Lula Ignores Drug Patent That Would Reduce Poor Brazilians' Access to HIV/AIDS Medications

Sources: AIDS Drug Negotiations Break Down Between Brazil and Merck; Brazil Breaks AIDS Drug Patent with Generic Version from India; Brazil Bypasses Patent on U.S. AIDS Drug; Brazil Overrides Merck Patent on HIV Drug; Indian Generic Drug is Brazil’s Pick

On May 4, 2007, following three years of failed negotiations with the American pharmaceutical giant Merck & Co., Brazilian President Luiz Inácio Lula de Silva issued a “compulsory license" for Efavirenz, an anti-retroviral drug used by people infected with HIV/AIDS. The Brazilian government had attempted to induce Merck & Co. to reduce the price of Efavirenz after classifying it as a drug “of public interest” on April 25 and asked the company to make Brazil a better offer. Merck & Co. responded by offering a 30% discount ($1.10/pill, down from $1.57) that President Lula da Silva, heeding the advice of Health Minister José Gómes Temporão, promptly rejected. Generic Efavirenz sells for as low as $0.45/pill; Brazil hoped to negotiate a price of $0.65/pill, the price Merck & Co. charges Thailand. Lula da Silva’s signed decree effectively bypasses Merck & Co.’s patent on the drug, permitting the Brazilian government to import rival generic versions of Efavirenz or produce it locally, and thereby escalates the global conflict over drug pricing between the pharmaceutical industry and developing nations, particularly with respect to HIV/AIDS.

Although the country has threatened to break drug patents in the past, Friday’s decree was the first time the Brazilian government had ever followed through on such a threat; in previous negotiations with large pharmaceutical companies, threatening to break patents actually won price reductions for the Brazilian government. Such was the case in 2005, when Abbott Laboratories negotiated an agreement for Kaletra, another anti-AIDS drug.

Brazil has justified its action in boosting affordable AIDS medicine on the 2001 World Trade Organization (WTO) Trade Related Intellectual Property Rights (TRIPS) agreement, which authorizes developing countries to privilege public health over intellectual property by issuing compulsory licenses in health emergencies or when pharmaceutical companies engage in abusive pricing. The compulsory license mechanism allows the developing country to legally manufacture or buy generic versions of patented drugs while paying a small royalty to the patent holder. Merck & Co.'s Vice-President Jeffrey Sturchio, in contrast, has characterized Brazil’s action as an expropriation of intellectual property and said that it “will have a chilling effect on whether companies research diseases of the developing world and in the long term will have an impact on the poorest countries.”

Under Brazil’s public health policies, the government provides free AIDS drugs, condoms, and syringes to the poor. Approximately 180,000 Brazilians receive free AIDS drugs, but among these, only 75,000 take Efavirenz. This policy has stabilized HIV infection rates in Brazil to a level comparable with the infection rate in the United Stats: around 0.6% in adults. Merck & Co. points to Thailand's higher prevalence of HIV in explaining the $0.65–$1.57 price differential.

Some news agencies report that President Lula da Silva’s Chief of Staff has yet to decide whether to allow Brazil to manufacture or to import generic versions of the drug, while other sources report that Brazil will purchase generic Efavirenz from three companies in India at a 72% discount and will pay Merck & Co. a 1.5% royalty on these imports.

For Discussion:

What kind of bargaining power exists between giant pharmaceutical companies and governments of developing countries? What is the proper balance to be struck between rewarding innovative pharmaceutical companies and promoting public health by offering free access to AIDS medications? Should intellectual property laws be enforced in a more flexible manner in order to protect the health of those living in developing countries?