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Cablegate: Brazil's National Health Council Recommends

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

UNCLAS SECTION 01 OF 08 BRASILIA 002157

SIPDIS

SENSITIVE

DEPT FOR WHA/BSC, WHA/EPSC, AND EB/TPP/IPE
USAID FOR LAC/AA
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
SUBJECT: Brazil's National Health Council Recommends
Compulsory Licensing of Antiretrovirals

Ref: Brasilia 1716 (Notal)

1. SENSITIVE BUT UNCLASSIFIED

2. (SBU) Summary. Adding to the tension surrounding
negotiations between the Ministry of Health and U.S.
pharmaceutical companies over potential compulsory licensing,
on August 11, Brazil's National Health Council approved a
resolution in which it recommended that the Ministry of Health
immediately issue compulsory licenses for antiretroviral drugs
produced by Abbott Laboratories, Merck Sharp & Dohme, and
Gilead Sciences, and that the issue, in general, of patents
for medicine be subject to a wider debate. The resolution was
sent to the Minister of Health, who has 30 days in which to
sign, not sign, or suggest modifications to the resolution.
An accompanying document on the Ministry of Health website,
"The Sustainability of the Universal Access to Antiretroviral
Drugs in Brazil," presents a justification for compulsory
licensing of anti-retrovirals. A Ministry of Foreign Affairs
interlocutor reports that the Council resolution is not
legally binding and claims the Minister of Health is serious
about continuing negotiations with the pharmaceutical
companies. While the Council's action does not represent a
GoB decision on compulsory licensing, it further aggravates
the negotiating environment and is yet another example of
mounting pressure in Brazil to issue compulsory licenses for
AIDS anti-retrovirals. End Summary.

3. (U) During a meeting on August 10, Brazil's National
Health Council (CNS-portuguese acronym) unanimously approved a
Resolution that calls for the Ministry of Health to
immediately issue compulsory licenses for antiretroviral drugs
Kaletra (combination Lopinavir/Ritonavir), Efavirenz, and
Tenofovir, which are produced by Abbott Laboratories, Merck
Sharp & Dohme, and Gilead Sciences, respectively. The text of
the resolution was released by the Ministry of Health's
Secretariat of Health Protection - National DST/AIDs Program

SIPDIS
Press Office; see para 11 for an unofficial translation. The
resolution was sent to the Minister of Health, who has 30 days
in which to sign, not sign, or suggest modifications to the
resolution.

4. (U) The Ministry of Health has been actively engaged in
pricing/licensing negotiations with these U.S. pharmaceutical
companies since March of this year (see reftel). Text in the
press release envelope for the CNS resolution specifically
cites Abbott and Merck as being uncooperative (Merck had an on-
going dialog with the GoB on potential voluntary licensing
prior to March). Negotiations with Abbott intensified after
June 24, when the Ministry of Health singled out Kaletra in a
"declaration of public interest" to legally pave the way for
compulsory licensing of the drug; the Ministry then pressed
the company to agree within 10 days to a per unit price for
Kaletra of US$0.68, compared with a current price of US$1.17,
to avoid compulsory licensing.

5. (SBU) Shortly after taking office July 8, new Minister of
Health Saraiva Felipe announced the MoH was re-opening an
agreement that out-going Minister Costa and Abbott had
reportedly reached on the day of Felipe's swearing-in. In
public statements, Felipe justified the action by asserting
that no written agreement existed and that Abbott and the
Ministry did not agree on what terms had been reached on July
8. (An Abbott representative told post there was a written
agreement, but it was not signed.) Negotiations have
continued, most recently on August 10, however Abbott has
complained that the MoH is now pressing the company to drop
the per unit Kaletra price to US$0.41, based on a new estimate
of production costs for Brazil's national laboratories, and to
agree to some form of technology transfer. Post understands
that Abbott plans to provide another proposal to the MoH the
week of August 15.

6. (U) The National Health Council is a private-public sector
advisory body, principally comprised of labor, social,
economic, and health representatives from civil society.
Twenty of CNS' forty counselors were present for the August 10
vote.

7. (SBU) According to Henrique Choer Moraes of the Foreign
Ministry's IPR Division, the resolution is a recommendation
and is not legally binding on the Minister of Health.
Furthermore, he reported that his MoH interlocutor had
emphasized to him that Minister Felipe remains "very much
interested in pursuing negotiations with the companies in
order to reach mutually satisfactory results." Brasilia's
paper, Correio Braziliense, quoted Felipe in its August 12
edition as saying he is not going to sign the resolution now
and that he is going "to evaluate it before taking any
decision."

8. (U) Nonetheless, the trend is not encouraging. An
accompanying document of unknown authorship on the Ministry of
Health website, "The Sustainability of the Universal Access to
Antiretroviral Drugs in Brazil," presents social and legal
justifications for compulsory licensing of antiretrovirals
(see para 12). The analysis suggests that "public interest"
is only satisfied through compulsory licensing and the details
make quick implementation appear likely should a decision be
made to issue a compulsory license.

Comment
-------

9. (SBU) While the CNS resolution does not represent a legal
step in the process toward issuing a compulsory license, and a
GoB decision on the matter has not yet been taken, it further
aggravates the negotiating environment. In particular, so
publicly asserting the Ministry's goal of a $0.41 unit price
for Kaletra may further harden the MoH's pricing position,
eliminating crucial flexibility. Furthermore, the resolution
throws Merck and Gilead into the same boat with Abbott, even
though the MoH has not been actively engaged in negotiations
with these companies while it has focused on Abbott.

10. (SBU) Concentration of this issue within the Ministry of
Health has made finding knowledgeable and effective GoB
interlocutors challenging. Commercial ministers, such as
Finance Minister Palocci and Minister of Development, Industry
and Trade Furlan have not been inclined to become involved; a
July 28 note from Minister Furlan to Secretary Guiterrez
unrealistically suggested that negotiations between the MoH
and Abbott appeared "very close to a satisfactory agreement."
We will continue to consult with Washington agencies on the
most appropriate and effective means for USG officials to
interact with the GoB on the matter. The Ambassador will meet
Minister Felipe in a courtesy call August 25, but the issue
may be OBE by then.

11. Informal English-Language Translation of National Council
of Health Resolution No. X with press release envelope:

Ministry of Health
Secretariat of Health Protection

SIPDIS
National DST/AIDS Program
Press Office

Anti-Retrovirals

National Council of Health Recommends Issuance of Compulsory
License

August 11, 2005

The National Health Council (CNS) approved this Thursday
(8/11) a resolution recommending that the Minister of Health
immediately issue a compulsory license for the anti-retroviral
medicines lopinavir/ritonavir, efavirenz and tenofovir. The
recommendation is also valid for other patented drugs used in
the treatment of AIDs and which place an excessive burden on
the purchase of medications to fight the disease. In 2005
alone, the total cost of anti-retrovirals will reach R$1
billion. Together, the three drugs cited consume 80 percent
of the budget.

The text was approved unanimously during the 157th ordinary
meeting of the CNS, in Brasilia. The 20 counselors that were
in the plenary during the voting gave a favorable
recommendation to the document. The resolution now goes to
the Minister of Health, who presides over the Council, for
formal confirmation. The resolution also directs the Minister
to close the negotiations with the pharmaceutical companies
producing these medicines.

In the case of efavirenz, whose patent belongs to the
laboratory Merck Sharp & Dohme, the negotiations have lasted
for two years. With respect to Abbott Laboratories, holder of
the patent for lopinvir/ritonavir, known as Kaletra, the
Ministry has tried to come to an agreement since March of
2005. "If the Ministry doesn't take a firm position, the
sustainability of the AIDs program will be threatened," warned
Counselor Carlos Alberto Duarte. He is President of the
Support and Prevention of AIDs Group of Rio Grande do Sul
(GAPA-RS) and represents, in the Council, the civil society
organizations that work with HIV/AIDS.

On this occasion, Minister Saraiva Felipe was emphatic. He
said that if Abbott Laboratories offers Brazil conditions to
sign a contract in the short-term for the acquisition of
Kaletra, with a price equal to that proposed by the national
laboratories (US$0.41), there will be no reason to issue a
compulsory license. If not, I will not hesitate in defending
the public interest." Two weeks ago, at the closing of the
third conference of the International AIDS society, Minister
Saraiva Felipe affirmed that "the only patent inviolable is
that of life." Today Brazil buys a capsule of Kaletra for
US$1.17.

National Production. - A resolution of the CNS also proposes
the initiation of local production of the drugs, with
investment in and strengthening of the government-owned
laboratories, and increased resources aimed at research,
including the production of active ingredients. In accordance
with the Director of the National DST/AIDs program, Pedro
Chequer, once it produces the patented anti-retrovirals,
Brazil would not have any interest in selling them. "Our
intention is to supply the national demand and attend to the
six countries which which we maintain accords for the supply
of treatment." Brazil furnishes anti-AIDs drugs to Cape Verde,
Guinea Bissau, Sao Tome and Principe, East Timor, Bolivia and
Paraguay.

Today, Brazil has 163 thousand persons undergoing treatment
with anti-retrovirals. The country distributes 17
medications, eight of which are produced by national
laboratories. The average cost of a patient per year, which
was US$6.2 thousand in 1997, dropped to the level of US$1.3
thousand at the beginning of this decade. However, with the
incorporation of new latest-generation drugs, at the beginning
of 2003, the annual expense per patient rose again and
currently is around US$2.5 thousand.

Upon voting the text of the resolution, the National Health
Council took care to include a recommendation to the effect
that after the adoption of compulsory licencing any commercial
retaliation against Brazil would be consider disloyal and
illegal. The clause was included based upon Brazilian law,
upon TRIPS (which deals with intellectual property rights
related to commerce), and upon the DOHA Declaration (which
applies TRIPS to questions of public health).
Brazilian legislation permits compulsory licensing in cases of
public interest, which encompasses questions of health,
nutrition, environmental protection, and technological or
socio-economic development of the country. The authorization
is in Article 71 of the Brazilian Law of Patents (9279/96), in
Decrees Number 3201/99 and 4830/03, and, as well, in the
international TRIPS accords and in the DOHA declaration.

Following is the complete text of the resolution approved by
the National Health Council. In order to take effect, the
document still needs to be signed by the Minister of Health,
Saraiva Felipe.


National Health Council

Resolution No. X, of August 11 2005-08-11

The Plenary of the National Health Council in its one hundred
fifty seventh ordinary meeting, realized on August 10 and 11
of 2005, under the competencies and authorities conferred by
Law No. 8.080, of 19 September 1990, and by Law No. 8.142 of
December of 1990, and

Considering that universal access to anti-retroviral drugs for
the treatment of HIV/AIDS in Brazil is assured in the Federal
Constitution and in Law. N8.080 and Law 9.313/96;

Considering that the policy of free distribution of anti-AIDS
medications have a positive impact in increasing the quantity
and quality of life of persons living with HIV/AIDS in Brazil;

Considering that, to guarantee access to 170,000 patients, the
Unified Health System (SUS) foresees spending around R$ 1
billion in 2005, with 80 percent of these resources destined
to the importation of only three patented drugs: efavirenz,
Lopinavir/r and Tenofovir;

Considering that the elevated prices of patented drugs has
already compromised the sustainability of the Brazilian
program to combat AIDS;

Considering that the XII National Health Conference (Art. 52,
Axis VIII) declared that "the right to life and to health
preceeds any commercial agreement";

Considering that the compulsory licensing and the consequent
local production of anti-retrovirals is totally compatible
with Brazilian legislation and with the flexibilities
contemplated in both the TRIPs agreement of the World Trade
Organization and the DOHA declaration;

Considering that Brazil possesses the infrastructure and
technical capacity for national production of safe, quality,
low-cost anti-retrovirals;

Considering that the SUS does not possess sufficient resources
and that the economies flowing from national production will
be invested in other health actions.

Resolves:

a) In the face of the failure to negotiate significant price
reductions for the medications efavirenz, Lopinavir/r and
Tenofovir, the Ministry of Health and the federal government
should close negotiations with the laboratories holding these
patents.

b) Compulsory licenses of the medications efavirenz,
Lopinavir/r and Tenofovir should be issued immediately, as
well as other patented anti-retrovirals which burden or might
come to burden the budget of the SUS.
c) Local production of medications should begin, with
investment in and strengthening of the government-owned
laboratories, and increased resources aimed at research,
including the production of active ingredients.

d) That, in the face of International Treaties, after the
adoption of compulsory licencing any commercial retaliation
against Brazil would be consider disloyal and illegal.

e) That the Ministry of Health should promote an ample debate
over the impact of patents on the access to medicine in the
country, an analysis and review of Brazilian patent
legislation, as well as the regulation and implementation of
such legislation.

12. Document: "THE SUSTAINABILITY OF THE UNIVERSAL ACCESS TO
ANTIRETROVIRAL DRUGS IN BRAZIL"

Document elaborated for the 157th Ordinary Meeting of
Brazil's National Health Council - Brasilia, August 10, 2005

Brasilia, August 9, 2005.

"Life is the only unbreakable patent"
Saraiva Felipe
Brazil's Minister of Health

1. Legal foundations

The incorporation of the TRIPS Agreement (Trade Related
Aspects of Intellectual Property Rights) 1 in the legal
agenda of member countries of the World Trade Organization
(WTO) has significantly restricted their autonomy towards the
definition of strategic materials for the understanding of
their Public Interest. TRIPS consists of one of the Marrakesh
Agreement annexes, which has established the WTO in 1994, and
rules the management of intellectual property rights within
the Organization. By becoming a signatory to TRIPS Agreement
in 1994, Brazil, in opposition to the previous Code of
Industrial Property of 1971, started recognizing
pharmaceutical and food products and processes as patentable
materials. Despite the fact that the Agreement establishes
minimum conditions in reference to the management of
Intellectual Property Rights (IPR), these have shown to be
considerably most restrictive than those established in the
1971 Code.

The Agreeement anticipates the IPR licensing through two
mechanisms: voluntary licensing and compulsory licensing.
With the voluntary licensing, the patent holder may friendly
negotiate the transfer of technology, know-how, technical
assistance, and the use of its property by third parties,
through the payment of royalties to be agreed between both
parties.

With the compulsory licensing, also known as "Compulsory
License", the IPR may be used by third parties without the
holder's consent, aiming to restrain the abusive privilege
exercise. In this case, TRIPS indicates five possible reasons
for the adoption of such measurement, such as: (i) patent
holder's refusal to negotiate that third parties have the
right to use IPR; (ii) cases of emergency or extreme urgency;
(iii) anti-competitive practices; (iv) non-commercial use and
(v) existence of depending patents. Despite being a privilege
usage without the need for patent holder's consent, the
licensee should still pay royalties to use it, even though
they are reduced.

In the Brazilian legal system, the compulsory licensing is
found on chapters 68-74 of the Industrial Property Law #
9279/96, some of which have later been amended by the Decrees
# 3201/99 and # 4830/03, aiming to clarify its application in
specific cases.

- Public Interest as a legal reason to issue the compulsory
licensing

The issuance of compulsory licenses based on the Public
Interest reason is found on chapter 71 of the Industrial
Property Law # 9279/96, according to text that follows:

"Chapter 71. In cases of national emergency or public
interest, stated through Federal Branch Act, as long as the
patent holder or licensee cannot meet such need, a temporary,
non-exclusive, compulsory license can be granted, officially,
with no harm to the rights of its respective holder.

Only Paragraph. The granting of license will establish its
expiration date and the possibility of extension."

Decree # 3201/99, through its second chapter, has brought a
more detailed definition of the National Emergency and Pubic
Interest concepts, in addition to clarifying the necessary
mechanisms to issue a compulsory licensing, to be officially
announced.

- Other mechanisms
On August 30, 2003, the WTO General Council approved of a
resolution in reference to chapter 6 of Doha Declaration,
which states the possibility of issuing a compulsory
licensing to meet the demands of relatively less developed
countries and developing countries, which had none or little
technological capacity to manufacture essential drugs.
However, it is necessary to be included in the national
legislation so that Brazil is able to enjoy such mechanism.

2. The critical situation as to the STD/AIDS Program
sustainability

Even if the country was able to benefit from the transition
period of 10 years to adapt its legal system, only two years
have passed so that the new Industrial Property Law # 9279
was published, on May 14, 1996. On this same year, the
Brazilian government adopts an innovative and daring
initiative to fight the HIV/AIDS epidemics, by approving Law
# 9313, known as "Lei Sarney" (alluding to Brazil's former
President), that rules over the State duty to distribute
drugs to treat HIV and AIDS patients universally and freely.
Since then, the Brazilian government has tried to establish a
balance between the private rights originated from the 20-
year monopoly granted to the patent holder, on one side, and
the social rights in reference to the warranty of access to
treat chronic diseases to the Society, on the other side.

Brazil's decision - certainly, resulting from the pressure of
the same actors that make it difficult the effective
implementation of compulsory licensing of the patented ARV
drugs - of not making use of the transition period allowed by
the TRIPS agreement to developing countries, has resulted in
a premature and incipient legislation in meeting the needs of
national interest, especially in reference to Public Health.
As for the national response to AIDS epidemic, the
incorporation of new patented drugs in the Therapeutic
Consensus means a significant greater public budget designed
to acquire antiretroviral drugs and committed to the
sustainability of the national response to HIV/AIDS. Today,
in order to guarantee the universal and free access to
170,000 patients currently under therapy, approximately 80%
of the around US$ 430 million designed to purchase these
drugs are used to importing patented drugs, while only 20%
are used to purchase 7 antiretroviral non-patented drugs,
manufactured in the country. Such proportion tends to be
reduced in the next few years. With the progressive inclusion
of patients under therapy in the next 3 years, the total
spending with the universal purchase of only 3 antiretroviral
patented drugs (Efavirenz, Lopinavir/r and Tenofovir) is
estimated to increase substantially, from US$ 147.5 million
in 2006 to US$ 242 million in 200102. Whereas if there is
national production along the next five years, it is
estimated a saving of US$ 645 million. Additionally, the
inclusion of new-patented drugs in the Consensus will imply
in a considerable increase in the cost of therapy/year,
incompatible with the currently available budget and with the
expectations of a future budget. (Figure 1). This problem is
already experienced in 2005 when we had a budgetary dotation
of approximately US$ 242 million for an effective spending
over US$ 430 million. Such measure could compromise the
performance of other Programs.

Figure 1 - Average annual cost of antiretroviral therapy per
patient/year (in US$), Brazil, 2005 (Not included in cable.)

Source: Chequer, 3rd IAS Conference on the Pathogenesis and
HIV therapy (2005)

3. National technical capacity

Since late 1998, Brazil's Department of Health has invested
in infrastructure and in making official pharmaceutical
laboratories capable to manufacture antiretroviral drugs. The
first public laboratory to manufacture them was the Instituto
de Tecnologia em Frmacos (Far-Manguinhos), the official
laboratory of Brazil's Department of Health. So, the
laboratory has made investments to improve the
infrastructure, from its facilities to the WHO and ANVISA
requirements related to the Good Manufacturing Practices, as
well as the quality control.

From 2002, public/private negotiations have started (official
laboratories and international and domestic generic private
companies), aiming to the establishment of technical
cooperation agreements and technology transfer to strengthen
local capacity. In 2004, from September on, by initiative of
the PNDST/AIDS, several Workshops and meetings have been
carried out between public laboratories and local
pharmochemical companies, including the BNDES participation,
to define public-private partnerships to locally produce
active principles and antiretroviral drugs. With the results,
the definition of local capacity installed to locally produce
active principles and antiretroviral drugs has been reached,
according to Table 1 below:

(Table 1 not included in cable)

4. Economic Gains of local ARV production

The strategy adopted by the Brazilian government aiming to
promote national technological autonomy for the production of
principal active (ingredients) and antiretroviral drugs
doesn't constitute only an action for strengthening the
installed technical capacity, but also as an a;ternative for
the effective reduction of prices.

According to preliminary projections of PNDST/AIDS, taking as
base prices those at which Far-Manguinhos can produce
Efavirenz, Lopinavir/Ritonavir, Tenofovir, the Ministry of
Health is estimated to save a total of R$ 1.6 trillion in the
period 2006-2010, as compared with the values currently paid
by the Ministry of Health for the purchase of the same drugs.

5. Conclusions

The commitment of the Brazilian government to make sure the
universal and free access to antiretroviral drugs to treat
HIV/AIDS patients to the Brazilian population is established
in the Federal Constitution of 1988, and regulated in
specific legislation. Therefore, Brazil's DST/AIDS Program
understands that, considering the unquestionable evidences as
for the huge increase of prices of these drugs, originated
from the monopoly granted through patent and, in order to
maintain the sustainability of the national response to
HIV/AIDS in the medium and long run, it is necessary:

(i) The issuance of compulsory license of antiretroviral
drugs that most significantly impact the budget of Brazil's
Department of Health to purchase these drugs;

(ii) The immediate beginning of local manufacturing of
antiretroviral drugs above mentioned, with the establishment
of public-private partnerships between national
pharmaceutical companies and government pharmaceutical
laboratories, for a significant reduction of prices;

(iii) The strengthening of local technological capacity to
manufacture active principles of patented antiretroviral
drugs, in terms of making verticalized local production of
these drugs feasible and also the reduction of international
technological dependance. The adverse scenario observed
towards global production of raw material, according to WHO
itself, takes us to an extremely concerning picture in its
perspective, in the medium and long run;

(iv) The narrowing relation between local public and private
pharmaceutical productive segment with the BNDES PROFARMA
Program. Despite the successful pricing negotiations along
the period, Brazil is still paying huge and unacceptable
prices, equivalent to 8 times the amount practiced globally.

The Brazilian experience in the process of voluntary
licensing has been extremely harmful to the public interest,
since it only makes abusive prices last when dealing with the
Department of Health, without seeing a concrete perspective
in relation to Efavirenz and the chronic process of
negotiation with Merck.

The adoption of compulsory licensing, however, meets full
backup in national legislation and is in consonance with the
international agreements settled with Brazil, in the light of
TRIPS and the Doha Declaration.

LINEHAN

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