May 09, 2007

Brazil breaks patent on AIDS drug to cut health cost

Brazilian president Luiz Inacio Lula da Silva broke the patent on Merck & Co’s AIDS drug Efavirenz after the company’s offer to cut prices failed to satisfy demands from the country’s health ministry.

Lula, in a presidential palace ceremony recently in Brasilia, signed a law allowing the government to buy a generic version of Efavirenz from laboratories certified by the World Health Organisation. The government would consider a new proposal from Merck, should the company choose to make one, health minister Jose Gomes Temporao said.

The presidential decree marks the first time Brazil has by-passed a patent since the country recognised patent protection for drugs in 1996, Lula said. The government is pushing for lower drug prices to limit the cost of its programme providing free treatment to all 200,000 people in the country infected with AIDS and the HIV virus, he said.

The move highlights a debate among drugmakers over whether to cut prices, sometimes to below cost, in certain countries. Merck, the third-largest US pharmaceutical maker, said Brazil’s move may discourage companies from investing the hundreds of millions of dollars needed to find new treatments for disease in poor nations. Merck does not report sales for the AIDS drug in Brazil, which likely had an insignificant impact on its $23 billion in sales last year.

“Research and development-based pharmaceutical companies like Merck simply cannot sustain a situation in which the developed countries alone are expected to bear the cost for essential drugs in both least-developed countries and emerging markets,” the company said in a statement.

Merck offered to cut the government’s cost for the drug by 30% to $1.10 a pill from $1.59. The health ministry demanded a price of US 65 cents a pill, the same as that paid by Thailand, which has also considered breaking patents on some heart and HIV/AIDS drugs.

Merck shares rose 37 cents, or 0.7%, to $51.92 in the New York Stock Exchange composite trading. The Whitehouse Station, NJ-based company said its offer to Brazil was “the lowest of any country with a comparable wealth and disease burden”. Brazil has the 12th largest economy in the world and its AIDS infection rate is less than 1%, compared with 1.4% in Thailand, Merck said.

Merck cut the price of the drug in February to 65 cents a day at the 600 milligram dose, down from 76 cents, for patients and health-care providers in many countries in Africa and Asia and others where more than 1% of the population is infected. “We cannot pay more for a medicine when the same drug is sold at a much cheaper price in another country,” Lula said.

Brazil will save $30 million this year by purchasing the generic, compared with $42.9 million it would otherwise pay Merck. It will cut $237 million from its AIDS drug bill through 2012, when the patent right would expire, the health ministry said. Efavirenz is the principal component in a 17-drug cocktail to treat AIDS and is used by 38% of AIDS patients.

Brazil will spend 4.2 billion reais ($2.07 billion) on the purchase of all medicines this year, which accounts for 12% of the ministry’s total budget, Temporao said.

Lower prices will free up funds to expand and improve treatment for hepatitis, an illness common among AIDS patients, he added. The government said its decision respects a ruling by the World Trade Organisation, which agreed in 2001 that countries with emergency health issues could, within limits, break patent protection. “At this moment, there’s no other urgent problem but we’ll negotiate whenever we understand our AIDS programme is at risk,” Temporao said.

Brazil is in continual talks with the drug companies that provide nine of the 17 drugs in the AIDS cocktail, he said. The other 8 are produced in local laboratories and are not patented, he said.

In Thailand, which treats 16,000 AIDS patients, health officials will meet with four drug companies, including Abbott Laboratories and Sanofi-Aventis SA, on May 14 in Bangkok to negotiate lower prices, said Siriwat Thiptharadol, secretary-general of the country’s food and drug agency.

The Thai government will consider any discounts offered as an alternative to so-called compulsory licensing, Siriwat said recently, referring to a regulation usually reserved for extreme situations like wars and pandemics.

Last week, Lula declared the medication ‘of public interest’. The designation, which gave the president power to issue a compulsory licence for three years, wasextended to five years today and allows the government to purchase the generic version from laboratories certified by the WHO, said Mariangela Simao, the head of the ministry’s AIDS treatment programme. All three of the laboratories are in India. The government agreed recently to pay Merck 1.5% of the price of the generic drug as a royalty for three years, a position Lula reiterated.

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