AMBASSADOR'S ROUNDTABLE WITH U.S. PHARMACEUTICALS

UNCLAS BUENOS AIRES 000750

SIPDIS

SIPDIS
SENSITIVE

USDOC FOR 4322/ITA/MAC/OLAC/PEACHER
STATE FOR WHA/BSC AND WHA/EPSC
E FOR THOMAS PIERCE
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E.O. 12958: N/A
TAGS: ECON EINV KIPR AR
SUBJECT: AMBASSADOR'S ROUNDTABLE WITH U.S. PHARMACEUTICALS

Ref: Buenos Aires 335


1. (U) The following cable contains business-confidential
information and should not be distributed via internet.

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SUMMARY
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2. (SBU) Ambassador hosted a roundtable for U.S.-based
pharmaceutical firms doing business in Argentina, including Pfizer;
Merck, Sharp & Dohme; Bristol-Myers Squibb; Eli Lilly;
Janssen-Cilag; Cardinal Health; Baxter; Abbott; Valeant; and Alcon.
Company reps noted that, while their profit margins are being
squeezed by heavy-handed government price controls and increasing
labor costs, Argentina's pharmaceutical sector sales are growing at
double digit rates. They cited flaws in Argentina's patent
protection system including slow issuance of patents, poor linkage
between the GoA entity approving patents and Health Ministry
approval to market generic copies, and a weak legal process to fight
patent infringement. Foreign-owned pharmaceuticals have sold off
the bulk of their Argentine manufacturing operations over the past
decade. However, their clinical pharmaceutical research has grown
rapidly to take advantage of Argentina's highly educated workforce,
relatively low costs, and speed of getting products into the
clinical research pipeline. Companies appreciated the Ambassador's
offer to advocate for improved patent protection. They argued that
the best means to this end is to highlight the high-skilled and
high-wage clinical research jobs U.S. pharmaceutical players provide
-- the kind of jobs that speaks to Argentina's competitive advantage
in higher education and the kind of jobs whose growth is directly
tied to improved IP protection. End Summary.

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ARGENTINA: GETTING BETTER ALL THE TIME, BUT...
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3. (SBU) On April 10, Ambassador hosted a roundtable with Argentine
country managers of U.S.-based pharmaceutical companies including
representatives of Pfizer; Merck, Sharp & Dohme; Bristol-Myers
Squibb; Eli Lilly; Janssen-Cilag; Cardinal Health; Baxter; Abbott;
Valeant; and Alcon attended. (Note: Allergan, Bausch & Lomb,
Schering-Plough, Wyeth and 3M were invited, but unable to attend.
End Note) The Director of the research-based pharmaceutical
chamber, CAEME (Argentine Chamber of Medicinal Specialties),which
represnts the bulk of foreign firms operating here, also attended.


4. (SBU) Company reps agreed that, while margins are being squeezed
due to heavy-handed government price controls and increasing labor
costs, Argentina's pharmaceutical sector revenues continue to grow
at double digit rates, in line with the nation's 5-year strong
economic recovery. The market share of foreign-based firms has
remained at roughly the 50% level, one of the lowest market shares
in all of Latin America, due to GoA policies that favor local
generic players who exploit weaknesses in Argentine intellectual
property legislation and enforcement. While Argentina's current
intellectual property (IP) regime is weak in several areas, they
agreed that it is not significantly worse than IP regimes of
neighboring Southern Cone countries.


5. (SBU) Flaws in Argentina's patent protection system include the
slow issuance of patents, a lack of linkage between outstanding
patents or patent applications and Health Ministry marketing
approval of generic copies, and the legal process to fight patent
infringement. However, there was general agreement that the most
significant problem facing foreign pharmaceutical companies is the
lack of data protection. In the current system, as the Abbott
manager noted, companies which pirate medicines only need to present
copies of marketing approval from another country (such as the


information available on the FDA website) as evidence of the safety
and efficacy of their copied medications. (Note: According to the
Director of ANMAT - the National Administration of Medicines, Food
and Medical Technology, the Argentine FDA equivalent - his agency is
required by their norms to accept that information and grant market
access accordingly. End Note). Abbott's Manager also noted that
the copy-makers time their submissions to take advantage of
advertising by the firm which invented the medicine.


6. (SBU) Pfizer noted significant improvements in the review of
patent applications, but noted that the average patent approval
delay remains over five years. Encouraging further improvements in
GoA patent processing, Pfizer argued, is the single most important
area that pharmaceutical companies -- and the U.S. Embassy -- should
focus on given its potential impact on the bottom lines of U.S.
investors in this sector. Lilly cited their variable experience in
winning court injunctions on patent infringement, including one
battle which has been going on in court for two years with no
success, while on ten other cases injunctions were easily obtained.
The difference was that the ten cases were for molecule patents
(which have only recently begun to be issued in Argentina) and the
longstanding case depended on an older, process-based patent.


7. (SBU) On the issue of "linkage" (making marketing approval
granted by health authorities contingent upon a lack of conflicting
patents or patent applications),the CAEME Director stated that
requiring ANMAT to adopt the practice would take a presidential
decree, and there was no political will to do so. (Note: AMMAT's
requirement to accept certain foreign health authority approval is
based on a 1992 presidential decree. End Note).

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CLINICAL RESEARCH - SUBSTITUTE FOR MANUFACTURING
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8. (SBU) Company reps saw Argentina as a desirable place to conduct
clinical research trials because of its highly educated workforce,
relatively low costs, and speed of getting products into the
clinical research pipeline. CAEME noted that, in 2006, its members
invested approximately $100 million in such trials, of which roughly
$30-40 million came from U.S. firms. CAEME firms hired
approximately 5,000 clinical researchers in 2006, vs. 2,500 in 2003.
Pfizer and Merck both noted that, although Argentina's skilled
labor was generally superior to that found in Brazil, they would
prefer to do the same research in Brazil, since IPR protection is
better there. Bristol-Myers Squibb indicated that company
headquarters would likely divert new research opportunities to other
countries if Argentina's IPR regime did not improve. There was
broad agreement that U.S. pharmaceutical companies' investment in
clinical research -- and the potential for additional investment --
offered them a point of leverage in encouraging the GoA to improve
intellectual property protection.


9. (SBU) However, Abbott commented that, in discussions with GoA
officials, they were told that the GoA favored investment in
domestic "brick and mortar" production over clinical research. Many
of the firms present, and other foreign-based pharmaceuticals, have
sold their Argentine plants to local generic manufacturers in recent
years. CAEME noted that firms in the chamber used to have a total
of 35 plants in Argentina, and now own just 10. As a result,
domestically owned Argentine pharmaceutical companies provide over
70% of the sector's 15,000 direct jobs.

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ARGENTINE PHARMACEUTICAL SECTOR BACKGROUND
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10. (SBU) Argentina's market for prescription pharmaceuticals
totaled $2.6 billion in 2006, and has grown fairly quickly (up 16%


in 2004, 13% in 2005, and 12% in 2006). Market share by
foreign-owned firms in 2006, was about 48% a share that has remained
fairly constant over the past five years. Prior to the 2001/2
economic crisis, foreign owned firms had a somewhat higher, though
declining, market share. Contacts have told us that Argentine
domestic manufacturers hold the highest domestic market share in all
of Latin America.


11. (SBU) This high percentage of domestic generic sales is not/not
due to more competitive pricing; multinational pharmaceutical firms
note that generic prices are proportionally higher here than in
other countries. The high share can be attributed to the historic
presence of a strong local generic industry and flaws in Argentina's
IPR regime, including the ease with which illegitimate copy makers
can gain health marketing approval. It is also due to the influence
of their strong lobby to protect the status quo, as well as the
recent shift in ownership of production facilities. Also, local
firms have a solid reputation for quality, and are notably active at
present (jointly with CAEME) in a campaign against "truchos"
medicines (meaning "fake," but in the sense of trademark, not patent
violations),some of which have contributed to serious health
concerns.


12. (SBU) Flaws in the GoA IPR regime have hit the Argentine
research-based pharmaceutical industry particularly hard. Despite
fast-track procedures, difficulties in patent processing still
result in long patent issuance delays, reducing the effective length
of patent protection. Additionally, the 2004 patent law (passed
after GOA-USG negotiations) has slowed the injunctive relief process
for some firms that have found their patents violated. Under
Argentine law, health regulators cannot consider the existence of
any patent when making market approval decisions about a product
(i.e., there is no linkage),but must accept as proof of safety and
efficacy data belonging to the company that did the research.
However, this information is often presented in Argentina by a
company that wishes to market illegal copies, and accepting the data
in such cases appears to violate the principle of "data
confidentiality" found in TRIPS Article 39.3.

SIPDIS

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Embassy Advocacy
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13. (SBU) The companies appreciated the Ambassador's offer to
support them and work on their behalf with the GoA for expanded IP
protection. They said the best GoA person to approach would be
Cabinet Chief Alberto Fernandez, an influential GoA insider. While
the Cabinet Chief does not have GoA line authority on IP issues,
they consider the normal IP interlocutors from the Industry
Secretariat in the Ministry of Economy to be wholly unsympathetic to

SIPDIS
foreign-based pharmaceutical company IP and pricing concerns.
(Comment: Unfortunately, Fernandez is also one of the busiest GoA
Ministers.)

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COMMENT
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14. (SBU) Roundtable participants offered a candid, balanced
assessment of the risks and rewards of doing business in Argentina's
pharmaceutical sector. They appreciated the Ambassador's offer of
support, but made clear their doubt that either individual company
or USG advocacy will have much impact on a GoA mindset that favors
domestic capital, domestic production and large-scale employment
generation. Perhaps the best means to seek better intellectual
property protection for U.S. company pharmaceutical products in
Argentina is to highlight the high-skilled and high-wage clinical
research jobs they provide -- the kind of employment that speaks to
Argentina's competitive advantage in higher education and the kind



of employment whose potential growth is linked to improved IP
protection.

WAYNE