BRAZIL GIVES ABBOTT TEN DAYS BEFORE BREAKING PATENT

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
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