R 281104Z JUN 05 – June 28, 2005
FM AMEMBASSY BRASILIA
TO SECSTATE WASHDC 1902
SUBJECT: BRAZIL GIVES ABBOTT TEN DAYS BEFORE BREAKING PATENT
1. (U) 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, nothing that the three ducts 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 [excised]
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. [excised]
7. (U) According to Brazil’s legislation and regulations, a compulsory license may be issued for reasons of national emergency or public interest; in 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 percent incidence rate for AIDS and its status as an advanced developing country. By using an “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 be 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 thread) 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 that will involve Costa departing the Ministry (for reasons related to AIDS patients) 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 [sic]. 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 guidance from Washington agencies.
12. (U) June 24 Declaration of Public Interest (English version as given on the MoH website, with divergence from the Portuguese version noted) – [included, but not reproduced.]