Global Insight Perspective | |
Significance | Brazil has declared Merck & Co’s antiretroviral efavirenz to be “of public interest”; the first step in a compulsory licensing process. |
Implications | The government is demanding that Merck match the price for the drug in Thailand, which has also threatened a compulsory license. However, there are reasons not to expect such a steep cut in Brazil’s case. |
Outlook | There is every possibility of a compromise in the medium term; on a cost-benefit analysis, the savings from infringing Merck’s patent do not outweigh the likely repercussions. |
The Brazilian government has taken the first step towards the compulsory licensing of U.S. firm Merck & Co’s leading antiretroviral (ARV) drug, efavirenz. By declaring the medicine to be ”of public interest” in the country’s official gazette, the way is now open for President Luiz Ignacio Lula da Silva to eventually decree a compulsory license for the drug.
In Abbott’s Shadow
Merck now has one week to accede to the health ministry’s demand that Brazil is granted a price of US$0.65 per dose—the same price that was recently established by the authorities in Thailand. At present, the government’s STD-AIDS programme distributes the drug to around 75,000 sufferers at a cost of US$1.59 per dose. An offer by Merck to cut the price for supplies by 2% under a new contract for 2007-08 was rejected after what the new health minister, José Temporão, describes as “nine fruitless meetings”. For its part, Merck notes that it has already cut the price of efavirenz by 17% in 2003 and 25% shortly thereafter.
Evidently, the offer of a 2% cut was not enough to satisfy Temporão, and this concession probably only constitutes the opening shots in the now-familiar game of hardball over ARV pricing in Brazil. In 2005, after a long-running battle over compulsory licensing, the U.S. pharmaceutical firm Abbott Laboratories agreed to cut the price of its anti-AIDS medicine Kaletra (lopinavir/ritonavir) from US$1.17 to US$0.63 per dose. More recently, Bristol-Myers Squibb announced in January that it had cut the price of its ARV Reyataz (atanazavir) from US$6.58 to US$6.13 per dose. The drug is in the early stages of being rolled out to some 30,000 patients.
Room for Manoeuvre?
In fact, there are several factors that suggest that a very steep cut—at least along the lines of Thailand—may not be feasible in the case of efavirenz. Not only does Merck sell the drug to Brazil at “near cost price”, but the health ministry believes that the savings from securing efavirenz at US$0.65 per dose would amount to approximately US$30 million. This is only half what the government saved by cutting the price on Kaletra, and equal to just 6% of the AIDS scheme’s annual cost. There are also doubts that the three Indian companies that are designated by the World Health Organization (WHO) as “pre-qualified” suppliers of the generic—Cipla, Aurobindo and Ranbaxy—would be able to do so without jeopardising treatment regimes or product quality in the short run. Finally, Merck has clearly learned from the Kaletra experience. The firm has offered incentives for Brazil to stay loyal to its patented drug, sketching out a technology transfer deal that would see efavirenz enter state-controlled production in Brazil before patent expiration in 2011. In the international arena, Merck defends its pricing on the basis of a ”global access” deal with multilateral agencies, including the United Nations and the World Bank. This agreement determines prices according to national income (as measured by the Human Development Index) and disease prevalence. As a middle-income state with an AIDS prevalence of less than 1%, Brazil’s price band for efavirenz is higher than that for Thailand, where the rate of prevalence exceeds the 1% threshold.
On the other hand, Brazil clearly wants to keep its options open with regard to compulsory licensing. In February 2007, a Brazilian court ruled that a tender for generic efavirenz—which would have enabled the leading state manufacturer Farmanguinhos to develop a generic version using ingredients sourced from India—was quite legal. Then there are the economics of Brazil’s AIDS programme to consider: the health ministry estimates that spending on antiretroviral drugs doubled in the four years to 2005, reaching nearly one billion Brazilian reais ($496 million). Moreover, the programme is believed to reach little more than two-thirds of the people who need treatment.
Outlook and Implications
It is therefore important to understand the historical context as the battle between the research-based pharmaceutical sector and the Brazilian government over ARVs pricing resumes. One point that stands out is that Brazil has never issued a compulsory licence; in 2005 the authorities came close over Kaletra, but in that case it is arguable that the stakes were much higher than now. Assuming that Brazil does not want to risk its international image in order to save US$30 million, some form of compromise should be achievable.
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- 6 April 2007: Multinationals Challenge Brazil’s Public-Sector Drug Price Cut
- 26 February 2007: Judge in Brazil Eases Path to Compulsory Licence for Efavirenz
- 12 February 2007: Brazil "Doesn’t Need Technology" to Break ARV Patents, Says Lobby Group
- 5 January 2007: BMS Inks New ARVs Supply Deal with Brazilian Government