Cablegate: Brazil Threatens Compulsory Licensing of Aids

This record is a partial extract of the original cable. The full text of the original cable is not available.

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
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

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