solely for the 
acquisition of Kaletra. 
 
The projection is that in 2008, close to 215,000 people in 
Brazil will need the cocktail, which means a budget of R$1.25 
billion (US$520.8 million), with one third of this amount 
being earmarked for the purchase of Kaletra. 
Investment increases to maintain the National STD/AIDS 
Program have been constant.  But in the last four years, 
Brazil has increased investments by 77%, while the number of 
patients has gone up by 43%. 
 
It is estimated that 600,000 Brazilians carry the HIV virus. 
There are even more who do not know that they are infected, 
and will need to be treated in the upcoming years.  "Brazil 
is concerned about doing a good job of treating those 
Brazilians who need it, with the proper medication, and with 
updated treatment measures.  It is a matter of public 
interest", explains Minister Humberto Costa. (This last 
sentence is not in the Portuguese version). 
To guarantee delivery of the ideal medicine to each one of 
the carriers registered in the program, the Ministry of 
Health must acquire the latest generation medications. 
Beginning to be distributed, for example, is Enfuvirtida, 
which belongs to a new class of anti-retrovirals, at a cost 
of R$19,000/month (US$7,900 per patient).  A total of 1,200 
patients are currently signed up to be treated with this new 
medication. 
 
Negotiation - In March of this year, the Ministry began 
negotiations for voluntary licensing with Abbott 
Laboratories, Gilead Science Incorporation, and Merck Sharp & 
Dohme.  The medications produced by these laboratories - 
Kaletra, Efavirenz (Merck) and Tenofovir (Gilead) - make up 
66% of the entire budget for the purchase of 
anti-retrovirals. 
 
Negotiations with Merck and Gilead continue.  Abbott was the 
only one to oppose both the alternative voluntary licensing 
as well as a price reduction which guarantees the future 
sustainability of the program.  Since the medication arrived 
in Brazil in 2002, its price has been reduced by 25%--a 
percentage that is considered to be low in global 
terms--because development costs diminish over the years. 
Today, the unit price of Kaletra is US$1.17 in contrast to 
its price of US$1.60 in 2002, and US$0.72 for its generic 
version.  However, in this period, the government costs for 
the purchase of the medication have gone up from US$35.2 
million to $91.6 million annually.  This is due to the fact 
that the number of patients who need the medication in Brazil 
has increased threefold per year.  In 2002, there were 3,200 
people who needed it.  This year, there will be 23,400. 
Legislation - The Ministry of Health's initiative is backed 
by national and international norms and respects the rights 
of private companies to make a profit from their inventions. 
Article 71 of Brazilian patent law (Law 9.279/96) provides 
for obligatory licensing in the case of public interest. 
Decrees 3201 of 1999, and 4830 of 2003, also consider those 
items related to public health to be of public interest. 
The Doha Declaration (Qatar) in 2001 allows countries to take 
measures to protect public health.  Those measures, according 
to the Declaration, do not compromise the TRIPs Agreement, 
which established minimum rights over intellectual property. 
Should Abbott Laboratories not follow the Ministry's notice, 
the medication will be produced in Brazil exclusively for 
national consumption.  (The Portuguese version of the 
previous sentence reads as follows: The Ministry of Health, 
in accordance with the legislation, will be able to grant the 
license for the production of Lopinavir/ritonavir, only for 
national consumption and will pay royalties to Abbott.) 
Although the obligatory licensing gives Brazilian 
laboratories the right to produce Liponavir/ritonavir, it 
does not prevent Abbott from commercializing Kaletra in the 
country. 
 
National production - With the obligatory licensing, the 
Institute of Pharmaceutical Technology (Farmanguinhos 
Laboratory), of the Oswaldo Cruz Foundation would produce the 
Lopinavir/ritonavir medication while reducing by the current 
price by almost 50%.  Within one year, Farmaguinhos would be 
able to produce six million capsules/month, the necessary 
amount to meet domestic demand.  The unit price for the 
medication should be around US$0.68, which would add up to 
approximately R$130 million/year (in savings)for the National 
Program. 
 
Farmaguinhos is the largest official laboratory in Brazil and 
already produces more than 60 medicines, among them 
anti-retrovirals.  Last year, the Brazilian government 
invested US$6 million in the acquisition of the 
GlaxoSmithKline industrial park in Rio de Janeiro in order to 
convert it into the Medicine Technology Complex (CTM) for 
Farmaguinhos.  The CTM will produce 10 billion pharmaceutical 
units in 2007. 
 
The Program - Since 1986, the National STD/AIDS Program has 
guaranteed 100% free treatments to those with HIV/AIDS. 
Since the program started, the life expectancy of persons 
with AIDS has increased twelve-fold, from five months to 58 
months.  Mortality has dropped 50% and the number of pregnant 
women suffering from the disease who have access to AZT, 
which helps prevent infection of the newborn, is on the rise. 
 This year, the Ministry of Health will finance 754 
disease-fighting projects run by NGOs with a budget of R$60 
million. 
 
These last two paragraphs were added to the English version: 
In 2001, UNESCO (United Nations Educational, Scientific, and 
Cultural Organization) presented an award to the Brazilian 
program in the category of Human Rights and Culture of Peace. 
Last year, the quality of the Brazilian AIDS Program 
received one more international award: a medal from the U.N. 
AIDS Program (UNAIDS) for the leadership that Brazil has 
exerted in improving the fight against the epidemic. 
Brazil has participated in an international HIV and AIDS 
cooperation program since 1995.  Today, 25 countries are 
involved in that work, which includes prevention, assistance 
and treatment, epidemiological monitoring, project 
management, sexually transmitted diseases, human rights, and 
cooperation with private sector organizations. 
 
13.  Decree 3,201 (October 6, 1999) with revisions as 
provided by Decree 4,830 (September 4, 2003) (unofficial 
translation): 
 
DECREE No. 3,201 OF OCTOBER 6, 1999 
 
Establishes rules concerning the granting, ex officio, of 
compulsory licenses in cases of national emergency and public 
interest provided for in Article 71 of Law no. 9,279, of May 
14,1996. 
 
THE PRESIDENT OF THE REPUBLIC, using the prerogatives to 
which he is entitled by Article 84, Item IV, of the 
Constitution, and in consideration of the provisions of 
Article 71 of Law no. 9,279, of May 14, 1996. 
 
DECREES: 
 
Article 1. The granting, ex officio, of a compulsory license 
in cases of national emergency or public interest, in the 
latter case only for non-commercial public use, that provided 
for in Article 71 of Law no. 9,279, of May 14, 1996, shall be 
ruled in accordance with this Decree. 
 
Article 2. There may be granted, ex officio, a compulsory 
license for a patent in cases of national emergency or public 
interest, in the latter case only for non-commercial public 
use, as thus declared by the Government, when it is 
ascertained that the patent-holder, directly or by licensee 
intermediary, does not fulfill those needs. 
 
Paragraph 1. A national emergency is understood to be a 
condition of impending danger to the public, even if existing 
only in a part of the national territory. 
 
Paragraph 2. There are considered to be within the public 
interest those facts, among others, related to the public 
health, nutrition, protection of the environment, as well as 
those of primordial importance to the technological or social 
and economic development of the Country. 
 
Article 3. The act of the Federal Executive Power declaring 
the national emergency or the public interest shall be 
performed by the Minister of State responsible for the 
subject matter in question and shall be published in the 
Federal Official Gazette. 
 
Article 4. There having been ascertained the impossibility of 
the patent-holder or his licensee to fulfill the national 
emergency or public interest situation, the Government shall 
grant, ex officio, the compulsory license, which shall not be 
exclusive, and the respective act shall be immediately 
published in the Federal Official Gazette. 
 
Article 5. The act of granting the compulsory license will 
establish, among others, the following conditions: 
I ) the term of the license and the possibility of renewal; 
and 
II ) those offered by the Union, particularly regarding the 
compensation to the titleholder. 
 
Paragraph 1. The act of granting the compulsory license can 
also establish the obligation of the titleholder to transmit 
the necessary and sufficient information to the effective 
reproduction of the protected object and the rest of the 
applicable technical aspects to the case in question, noting 
that, in case of denial, what was provided by article 24 and 
Title I, Chapter VI, of Law 9,279 of 1996. 
 
Paragraph 2. In order to determine the compensation to which 
the titleholder is entitled, there shall be considered the 
relevant economic and market circumstances, the price of 
similar products and the economic value of the authorization. 
Article 6. The competent authority may request information as 
needed to support the granting of the license or to determine 
the compensation due to the patent-holder, as well as other 
pertinent information, to the federal, state and municipal, 
direct and indirect, public administration agencies and 
entities. 
 
Article 7. In case of national emergency or public interest 
characterizing extreme urgency, the compulsory license 
provided for in this Decree may be implemented and the use of 
the patent may be effected, irrespective of prior compliance 
with the conditions established in Articles 4 and 5 of this 
Decree. 
 
Sole Paragraph. If the competent authority has knowledge, 
without conducting a search, of the existence of a patent in 
force, the titleholder shall be immediately informed on such 
use. 
 
Article 8. The exploitation of a compulsorily licensed patent 
in accordance with the provisions of this Decree may be 
initiated irrespective of the existence of an agreement on 
the conditions included in Article 5. 
 
Article 9. The exploitation of a patent licensed in 
accordance with the provisions of this Decree may be 
performed directly by the Union or by duly contracted third 
parties or by partners, and the reproduction of the object 
thereof for other purposes being prohibited, under penalty of 
being considered illicit. 
 
Sole Paragraph.  The exploitation by third parties of the 
compulsorily licensed patent shall be made in compliance to 
the principles of Article 37 of the Constitution, noting the 
additional pertinent legal rules. 
 
Article 10. In such cases where it might not be possible to 
fulfill the situations of national emergency or public 
interest with the product placed on the domestic market, or 
the manufacture of the object of the patent by third parties, 
or by the Union, is found to be unfeasible, the latter may 
proceed to import the product that is the object of the 
patent. 
 
Sole Paragraph.  In the cases mentioned within the heading 
paragraph of this article, the Union shall either preferably 
acquire the product which has been placed directly into the 
market by its titleholder or with the latter's consent, since 
such procedure does not frustrate the purposes of the license. 
 
Article 12. Once the national emergency or the public 
interest has been fulfilled, the competent authority shall 
extinguish the compulsory license, respecting the terms of 
the contract executed with the licensee. (Note, Article 11 of 
the 1999 Decree was dropped.) 
 
Article 13. The competent authority shall inform the 
Instituto Nacional da Propriedade Industrial ) INPI 
(National Institute of Industrial Property), for purposes of 
entry, the licenses for noncommercial public use, granted on 
the basis of Article 71 of Law no. 9,279, of 1996, as well as 
the changes and extinguishment of such licenses. 
 
Article 14. This Decree enters into force on the date of its 
publication. 
 
Brasilia, October 6, 1999; 178th year of Independence, 111th 
year of the Republic. 
 
FERNANDO HENRIQUE CARDOSO 
Jose Serra 
Alcides Lopes Tapias 
 
Danilovich