Voluntary Licenses for Local Production of Antiretrovirals in Brazil

September 9, 2008
Professor Brook K. Baker, Health GAP
Northeastern Uiversity School of Law
Program on Human Rights & the Global Economy

Brazil issued a compulsory license on efavirenz, an ARV, shortly after Thailand had done so. As reported, Brazil has been importing generic efavirenz at a fraction of Merck's cost while it has been simultaneously trying to build capacity to manufacture generic efavirenz locally. Some companies, like Abbott in Thailand, like to play hard ball, but other companies, like Merck, try to stop generic competition by entering into temporary deals that match generic prices or create public/private partnerships for local production, even if that means that the innovator loses money. In other words, the principle of freezing out generics for the long haul, especially the established generic industry in India and especially in richer middle income countries like Brazil, is more important than short-term loss of profits.

Brazil has improvident entered into pricing deals with Big Pharma previously. Earlier in the 2000's, Brazil would threaten to issue compulsory licenses and then settle for long-term, and ultimately disadvantageous price discounts that included offers of technology transfer at the end of the patent term. Using this strategy, Brazil got locked into a deal with Abbott Laboratories that might have required it to purchase lopinavir/ritonavir at over $1600/pppy for several more years, even after Abbott was forced to lower the middle-income country access price to only $1000/pppy because of the compulsory license issued by Thailand. (Happily for Brazil, it too was eventually offered the $1000/pppy access price.) Even this price, however, is far in excess of Abbott's low-income and African access price of $500/pppy - a price that is now nearly matched by generic producers in India according to recent Clinton Foundation announcements.

The Merck deal for Brazil is unique because it offers a "partnership" agreement - essentially a voluntary license - during the life of the patent. In this regard, Merck is following the voluntary license practice that is now common in South Africa where ARV producers routinely grant voluntary licenses to Aspen Pharmacare to avoid being hauled before the Competition Commission. Unlike South Africa, which is permitted in many such licenses to export regionally, it is highly unlikely that Brazil's license will allow export to other Latin American countries which still pay much higher prices to Merck.

Although it is understandable that Brazil should want to increase its domestic pharmaceutical capacity (and hopefully to do so up to global Good Manufacturing Practices quality standards), it does not have to give way to Merck's sweetheart deal if it contains provisions that are less advantageous than those provided by a compulsory license. For example, a properly drafted compulsory license on efavirenz would give Brazil the right to produce or import fixed-dose combination products containing efavirenz, such as the current FDC of TFV/FDC/EFV (Atripla). Importing or producing such FDC products might ultimately required compulsory licenses on all of the patented components, but that would be a small inconvenience compared to the advantage of gaining lower cost access to the new standard of care for first-line therapies.

It may well be that voluntary licenses will be part of the long term solution to the crisis in access to medicines, especially if they are offered to patent pools (like that proposed for UNITAID) that can aggregate developing country markets and incentivize therapeutically appropriate formulations. But, Brazil should not be sweet-talked again (or threatened behind the scenes) into accepting a sub-optimal public-private-partnership or licensing deal with Merck or anyone else.

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