Waal Street Journal - September 5, 2003
Miriam Jordan, Staff Reporter of The Wall Street Journal

SAO PAULO, Brazil -- Raising the stakes in a high-profile battle over drug prices, Brazil is expected to publish a decree Friday that authorizes imports of generic versions of patented AIDS drugs that the country says it can no longer afford to buy from multinational pharmaceuticals companies.

The decision drew praise from advocates of Brazil's innovative AIDS program, which keeps 135,000 people alive by supplying them with free drugs. But critics warned it could reopen an extremely sensitive issue that members of the World Trade Organization thought they had laid to rest just last weekend, ahead of a key WTO meeting in Cancun, Mexico, next week.

Among other things, it could provoke retaliation from Washington or the drug companies, which are trying to balance their intellectual-property rights with the need to appear responsive to poor countries suffering from runaway diseases.

"They're playing with fire," says Jon Huenemann, a former assistant U.S. trade representative who is now with the Washington consulting firm of Fleishman-Hillard. "The sensitivities of this are obvious and we're right on the edge here."

At the very least, the decision appears designed to bring maximum pressure on three makers of the AIDS drugs: Abbott Laboratories, Merck & Co. and Roche Holding AG. Brazil has been in negotiations with the companies for weeks, demanding at least a 40% cut in the price of three drugs, Lopinavir, sold as Kaletra in the U.S., Efavirenz, also known as Sustiva, and Nelfinavir, also known as Viracept. But the talks haven't advanced, according to Brazilian health officials.

"We prefer to negotiate but we have to change our legislation so that we can produce [these drugs] locally or import them from countries that can sell them for a lower price," said Alexandre Grangeiro, the AIDS program's chief.

Brazil's AIDS program is anchored in the local manufacture and free distribution of generic versions of AIDS drugs. The country produces seven of the 14 drugs it distributes. But the cost of the three patented drugs, which the country doesn't produce, accounts for 63% of its $200 million annual budget for AIDS drugs and threatens Brazil's free-drug policy, health officials say.

Latin America's largest country is considered a model for the prevention and treatment of AIDS. Its epidemic hasn't reached the proportions of Africa; nor is it as poor. But it is the only large developing country that distributes AIDS drugs to all those who need them. It costs Brazil about $2,000 a year for each patient to provide antiretrovirals, far less than the $12,000 it costs per person for treatment in the U.S. Still, the cost is beyond the means of the majority of the estimated 500,000 Brazilians who are HIV positive.

Brazil's decision follows a WTO deal last week that allows poor countries to import or produce generic versions of patented drugs to combat illnesses such as AIDS and malaria in a public health emergency. The carefully constructed accord expanded on a previous WTO rule that allowed poor countries to violate patents in manufacturing generic versions of drugs, but not to import such drugs.

Many experts saw the new rules as intended to help the poorest of the poor countries that had no domestic drug-manufacturing capabilities and so were incapable of making generic drugs on their own. But Brazil has a vibrant drug industry and has been a leader in developing generic versions of popular drugs. Indeed, Brazilian officials say they have already reverse-engineered the three drugs in question. But they added that they wouldn't be able to manufacture them in sufficient quantities soon enough to relieve the immediate financial burden of their AIDS drug program.

Brazil says its new policy doesn't technically fall under the recent WTO agreement. The decree signed by President Luiz Inacio Lula da Silva enables Brazil to acquire AIDS medications that it doesn't produce itself from countries, such as India and China, which don't have to comply with international patent laws until 2005.

Analysts on both sides of the debate saw the move as at least taking advantage of a climate of flexibility sparked by the recent WTO accord. "Brazil is taking the lead again in ensuring universal access to antiretroviral drugs," said Ellen t'Hoen, a coordinator for Paris-based Medecins Sans Frontiers. "It is showing the political will to implement WTO flexibility. This is extremely good news."

Merck supplies Efavirenz to Brazil for $2.10 a daily dose. A Merck executive said the company sells the drug for 95 cents a day to poor African countries in accordance with a United Nations index.

"We reduced our price to Brazil by 85%" during the past two years, said David Greeley, Merck's director of public relations for Latin America. "We are reviewing Brazil's request for a price reduction against our global policy." Merck said it also is studying a Brazilian request for a license from Merck to produce Efavirenz locally, which would guarantee the patent isn't violated. Brazil says it can produce Efavirenz for about 90 cents and intends to import it until it can make the drug on a large scale.

Two years ago, Brazil threatened to produce copies of two AIDS drugs at a local laboratory. Roche ultimately reduced the price of Nelfinavir, or Viracept, by half. Now, Brazil says it can make the drug for even less. A Roche spokesman in Basel, Switzerland, expressed surprise at Brazil's decision to issue a decree. "Our first priority is still to come to a mutually acceptable solution," spokesman Horst Kramer said. Abbott supplies Lopinavir, branded as Kaletra, for $1.50 a capsule to Brazil. The company said it hoped to keep selling to Brazil but said the company offers the drug at a lower price only to impoverished African countries. Brazil says it can produce the drug or acquire a generic version for about 25 cents a capsule.

--Vanessa Fuhrmans and Scott Hensley in New York and Scott Miller in Brussels contributed to this article.

Write to Miriam Jordan at miriam.jordan@wsj.com

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