ELI LILLY STRUGGLING WITH PATENT PIRACY

UNCLAS SECTION 01 OF 02 LIMA 003794

SIPDIS

SENSITIVE

DEPT FOR WHA/AND, EB/IPE SWILSON
COMMERCE FOR 4331/MAC/WH/MCAMERON
DOC FOR J. BOGER
USTR FOR B. WILSON, B. HARMAN

E.O. 12958: N/A
TAGS: ECON ETRD KIPR PE
SUBJECT: ELI LILLY STRUGGLING WITH PATENT PIRACY



1. (SBU) Summary. Eli Lilly, one of the ten pharmaceutical
companies that hold patents in Peru, continues to combat the
piracy of one of its best selling products, Zyprexa.
According to Eli Lilly representatives, two local
distributors, Ozone and PharmaIndustria, are selling copies
of Zyprexa on the local market. One pirated version, sold
by Ozone, is a slight modification of Lilly's molecule; the
other version is structurally identical. Indecopi, Peru's
IPR administrator, has yet to take action on these cases,
claiming that Eli Lilly must prove that Ozone and Farma
Industria are selling pirated copies of Zyprexa. Eli Lilly
has lost over $2.4 million in sales. We are investigating
whether Indecopi's actions violate Article 28 of the TRIPS
agreement, which states the rights of patent holders, and
Article 34, which places the burden of proof on the alleged
infringer. End Summary.

Two Copies of Zyprexa Available
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2. (SBU) We met with Edgard Olaizola, General Manager of
Eli Lilly Peru, on August 31 to discuss violations of
intellectual property rights in the pharmaceutical arena.
Olaizola informed us that Eli Lilly, which holds five
pharmaceutical patents in Peru, is facing two patent
violations. Both violations involve Eli Lilly's Zyprexa
drug (olanzapine),which is Lilly's top selling product for
schizophrenia and bipolar disorder. Lilly sells olanzapine
worldwide and holds a patent for this product in countries
where the product is sold. Eli Lilly also holds exclusivity
rights for the formulation and several processes of
olanzapine. Eli Lilly sells Zyprexa primarily to Peruvian
government health institutions, including EsSalud and police
and military hospitals.


3. (SBU) In January 2005, local distributor Ozone began
selling a copy of Zyprexa, manufactured by Microlab in
India. According to Eli Lilly lab analysis, the Ozone drug
is a slight modification of olanzapine. In February,
Indecopi, at Eli Lilly's request, issued a precautionary
measure against Ozone based on the possible infringement of
Lilly's process patent. The precautionary measure
prohibited Ozone from selling the product. Indecopi,
however, lifted the precautionary measure on May 31, several
weeks before the GOP launched its annual procurement bid for
medications.


4. (SBU) In June 2005, Farma Industria, one of Peru's
largest pharmaceutical companies and producers of generic
drugs, introduced another copy of Zyprexa to the market.
Cipla, also based in India, manufactures this copy of
Zyprexa. Although Farma Industria claims that it sells a
different form of olanzapine, Eli Lilly studies show that
the drug is in fact an exact copy of Lilly's patented
olanzapine.

Indecopi Fails to Act
--------------


5. (SBU) Eli Lilly officials met several times with
Indecopi officials, who have yet to take any action. Nestor
Escovero, Director of Indecopi's patent office, informed Eli
Lilly that the company needed to prove that the new drugs
were pirated copies. According to Olaizola, Indecopi's
patent office staff work closely with Peruvian
pharmaceutical distributors, advising them on generic drug
production. One patent examiner, claims Olaizola, is now
the head of Ozone's regulatory department. Olaizola asserts
that Indecopi tends to favor local distributors over foreign
companies and doubts that it will do anything to stop the
sale of pirated drugs. (Note and Comment: Indecopi is also
targeting other multinationals. In a recent unannounced
visit to the Swissotel, now an American company, Indecopi
officials demanded to see all software licenses. Officials
were disappointed when the hotel produced the necessary
documents. This is an example of Indecopi's lack of
understanding and deliberate targeting of foreign companies.
It also underscores the cost of doing business in Peru. End
Note and Comment.)


6. (SBU) Eli Lilly, as a result of Indecopi's inaction and
the lifting of the precautionary measure in June, has lost
market share and estimates damages at $2.4 million in lost
sales. The GOP held eight procurement bids totaling
$300,000 each for pharmaceutical supplies to EsSalud and
military/police hospitals in June-August; Eli Lilly won none
of these bids, despite holding previous contracts with the
GOP. Instead, Ozone and Farma Industria earned GOP
contracts. Eli Lilly appealed the procurement process.

Possible Violation of TRIPS?
--------------


7. (SBU) Despite Eli Lilly's claims that both Ozone and
Farma Industria are selling pirated copies of Zyprexa,
Indecopi has placed the burden of proof on Eli Lilly instead
of the Peruvian companies. Article 28 of the WTO TRIPS
Agreement grants certain rights to patent holders. Article
34 clearly states that in cases of copyright infringement,
the burden of proof should be placed on the alleged
infringer, not the patent holder. Indecopi's failure to
fully investigate Eli Lilly's claims may be a direct
violation of Peru's obligations under the TRIPS agreement.

Comment
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8. (SBU) Eli Lilly is not the first pharmaceutical company
to face patent problems in Peru. Although the GOP is a
member of the WTO, signatory to the TRIPS agreement and is
in the process of negotiating a Free Trade Agreement with
the United States, government officials do not always act in
accordance with international regulations. We will arrange
a conference call with Eli Lilly and the Department of
Commerce to discuss the facts of this case and the possible
TRIPS violations. We will also bring this case to the
attention of the Peruvian FTA negotiators, stressing the
importance of upholding intellectual property rights,
particularly during negotiations.

STRUBLE