Remember the movie “Brazil?” It’s one of those surreal Terry Gilliam creations where up is down and down is up and Robert DeNiro stars as a subversive HVAC repairman. Anyway, it’s time to revisit the world’s largest Portuguese-speaking nation — and this time it’s not for fun. Have a look at what CMPI advisory board member Doug Bandow (of the Cato Institute) has to say.
The American Spectator
Bad Boys From Brazil
By Doug Bandow
Drugs offer incredible medical benefits. Everyone wants to take them. Drugs cost a lot to develop. No one wants to pay for them, as Brazil has demonstrated in preparing to steal several pharmaceutical patents.
The tension between access to existing medicines and creation of new ones is particularly stark in poor nations. The regular price of HIV/AIDS treatment regimens exceed per capita incomes in some countries.
Although activists routinely vilify the pharmaceutical companies, only their extensive R&D activities generate the products that keep tens of millions of people alive. Leading companies widely discount and donate their drugs in the Third World and work with charitable groups to build health infrastructure and distribute antiretrovirals.
No good deed goes unpunished, however. Even residents of rich countries don’t want to pay for life-saving medicines. Most industrialized states impose one or another set of price controls on drugs, blatantly free-riding on the scientific creativity of American firms.
Other states make even less pretense of respecting the property rights of U.S. drugmakers. Such as Brazil. Despite its manifold economic and social woes, it has the largest economy in Latin America, ranking 11th in the world. Per capita GDP runs about $8,100 — behind the U.S., but ten or more times that of the dozen poorest African states.
Yet Brasilia believes that other nations — or, more accurately, companies from other nations — owe it a medical free lunch. The government wants to save money in its health budget (what country does not?), so it expects to buy AIDS drugs at fire sale prices. Brazil backs up its demands by threatening to steal the makers’ patents.
International intellectual property rules allow use of compulsory licensing of patents, but only in public health emergencies. Brasilia, however, has never let juridical niceties stand in the way of forcing down drug prices.
IN 2001 BRAZIL BEGAN THE process of issuing a compulsory license for Viracept (nelfinavir), an AIDS drug, unless Hoffman-La Roche lowered the price. The company accepted a 40 percent cut on its already discounted price.
Two years later Brazil was back, demanding price cuts from Roche, again, as well as Bristol-Myers Squibb and Merck. To back its ultimatum, Brasilia threatened to confiscate the drug patents.
Brazil prepared a formal decree to authorize importation of “any generic medication in case of a national emergency or in the interest of public health.” Even more ominously, Health Minister Humberto Costa indicated that Brazil would provide discounted AIDS medications to its Latin American neighbors, opening the international floodgates.
Brasilia’s extortion caused the companies to slash the prices of their anti-AIDS drugs. The final cost of Merck’s STOCRIN ended up little above that in Sub-Saharan Africa.
Despite its debt problems, Brasilia was not broke. It simply wanted to save cash. Alexandre Grangeiro, coordinator of the Ministry of Health’s AIDS program, explained: “We need a price reduction now, because of our budget limitations.” Similarly, said Dr. Paulo Roberto Teixeira, Director of the Brazilian National STD/AIDS Programme: “In previous negotiations, we managed to get the prices of these drugs reduced, but now we want to lower the costs even further.”
Brazil is wielding the same weapon yet again. Only this time Brazilian officials are demanding that Abbott Laboratories, Gilead Sciences, and Merck turn over their knowledge through “voluntary licensing,” allowing Brazil, either through government operations or private manufacturers, to produce generic copies.
Brazil might be a major economic player, but why pay for what you can steal? “Even with recent price reductions that we obtained from drug producers, the total cost of retroviral drugs is growing in an unbearable way,” explained Jarbas Barbosa, a health ministry official. (Ironically, early in May Brazil rejected a $40 million U.S. grant for AIDS treatment in protest of the accompanying conditions.)
These are “negotiations” in name only, since Brasilia will accept only one result. Said Barbosa: “We’re interested in a fast negotiation. But if we’re obliged to use the compulsory licensing we will do so as a last resort.”
Brazil’s lower house has since voted to suspend patents for AIDS drugs. At the end of June the government announced that it was going to appropriate Abbott’s Kaletra. Brasilia announced that the company had two weeks to make a counter-offer.
Understandably, the company caved, agreeing to provide ever-increasing amounts of its drug at the amount expenditure, and to yield its technology in 2015. But these concessions were like blood in the water for sharks. Brazil’s health minister, Correio Braziliense, announced that the tentative accord wasn’t enough: “The process of a compulsory license is still ongoing and breaking the patent has not been discarded as a final alternative.”
Which means Abbott will have to give more or lose its patent. Then next on the target list are Gilead Sciences and Merck, with whom Brasilia is conducting Don Corleone-like “negotiations.”
THE U.S. GOVERNMENT SHOULD punish Brazil economically — “as a last resort,” of course.
Washington generally has no duty to protect the profits of American firms that operate overseas. But in this case firms have no opt out — Brazil simply says, give us your product or we will seize it, irrespective of where you conduct business.
The consequences are potentially dire. Antiretrovirals exist only because profit-minded drugmakers have invested billions of dollars in R&D. Roberto Gouvelo, a legislator from the governing Workers’ Party, complained that one AIDS drug purchased by the government costs ten times its production cost. Unfortunately, however, industry investments must cover not only the successes, but also the failures, which are many. Even larger outlays are likely to be necessary to develop a vaccine for HIV/AIDS, as well as cures for a multitude of other serious diseases.
Should countries take new medicines whenever they want to pay less, pharmaceutical manufacturers will turn their attention to less important but less risky endeavors (most notably the “me-too” drugs routinely denounced by industry critics). It would be bad enough if Brazil stole American medicines for its domestic market. But if Brasilia begins exporting generic substitutes, it could destroy pharmaceutical innovation.
Brazil’s threats highlight another problem. By artificially driving down prices, such controls increase the gap between domestic and foreign prices, creating the perception that drugmakers are treating American consumers unfairly. That, in turn, increases pressure for so-called reimportation of the very drugs being sold under foreign price controls.
Washington should attempt to educate Brasilia. India serves as a good example: once a celebrated patent-breaker, New Delhi now sees pharmaceuticals as an emerging industry and has instituted a legal regime to protect intellectual property.
The U.S. also should indicate that Brazil’s behavior risks disqualifying it from joining any free trade system including America. The de facto theft of U.S. patents is inconsistent with open access to the American market.
Since Brasilia continues to misuse patent provisions intended to resolve a health care emergency, Washington should file a complaint before the WTO. Washington should consider direct sanctions as well.
Brazil certainly does not deserve preferential access to the U.S. market under the generalized System of Preferences (GSP) program. Brasilia’s ability to export $2.5 billion worth of goods to America duty-free already is undergoing a special review while the USTR considers the effectiveness of a Brazil’s system to combat copyright privacy. The Bush administration also should use a Special 301 investigation and penalize Brazilian exports.
Moreover, Congress should empower the U.S. Trade Representative to suspend recognition of intellectual property rights for companies headquartered in countries that violate American copyrights and patents. Retaliatory sanctions obviously should be a last resort, since a trade war is in no one’s interest. But if Brazil hopes to become a significant economic power, it should stop looking at U.S.—made pharmaceuticals as a free lunch.
If people won’t pay for their medicines, drugs won’t be created. Washington must protect the intellectual property which has created a medical boon for the entire world.
Doug Bandow is a Senior Fellow at the Cato Institute.