AMBASSADOR MEETS WITH U.S. PHARMACEUTICAL FIRMS

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
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