Vous êtes sur la page 1sur 166

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

Technical, economic and legal evaluation of antiretroviral production capacity in Brazil

Organizer: Francisco Rossi

Authors: 1. Antunes, Maria Adelaide de Souza 2. Basso, Maristela 3. Beas Rodrigues Jr, Edson 4. Cassiolato, Jos Eduardo; 5. Elias, Luiz Antonio, 6. Zucoloto, Graziela.

Francisco Rossi - Braslia, 2008. 166 p. : ill. Includes Bibliographical References Francisco Rossi, II. International Poverty Centre. ISBN - Pending CDD 338.064

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

CONTENTS
List of Illustrations..............................................................................................................................................4 List of Acronyms................................................................................................................................................5 Introduction.........................................................................................................................................................7 Acknowledgements.............................................................................................................................................9 Organizers Note...............................................................................................................................................10 EXECUTIVE SUMMARY...............................................................................................................................11 Technical Evaluation........................................................................................................................................13 Legal Evaluation................................................................................................................................................17 Economic Evaluation.......................................................................................................................................21 Lessons Learned................................................................................................................................................29 Notes on the Methodology..............................................................................................................................33 TECHNICAL EVALUATION........................................................................................................................35 LEGAL EVALUATION...................................................................................................................................49 1. The Brazilian Legal Framework for the Protection of Pharmacochemical and Biopharmaceutical Inventions..............................................................................53 2. Instruments of Industrial Property Rights Not Used by Brazil to Foster Competition and Access to Medication.......................................................................75 3. Instruments for Promoting Access to Medication outside the Intellectual Property Protection System...................................................................................99 4. The Right to Access the Health, Intellectual Property and Building the Capacity of the Judiciary Branch: a reconcilable relationship?.........................................111 5. Final Observations.....................................................................................................................................113 ECONOMIC EVALUATION....................................................................................................................117 1. Introduction.................................................................................................................................................117 2. International Panorama of the Pharmaceutical Industry.....................................................................119 3. The Pharmaceutical Industry in Brazil....................................................................................................129 4. Intellectual Property...................................................................................................................................146 5. Policy Proposals..........................................................................................................................................154 References Legal Evaluation.......................................................................................................................157 References Economic Evaluation........................................................................................................161

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

List of Illustrations
Technical Evaluation

Table 1 International and national ARV producers.................................................................................42 Table 2 Antiretroviral patents INPI........................................................................................................43 Table 3 Antiretroviral patents worldwide..................................................................................................44

Legal Evaluation

Figure 1 Brazilian pharmaceutical market................................................................................................91 Figure 2 Brazilian pharmacochemical market..........................................................................................92 Figure 3 Amoxil price variations following the introduction of generic medication on the Brazilian market...................................................................100 Figure 4 Consumer savings arising from the replacement of brand medication with generic medication.....................................................................101

Economic Evaluation

Table 1 Biggest world pharmaceutical industry companies (by sales, 2004).....................................120 Table 2 Pharmaceutical sector R&D expenditure, by source of funding, 1985 and 2001 (in %)..125 Table 3 Principal medication and active ingredient (pharmacochemical) producers in Brazil.......130 Table 4 Foreign trade evolution drug chemicals and medication....................................................131 Table 5 Foreign trade composition by region, 2001.............................................................................131 Table 6 Ministry of Health expenditure on antiretroviral drugs.........................................................136 Table 7 Cost of AIDS drugs.....................................................................................................................139 Table 8 AIDS drugs production..............................................................................................................139 Table 9 Government purchases made by the official laboratories......................................................143 Table 10 Government purchases made by the official laboratories....................................................143 Table 11 Pharmaceutical patent applications in Brazil, by country of origin....................................149 Table 12 Pharmaceutical sector patent applications (1990-2001)....................................................151 Table 13 Pharmaceutical industry technology transfer contracts, by company (Brazil, 1992-2001)...................................................................................................................153 Figure 1 Morphology of the health industry complex.........................................................................119 Figure 2 Criteria for therapeutic equivalence.ica...................................................................................133 Graph 1 Pharmaceutical sector imports (US$ ,000)..............................................................................132 Graph 2 Total ARV expenditure per average number of patients treated in Brazil........................137 Graph 3 Share of AIDS medication production...................................................................................138 Graph 4 Share of AIDS medication costs..............................................................................................138

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

List of Acronyms
ABIFINA - Brazilian Association of Fine Chemical Industries (Associao Brasileira das Indstrias de Qumica Fina) ABIQUIF - Brazilian Pharmacochemical Industry Association (Associao Brasileira da Indstria Farmoqumica) ALANAC - Association of National Pharmaceutical Laboratories (Associao dos Laboratrios Farmacuticos Nacionais) ANVISA - National Health Surveillance Agency (Agncia Nacional de Vigilncia Sanitria) API - Active Pharmaceutical Ingredient ARV - Antiretroviral BNDES - National Economic and Social Development Bank (Banco Nacional de Desenvolvimento Econmico e Social) CADE - Administrative Council for the Defence of Competition (Conselho Administrativo de Defesa da Concorrncia) CNPq - National Council of Scientific and Technological Development (Conselho Nacional de Desenvolvimento Cientfico e Tecnolgico) COFINS - Tax for Social Security Financing (Contribuio para o Financiamento da Seguridade Social) EMEA - European Medicines Agency FDA - Food and Drug Administration FEA-USP - University of So Paulo Faculty of Economics, Administration and Accounting (Faculdade de Economia, Administrao e Contabilidade da Universidade de So Paulo) FIOCRUZ - Oswaldo Cruz Foundation FTAA - Free Trade Area of the Americas FUNED - Ezequiel Dias Foundation FURP - Foundation for Popular Medication (Fundao para o Remdio Popular) GCP - Good Compounding Practices GLP - Good Laboratory Practices GMP - Good Manufacturing Practices ICC - International Chamber of Commerce ICH - International Conference on Harmonization ICMS - Value Added Tax on Sales and Serivces (Imposto sobre Circulao de Mercadorias e Servios) ICTSD - International Centre for Trade and Sustainable Development IE/UFRJ - Federal University of Rio de Janeiro Institute of Economics (Instituto de Economia da Universidade Federal do Rio de Janeiro) IGWG - Intergovernmental Working Group on Public Health, Innovation and Intellectual Property IMS-Health - Intercontinental Marketing Services - Health INPI - National Intellectual Property Institute (Instituto Nacional da Propriedade Industrial) IPL - Brazilian Industrial Property Law IPR - Intellectual Property Rights IQUEGO - State of Gois Chemical Institute (Instituto Qumico do Estado de Gois) LAFEPE - State of Pernambuco Pharmaceutical Laboratory (Laboratrio Farmacutico do Estado de Pernambuco) LIFAL - State of Alagoas Industrial Pharmaceutical Laboratory (Laboratrio Industrial Farmacutico de Alagoas) NAFTA - North American Free Trade Organization NGO - Non-Governmental Organization

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

NIHCM - National Institute for Health Care Management OECD - Organization for Economic Co-operation and Development PAHO - Pan American Health Organization PIC/S - Pharmaceutical Inspection Cooperation Scheme PIS/PASEP - Social Integration Progamme / Public Service Employee Savings Programme (Programa de Integrao Social / Programa de Formao do Patrimnio do Servidor Pblico) R&D - Research and Development SDE - Ministry of Justices Economic Rights Secretariat (Secretaria de Direito Econmico do Ministrio da Justia) SPRU - Science and Technology Policy Research TRIPS Agreement - Agreement on Trade-Related Aspects of Intellectual Property Rights UFRJ - Federal University of Rio de Janeiro UNCTAD - United Nations Conference on Trade and Development UNDP - United Nations Development Programme UNESCO - United Nations Educational, Scientific and Cultural Organization UNICEF - United Nations Childrens Fund USP - University of So Paulo USTR - Office of the United States Trade Representative WHO - World Health Organization WIPO - World Intellectual Property Organization WTO - World Trade Organization

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

Introduction
In 2005, the United Nations Development Programme (UNDP) and the Brazilian Ministry of Health/National STD and AIDS Programme1 signed a cooperation agreement for the evaluation of Brazils capacity to produce generic antiretroviral drugs (ARVs), in particular second-line ARVs. For the National STD and AIDS Programme (NAP) the evaluation is a response to the concerns regarding its sustainability, given that the Programmes budget has suffered large increases in recent years, particularly as a result of patented ARVs. Of equal concern to the NAP are the national debates on the use of compulsory licensing, since in 2005 the doubts regarding production capacity were decisive with regard to the agreement on Lopinavir/Ritonavir. For UNDP, from an international viewpoint, it is relevant to take part in the debate on the convenience of providing incentive to national industries and reducing technological dependence, in contrast to the stances that propose specialization in those areas in which developing countries have a competitive advantage, which is not the case of the pharmaceutical industry. Great care was taken in selecting the consultants for this evaluation and we consider that this was one of the reasons for its quality. The three consultants selected, with technical, juridical and economic expertise, respectively, in addition to being recognized for their professional excellence, worked in an independent manner. Two professors from the Federal University of Rio de Janeiro (UFRJ), Adelaide Maria de Souza Antunes and Jos Eduardo Cassiolato, and a professor from the University of So Paulo (USP), Maristela Basso, were selected and they opted to work with their research teams comprised, respectively, of researchers from UFRJs Chemical Industry Information System (Simone Alencar, Claudia Canongia, Flavia Lins, Fernando Tibau, Rodrigo Cartaxo, Andressa Gusmo, ngela Ribeiro, Daniel Hoeffle), Edson Beas Rodrigues Jr., Luiz Antonio Elias and Graziela Zucoloto, which contributed to the increased richness of the projects final product. In 2005, the National Health Council, the supreme body of civic participation in health matters in Brazil, recommended that the Ministry of Health declare Lopinavir/Ritonavir to be of public interest and that it be subject to compulsory licensing. For several months there was an intense debate in the media. Those who strongly defended patenting argued that compulsory licensing is a breach of the law and of Brazils international commitments. Those who defend public health in particular those who represent people living with HIV and other civil society organizations argued that compulsory licensing is part of the intellectual property protection system and that it constitutes the application of World Trade Organizations (WTO) Resolution on Intellectual Property and Public Health, known as the Doha Declaration. Finally, the Brazilian government decided that the national technological capacity to produce Lopinavir/Ritonavir was unclear and opted to negotiate a special price with the laboratory that manufactures these drugs, thereby obtaining a significant reduction (the lowest price in Latin America) as well as long term commitments to meet Brazils needs. Meanwhile, on the international scenario, on the one hand a new law on intellectual property came into force in India, whilst China also began the process of protecting the intellectual property rights of pharmaceutical products as a result of having joined the WTO. This situation caused increasing international concern, since these countries are the largest suppliers of raw materials and generic drugs
1 When then study was undertaken, the programme went by the name of National STD and AIDS Programme. At the time this document was revised and translated to English (September 2009), its name had changed to STD, AIDS and Viral Hepatitis Department (Ministry of Health). The original denomination will be retained in this version.

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

for HIV/AIDS. A source of even greater concern was the fact that there is a trend for the demand for ARVs to sharply increase in forthcoming years. The world did not succeed in achieving the goal of 3 million people receiving treatment for HIV in 2005, as the World Health Organization (WHO) had proposed. Today it is estimated that some 1.5 million people are benefitted, representing a twofold increased in the last two years. The current goal is to achieve seven million people on ARV treatment by the year 2010. Generic ARV production capacity in countries like Brazil and other middle-income developing countries is critical for the future of the global goals. This is a critical issue for UNDP and for all the United Nations bodies committed to achieving these millennium development goals and specifically involved in the fight against HIV/AIDS. Through this publication, UNDP and the National STD and AIDS Programme present to the National Health Council, to Brazilian society and to the international community the results of a study undertaken by groups of leading researchers from Brazilian universities, headed by renowned professors, which provides an integral evaluation of Brazils capacity to take part in the process of generic ARV production both for its domestic market and also to collaborate with meeting global needs for these products.

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

Acknowledgements
This report was prepared as part of the work programme of the UNDP Bureau for Development Policy, Poverty Group, Inclusive Globalization Clusters project on Intellectual Property and Access to Drugs Capacity Building, a cross practice with the UNDP HIV/AIDS Group, by three lead authors, Maria Adelaide de Souza Antunes (Federal University of Rio de Janeiro), Jos Eduardo Cassiolato (Federal University of Rio de Janeiro) and Maristela Basso (University of So Paulo), under the overall supervision of Kamal Malhotra, Senior Adviser and Cluster Leader, Inclusive Globalization. The report was coordinated by Dr. Francisco Rossi. The study benefitted from substantive comments by Kamal Malhotra, David Luke, Sabrina Varma, Luis Abugattas, Julian Fleet and Luciana Mermet of UNDP and peer review by Carlos Correa of the University of Buenos Aires (UBA) and Germn Velsquez of the World Health Organization (WHO). The report also benefitted from substantive support and inputs from the Brazilian Ministry of Health / National STD and AIDS Programme. The team expresses its thanks to UNAIDS Brazil for the overall support for the project. The report was reviewed by David Ian Harrad. Joaquim Roberto da Silva Paiva Fernandes of the UNDP Brazil Country Office provided overall support for the production of this report and Andrea Ribeiro Bosi provided administrative assistance. The views expressed in this publication are those of the authors and do not necessarily represent those of the United Nations, including UNDP, or their Member States.

10

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

Organizers Note
This study was completed in 2006. Its results form part of the documents that lead to Brazil finally choosing to negotiate the price of Lopinavir-Ritonavir. It was also used as the basis for the requests for the annulment of some pharmaceutical patents granted using the pipeline mechanism. In 2007, following prolonged negotiations, Brazil finally issued a compulsory license for Efavirenz. In 2007 and 2008 Brazil played a leading international role in the debates and negotiations of the Intergovernmental Working Group on Public Health, Innovation and Intellectual Property (IGWG) in which the discussion on the capacity for the production and innovation of drugs for the diseases that disproportionately affect developing countries was one of the most relevant issues. We hope that this study will contribute towards these decisions and towards Brazils international leadership in these issues and that it will be useful in Brazils efforts to find an adequate means of encouraging pharmaceutical innovations and protecting Public Health.

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

11

ExECUTIVE SUMMARY
In 2005 the United Nations Development Programme (UNDP) and the Brazilian Ministry of Health / National STD and AIDS Programme (NAP) signed a cooperation agreement to evaluate Brazils capacity to produce generic antiretroviral (ARV) drugs, in particular second-line ARVs. During the projects development, UNDP and NAP formed a joint commission and made a painstaking selection of three consultants (with technical, juridical and economic expertise, respectively) who, apart from their professional excellence, were also independent. Two professors from the Federal University of Rio de Janeiro (UFRJ), Adelaide Maria de Souza Antunes and Jos Eduardo Cassiolato, and a professor from the University of So Paulo (USP), Maristela Basso, were selected and worked together with their support teams. They consulted secondary documentation and also visited relevant institutions and the principal public and private companies producing synthesis intermediates, active pharmaceutical ingredients and finished pharmaceutical products. The results will be presented in detail in each of the chapters of the evaluation.

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

13

Technical Evaluation
The Federal University of Rio de Janeiro (UFRJ) technical team worked on answering the following question: does Brazil have the technical capacity to produce the ARVs (in particular second-line ARVs) distributed by the Ministry of Health, their respective active ingredients and final formulations? This question is fundamental for Brazilian society, since there are countless social interests at stake: primarily, the sustainability of the internationally recognized National STD and AIDS Programme; secondly, the future of the Brazilian pharmacochemical industry; and, finally, the development policy for forthcoming years, whereby Brazil could become specialized in producing agricultural commodities and other low added value raw materials, or whereby Brazilian industrial technology could be developed, so as to include Brazil in the international biopharmaceutical market. The core issue was approached at several levels, since production capacity is not limited to the availability of equipment, synthesis intermediates and human resources. Consideration must also be given to that fact that production capacity needs to be adjusted to the quality requirements and technical standards of the national authorities ANVISA (National Health Surveillance Agency) and to international requirements, especially those set by WHO, in addition to considering the expectations of the health authorities, especially the National STD and AIDS Programme. Furthermore, consideration must also be given to the fact that the Brazilian pharmacochemical and pharmaceutical industry has a history of success in working with universities, not only in relation to creating public and private production facilities, which currently play a strategic role for the National Health System, but also in relation to research that can lead to obtaining critical molecules through reverse engineering (the example of AZT is presented at the beginning of the specific chapter on the Technical Evaluation) and also to innovations on an international scale, such as the human insulin developed in Brazil by a private company in partnership with local universities. In the light of these considerations the UFRJ team undertook analysis of documents and the local regulatory framework, as well as making a series of visits to universities, public and private industries and other relevant institutions.2 Overall, Brazil currently has the productive capacity and academic competency, in addition to the synergy between both these stakeholders, to produce ARVs, both active ingredients and the drugs themselves. Consideration must also be given to the need for government support for production integration throughout the production chain, that is to say, the integration of companies which produce intermediates with those which produce active ingredients and those which produce the drugs themselves, so as to strengthen the second-line ARV drug development network, supported by partnerships involving academic competency. With regard to the ARV production chain, Brazil has six different kinds of companies: those which only produce intermediates, those which only produce active ingredients, those which only produce medication (laboratories), those which integrate intermediates and active ingredients, those which integrate active ingredients and medication and those which integrate intermediates, active
2 The list includes: the Ministry of Healths Science and Technology Secretariat and National STD and AIDS Programme, ANVISA the National Health Surveillance Agency, the National Economic and Social Development Bank (BNDES); the Ministry of Foreign Affairs (Intellectual Property Division), the industrial associations comprised of Abifina, Abiquif and Alanac; and the pharmaceutical industries comprised of Farmanguinhos, Lafepe, Labogen, Cristlia, Nortec, Genvida and Furp.

14

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

ingredients and medication. Moreover it is important to stress that Brazil has the technology for integral ARV production. However, given the governments purchasing system, it may be necessary to synthesize active ingredients by means of more advanced intermediates in order to meet demand (shorter production time). Notwithstanding, some technical bottlenecks do exist, as follows: (i) Failure to trace suppliers with regard to the reliability of the active ingredients used in drugs;

(ii) Limitations with regard to production volume: the products need to be ordered in advance in order to meet demand. Currently this does not happen in the case of government procurement processes; (iii) The public laboratories have serious problems with regard to raw material logistics and scheduling, as there is no government purchasing programme; (iv) An evaluation commissioned by the AIDS service NGO Associao Brasileira Interdisciplinar de Aids - ABIA, undertaken by Fortunak and Antunes, concluded that shortcomings exist in some processes. They mentioned the need to perform chemical reactions at low temperatures (-45 degrees) when producing active ingredients, and the need to develop the technology for soft capsules in the case of some finished products. However, this is not a limitation that is either difficult or costly to overcome. The technical team considers that the quality requirements must be met in accordance with Good Compounding Practices (GCP), Good Manufacturing Practices (GMP) and Good Laboratory Practices (GLP) in order for Brazil to achieve access to the markets. However, there are deficiencies in official laboratories that formulate medication for the government. These laboratories complain of the lack of resources for adequate infrastructure, especially with regard to renewing product registration, as well as resources for pharmacotechnical adaptations, improvements to the structure of production areas, equipment, utilities, analyses and procedures, considering the issue of quality and specifications, owing to difficulties of a legal nature with the qualification of raw material manufacturers. The laboratories visited referred to shortcomings, although to date the drugs formulated by them undoubtedly are efficacious and safe for human use. Moreover, the laboratories themselves state that they can do better, if only they had better infrastructure, so as to meet the standards set by the USA Food and Drug Administration (FDA), for example. Bioequivalence/bioavailability tests are one of the difficulties relating to generic drug production, both for financial reasons, owing to their high cost, and also for time reasons, because they are slow to perform. It is noteworthy that during the field study the specialists raised the issue of the cost factor, even when taking into consideration that registration is valid for five years. There is however international controversy regarding the importance of performing bioequivalence tests in vivo to systematically measure the plasmatic levels of each drug tested compared to the reference drug. In Brazil this is required by the National Health Surveillance Agency (ANVISA). Bioequivalence tests are also a requirement of the World Health Organizations (WHO) prequalification system for products purchased using resources of the Global Fund to fight AIDS, Tuberculosis and Malaria. The international debate regarding bioequivalence tests in vivo and their applicability to ARVs is especially related to the inter and intra-individual variation of these products, and also to the broad therapeutic window this type of products has. The Brazilian experience shows excellent clinical results with products that have not had their bioequivalence proven as they entered the market before the

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

15

bioequivalence test became a registration requirement. However, as mentioned earlier, bioequivalence tests are essential for obtaining WHO prequalification. In May 2006, 26 centres which perform at least one of the three stages of the bioavailability/ bioequivalence tests in Brazil were registered with ANVISA, of which 16 were located in So Paulo. With regard to infrastructure, 16 perform clinical tests, 14 perform analytical tests and 15 perform statistical tests. It is appropriate to make clear that the production of synthesis intermediates, active ingredients and finished products in Brazil is in line with international quality standards, especially the Good Manufacturing Practices and the bioequivalence requirements, and that ANVISA is an internationally recognized regulatory agency. As a consequence, quality does not represent a regulatory problem for ARV production in Brazil.

Human Resources
With regard to national human resource qualification it is important to take into consideration specialists in synthesis in the country, since Brazil traditionally imports technology for the vast majority of drugs, so that university-company partnerships are therefore necessary for the development of the countrys own technology. According to the Ministry of Science and Technology (MST) innovation portal, 44 specialists were identified with between four and five doctors degrees, or capelos, (this being the classification that represents the percentage of the occurrence of the keyword(s) in a researchers Lattes curriculum). Following analysis made by renowned specialists in this area, 13 researchers highly qualified in organic synthesis were selected. It can therefore be concluded that there exists a high level of human resource critical mass for ARV development. In recent years there has been an increasing tendency for the industry to seek academic consultants from universities and this has lead to the formation of partnerships in developing active ingredients and medication.

Intellectual Property
In terms of technological development, patent rights jeopardize Brazilian industry with regard to protected products. Three patented products (Kaletra, Efavirenz and Nelfinavir) have accounted for 60% of the Ministry of Healths budget in the last three years. This signifies that most of this money is directed towards multinational companies, in addition to jeopardizing the sustainability of the National STD and AIDS Programme. Patented products, such as Enfuvirtide and Tenofovir, increase their share of the budget on a daily basis, resulting in the industry not investing in the development of protected products and leading to accumulated technological outdatedness. This is an issue of particular concern for the future. However, the companies visited stated that the majority of first-line drugs are no longer subject to patent protection and, as they are the drugs most used for the treatment of people with HIV/ AIDS, an important opportunity exists for the development of the national industry. On the other hand, given that most of these drugs are purchased by governments, principally in less developed countries where the incidence of the disease is higher, we believe that the principal barrier to the development of Brazilian productive capacity in the biopharmaceutical sector is the lack of the guarantee that the government will purchase nationally produced drugs.

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

17

Legal Evaluation
Industrial Property Law
In 1996 Brazil rejected the special transition period offered to developing countries for the implementation of the TRIPS Agreement rules regarding the protection of pharmaceutical products and sanctioned Federal Law No. 9,279, which refers to rights and obligations in relation to industrial property in Brazil (the Industrial Property Law, or IPL). The hasty approval of the new IPL ignored the lack of experience on the part of local government bodies in efficiently administering complex and unknown issues. As a result of the lack of ample and in-depth debates regarding the flexibilities offered by the then unknown TRIPS Agreement, principally concerning the form of legal protection of industrial property most appropriate to Brazils level of economic and technological development, some of the provisions of the IPL (in particular because of the way they have been interpreted and applied) place obstacles to Brazilian economic and social development, bearing in mind the importance of the diffusion of new technologies in building local technological capacity.

National Industrial Property Institute Guidelines on Patentability


Alongside the IPL, the Patentability Guidelines of the National Industrial Property Institute (INPI) represent huge legal obstacles to the development of the technological capacity of the Brazilian biopharmaceutical industry. INPI adopts a contra legem policy for protecting incremental innovations, that is to say, it grants patent protection for inventions comprehending drug derivates, known salts, existing drugs presented in different doses, known drugs presented with new forms of administration, combinations of known products (including combinations of fixed doses), new uses of known drugs/ compounds. Fortunately, the Brazilian system of examining biopharmaceutical patents is complex and unique in the world, as it involves both INPI and ANVISA, whereby ANVISAs practice in examining pharmaceutical patents provides an important counterpoint to INPIs policy, by strengthening the levels of patentability (with the flexibilities permitted by the TRIPS Agreement and by the IPL), conserving within the public domain information which if the INPI guidelines were applied integrally would be unjustifiably kept under the control of a select few.

Parallel Importing
The majority legal doctrine defends that Brazil has adopted the principle of the national exhaustion of patent rights, that is to say, only the introduction of property protected by patents by the patent owner or licensed entity on the Brazilian market shall be considered legitimate for the exhaustion of the rights/powers of control over the protected product. In reality, article 43 (IV) of the IPL is a rule that refers only to national exhaustion. This rule does not refer to international exhaustion and can, therefore, be understood as both a maximum and a minimum rule. That is to say, exhaustion is generated, at least, by commercialization in the domestic ambit, or only by commercialization in the domestic ambit, the establishment of the limits of international exhaustion being left to the discretion of Brazilian judges, so that it is possible for them to be set in keeping with Brazilian needs for greater product competitiveness.

18

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

Analysis of the relationship between free competition and the protection of consumer rights on the one hand, and protection of intellectual property on the other, should precede any judgement regarding the contents of the IPL, with regard to the licit nature of the parallel importing of products protected by patents. A restrictive interpretation of the provisions of the IPL regarding parallel importing followed by the corporate specialists on intellectual property is legally mistaken and reflects a perspective of intellectual property isolated from its objectives and from other higher level legal norms, in particular the 1988 Brazilian Federal Constitution. The international tendency of the unlimited expansion of intellectual property rights leads to the corroboration (misguidedly) of the interpretation that the system of intellectual property protection is independent from the legal system as a whole. That is to say, recourse is taken to an interpretation of intellectual property rights contrary to other legal norms and principles intended to protect fundamental rights and internal and international public order. The interpretation required by the Brazilian Federal Constitution which, in turn, is in keeping with the protection of the right to health in Brazil, is that of the adoption by the Brazilian courts of the principle of international exhaustion: the introduction of a patented product anywhere in the world, as long as this is done by the patent owner with its consent, shall be considered to be an act sufficient to exhaust the patent owners rights, so that the patent owner may not interfere in posterior commercial acts involving the product, i.e. exportation.

Administrative and Judicial Proceedings to Annul Patents


Under the Brazilian system, the INPI or any third parties having the due legal capacity may take out administrative proceedings for patent nullity with the INPI. The time limit for taking out administrative proceedings is just six months with effect from the data of the patents publication. After this period, it is still possible to file a nullity suit with the Federal Courts. The legal time limit for taking out administrative proceedings is too short by far. The situation is even more unfavourable to the public interests bearing in mind that legal proceedings easily take ten to fifteen years before the final decision is given.3 Furthermore, considering that in Brazil requests for pharmaceutical patents take some eight to ten years to be granted by INPI, if proceedings are not taken out in the initial six month period, the chances of impugning the validity of a patent, successfully, in the courts and in reasonable time are minimum.

Compulsory Licensing
Contrary to the opinion disseminated by the Brazilian and foreign mass media, the compulsory licensing of patents is not a synonym for the expropriation of private property: it is an exception to the exclusive right of the patent owners, employed, inter alia, to repress abusive practices, the abuse of economic power and to supply local emergencies and public demands. The interpretation that compulsory licensing is an illegitimate commercial practice is probably the result of widespread lack of knowledge that this instrument is widely provided for in the legislation of the developed countries4 and has been used, as proven by history, by developed countries as a political instrument for development.5
3 The problems arising from the slowness of the Brazilian courts could be overcome in favour of free competition and the public interests in general if the suspensive effect of the judicial nullity proceedings were obligatory, instead of conditional (article 56, paragraph 2 of the IPL). 4 Balasubramaniam and Goldman (2000). 5 Regarding the Canadian and North American experience of the use of compulsory licenses to protect national

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

19

The IPL established as the basis for granting compulsory licenses: the exercising of the abuse of economic power through patents; the abusive exercising of patent rights; failure to exploit / insufficient exploitation of the patented object on Brazilian territory; failure to satisfy the needs of the local market; dependent patents; national emergency and public interest. The provisions governing the granting of compulsory licenses require urgent enhancement, e.g., the approval of an INPI resolution or normative act to facilitate the calculation of the royalties due to the owners of compulsorily licensed patents. Notwithstanding, the aspect that most drew the legal consultants attention was the absence of a domestic legal norm to implement the Decision of the World Trade Organizations (WTO) General Council taken on December 6th 2005 and adopted by the Hong Kong Ministerial Conference that, once approved by the WTO members, the solution governed by the Decision of August 30th 2003 will become permanent. The solution regulates the importation of drugs, the patents of which have been the object of compulsory licensing by countries that do not have production capacity (or have insufficient capacity) for the local exploitation of the licensed patents. If the IPL is not altered to meet the terms of the 2003 Decision, the solution to the problem of the countrys own incapacity and/or that of third-party countries regarding exploiting pharmaceutical patents will not bring any practical local benefit, including the very development of the Brazilian industrial pharmaceutical sector.

Generic Drugs
In addition to the quality and technology incorporated by the production lines of the principal national pharmaceutical industries with effect from 1999, the introduction of generic drugs has brought unquestionable benefits for Brazilian public health. Since the approval of the Generics Law, 7,569 forms of generic medication have been introduced to the local market; the cost of treating certain diseases, especially chronic diseases, has reduced expressively (35% to 50% on average) and there has been a proven increase in access to medication. The introduction of generic drugs in Brazil has played another relevant role in relation to industrial development: thanks to generic drugs there has been an increase in the participation of industries controlled by national capital in the Brazilian pharmaceutical market. Between 2002 and 2005, whereas the invoiced revenue of the local pharmaceutical market (including reference, similar and generic drugs) grew overall by around 10%, the generic drug market, specifically, grew by more than 100%. Between March 2000 and December 2005, the generics market gained a 26.1% share of the national pharmaceutical market; in 2005, generic medication gained market leadership of the main 50 pharmaceutical substances commercialized in Brazil. These figures take on strategic importance when we take into consideration that 87% of the Brazilian generics market is controlled by companies controlled by national capital.

Public Purchasing
In principle, Law No. 8,666, dated June 21st 1993, which governs public administration procurements and contracts is silent with regard to specific norms regulating the procurement of drugs and pharmaceutical raw materials. Consequently, judgement of proposals submitted under procurements of this nature would be governed by the criterion of the lowest price. A consequence of this interpretation of Law No. 8,666 is that the companies that win procurements for the purchase of
interests, refer to Jerome H. Reichman and Catherine Hasenzhal, Non-voluntary licensing of patented inventions: Historical perspective, legal framework under TRIPS, and an overview of the practice in Canada and in the USA. Geneva, UNCTAD-ICTSD, June 2003.

20

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

active ingredients by official Brazilian government laboratories often deliver low quality merchandise. In order to alter Law No. 8,666 to include the safety specificities of the pharmaceutical sector, the national companies defend the establishment of a technical prequalification stage for the tendering companies. The legal team identified that the current legal interpretation in Brazil the judgement of the proposals according to the criterion of the lowest price results in an absence of the integration of other cogent norms that govern the quality of pharmaceutical products in Brazil. As a consequence, the observance of the demands of the Brazilian productive sector and of the public at large concerning the efficient use of public resources depends, uniquely, on a constructive and integrative interpretation of Law No. 8,666, whereby any other legal reforms are dispensable, for the time being. Despite the constitutional prohibition to provide differentiated treatment favourable to Brazilian companies controlled by national capital, Law No. 10,973/2004 (Innovation Law) and Law No. 11,196, dated November 11th 2005, may meet the demands of the Brazilian private sector, by establishing the obligation for the Government to give preferential treatment, with regard to the purchasing of goods and services, to companies that invest in technology research and development on Brazilian territory, and by allowing the government to exempt from procurement the hiring of goods and services produced or provided in Brazil which involve, cumulatively, high technological complexity and entail the defence of the national interests.

Innovation Policy
The Brazilian innovation policy does not take into consideration that the regulatory framework for intellectual property protection can (and should) be used as an efficient public instrument for generating innovation. The innovation policy should, necessarily, include the intellectual property legal framework, as well as the governmental practice of its application, and not vice versa, as currently happens in Brazil. An instrument unexplored in Brazil which could play a role of indirectly promoting innovation in the country is that of competition law, which is used in the USA and Europe, successfully, as an external limit on the abuses of economic power exercised through intellectual property rights. Although the doctrine and the jurisprudence of the Brazilian competition defence system and legal system are scarce in relation to the effects of intellectual property on competition, Brazil does have public institutions experienced in defending free competition. Achieving equilibrium, with efficiency, between intellectual property rights and free competition is not an easy task. However, Brazil, unlike other developing countries, finds itself in a privileged situation in terms of the institutions it has.

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

21

Economic Evaluation
The concept of a national system of innovation has been used to organize this discussion here. The utility of the concept of national innovation systems lies in the fact of it explicitly dealing with important issues, previously ignored in older models of technological change specifically that of diversity and that of the role of intangible investments in innovative learning activities. This notion therefore involves not only companies but also teaching and research institutions, funding institutions, the government, etc. In addition based on the consideration than there is significant diversity among countries and institutions in terms of the form, level and standard of investments in learning , particular focus is placed on the links between the institutions and their incentive and capacity building structures. The relevant point of the focus on health innovation systems is that it does not make sense to examine the possibilities of national antiretroviral drug production without an understanding of the systemic organization processes of the various and interconnected activities that are part of the system as a whole. Examining the issue of the economic feasibility of antiretroviral production in Brazil from this perspective, it can be stated that the capacity to innovate is the decisive factor for the dynamics of health production from a structural and long-term perspective. In the developed countries, research and development in health, among other areas of research and development, is that which has been the object of the greatest public efforts to generate new knowledge, together with the military area. With regard to academic research, its leadership stands out even more clearly. Of all United States public expenditure on academic research, 27.4% was allocated to medical science, representing the highest area of expenditure by the federal government and subnational bodies. The more advanced countries have created systemic conditions of competitiveness involving the convergence of the following elements: advanced science and technology infrastructure, highly innovative industrial and corporate sectors and important and fundamental state action to connect the health system with the innovation system, despite the tensions and trade-offs between economic logic and health logic.

Pharmaceutical Industry
The global pharmaceutical industry currently has an annual market turnover of approximately US$ 500 billion, whereby the USA, the European Union and Japan account for 85% of this amount. The less developed countries, although they represent 80% of the global population, account for only 20% of this sectors sales. The sector is highly internationalized in that the ten largest multinational companies account for more than half of the sectors sales, although none of them, individually, has a significant share in the industry as a whole. It is estimated that worldwide there are ten thousand pharmaceutical product manufacturers, although just one hundred of them are responsible for 90% of the products destined for human consumption. This industry is highly profitable: the operating margin of the large companies is 25%, compared to 15% for consumer goods in general. It is a differentiated oligopoly, characterized by significant barriers to entry. The main barrier relates to the role of marketing. As far back as the 1960s, the United Kingdoms Sainsbury Report revealed that the pharmaceutical industry spent more on marketing than on research and development (R&D), whilst in the USA marketing expenditure accounted for more than 20% of sales and was more than four times the amount spent on R&D. In the 1990s marketing expenditure accounted for 25% of the industrys sales.

22

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

Another characteristic of this industry is that health service users (patients), besides not deciding which drugs they will buy (it is the doctor who decides), often do not pay directly for them. In many countries, heath insurance plans either public or private reimburse patients for the cost of medical treatment. This system, which separates payment from consumption and the consumer from the choice of the product, significantly affects the sectors competitive model and price structuring. As a result, price competitiveness has, historically, been of little importance to the pharmaceutical industry, and the companies tend to compete based on new or improved products. Competition therefore takes place through the introduction of innovations aimed at reducing the costs of production processes and, above all, the generation of new products. It is important to point out that, in this sector, product competition and differentiation do not occur throughout the industry as a whole. This is because the relevant markets are fragmented, or in other words, from the consumers point of view, it is not possible to substitute products belonging to distinct therapeutic classes.6 Furthermore, technological capacity building in one market does not guarantee success in others. It must be emphasized that strong differentiation exists between the therapeutic classes and that therefore in practice there is little competiveness. In truth, competitiveness only exists with regard to active ingredients, and even so not with regard to all of them, since it is possible to find products with a brand share above 75%. The effect of this is segmentation and differentiation. Nevertheless, the pharmaceutical industry encourages what it considers to be therapeutic class competition, rather than product competition, so as to be able to charge what it wants for patented products, for example. From the point of view of innovation, the most significant fact is perhaps its impressive historical 200 year record as a highly innovative industry. Since its beginning up until modern times impressive collaboration between the industry and academic research efforts can be seen. Associated with this historic innovative pattern, the principal companies can also be seen to have endured over time. They have not only been capable of facing up to the successive radical technological changes the industry has undergone, but also, in part due to their oligopolistic and political power, they have even brought about such transformations. Nevertheless, despite the pharmaceutical industrys high R&D expenditure (compared to the other manufacturing sectors), the launching of highly innovative drugs that both contain new active ingredients and offer significant clinical improvement appears to be increasingly rare. The pharmaceutical companies have concentrated especially on investing in small variations in drugs already existing on the market with the aim of obtaining the so-called patent evergreening (followon) and me-too products (having therapeutic activity similar to other existing products). From the strategic point of view, the companies intention is to carry on exploiting a significant part of already established markets. Based on a study on drug innovation undertaken by the National Institute for Health Care Management - NIHCM (2002), it can be seen that despite the large number of new product launches on the North American market in the 1990s, the industrys innovative ability appears to be in decline. One of the industrys important characteristics is its longstanding relationship with the State. The current emphasis, at least on the political and ideological level, on reducing state intervention in the sector, should not be analysed without exposing the fact that this is the industry that has most been regulated by the State over the last 200 years and that technological progress has also been made possible through this strong intervention.

6 A therapeutic class corresponds to a set of drugs that meet the same therapeutic purpose or function.

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

23

The setting of price policies, for example, is an instrument used in several countries both to enable the populations access to essential medication and also to encourage the development of innovations. Despite there being little intervention in the USA, Japan and the European Union, it is nevertheless considerable, especially given the high level of government purchases. The case of India7 is emblematic with regard to the importance of public policies in strengthening the health sector. India, currently recognized as a large producer and exporter of drug chemicals and generic drugs, has strengthened its industrial pharmaceutical structure in accordance with priorities established by the State. The Brazilian pharmaceutical industry has historically been dominated by multinational companies, which currently absorb some 70% of the national market. These companies only undertake medication manufacturing, marketing and distribution in Brazil, whilst their R&D and pharmacochemical production activities are carried out abroad. In 2004 the sectors ten largest companies of which four are national companies8 held 42% of the market. The Brazilian pharmaceutical industrys invoiced revenue was approximately US$ 3.4 billion in 1992, reaching US$ 8.5 billion in 1997 and US$ 6.8 billion in 2004. The Brazilian medication industry is relatively developed, with high finished product production capacity and limited drug chemical production capacity, whereby the dependence on imports is currently generalized. Following the lifting of commercial restrictions with effect from the 1990s, the sector became heavily dependent on imports, which were privileged to the detriment of national production. Several multinational companies closed down their pharmacochemical units, replacing them with imports from their head offices or from other subsidiaries. Brazil has an attractive market for health products, a reasonably developed production capacity and a good capacity for undertaking research. On the other hand, its innovative capacity is still immature and there is low integration between scientific and industrial policies, and also between these and health policies. Historically, in relation to the health policy, the disarticulation between research and production has been clearly evident. Differently to the more advanced nations and to countries like China, Brazils science and technology policy on the production of drug chemicals and medication has been totally dissociated from the health policy as a whole and from the public purchasing policy in particular. Law No. 10,973, dated December 2nd 2004, is known as the Innovation Law. As a result of this law, an increase in partnerships between companies, universities and scientific and technological institutes is expected. Recently, article 19 of this law, which creates economic subsidies for companies to undertake research and development on technological innovations using Sectoral Funds, was regulated, maintaining the non-repayable character of the subsidies, but requiring companies to provide joint funding and to submit a project to the agencies. The advantage of the law is that it allows the State to allocate resources that are not repayable, exceeding the limits set by Law No. 8,666, and allowing the special character of medication purchases to be regulated.

The Brazilian HIV/AIDS Experience


With effect from the late 1980s the Ministry of Health implemented a policy aimed at providing ARV drugs. In 1991 Zidovudine began being provided to HIV positive patients by the public sector,
7 Based on Bhojwani HR (2005) and Dhar and Rao (2002). 8 Ach, EMS-Sigma Pharma, Medley and Eurofarma.

24

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

although its supply did suffer some discontinuity. Decree No. 9,313, data November 13th 1996, ensured that all HIV infected patients would have free access to all medication necessary for their treatment. The distribution of medication for triple therapy with protease inhibitors began in December of the same year. Following the establishment by the National STD and AIDS Programme of free of charge access, the demand for ARVs in Brazil became essentially public. As such, differently to what is observed in a traditional market, in this case the State acts as an exclusive ARV purchaser, and this raises its ability to influence the sectors performance. Currently, in order to guarantee such access by 180 thousand patients taking treatment, some R$ 1 billion in public resources are allocated to purchasing ARVs. The tendency of increases in this expenditure seen in recent years is related to the increased number of patients taking treatment, the updating of recommended therapies and the rise in the proportion of patients submitted to more complex therapies. Owing to the resistance developed by some patients to certain older compounds, the tendency exists of incorporating new patented drugs into the Treatment Consensus. Among the ARVs supplied by the Ministry of Health, those protected by patents increase the cost of treatment considerably: some 80% of total ARV expenditure is allocated to importing these products. In Brazil the companies concentrate on manufacturing generic drugs. The public laboratories account for an expressive share of the amount of ARVs produced purchased by the National STD and AIDS Programme, currently standing out as the principal national producers. In terms of financial amounts, however, the share of foreign producers accounts for 72.8%, against just 19.6% for public laboratory production (2005). It is noteworthy that in terms of financial amounts the national laboratories share reached 39.4% in 2001 but has shrunk significantly since then. As mentioned above, this is because imported patented drugs are considerably more expensive than nationally produced drugs. The participation of private national companies is limited both in terms of value (5.5%) and quantity (7.1%). It must be emphasized that failure to use compulsory licenses can be considered one of the causes of the weakening of national ARV production.

The role of public policies


The core argument of this text is that the production and consumption of pharmaceutical products have historically been marked by intense public intervention. This characteristic of the industry which is widespread establishes very specific parameters in the analysis of the economic feasibility of drug production. There is no sense in using this markets traditional cost and price measures as parameters for defining presumed economic feasibility. The price of imported ARVs is significantly influenced by the various incentive measures that the production of these drugs receives from the respective governments. Whatever the real cost of local production may be, a significant potential for long-term reduction exists, if public policies aimed at encouraging internal production are designed to enable local companies to plan better. This is the case both for the production of medication and the production of raw materials. Secondly, the productive and innovative strategy and the very performance of the companies that produce drugs and raw materials are very significantly affected by that which the literature has referred to as implicit industrial and technological development policies. Such policies comprehend not only macroeconomic policies, including interest and exchange rates, but also policies

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

25

on commerce, education, etc. The corollary of this debate is that pertinent policy proposals must be formulated in a systemic manner based on the concept of the national system of innovation referred to above. The starting point of this discussion is the weak performance of the pharmaceutical industry in general, and that of the generic ARV production segment in particular. When observing that the productive and commercial performance of an industry is fragile, with high commercial deficits and limited participation in national production, various analysts would argue that this is nothing more than an indicator of the comparative national disadvantage of this sector and that the correct government action would be to not attempt to strengthen it, but rather to allow the country to concentrate on those segments that already have relative advantages. This liberal viewpoint which prevailed for years in Brazil and internationally has lead to the ever increasing fragility of the national pharmaceutical segment. Nevertheless, diverse arguments exist that indicate the importance of government actions aimed at the development of this industry, despite its current fragility. The public purchases made by the government play a central role in the feasibility of ARV production and can be a mechanism for encouraging production by national companies. However, the public policy on drug purchasing currently in force does not prioritize industrial development, but rather has as its only objective the obtainment of the lowest price. In addition to these harmful effects resulting from macroeconomic and regulatory policy mechanisms there are also elements of the trade policy that are also significantly detrimental to local production. This becomes clear when considering the different taxation treatment faced by national producers vis--vis imported production. All the companies interviewed emphasized that equal taxation is an essential condition for making it feasible to produce ARVs at similar prices to those charged by India and China. The removal of the tax burden is necessary for national producers to be able to achieve the same degree of competitiveness as their international competitors. It is worthwhile emphasizing yet again that when the initial stages of an industry are examined, analysis of the costs becomes irrelevant since they will decrease considerably as it evolves. The strengthening of the pharmaceutical industry, through economies of scale and the establishment of public policies generating equal conditions, will enable its capacity to compete with international players to increase significantly in the medium and long term. The role of the State goes beyond that of a purchaser. The strengthening of ARV production is also directly related to the support provided by the State for technological innovation. An evaluation of the results of the use of intellectual property as a stimulus to the technological development and innovative capacity of the Brazilian pharmaceutical sector does not lead to very optimistic conclusions. The information reveals, for example, that in relation to multinational companies the filing of patent applications is done by the head office. With the exception of just two patents filed by Schering subsidiaries, no other subsidiary of a multinational company has filed patents in Brazil. Between 1990 and 2001, whereas only 27 resident companies filed patents in Brazil, 2,934 non-resident companies did so. With regard to the national companies, Ach filed 15 patents in this period, followed by Biosinttica which filed seven. This data shows the low intensity of national company patenting and the reduced local technological development of the multinational firms. Analysis made by Elias (2004) of pharmaceutical industry contracts, by company, confirms that only the trademark use category is relevant, whereas the remainder appear sporadically over the decade. As mentioned earlier, as it is only the licensing of a right, the use of a trademark does not entail the acquisition of knowledge for the sector.

26

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

Policy Proposals
Various authors have indicated certain shortcomings in the standard of policies for the health area, both from the practical point of view and, above all, from the conceptual point of view. Gadelha (2005) indicates that, from the point of view of the science and technology policy, knowledge generation is confused with innovation generation. Moreover, with regard to service provision, the interaction with the industry has been marked by a high level of mistrust and by low interactivity, which are at the root of a low quality welfarist supply based on products with a low requirement for quality and technological evaluation. We argue in this text that the policy relating to the Brazilian AIDS Programme, despite being successful in implementing free of charge and universal access to the necessary drugs by people living with HIV/AIDS, repeats some of the mistakes observed with regard to the area of health as a whole. Drug purchasing, undertaken by the government based on Law No. 8,666, concentrates on minimizing costs and solving emergencies, without creating long-term strategies for strengthening the sectors production capacity. The importation of drug chemicals and finished generic products is currently adopted as a short-term solution for supplying medication to the population. Nevertheless, several sources of evidence presented suggest that this posture can lead to excessive expenditure in the mid and long term. Much can be done in Brazil to enhance ARV drug production. On the one hand, the use of compulsory licensing can make feasible the production of medication patented in Brazil. On the other hand, encouraging generic ARV production depends only on the sector being treated as a public priority. Incentives for investment in R&D can create enhancements to products and production processes, generating significant gains in terms of productivity and quality. As a proposal for enhancing the sector, it is appropriate to highlight the full use of the mechanisms of the Innovation Law (Law No. 10,973/2004), regulated by Decree No. 5,563/2005, and the so-called Asset Law (Law No. 11,196/2005). The application of the new law will also encourage companies to form consortia to develop projects using the instruments of the R&D economic subsidy. The objectives of the following proposals are to reduce production costs, raise the quality of the products and processes used, to foster technological innovation in the Brazilian pharmacochemical industry, reduce the commercial deficit of the health sector, to increase and qualify jobs and social benefits for Brazilian workers, thus generating positive effects for the other sectors of the economy. Full use of the mechanisms of the Innovation Law, especially to modify the public drug purchasing system. Guaranteed public purchases. The guarantee of public purchases should be established for a period of time that is fixed but sufficient for the companies to obtain a return on the investments that need to be made. However, as it is a sector with a strong social impact, apart from the need to gradually reduce the volume of imports that burden excessively the Brazilian balance of payments, the agreement between these companies and the government must require the companies to achieve technological enhancement and to seek to achieve production at competitive prices. This is one of the reasons why the contracts should be for a fixed period of time. Incentive for the companies to innovate. Establishment of a public-private partnership between public laboratories and private producers for technological development in the area of pharmacochemical production for HIV drugs.

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

27

Joint purchasing of drug chemicals by the public laboratories. One of the limiting factors on the national production of drug chemicals is the difficulty in obtaining economies of scale. This is because of government purchases for the public laboratories being split. Each laboratory buys the raw materials it needs separately, purchasing quantities insufficient to generate a scale of production that is sufficiently competitive. Unifying laboratory purchases would enable scale to be obtained as well as the increased competitiveness of the national companies. Encouraging technological development by financing R&D activities. Using the intellectual property legislation that is more favourable to Public Health. This measure would necessarily require greater rigour in issuing patents, as well as the use of compulsory licensing, since an industry with ARV production capacity is vital for the sustainability of the National STD and AIDS Programme. Use of compulsory licensing.

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

29

Lessons Learned
The lessons learned during the process of developing the project to evaluate the Brazilian capacity to produce generic medication are many and very rich. The order they are presented in follows a weighting of their relevance, which is necessarily subjective. The first subject is that the capacity to produce medication in general, as well as ARVs, is strategic for the developing countries. On the contrary to what has become a widespread doctrine throughout the world the doctrine that proclaims that countries should only specialize in those areas in which they have comparative and competitive advantages , in this study we consider that, given the responsibility taken on by the Brazilian State to guarantee sustainable access to the medication that people need (and given that the treatment of people living with HIV can be long-term), Brazil cannot run the risk of depending on the production of a few multinational pharmaceutical companies (more interested in protecting their products and their markets) and a few generic producing companies in India and China, principally. Today it is clear that the multinational pharmaceutical companies do not have the capacity to produce the volumes needed to meet a growing demand for antiretroviral drugs. If the new goal proposed by the United Nations, to achieve 6 million people receiving treatment by 2010, were taken seriously, there would not be sufficient international supply. Moreover, it is also clear that the Indian and Chinese companies are not interested in taking on the risks of producing medication protected by patents. It is a question of long-term sovereignty, selfsufficiency and responsibility. It is also clear, however, that in this argumentative discussion, which underlines issues such as necessary production scales, the size of domestic markets, the limitation on resources for investment and the availability of qualified human resources, the developing countries are condemned to a process of de-industrialization and specialization in the production of raw materials and products of low added value. We have also learnt that, in the particular case of Brazil, there is no doubt whatsoever that the technical capacity exists. Despite it existing, however, Brazil does not currently produce second-line ARVs. This is something that this study intends to explain. The explanations have taught us that technological capacity is a necessary condition, but it is not sufficient. The way in which the country uses its intellectual property norms and makes use, or not, of the flexibilities provided in the legislation, public purchasing, the policies on generic medication, the policies on science and technology and innovation, are all determinants of Brazilian production capacity. Undoubtedly the most important conclusion of the study concerns the policy on innovation and industrial development for the Brazilian pharmaceutical sector, both public and private. The evaluation made in this study has shown significant shortcomings in the way this policy was conceived and how it is put into practice in Brazil. The role of the State and the role of regulation in directing industry are much greater that had been recognized so far, both nationally and internationally. We have also learnt that the role of intellectual property as an instrument of public policy to direct the pharmaceutical industry is definitely vital. The consultants suggested the use of the concept of national innovation systems as a tool to articulate the different roles of the State, legislation and companies, both public and private. As such it is important to observe that intellectual property, in itself, has not been sufficient to stimulate local innovations and industrial development. Rather, they also insisted

30

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

on the need to articulate other policy measures, such as those mentioned before, and other measures for purchasing, promoting generic medication, fostering exports and taxation, among others. We must, however, emphasize the need for the State to make a decision about its policy for the industrial sector, a decision that is explicit and includes not only coherence with other public policies, but also the attribution of important investments in the institutions that create knowledge and innovation and in projects of greater commercial risk. The examination of the role of intellectual property on Brazils productive capacity is surprising. On the one hand it is very curious to observe the way in which, in the consultants judgement, intellectual property has become an end in itself. From a conceptual perspective, it is clear that intellectual property is a means to stimulate innovation and technological development, and that it is subordinated to the social needs of a country. But the Brazilian experience shows that its application, especially in the pharmaceutical sector, has taken place prescinding the constitutional and legal considerations that delimit the protection of the interests of those who own the rights. The manner in which the criteria for patentability have been put in practice, the failure to use the flexibilities, the way in which legal disputes are resolved and the way in which intellectual property is taught in the universities are evidences of a decontextualized use of intellectual property, one which privileges the interests of the large companies, to the detriment of the interests of the population. From this perspective, the experience of the use of the TRIPS Agreement flexibilities is especially noteworthy. In practice, none of them have been used 9. Brazil was hasty in incorporating the TRIPS Agreement into its national legislation, dispensing the transition period granted to developing countries which do not have patents for pharmaceutical products. Differently to India, Brazils intellectual property law was enacted as early as 1996. The law does not make explicit mention of patent right exhaustion, but offers the possibility of using imports in parallel with the protection of a compulsory license. Although the consultants consider that there are other sources (such as the Constitution) that could serve as the basis for parallel importing, they have not been used thus far. Compulsory licenses deserve special analysis. They too have not been used in Brazil to date, although they have played a primary role in Brazils ability to negotiate ARV prices. In Brazil a combination was made of the two principal strategies used to reduce prices: the government is the only purchaser and therefore has a large negotiating capacity, which has enabled very important price reductions over recent years. But this negotiating capacity is reduced if there is also only one seller. This is the case of products protected by patent and which occupy an increasing share of the National STD and AIDS Programmes budget (for the last three or four years, three patented products account for more than 60% of the total budget). In these cases threatening to use a compulsory license enabled the Brazilian Government to achieve even greater price reductions. Compulsory licenses were also the reason for the United States placing Brazil before a World Trade Organization panel, since the legislation covers the possibility of issuing a compulsory license if there is no local manufacturing of the product. In the end the two countries reached an agreement and the panel was not concluded, but Brazil was surrounded by international solidarity, because the issue at stake was the right of the countries to use the TRIPS Agreement flexibilities in defence of public health. One of the most important lessons of the Brazilian experience is the difference in the price reductions obtained by the government. When there was abundant supply (including
9 The study that this report is based on was finalized in 2005. The Brazilian Government later issued a compulsory license for Efavirenz in 2007.

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

31

public supply) and generic products existed, historically the price reductions were 87% on average; when the products were protected by patents the reductions were 50% on average The experience had with negotiating Lopinavir/Ritonavir illustrates the other side of the complicated relations with regard to prices, intellectual property and international negotiations, the economy and politics. This product takes up a very large share of the budget and its use is growing. In 2005 the Ministry of Health made a statement of public interest regarding this product, opening the way for compulsory licensing. The debate on this possibility was very intense in the media. Finally the government decided to negotiate obtaining a price reduction of approximately 50%. Undoubtedly this was a decision taken at the States highest political level, since it was very clear that for the multinational pharmaceutical industries this would be an international precedent of tremendous relevance, and pressure was diverted to possible retaliations against other sectors of the Brazilian economy, in particular exporters. It has also been very interesting to observe a large contrast between the way in which Brazil manages intellectual property internally and its international image with regard to this aspect. Brazil played an important role in the Doha Declaration, as well as in the row about intellectual property during the FTAA negotiations (which resulted in them being suspended to this day). It also played a role of notable leadership among the developing countries in the discussions with the WTO not only on issues relating to intellectual property and was, together with France, one of the promoters of the initiative for the funding of drugs for AIDS and other neglected diseases by means of the levying of a charge on airfares. The World Health Organizations Commission on Intellectual Property, Innovation and Public Health was also one of its initiatives. Its international relevance is certainly incontestable. But internally intellectual property norms and social practices run in the opposite direction, since the tendency has been more favourable to patent owners than to the interests of the population. From this perspective, it is especially important to learn from the Brazilian experience when applying patentability criteria. The evaluation undertaken has shown how there existed a strong tendency to apply criteria similar to those applied in developed countries. Brazil includes in its legislation to so-called pipeline mechanism, which is clearly a transgression of the internationally accepted criterion of novelty. Also, for a long time, patent examination undertaken by patent authorities of other countries was accepted. And that is not all, INPI embraced an excessively broad practice of patenting incremental innovations. As such, products that are modifications of existing products can be patented in Brazil. This was the reason why since 1999 ANVISA shares with INPI the responsibility for the patentability examination of biopharmaceutical patents. The Prior Consent, which is a review by the health authority of the applications for pharmaceutical patents, is considered today by some to be an original Brazilian flexibility. Ample protection of intellectual property is not the best option for developing countries, especially if industrial development and the protection of public health are an important part of its public policies. This conclusion lead the consultants to recommend one of the most important actions, which was already echoing in some NGOs and is also a recommendation of WHO and other international organizations: seek to obtain the nullity of some patents granted in the country; encourage the participation of third parties to make opposition prior to and following the granting of patents; and, especially, to fight for the strict application of the patentability criteria. Regarding this aspect, it is interesting to emphasize what the developing countries have increasingly raised at the international level: the purpose of intellectual property is to

32

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

foster innovation, technology transferral and to encourage foreign investment. However, the experience in a country like Brazil, which is the worlds twelfth largest economy and has a relevant market, undoubtedly, is that it has not managed to increase national innovation, nor transfer technology nor attract foreign investment. This, which could be true for the industrial sectors in general, is dramatic in the case of the pharmaceutical sector. Today there is a need to reformulate the role of intellectual property on the international level, especially in relation to pharmaceutical products, at least for the developing countries.

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

33

Notes on the Methodology


In relation to the execution of this project, UNDP and the National STD and AIDS Programme (NAP) agreed on certain fundamental methodological criteria, as follows. Firstly, the study was undertaken by means of the signing of a term of cooperation, which is the agreement document between the two institutions. The document provides for the setting up of an integrated team comprised of members of both institutions in order to define the projects execution and its follow-up. The two institutions also agreed to carry out the work by means of hiring three national specialists in the technical, legal and economic areas, respectively. The process of selecting the consultants was undertaken with great care and we consider that this was also one of the reasons for the studys good final results. As mentioned earlier, three professors from the countrys foremost universities were selected and their independence was considered to be one of the most important characteristics for their selection. They decided to carry out the study with their work teams and this made the result much richer. With regard to the carrying out of the study, UNDP and the NAP defined wide-ranging questions for the consultants in each of the three areas examined, the answers to which were intended to enlighten as to Brazils technical, economic and legal capacity or incapacity to produce generic ARVs in the near future. In order to answer the points chosen, the consultants basically used two methodological strategies. The first was a review of the national and international literature. In this regard the previous experience of the consultants in the matters designated to them was of great worth, as were the publications of bodies such as the World Bank and United Nations bodies, namely UNCTAD and WIPO, as well as the 2002 studies of the British Governments Commission on Intellectual Property and those of the World Health Organizations Commission on Intellectual Property, Innovation and Public Health. The second methodological strategy employed was the holding of a series of structured interviews involving the use of a questionnaire, which was prepared jointly by the three teams of consultants and subsequently revised by UNDP and the NAP. Apart from the structured interviews using questionnaires, the legal team personally interviewed a large number of policy-makers and representatives of the Brazilian industrial, governmental and academic sectors in order to prepare data for the report. Once the data had been collected via the questionnaires and once the literature had been reviewed an initial version of the results of the three areas was submitted to UNDP and the NAP. The draft version was revised and discussed in a series of meetings until a draft version was obtained that everyone agreed to. Revision was done by institutions relevant to the matters under study, i.e. the National Health Surveillance Agency (ANVISA), PAHO, the Ministry of Science and Technology, the Federal University of Rio de Janeiro and the University of So Paulo. With regard to the technological aspect, the group of consultants evaluated the production capacity of synthesis intermediates, active ingredients and finished products. This process included the evaluation of available human resources, infrastructure and previous experience with similar products. The relations, partnerships and processes of integration between public and private producers were also analysed, as was the possibility of scale up, in order to examine the possibilities of translating academic advances into industrial initiatives. The technical team also carried out a survey into the existence in Brazil of human resources qualified for undertakings of this nature, using the national databases of the research groups (National Council of Technological and Scientific Development

34

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

- CNPq). In order to examine the role of intellectual property on second-line ARVs a survey was also made of international and national patent databases for each product. Finally, an analysis was made of the national quality evaluation capacity and its correspondence to the international standards, as well as local infrastructure for carrying out quality tests. The legal evaluation was prepared based on the Brazilian norms relating to the protection of intellectual property and their regulations, always in such a way as to respect the international commitments taken on by Brazil in relation to the International Community. Although the issue of intellectual property occupies a core position in the legal report, the consultants did not neglect other aspects essential to the development of the Brazilian capacity to produce ARVs, namely the policy on generic drugs, the regulation of public purchasing of medication and the national policy on technical innovation. The economic evaluation was based on the use of the concept of National Innovation Systems in order to study to what extent the combination of policies for different areas would favour or hinder the production of second generation generic ARVs. Aspects such as public sector purchasing policies, taxation, the fostering of exports and the policy on science and technology were carefully analysed. Moreover, the consultants prepared a description of the global pharmaceutical industry and the national pharmaceutical industry, highlighting the importance and the determining characteristics of the relations between State and Industry in order to understand its current situation and plan its future. Within this context, analysis was made of the data gathered during the interviews and from the questionnaires. Data was also gathered on national ARV production and Ministry of Health purchases over the last ten years.

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

35

TECHNICAL EVALUATION
VERIFICATION OF SECOND-LINE ARV DRUG ACTIVE INGREDIENT SYNTHESIS AND FORMULATION CAPACITY IN BRAZIL

Professor Adelaide Maria de Souza Antunes10

At the end of the 1980s the Brazilian Government established technological and industrial development policies, encouraging production based on knowledge generated in the academic world. In 1990 the company called Microbiolgica Qumica e Farmacutica Ltda., comprised of researchers of the Federal University of Rio de Janeiro, started a project which in a short space of time allowed the active ingredient of AZT to be arrived at, produced in a totally verticalized manner in five stages of synthesis, using Thymidine as the basic raw material. Brazil was the only Latin American country to produce the drug. Brazilian AZT was approved by the National Health Surveillance Secretariat in 1992 and was officially launched the following year, during the International AIDS Conference held in Rio de Janeiro. Microbiolgica then began to produce the raw material and to formulate the drug using innovative techniques. Also in 1992 the company won a tender held by the Ministry of Health to provide 16,600 vials of AZT. Initially the average cost per vial was 50% lower than that of imported ones.

10 Full Professor of the UFRJ School of Chemistry. Siquim Team: Simone Alencar, Claudia Canongia, Flavia Lins, Fernando Tibau, Rodrigo Cartaxo, Andressa Gusmo, ngela Ribeiro, Daniel Hoeffle.

36

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

In this chapter, the Federal University of Rio de Janeiro (UFRJ) technical team intends to provide an answer to the question; does Brazil have the technological capacity to produce the active ingredients and final formulation of ARV drugs, especially those of second-line ARV? This is a fundamental question for Brazilian society as a whole, as many relevant matters are at stake. Primarily, the sustainability of the National HIV and AIDS Programme which, undoubtedly, is a central issue of Brazilian public health. But also at stake is the future of the pharmacochemical industry as well as the future of the industrial policy in Brazil. Finally, also at stake is the development policy for forthcoming years, since Brazil can either become specialized in the production of agroindustrial products, raw materials and products of low added value, or it can devise public policies to compete as an industrialized nation on the international markets. The team approached the question at different levels, since production capacity is not limited only to the availability of equipment, the availability of synthesis intermediates and the existence of qualified human resources. It must also be taken into consideration that production capacities have to adjust themselves to the quality requirements and technical standards of the national authorities, the national health surveillance agency (ANVISA), as well as to international requirements, especially those of the World Health Organization (WHO) in this case. Account must also be taken of the expectations of the health authorities, especially within the National STD and AIDS Programme. The analysis must also take into consideration that the pharmacochemical and pharmaceutical industry in Brazil has a history of a very successful relationship with the universities, not only regarding the generation of very important public and private production plants that play a strategic role for the National Health System, but also regarding investigation that can lead to the obtaining of molecules critical for reverse engineering, (such as the example of AZT presented at the beginning of this chapter) and, finally, for the generation of real innovations on the international level (the case of human insulin developed in Brazil by a private company as a result of the partnerships with the universities). An evaluation of capacity cannot be restricted to companies, but must also examine the existence of a technological complex comprised of universities and industries. Once the various scopes had been examined, the UFRJ team performed a documentary analysis by consulting secondary sources as well reviewing the regulatory framework. A series of visits were also made to universities, public and private industries and also to the most relevant institutions11. Generally speaking, today Brazil has productive capacity and academic competence, as well as synergy between the two, to produce ARV, active ingredient and medication. Consideration must also be given to the need for governmental support for integration along the production chain, that is to say, integration between the different companies that produce intermediates, active ingredients and medication, strengthening the network of second-line ARV development, supported by the academic world through partnerships.

Notwithstanding, some technical bottlenecks do exist, as follows:

11 The list of institutions includes: the Ministry of Healths Science and Technology Secretariat and National STD and AIDS Programme, ANVISA the National Health Surveillance Agency, the National Economic and Social Development Bank (BNDES); the Ministry of Foreign Affairs (Intellectual Property Division), the industrial associations comprised of Abifina, Abiquif and Alanac; and the pharmaceutical industries comprised of Farmanguinhos, Lafepe, Labogen, Cristlia, Nortec, Genvida and Furp. The universities were consulted by the national exchange system for checking the human resources list.

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

37

Active Ingredients
Failure to trace suppliers is one of the obstacles to be overcome to ensure the reliability of the active ingredient used in the formulation of the medication. According to ANVISA (Resolution of the Collegiate Directorate RCD No. 302, dated October 13th 2005; RCD No. 210, dated August 4th 2003) the concept of traceability is: the ability to recovery the history, the application or the location of that which is being considered, by means of recorded identification. This requires on-site verification of whether the supplier of the intermediate and/or active ingredient has a system of Good Practices implanted, in relation to laboratory and to manufacturing, in other words, guaranteeing an effective quality system. Generally, in terms of scale, it is essential for the industries to work with product development using grams/kilograms, whilst universities work with milligrams. This is a gap which could be overcome by creating infrastructure in the universities (namely, laboratories dedicated to transforming the lab bench scale milligrams into the scale that can be used by industry: grams. Such laboratories could have specialist teachers oriented by doctors (Ph.D.), trained by them and not absorbed by the Industry), in order to achieve scale up by promoting real integration with the companies for the final development of the product. It should be noted that this infrastructure does not follow the same conception as that of the incubated companies, since critical mass must be created regarding the process (from milligrams to grams) and regarding the continuous demand by the companies. With regard to product classification, the active ingredients fall into the so-called fine chemical class as speciality medication. Under this classification there is flexibility and planning of product diversification, optimization of the greater use of production capacity vis--vis competitiveness (productivity and profitability). As such, one of the obstacles indicated by Brazilian entrepreneurs refers to the limitations in relation to production volume whereby demand for the product would have to be made in advance in order to overcome this, but which does not currently occur in the procurement processes for government purchases.

Medication
This studys team considered that the quality requirements must be fulfilled in accordance with the Good Compounding Practices (GCP), Good Manufacturing Practices (GMP) and Good Laboratory Practices (GLP) in order to achieve access to markets. However, there are deficiencies in official laboratories that formulate medication for the government. These laboratories complain of the lack of resources for adequate infrastructure, especially with regard to renewing product registration, as well as resources for pharmacotechnical adaptations, improvements to the structure of production areas, equipment, utilities, analyses and procedures, considering the issue of quality and specifications, owing to difficulties of a legal nature with the qualification of raw material manufacturers. The laboratories visited referred to shortcomings, although to date the medication formulated by them is undoubtedly efficacious and safe for human use. Moreover, the laboratories themselves state that they can do better, if only they had better infrastructure, so as to meet the levels set by the USA Food and Drug Administration (FDA), for example.

Raw Material Purchasing


The public laboratories have serious problems with regard to raw material logistics and scheduling, as there is no government purchasing programme. Purchases are made through periodical tenders,

38

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

without medium-term planning. This system does not allow quality to be guaranteed when purchasing active ingredients. The current procedure results in different API origins (different suppliers) to meet the demand and this has occasioned tremendous difficulties for production. On one occasion the purity of a raw material purchased was inferior to that stipulated in the technical specifications and it had to be repurified locally (according to the explanation given to use, the costs of returning it to the supplier, awaiting replacement, interrupting production and beginning a legal battle would have been much greater). Approximately 30% of the raw material was lost as a result of repurification. Factories (especially the national ones) producing intermediates and/or active ingredients must have planning in order to guarantee GLP and GMP. As such, the tenders (preges) (a governmental form of purchasing) should be announced in advance in order to guarantee the quality of purchases from traced suppliers and in this way the public laboratories could purchase together in order to increase both the amounts purchased and the technical requirements for the products to be purchased. Furthermore, purchases should bought in quantities sufficient for much longer periods, since changing raw material suppliers is a breach of GMP and also of ANVISA product registration conditions.

Technical Questions
When verifying production capacity, potential and competencies existing in the country, it is appropriate to bear in mind that there are fifteen active ingredients on the Ministry of Healths NAP list, of which nine are directed to initial treatment. Initial treatment is triple First Triple: 2 Nucleoside analogue Reverse Transcriptase Inhibitors (NRTI) + 1 Non-Nucleoside analogue Reverse Transcriptase Inhibitor (NNRTI) Second Triple: 2 Nucleoside analogue Reverse Transcriptase Inhibitors (NRTI) + 1 Protease Inhibitor (PI). Nucleoside analogue Reverse Transcriptase Inhibitors (NRTI) Preferential: AZT (Zidovudine) + 3TC (Lamivudine) greater adherence potential and less toxicity. When there is intolerance to AZT: Alternative 1: d4T (Stavudine) + 3TC (Lamivudine) is the second option. Alternative 2: AZT: TDF (Tenofovir) + 3TC (Lamivudine) is the third option because the cost is high and experience of it is limited.

When there is intolerance to 3TC: Use AZT + ddI (Didanosine) this combination entials a larger number of tablets. N.B. It is not recommended to use ddI/3TC (less clinical evaluation) or ddi/d4T (greater toxicity potential); Zalcitabine (ddC) has been withdrawn. Two Non-Nucleoside analogue Reverse Transcriptase Inhibitors (NNRTI) or 1 Protease Inhibitor (PI).

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

39

NNRTIs are preferential because they facilitate adherence to treatment and dosage is simpler. They can be used as follows: Preferential: EFV (Efavirenz) higher long-term potency and efficacy, with less risk of adverse effects. Alternative: NVP (Nevirapine) is the other option.

Within the PI group: Preferential: Combined LPV/r (Lopinavir/Ritonavir) (high potency) or ATV (Atazanavir) (easier dosage; good toxicity profile)

Alternatives: NFV (Nelfinavir) lower potency for high viral load; or Combined SQV/r (Saquinavir/Ritonavir) good tolerance, but a large number of tablets and low adherence. N.B. Indinavir (IDV) is not recommended owing to its high toxicity. N.B. Combinations with three NRTIs have been contraindicated as they have lower efficacy and shorter durability. It is important to highlight that 80% of cases are resolved with initial treatment.

ARV Potential and/or Production


There are three stages to ARV production: medication (formulation); active ingredient (API); raw materials: referred to in this study as intermediates. In terms of the ARV production chain, Brazil has six types of companies: those which only produce intermediates, those which only produce active ingredients, those which only produce medication (laboratories), those which integrate intermediates and active ingredients, those which integrate active ingredients and medication and those which integrate intermediates, active ingredients and medication. Brazil has the technology for integral ARV production. However, given the governments purchasing system, it may be necessary to synthesize active ingredients by means of more advanced intermediates in order to meet demand (shorter production time).

Medication
Production capacity: Stavudine 40 mg capsules, Zidovudine 100 mg capsules and 10mg/ml syrup.

There are outsourcing companies, i.e., they formulate ARV medication in solid form (capsules and tablets) for official laboratories and private laboratories.

40

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

Active Ingredient Synthesis


Production capacity: Ritonavir, Zidovudine, Lamivudine, Stavudine and Saquinavir. Potential for producing the following ARV groups: Didanosine, Indinavir, Nevirapine, Efavirenz, Tenofovir, Nelfinavir and Emtriva (the latter is not on the Ministry of Healths NAP list, and corresponds to Fluorinated Lamivudine).

Intermediate Synthesis
Production capacity: Beta-thymidine (for Zidovudine and Stavudine) and Cytosine and L-menthyl Glyoxylate (for Lamivudine).

National Infrastructure and Qualification


There are companies with scale up units in Brazil with 20, 50, 100, 250, 500, 1,000, and 2,000 to 5,000 litre reactors available. There are companies with experience in validating processes and methodology as provided for in the ANVISA norms. ARVs are chemically and physically characterized and submitted to biological activity testing. There are companies that outsource assays for result validation. An evaluation carried out for the NGO Associao Brasileira Interdisciplinar de Aids - ABIA, by Fortunak and Antunes, found that there are deficiencies in some processes. They mentioned the need to perform chemical reactions at low temperatures (-45 degrees) for the production of active ingredients, and the need to develop the technology for soft capsules in the case of some finished products. However, this is not a limitation that is either difficult or costly to overcome. Existence of partnerships: with universities for the development of research and the provision of special analytical services; with research centres for technological cooperation; with other companies, aimed at the supply of raw materials and commercial representation in Brazil/South America; with companies to verticalize production.

Human Resources
With regard to national human resource qualification it is important to take into consideration specialists in synthesis in the country, since Brazil traditionally imports technology for the vast majority of drugs, so that university-company partnerships are therefore necessary for the development of the countrys own technology. According to the Ministry of Science and Technology (MST) innovation portal, 44 specialists were identified with between four and five doctors degrees, or capelos, (this being the classification that represents the percentage of the occurrence of the keyword(s) in a researchers Lattes curriculum). Following analysis made by renowned specialists in this area, 13 researchers highly qualified in organic synthesis were selected.

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

41

It can therefore be concluded that there exists a high level of human resource critical mass for ARV development. In recent years there has been an increased tendency for the industry to seek academic consultants from universities and this has lead to the formation of partnerships in developing active ingredients and medication.

General Issues
One of the issues refers to the existence of the exclusive rights of some products that are detrimental to the Brazilian ARV industrys technological development capacity. Patent rights jeopardize the technological development of Brazilian industry with regard to protected products. Three patented products (Kaletra, Efavirenz and Nelfinavir) have accounted for 60% of the Ministry of Healths budget over the last three years. This signifies that most of this money is directed towards multinational companies, in addition to jeopardizing the sustainability of the National STD and AIDS Programme. Patented products, such as Enfuvirtide and Tenofovir, increase their share of the budget on a daily basis, resulting in the industry not investing in the development of protected products and leading to accumulated technological outdatedness. This is an issue of particular concern for the future However, the companies visited stated that the majority of first-line drugs are no longer subject to industrial protection and, as they are the drugs most used for the treatment of people with HIV/ AIDS, an important opportunity exists for the development of the national industry. World ARV production capacity will not meet the WHO goal of access by 7 million people living with HIV by the year 2010. This assertion is well founded, since on average it takes around five years for a chemical industry unit to get off the drawing board and become operational, not including the time needed for decision making. As such it is worthwhile encouraging the production of generic medication, with the aim of achieving innovations in processes, active ingredients and medication compositions. On the other hand, given that most of these drugs are purchased by governments, principally in less developed countries where the incidence of the disease is higher, we believe that the principal barrier is the lack of the guarantee that the government will purchase nationally produced drugs. With the aim of reaching the best decision on industrial property rights, in terms of supporting the government in a task that is important for decisions on future investments and proposals for science and technology, the following data was collected for each ARV: the number of producers worldwide and producers in Brazil; the patents recorded on the Brazilian patent office (INPI) on-line database; patents on the Derwent database (for the period 1986-2005) for the ARVs on the Ministry of Healths NAP list; synthesis patents for ARVs used in initial treatment (as per the Ministry of Healths NAP list) on the American Chemical Societys database for the period 1974-2005. In the case of these patents, key molecules are also identified per ARV; patents of raw materials relevant for ARVs used in initial treatment - INPI and Derwent.

42

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

TABLE 1 INTERNATIONAL AND NATIONAL ARV PRODUCERS


ARV Zidovudine (AZT) International Producers 33 (14 in China and 10 in India) Brazil 2 former producers 3 (Gerbras Qumica Farmacutica Ltda., taca Laboratories Ltda. and Microbiolgica Qumica e Farmacutica Ltda.) 0 2 (Labogen S.A. and Microbiolgica Qumica e Farmacutica Ltda) 3 (Ecadil Qumica Farmacutica Ltda., Medapi Farmacutica Ltda. and Labogen S.A.) 0 0 1 (Cristlia Produtos Qumicos Farmacuticos Ltda.) 0 1 (Cristlia Produtos Qumicos Farmacuticos Ltda.) 0 3 (Cristlia Produtos Qumicos Farmacuticos Ltda., taca Laboratories Ltda and Labogen S.A.) 0 0 5 (Labogen S.A., Microbiolgica Qumica e Farmacutica Ltda, Gerbras Qumica Farmacutica Ltda, Champion Farmoqumico Ltda and Sociedade Farmacutica Brasifa Ltda) 0

Lamivudine (3TC)

35 (16 in India and 14 in China)

Efavirenz (EFV3) Stavudine (D4T)) Nevirapine (NVP) Atazanavir (ATV) Lopinavir Ritonavir Nelfinavir (NFV) Saquinavir Abacavir Didanosine Tenofovir Amprenavir

11 (6 in China and 4 in India) 35 (17 in India and 10 in China) 20 (8 in India and 8 in China) 1 (Japan - Bristol-Myers Squibb) 3 (2 China) 6 (3 India) 10 (6 in China and 3 in India) 8 (4 India) 5 (4 in China and 1 in Germany) 29 (17 in China and 4 in India) No producer was found 3 (1 in China, 1 in India and 1 in England)

Thalidomide

28 (6 in China and 3 in India)

Indinavir

8 (5 in India and 3 in China)

Source: INPI and Derwent database.

As can be seen from the above table, the presence of China and India (emerging countries) is highly significant, and this demonstrates the feasibility of production in Brazil, as long as there is a corresponding industrial policy. It is appropriate to recall that the strategy adopted by China and India with regard to Patent Law, postponing the recognition of patent documents for ten years, enabled these countries to structure themselves in terms of the production of intermediates, APIs and medication. This is particularly evident in the case of Efavirenz (a patented drug) which has eleven producers worldwide, of which ten (91%) are located in China and India.

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

43

Patents registered with the Brazilian patent office: INPI


Two methodologies were used: 1) Identification of the name of the antiretroviral drug in the document title and/or summary

The table below shows the result of this survey.

TABLE 2 ANTIRETROVIRAL PATENTS INPI


ARV Abacavir Amprenavir Atazanavir Didanosina Efavirenz Enfuvirtida Estavudina Indinavir Lamivudina Lopinavir/Ritonavir Nelfinavir Nevirapina Ritonavir Saquinavir Tenofovir Zidovudina Talidomida Source: INPI. N of patents 2 1 1 2 2 7 5 2 4 1 2 18

2) Identification by ARV category: A. Reverse Transcriptase Inhibitors; which include: Nucleoside analogue inhibitors: Zidovudine, Didanosine, Lamivudine, Stavudine, Abacavir Zalcitabine Non-Nucleoside analogue inhibitors: Efavirenz, Nevirapine. Nucleotide analogue inhibitors: Tenofovir B. Protease inhibitors: Indinavir, Ritonavir, Nelfinavir, Saquinavir, Lopinavir/Ritonavir and Amprenavir. The search under the category transcriptase inhibitor resulted in 44 patent applications, of which: Three patents were granted (Merck, Boehringer Ingelheim and Valpharma S.A); Five applications were shelved;

44

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

36 patent applications at the national notification stage.

The search under the category protease inhibitor resulted in 75 patent applications, of which: 14 patents were granted: Abbott (4), Cristlia (3), Agouron Pharmaceuticals (1), Boehringer Ingelheim (1), Fiocruz (1), Instituto Superiore Di Sanit (1), Merck (1), Valpharma (1) and Vertex Pharmaceuticals Incorporated (1); 24 applications shelved; 37 patent applications at the national notification stage.

Search on the Derwent International Database for the period 1986 to 2005
The search was done on the title and/or summary for the antiretroviral name together with the terms AIDS or HIV in order for it to be more directed. TABLE 3 ANTIRETROVIRAL PATENTS WORLDWIDE
Number of patents 1986 to 2005 Total Ritonavir Indinavir Zidovudina Nelfinavir Saquinavir Nevirapina Lamivudina Amprenavir Efavirenz Estavudina Didanosina Abacavir Talidomida Lopinavir/Ritonavir Tenofovir Atazanavir Enfuvirtida Source: Derwent database 258 253 243 238 232 192 153 147 142 137 136 132 118 59 51 31 16

ARV

Generic ARV Bioequivalence/Commercialization Requirements


The bioequivalence/bioavailability tests are one of the difficulties associated with the production of generic medication both financially, owing to their high cost, and also because they are lengthy in

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

45

terms of time. It should be noted that during the field study cost was a factor raised by the specialists, even when taking into consideration that the register is valid for five years. There is, however, international controversy regarding the importance of the bioequivalence test being performed in vivo to systematically measure the plasmatic levels of each drug tested in relation to the reference drug. In Brazil the test is an ANVISA requirement. Bioequivalence tests are a requirement of the WHO prequalification system for products acquired with Global Fund resources. The international debate on bioequivalence tests in vivo and their applicability to ARVs is especially related to the inter and intra-individual variation of these products, and with the large therapeutic window that these types of products have. The Brazilian experience shows excellent clinical results with products that have not had their bioequivalence proven (as they entered the market before the bioequivalence test became a registration requirement), however, as mentioned earlier, bioequivalence tests are necessary for obtaining WHO prequalification and they must therefore be considered as necessary for producing medication of global excellence.

Competence to Perform Biodiversity/Bioequivalence Tests


In May 2006, 26 centres which perform at least one of the three stages of the bioavailability/ bioequivalence tests in Brazil were registered with ANVISA, of which 16 were located in So Paulo. With regard to infrastructure, 16 perform clinical tests, 14 perform analytical tests and 15 perform statistical tests. There are seven laboratories that perform all three stages: Instituto de Cincias Farmacuticas de Estudos e Pesquisas (ICF); Centro de Estudos Biofarmacuticos Ltda. (Biocinese ME); Biopharmacy and Pharmacometry Programme/Faculty of Pharmacy/Federal University of Rio de Janeiro; Federal University of Rio Grande do Sul/Centre for the Clinical Investigation of Medication (Nuclimed); Casa de Nossa Senhora da Paz Ao Social Franciscana (Unifag); Fundao Instituto de Pesquisas Farmacuticas (Fipfarma)/Biofar/FCF/University of So Paulo Biopharmacotechnical Laboratory; and T&E Analtica Comrcio e Anlises Qumicas Ltda. ANVISA should create mechanisms so that laboratories accredited by it can also be recognized by WHO, with the aim of Brazil having Good Clinical Practice laboratories, as this will facilitate exports. According to ANVISA Resolution RCD No. 103, dated May 8th 2003, centres that perform bioavailability/bioequivalence studies for the purpose of registering medication must observe the technical norms and regulations in force. In order to certify good practices regarding the bioavailability/ bioequivalence of medication, such centres shall be subject to inspection, as follows: Clinical analysis laboratories: general information, technical staff, facilities, auxiliary facilities, volunteer documentation, samples (collection), sample screening, storage, external transportation of samples, internal transportation of samples, test result recording, information tracing, computerization/interfacing, organization of the laboratory environment, organization of the workbench, good laboratory practices, standard operational procedures, equipment, reagents, biosafety (collective protection), individual protection, stockroom, working areas. Analytical laboratories: general information, technical staff, facilities, auxiliary facilities, organization of the laboratory environment, organization of the workbench, good laboratory practices, standard operational procedures, equipment, chromatographic systems, refrigeration/air-conditioning systems, water system, analytical balances, pH

46

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

meter, centrifuge, glassware and pipettes, reagents, mobile phase, chemical substances and references, samples, external transportation of samples, internal transportation of samples, validation of analytical methods, stability, biosafety (collective protection), individual protection, documentation. Statistical analysis: general information, study delineation, data treatment, statistical analysis.

With regard to the Pan American Health Organization study entitled Anlisis Comparativo de la regulacin de genricos: Brasil, Mxico, Argentina y Colombia (2004), it should be noted that there are differences in the aspects relating to the definition of generic medications as well as the establishment of bioequivalence tests as part of the requirements for the registration of these medications and they continue on the agenda of the international discussion regarding Public Health, especially that of developing countries. In relation to this, a comparative study on the regulation of generic medication in Brazil, Mexico, Argentina and Colombia was undertaken in 2004 and highlighted the following points: the discussion about the quality of generic medication involves technical and political elements; there is a high rate of dispersed definitions of generic medications in the countries studied. Only Brazil and Mexico have similar definitions; the time required to register generic medication should be relatively short. There are, however, critical situations, such as in Brazil and Chile, where this takes eight to fourteen months; different strategies exist with regard to the use of the international common denomination (ICD) of the medications active ingredient on the label and on the prescription. ICD use promotes the symmetry of information, but the culture of the medical profession needs to be addressed, since resistance when prescribing can still be seen despite the four countries having regulations that make it obligatory; with regard to the issue of bioequivalence tests being required for generic medications, Brazil and Mexico had established well defined criteria for this requirement, whereas Argentina and Colombia establish criteria for measuring the health risk and have restriction lists. This issue has been polemic, principally in the debate about policies on the quality of generic medications versus economic implications, and there is a shortage of more effective studies on the cost-benefit of adopting different criteria, whether it be the requirement of in vivo studies or the requirement of other kinds of therapeutic equivalence tests.

Regarding the Red Panamericana para la Armonizacin de la Reglamentacin Farmacutica Grupo de Trabajo en Bioequivalencia, in the year 2000 the pan-American networks working group on bioequivalence produced three documents: a) criteria for prioritizing bioequivalence / bioavailability studies;

b) criteria for selecting reference products; c) indicators for follow-up on the implementation of bioequivalence studies.

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

47

These documents were presented during the IV Conference, but despite the bioequivalence group recommending in vivo tests for ARV, this recommendation has not yet been approved by the countries heath authorities (who are the representatives at the Conference, and the maximum authority), as international technical and political controversy still exists. Countries such as Argentina, Colombia, Peru, Costa Rica and Venezuela consider that bioequivalence tests are only relevant for ten to twenty molecules. One of the Conference proposals was to prepare a list of medication that requires bioequivalence studies to be used for guidance in each country where it could be increased or decreased according to their needs and local health sector conditions. The bioequivalence working group undertook comparisons in ten countries in 2003 and 2004 of 96 active ingredients selected from the WHO priority list of ingredients that require bioequivalence studies. It identified that only four of the active ingredients were common in the ten countries. This situation indicates the need to harmonize the criteria for prioritizing requirements for bioequivalence studies. The comparison shows that in relation to the 96 active ingredients, the Latin American countries with the most active ingredients requiring bioequivalence studies are Cuba (40), Mexico (39) and Brazil (32). However, the Conference recognized that the use of the same reference product for bioequivalence studies facilitates harmonization and authorized the use and the concepts that are part of the document entitled Multisource (generics) Pharmaceutical Products: Guidelines on Registration Requirements to Establish Interchangeability, WHO. Finally, it is appropriate to make clear that the production of synthesis intermediates, active ingredients and finished products in Brazil is in line with international quality standards, especially the Good Manufacturing Practices and the bioequivalence requirements, and that ANVISA is an internationally recognized regulatory agency. As a consequence, quality does not represent a problem for ARV production in Brazil.

Final Considerations Proposals


Division of a percentage of government demand for the production of active ingredients (APIs) between the national companies, as an incentive to national production in Brazil and as an incentive to the promotion of technology innovation with regard to API production technology and the guarantee of its quality. Expedite the draft bill of law which is currently with the Ministry of Development, Industry and Foreign Trade, in the SGT-3 working subgroup Government Purchases Forum on the Competiveness of the Pharmaceutical Chain. The bill provides general rules for contracting medications and correlated products, pharmaceutical raw materials and the like by direct and indirect public administration and foundations at federal, state and municipal level. Chapter IV - Purchase Preferences, Article 10, states: In relation to contracting under this law, preference shall be given to goods produced in the following manners and conditions:

I Pharmaceutical raw materials or the like: a) 6% for pharmaceutical raw materials or the like produced in Brazil, with technology developed in Brazil and defined as strategic products for the health area;

48

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

b) 4.5% for pharmaceutical raw materials or the like produced in Brazil, with technology developed in Brazil; c) 3% for pharmaceutical raw materials or the like produced in Brazil and defined as strategic products for the health area; d) 1.5% for other pharmaceutical raw materials or the like produced in Brazil; e) 0% for other pharmaceutical raw materials or the like.

II For medications and correlated products: a) 6% for medications and correlated products produced in Brazil that use pharmaceutical raw materials or the like described in item (a) of subsection I; b) 4,5% for medications and correlated products produced in Brazil, that use pharmaceutical raw materials or the like described in item (b) of subsection I; c) 1,5% for medications and correlated products produced in Brazil, that use pharmaceutical raw materials or the like described in item (c) of subsection I; d) 0% for other medications and correlated products. Incentives for the production of API in Brazil, given that the average cost of medication is 20 times the cost of the API, thus indicating that API production would add value in Brazil. Incentives for financing for companies to adapt themselves to exporting in terms of infrastructure in accordance with good production practices, given that the national companies already have technology.

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

49

LEGAL EVALUATION
RECONCILING INTELLECTUAL PROPERTY RIGHTS AND HUMAN AND TECHNOLOGICAL DEVELOPMENT DEMANDS: CHALLENGES FOR BRAZIL ON THE POST-TRIPS/WTO SCENARIO

Maristela Basso12 & Edson Beas Rodrigues Jr.13

NO NEWS TODAY* *Just 6,500 Africans died today as a result of a preventable, treatable disease (HIV/AIDS)14

Introduction
Fearing new unilateral commercial retaliation for not granting patents for pharmacochemical and biopharmaceutical products15, Brazil forsook the special ten-year transition period offered to

12 * The authors would like to thank Fernanda Macedo, Andrea Balan and Ken Shadlen for their comments and suggestions. Associate Professor of International Law, University of So Paulo Law Faculty (FDUSP). 13 Researcher of the Institute of International Trade and Development Law (Instituto de Direito do Comrcio Internacional e Desenvolvimento), lawyer in So Paulo. 14 Epigraph taken from the British newspaper The Independent, dated May 16th 2006. 15 In the second half of the 1980s the USA applied trade sanctions to important Brazilian economic sectors (paper and cellulose, chemical and electronics industries) by applying 100% ad valorem taxes. Maria Helena Tachinardi, A guerra das patentes: O conflito Brasil x EUA sobre propriedade intelectual, So Paulo, Editora Paz e Terra, 1993, p. 109 and ss.

50

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

developing countries,16 for the implementation of the rules of the Agreement on Trade-related Aspects of Intellectual Property Rights (TRIPS Agreement or TRIPS) relating to the protection of pharmaceutical products with patents17 by approving Law No. 9,279, dated May 14th 1996,18 which provides for the rights and obligations with regard to industrial property in Brazil (the Industrial Property Law or IPL).19 The process of approving the IPL ignored the lack of expertise of local government bodies in efficiently administering complex and unknown matters, e.g. the examination of pharmaceutical and biotechnological patent applications, technology transfer, access to essential medications, the diffusion of knowledge, the relationship between innovation and exclusivity rights and, above all, disregarded the local industrial sectors lack of preparation to adapt to the new commercial rules for the sector.20 As a result of the lack of ample and in-depth debates regarding the flexibilities offered by the TRIPS Agreement, principally concerning the form of legal protection of industrial property (IP) most appropriate to Brazils level of economic, technological and social development, some of the provisions of the IPL - because of the way they have been interpreted and applied - place obstacles to Brazilian economic and social development, because they excessively restrict public domain information and, as a consequence, interfere in areas used to foster the technological capacity of the Brazilian productive sector and to increase access to quality products by the more disadvantaged segments of the population. This study was undertaken with the purpose of identifying and evaluating the legal restraints imposed by the Brazilian intellectual property system and other norms applicable to the pharmaceutical sector on the adoption of policies to scale up access to medication21 and on the expansion of a solid and competitive industrial pharmaceutical platform.22 Once the legal obstacles are identified, we seek to reinterpret them within the framework of human rights and the protection of free competition, as determined by the Brazilian Federal Constitution of 1988,23 i.e. we rebuild the interpretation of
16 Article 65.4 of the TRIPS Agreement. 17 Article 65(4) of the TRIPS Agreement authorized Brazil and other developing countries to implement protective domestic rules for pharmaceutical products up until January 1st 2005. India did so. 18 The legislative process that culminated in the approval of Law No. 9279/96 began in 1990, when the Federal Executive Branch introduced Bill No. 824/91 in the National Congress, owing to the pressure brought to bear by the industrialized countries for Brazil to grant patents for pharmaceutical products. For further information on the background to the Bill, refer to Patrcia Aurlia Del Nero, Propriedade Intelectual: a tutela jurdica da biotecnologia. So Paulo: Editora RT, 1998, pp. 102-126. 19 Regarding the role of the Brazilian Intellectual Property Association (Associao Brasileira de Propriedade Intelectual) in the approval of the IPL, see the interview given by Jorge Raimundo in the magazine Revista Propriedade & tica, no. 1, January and February 2008. Interview available at: http://www.revistapropriedade.com.br/conteudo.asp?qs_str_ID_ AREA=1&qs_id_texto=708 20 Because of the pressure that Brazil was suffering, the Brazilian pharmaceutical market was abruptly opened. The result was the mass closure of Brazilian companies in that sector: in the 1990s, 1,096 productive units had their activities paralysed, and 355 of the sectors projects were suspended (data provided by Abifina, in personal correspondence). 21 We consider it to be pertinent, before embarking on the technical study, to point out that although its purpose aims to promote sustainable access to antiretroviral drugs (ARVs), the observations made and the conclusions reached are applicable (and favourable) to all public policies aimed at expanding access to medications essential to life, regardless of the illness targeted by the policy. 22 The purpose of evaluating the legal system vis--vis the need to stimulate the development of the Brazilian pharmaceutical industry is justified by the fact it is insufficient for the legal system to offer spaces for the private sector to produce and distribute generic medications, if a solid local pharmaceutical industry capable of producing them does not exist. To depend on external production capacity to supply the demand for products essential to human life is to place the sovereignty of any State at risk. 23 The Brazilian Federal Constitution transfers to the Brazilian legal system the international obligations taken on by

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

51

the provisions of the IPL and those of other norms bearing in mind, primarily, that Intellectual Property Rights (IPR) are an exception to the constitutional principle of free competition24 and as such should have their scope of protection interpreted restrictively, and always without losing sight of their social function.25 In other words, the IPR are not an end in themselves, but rather an instrument of public policy, and their function of cultural and technological diffusion in benefit of society must be remembered constantly, so as not to expand them to the detriment of these interests.26 Moreover, industrial property, specifically, has as an explicit legal limitation Brazilian social, economic and technological interests and, notably, the fundamental human interests listed for example27 in article 5 of the Federal Constitution. As such, any norm whatsoever that goes against fundamental, social, technological and economic Brazilian rights and unnecessarily restricts free competition should not be obeyed, by reason of being unconstitutional. In addition to reinterpreting the provisions of the Brazilian legal framework affecting pharmaceutical products in accordance with the conceptual framework above, whenever appropriate we present proposals for the reform28 of the domestic legal framework, always with the final aim of promoting greater and more sustainable access to medications essential to life. In concrete terms, the framework on which we have built this study is comprised of the Federal Constitution of the Federative Republic of Brazil and the TRIPS Agreement of the World Trade Organization (WTO): much has been researched and published about the impact both potential and concrete of this agreement and of intellectual property rights (IPR) in general on human development in developing countries with less relative development.29 Although some studies go as far as considering the suppression of the TRIPS Agreement or its renegotiation30 as the best developmentalist policy for the developing countries, like it or not the TRIPS Agreement does establish the minimum international platform of IPR regulation for Brazil and, at least in the medium term, nothing suggests it will be reformed as a result of Brazilian demands or those of other developing countries. For this reason, from the perspective of the need to find concrete solutions to the everyday and immediate problems and challenges that pullulate in Brazil, we deem it to be counter-productive to rediscuss possible harmful effects the TRIPS Agreement may have on the dynamics of local economic and social development. Considering that the TRIPS Agreement is a legal instrument of a commercial nature, it could be imagined that this and the other legal pillar on which this study is based the Brazilian constitutional norms might be in conflict, which would interfere with the legal sustainability of the interpretations proposed here. Notwithstanding, it is of fundamental importance to recall that the TRIPS Agreement,
Brazil, such as those contained in the Universal Declaration of Human Rights, the International Covenant on Civil and Political Rights and the International Covenant on Economic, Social and Cultural Rights. 24 Article 170, IV, Federal Constitution. 25 Article 170, III, Federal Constitution. 26 Committee on Economic, Social and Cultural Rights, General Comment No. 17 (2005) - (E/C.12/GC/17). 27 Article 5, paragraph 2, of the Federal Constitution states that Paragraph 2 The rights and guarantees expressed in this Constitution do not exclude others arising from the legal system and from the principles adopted by the Constitution, or those of international treaties to which the Federative Republic of Brazil is party. 28 Considering the social cost of the delay in approving legal texts in the National Congress, proposals for legal reform will only be presented when considered to be indispensable to the implementation of a national policy to promote access to medications and the expansion of the national pharmaceutical platform. 29 One of the most complete studies on this aspect was organized by the British governments Commission on Intellectual Property Rights. Its final report is available at : http://www.iprcommission.org/papers/word/final_report/ reportwordfinal.doc 30 Marie Bystrm; Peter Einarsson, Consequences for developing countries: implications for Swedish development cooperation. Consultancy report to the Swedish International Development Cooperation Agency. August 2001.

52

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

ever since the adoption of the Doha Declaration on the TRIPS Agreement and Public Health (the Declaration) on November 14th 2001,31 has taken on, with incontrovertible clarity, values and interests defended by the international norms aimed at promoting the right to health.32 There are therefore no further doubts that the WTO Members are authorized to implement the norms of the TRIPS Agreement, so as to protect public health and, in particular, promote access to medicines for all,33 and not just to promote the economic interests of IPR owners.34 Even if the Doha Declaration did not exist, there is, to a large extent, an overlap between the WTO Members and the Parties to the principal international human rights agreements,35 and the Principle of Mutual Supportiveness requires that the States that are party to these agreements to apply them in such a way as to reconcile their potentially conflicting obligations.36 But if a conflict should emerge, it is natural that human rights would be set before interests of a merely commercial nature, since the principle of human dignity is the foundation stone of both the Brazilian37 and the international juridical system.38 This said, the only interpretation regarding the nature of intellectual property rights that appears to us to be legally plausible is to consider them as rights that are a means and not an end, i.e. they are a means of preserving a dignified life for all, but they cannot be protected when they transform themselves into an instrument of exclusion...39. This chapter is structured in three parts: the first is dedicated to an examination of the Brazilian legal framework for the protection of pharmacochemical and biotechnological inventions; the second is dedicated to the legal instruments for access to medications that are external to the system of intellectual property protection, and the final part deals with the role that the Judiciary Branch can play to foster access to medications and the development of the pharmaceutical industry in Brazil.

31 WT/MIN(01)/DEC/2 32 The Doha Declaration confirms the provisions of Resolution 2000/7, dated August 17th 2000 and Resolution 2001/21, dated August 16th 2001, of the Human Rights Subcommission of the Office of the United Nations High Commissioner for Human Rights, which recall the primacy of the obligations relating to human rights, in virtue of international law, over the economic policies and agreements. 33 Paragraph 4, idem. 34 Article 7 of the TRIPS Agreement together with paragraph 5(a) of the Declaration. Given the constructive and integrating role of human rights in relation to the TRIPS Agreement it is known that the industrialized countries have intensified their strategies of celebrating bilateral trade agreements with developing countries, so as to annul in practical terms the spirit of the Doha Declaration. See Peter Drahos, Expanding Intellectual Propertys Empire: the Role of FTAs. Barcelona, Grain, November 2003. 35 The International Covenant on Economic, Social and Cultural Rights and the International Covenant on Civil and Political Rights. 36 Christoph Bail, What is the future role for the CBD in the preservation of plant genetic resources and biological diversity: a plea for policy coherence. In: Thomas Cottier, Petros Mavroidis (organizers), Intellectual Property: trade, competition, and sustainable development. Ann Arbor, Michigan University, 2002, pp. 515-523. 37 Article 1, III, Brazilian Federal Constitution. 38 Office of the High Commissioner for Human Rights, Fact Sheet No.2 (Rev.1), the International Bill of Human Rights. Geneva, United Nations, 1996. 39 Fbio Konder Comparato, A propriedade ou a vida (property or life), article published in the newspaper Folha de So Paulo, November 1st 1993, section 1, p. 3. apud. Jos Delgado, O Juiz na Sociedade Complexa do seu Tempo, Centro de Estudos Jurdicos, Justia Federal do Rio Grande do Norte. Available: http://www.jfrn.gov.br/cejrn_ed_especial.htm. For the opposite point of view, considering that the right to patents should be set above the right to access to medications (and, consequently, the right to health), see J.J. Gomes Canotilho and Jnatas Machado, A questo da Constitucionalidade das Patentes Pipeline luz da Constituio Federal de 1988. Coimbra: Almedina, 2008: The fundamental right to health, set forth in article 196 of the Federal Constitution, cannot be protected at the cost of the essential core of pharmaceutical product inventors intellectual property right, who are also equally protected by this Basic Law and by international treaties juridically in force within the Brazilian juridical system. (p. 121).

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

53

SECTION I
1. The Brazilian Legal Framework for the Protection of Pharmacochemical and Biopharmaceutical Inventions
The Industrial Property Law (IPL) appears as a watershed for the Brazilian pharmaceutical sector, to the extent that it reflects the obligations taken on by Brazil in relation to the World Trade Organization (WTO), by implementing on the domestic level, among other aspects of interest to the sector, the Brazilian States obligation to grant patents for pharmaceutical and biotechnological processes and products. In this section we examine: the provisions of the IPL and of other legal texts relevant to the issue of access to medications and the local development of an industrial pharmaceutical platform, the relations between the IPL and the flexibilities offered by the TRIPS Agreement, the contradictions between the Patentability Guidelines of the National Institute of Intellectual Property (INPI) and the IPL, that regulate the examination of patent requests made by the biotechnological and pharmaceutical sectors (the Guidelines). Finally, we present recommendations for normative and interpretative reform of the provisions examined, whilst also identifying legal obstacles to the development of a Brazilian pharmaceutical industry and to ample access to medications.

1.1. The Conflict between the IPL and the INPI Patentability Guidelines: the Contra Legem Expansion of the List of Patentable Subject Matters
The IPL, principally when compared to Law No. 5,772/71 (the former Brazilian Code of Industrial Property, applicable until May 14th 1997), brings important changes that can be better evaluated by means of comparing the scope of patent protection in force until May 14th 1997 with that which came into force with effect from May 15th 1997 under the IPL. Law No. 5,772/71 considered as non-patentable40: (a) inventions with a purpose contrary to the laws, morality, health, public security, the religions and feelings worthy of respect and veneration; (b) substances, matters or products obtained through chemical means or processes; (c) chemico-pharmaceutical and foodstuff substances, matters or products and medications, of any kind, as well as the respective processes of obtainment or modification; (d) metallic mixtures and alloys in general, except those not included in the above item which have specific intrinsic qualities, precisely characterized by their qualitative composition, defined quantitatively, or by special treatment to which they have been submitted; (e) the juxtapositions of known processes, means or bodies, mere change of form, proportions, dimensions or materials, unless a new or different technical effect results from the ensemble; (f) uses or employment related to discoveries, including of varieties or species or microorganisms, for a given purpose; (g) operating, surgical or therapeutic techniques, not including devices, appliances or machines;
40 Article 9, Law No. 5,772/71.

54

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

(h) systems and schedules, plans or schemes of commercial bookkeeping, calculation, financing, credit, raffles, speculation or publicity; (i) (j) purely theoretic conceptions; substances, matters, mixtures, elements or products of any kind, and the modification of their physical and chemical properties and their respective processes of obtainment or modification, when resulting from the transformation of the atomic nucleus.

In sum, the 1971 Industrial Property Code prohibited the protection of inventions contrary to morality and to the public interests in general, as well as foodstuff, pharmaceutical and biotechnological products and processes, also explicitly prohibiting patent claims to register new uses. The 1996 IPL, in turn, increases the list of subject matters protectable by invention patients, in respect of the provisions of article 27(1) of the TRIPS Agreement,41 thereby extending patent protection to pharmaceutical and biotechnological products, but also availing itself of the flexibilities offered by the TRIPS Agreement (articles 27.2 and 27.3), and also excludes from the list of subject matters eligible for to protection:42 (a) discoveries, (b) inventions contrary to morality, proper customs and public security, public order and public health; (c) operating or surgical techniques and methods, therapeutic or diagnosis methods, for application to the human or animal body; (d) all or part of natural living beings and biological materials found in nature, even if isolated from nature, including the genome or germplasm of any natural living being and the natural biological processes, except transgenic microorganisms43 that meet the three requirements for patentability - novelty, inventive activity and industrial applicability and which are not a discovery; (e) substances, matters, mixtures, elements or products of any kind, and the modification of their physical and chemical properties and their respective processes of obtainment or modification, when resulting from the transformation of the atomic nucleus. Based on the reading of the IPL, it might appear that Brazil has integrated in its legislation the flexibilities offered by paragraphs (2) and (3) of article 27 of the TRIPS Agreement. However, in order to obtain the correct dimension of the list of subject matters eligible for patent protection for the pharmaceutical and biotechnological sector in Brazil, our analysis must go beyond the wording of the IPL and also include the spirit of the Guidelines for the Examination of Patents Applications in the Areas of Biotechnology and Pharmaceuticals made after 31/12/199444 (the Guidelines), issued by INPIs
41 The WTO Member States are obliged to protect any invention, whether it be of a product or a process, in all the technological sectors, as long as it is new, inventive and has industrial applicability, and is sufficiently well described, so that it can be carried out by a person skilled in the art (article 29(1), TRIPS Agreement). However, the Agreement does allow WTO Members some discretion to exclude certain matters from the patentability list (articles 27(2) and 27(3)). 42 Articles 10 and 18 of the IPL. 43 Article 18, paragraph 1, defines transgenic microorganisms as organisms, except all or part of plants or animals, that express, through direct human intervention in their genetic composition, a characteristic not normally achievable by the species under natural conditions. 44 Published in the Industrial Property Journal (Revista de Propriedade Industrial) No. 1669, dated December 31st 2002.

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

55

Patents Directorate, and subject matters that do not obtain prior consent from the National Health Surveillance Agency (ANVISA). At this point it is important to provide a preliminary explanation which will be explored in more depth further on: since 1999 Brazil has adopted a dual administrative procedure for examining pharmacochemical and biopharmaceutical patents, i.e., the examination of patent requests for the pharmaceutical sector comprise obligatory double examination of patentability, performed both by INPI and ANVISA. Since then ANVISA has interpreted the terms of the IPL in a more restrictive manner than INPI, and as a result there are conflicting positions between these two bodies as to what is and what is not patentable in Brazil according to the IPL.45

1.1.1 The INPI Patentability Guidelines


The Patentability Guidelines are intended to guide INPI examiners, orienting them, inter alia, on subject matters that warrant the privilege of patenting in Brazil. Under Brazilian administrative law, the Guidelines are an administrative act issued by an autonomous federal body (autarquia), and for this reason they can only serve as an instrument to enlighten as to the provisions of the IPL concerning patentable subject matters. However, as we shall see, INPI issued Guidelines that are an innovation in the legal world, i.e. the Guidelines increase the list of eligible subject matters, contrary to in the provisions of the IPL and contrary to Brazilian social and industrial interests protected by the countrys Federal Constitution.46

(a) The broadening of the definition of process claims and the protection of the old and non-inventive: the discoveries of new pharmaceutical uses
The incongruities in the Guidelines begin with the adoption of a broad definition of process claims. Item 1.4 of the Guidelines differentiates between the two fundamental types of patent claims: those relating to objects, i.e. compounds, products, appliances, devices etc., and those relating to activities, i.e. processes, uses, applications, methods etc.47 The error of the Guidelines is in the undue broadening of the definition of process claims, since it does not only include the processes of synthesis, isolation, purification and extraction of pharmacochemical and biotechnological substances, but also and it is with regard to this point that we found an aspect of concern for the sustainability of any policy that proposes to foster wide access to medications and local industrial development namely the so-called claims for new pharmaceutical uses. These claims include claims relating to subsequent pharmaceutical uses and medical treatment methods.48 More specifically, INPI grants protection to two types of new use inventions: a new medicamental use of a pharmacochemical or biopharmaceutical product that is part of the state of the art, the first application of which does not take place in the medical field (first
According to information available on INPIs website, the Guidelines are in the process of being reviewed. 45 Article 229-C of the IPL. 46 The Patentability Guidelines adopted by the Indian Patent Office state that in the event of conflicts between the provisions of the Guidelines and the Indian Patents Act, the latter shall prevail (Shamnad M.Basheer, Indias Tryst with TRIPS: The Patents (Amendment) Act 2005 in Indian Journal of Law and Technology, vol. 1, 2005). Despite this being omitted in the INPI Guidelines they are limited by the Federal Constitution and the IPL. In the event of any conflict between constitutional/IPL provisions, on the one hand, and the Guidelines, on the other, there is no doubt that the constitutional provisions and the IPL shall prevail, given the Principle of Legality. 47 With regard to the broadening of the definition of process claims, see item 2.21 of the INPI Patentability Guidelines. 48 Philip W. Grubb, Patents for Chemicals, Pharmaceuticals and Biotechnology: Fundamentals of Global Law, Practice and Strategy, 4th edition, Oxford, Oxford University, 2004, p. 337.

56

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

medical use); a new medicinal use of a product already employed as a medicament (second medical use or new subsequent use).49 Subsections (I) and (II) of article 42 of the IPL limit themselves to explaining that the letters patent invests its owner with the power-right to exploit, industrially and commercially, the product or process object of the patent. The concision of the IPL does not imply that INPI has the prerogative of being able to include claims for new uses in the definition of process. The construction of the definition of the term process must occur with a view to protecting Brazils social interest and its technological and economic development.50 Granting protection to a subject matter that already exists within the state of the art implies restricting free competition without any raison dtre: the patents system is a system of exchange. The inventor publicizes her/her invention, on condition that he/she receives from the State, in exchange, a right to exclude third parties for a limited period of time. Granting protection to an invention already known by society implies the creation of an obstacle to free competition, which distorts trade and is prejudicial to the end consumer of medications. The social and technological impact of the broadening of the definition of the term use claims becomes more palpable by taking two examples. (i) Company A developed an antibiotic (Y) and filed its patent application in Brazil on January 1 2008. If the patent is granted by INPI, it will be valid, on the Brazilian market, for twenty years with effect from the date the application was filed. Later, lets say in 2027, if the antibiotic patent owner discovers, based on the results of phase 4 clinical trials, that the drug is also efficacious in breast cancer treatment, it will be possible to file a new patent application, claiming protection for the same product for a further twenty years. In this way the invention can remain under private domain for a period much longer than originally expected.
st

(ii) Company A discovers, in 2029, that antibiotic Y, after its patient has expired, shows promising results for breast cancer treatment. Compound Y, which was already under public domain and could be used by any national or foreign company, will return to the private domain for a further twenty years. The INPI Guidelines indicate three types of claims that must not be processed by its examiners, because it considers them non-inventive (first case) and because they are a therapeutic method51 (second and third cases): Group I Claims that must not be processed (i) Product X characterized by the fact of being treatment for disease Y.

(ii) The use of product X characterized by being used in the treatment of disease Y. (iii) The process of treating disease Y characterized by the administering of product X (or composition containing product X). Contradictorily, the Guidelines list examples of claims, concerning new medical uses that must be processed by the examiners, as follows:

49 Item 2.39 of the Guidelines. 50 Article 5, XXIX, Federal Constitution. Similarly, see article 2 (caption) of the IPL. 51 According to item 2.36.2 of the Guidelines, therapeutic methods are those that imply the cure and/or prevention of a disease or malfunctioning of the human body or animal body, or the relief of symptoms of pain, suffering and discomfort, with the aim of re-establishing or maintaining their normal health conditions.

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

57

Group II Claims that must be processed (i) Pharmaceutical compound characterized by containing product X (possibly with other components).

(ii) Compound for the treatment of disease Y characterized by containing product X (possibly with other components). (iii) Compound characterized by containing product X (possibly with other components) for use in the treatment of disease Y. (iv) Compound in the form of (tablet, gel, injectable solution, etc.) characterized by containing product X (possibly with other components) for use in the treatment of disease Y. (v) Use of product X characterized by being in the preparation of a medicament to treatment disease Y. (vi) Use of product X characterized by being in the preparation of a medicament to treatment disease Y, when this treatment consists of such and such. If we ignore the style in which the text on the two groups of claims is written and compare the essence of the Group I claims (prohibited) with those of Group II (allowed), a doubt arises as to the existence of a real difference, in terms of content, between the two claim groups. Taking into consideration the semantics of the claims covered in the two groups we can conclude that they are basically identical and, consequently, involve a therapeutic model, and are therefore not inventions eligible for patenting.52 There are solid legal bases for INPI to deny the concession of patents claiming new pharmaceutical uses, without this implying any breach of Brazils obligations before the WTO, namely: Claiming protection of a new use for a pharmaceutical invention that is already part of the state of the art is equivalent to claiming protection for a discovery, i.e. the inventor discovers a new application for something widely known; The claim does not meet the requirement of industrial applicability; The claim for new use relates to a therapeutic method;53 Lack of novelty of the compound for which the new use was identified and claimed;54

52 For a more complete examination of this question, see: Edson Beas Rodrigues Jr., Anuncia Prvia: integrao do direito sade aos direitos de propriedade intelectual in Revista dos Tribunais, So Paulo, Year 94, October 2005, Volume 840, p. 84-106. 53 It is interesting to note that the INPI Guidelines have provisions that contradict themselves. For example, items 2.8 (b) and 2.9 instruct the INPI examiners not to process certain claims that may include a therapeutic method. On the other hand, item 2.39 and its subsections deal with the possibility of processing claims for therapeutic methods, written in the form of second use inventions. 54 Nuno Pires de Carvalho enlightens us by stating that the novelty of the (known substances is borrowed from their secondary or additional use. Novelty, therefore, is not intrinsic to the substance, which explicitly forms part of the state of the art, but extrinsic to it, given that the element that is not comprised in the state of the art is the use, not the product. WTO Members are not obliged to follow this sort of reasoning. The second use, as identified by the European Patent Convention (EPC) is nothing more than a new result or advantage of the utilization of a known substance. However, advantages and results are generally not admitted as subject matter of patent claims. It may have been for this reason that the EPC opted for admitting the patentability of the substance or the composition, rather than a new result or advantage extracted from the use of the known substance.() Patentability of second uses, if made available, becomes then a matter of implementing more extensive protection that it is required by the Agreement (Article 1.1.). (The TRIPS Regime of Patent

58

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

The protection of inventions relating to new uses is a new claim category (uses category), which is beyond the obligatory scope of protection established by the TRIPS Agreement and by the IPL;55 The extension of the duration of the patent beyond the term provided for is contrary to the vested rights of other companies and the consumer, based on the right to have ample access to the technology in question once the first patent has expired.56

Despite these solid legal bases, INPI insists on considering eligible patent claims for new pharmaceutical uses and subsequent pharmaceutical uses of products that are already part of the state of the art: in July 2007, INPI organized a round of technical discussions, in which the general public undertaking technical activities in the pharmaceutical sector, was invited to present contributions as to the patentability of new pharmaceutical uses and subsequent pharmaceutical uses. The results of the round of discussions are to be used in updating INPIs patentability guidelines. Ignoring the arguments contrary to the eligibility of second use medical inventions, INPI prepared draft guidelines for the examination of applications for new use patents and subsequent use patents, currently available on its website.57 Despite the proposed guidelines attempts, they are not able to ignore the reality that new use inventions are in fact an invention that is part of the state of the art and, for this reason, do not warrant any patent protection. The very minutes of the first meeting of the INPI round of technical discussions contain legal justifications sufficient to deny protection to these claims: Another aspect looked at in this meeting was that relating to the finding that the majority of the cases of applications for new uses reveal the existence of descriptive reports essentially regarding therapeutic methods, and that the description of new compounds was not found, nor the description of new formulation processes. In such cases, what is the real object of the invention, given that the only invention being described is, in fact, a therapeutic method, the protection of which is prohibited in Brazil? In truth, what is being protected with regard to these applications are the directions for the use of the medicament, given that the second use claimed does not create a new medicament, and what is being protected is the information contained therein, which is not covered by the patenting system.58 Although there is no legal basis for INPI to concede protection to claims regarding new medical uses, in order to avoid legal disputes involving ANVISA, INPI and the pharmaceutical conglomerates, we recommend the inclusion in the IPL of a provision that explicitly prohibits patent protection of claims for new pharmaceutical uses. In this sense, Bill No. 2511, introduced by Federal Congressman Fernando Coruja on November 29th 2007, is currently before the National Congress. The Bill proposes adding to article 18 of the IPL the prohibition of the patenting of therapeutic indication
Rights, The Hague, Kluwer Law International, 2002, p. 152). 55 The Court of Justice of the Andean Community of Nations (Proceedings No. 89-AI-2000) considers that Article 27 of the TRIPS Agreement requires that the Member States only concede protection for inventions related to products, compounds or processes. In the view of the Court, uses are a new claim category and not necessarily patentable under the terms of the TRIPS Agreement. International Chamber of Commerce, Impacto e Perspectivas de Proteo Propriedade Intelectual nos Negcios: Plano de Trabalho para Empresrios e Governantes, Paris, 6th ed., 2005. 56 Article 5, XXXVI, of the Brazilian Federal Constitution provides that the law shall not prejudice vested rights, the perfect juridical act (ato jurdico perfeito) or the res judicata; 57 INPI, Guidelines for the Examination of Requests for Patents in the Area of Second Medical Use (Diretrizes para o Exame de Pedidos de Patentes na rea de Segundo Uso Mdico), 2007. 58 INPI, Summary of the Minutes of the First Meeting on Second Medical Use. Rio de Janeiro, INPI, July 24th 2007.

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

59

of pharmaceutical products and processes. A proposal for the amendment of article 18 of the IPL, based on article 21, Decision No. 486 of the Andean Community of Nations, appears to us to be clearer: Article 18. The following are not patentable: (...) IV - products and processes that are part of the state of the art, even if use is attributed to them which is distinct from that previously known.

(b) Compositions defined by their physical form


Pharmaceutical compounds are frequently defined by the form of their presentation (cream, spray, capsule, syrup etc.). Item 2.9.2 of the Guidelines permits the processing of claims for products that are already known but which are presented in a new form. This type of claim can be made with aim of extending patent protection of pharmaceutical products that are already part of the state of the art, preventing the entry of new competitors on the market for a longer period than initially expected, thereby breaching the vested right of third parties and society to have unrestricted access to the protected invention once the first patent has expired. Even if the new form of presentation of a known product is not obvious to persons skilled in the art and its effect is better than that produced by the previous form of presentation, or if the new form has a new application, the claim will be in relation to a pharmaceutical compound that does not fulfil the requirement of novelty and is therefore not eligible for protection.

(c) Hybridomas
The IPL prohibits the patenting of all or part of natural living beings and biological materials found in nature, even if isolated from nature, including the genome or germplasm of any natural living being and the natural biological processes (article 10, IX, IPL). If we were to interpret this provision in isolation from the rest of the IPL, it would be possible to argue that, in Brazil, living beings are patentable in a broad manner as well as the biological materials, including their genome, as long as they result from human intervention (transgenic organisms). However, article 10, IX of the IPL should be analysed together with the provisions of article 18 (III) and paragraph 1, and also with the provisions of article 199, paragraph 4, of the Federal Constitution: Article 18 - The following are not patentable: III - all or part of natural living beings, except transgenic microorganisms that meet the three requirements for patentability () and which are not merely a discovery. Paragraph 1. For the purposes of this Law, transgenic microorganisms are organisms, except all or part of plants or animals that express, through direct human intervention in their genetic composition, a characteristic not normally achievable by the species under natural conditions. Article 199, paragraph 4 - The law will determine the conditions and the requirements that facilitate the removal of human organs, tissues and substances for the purposes of transplantation, research and treatment, as well as the collection, processing and transfusion of blood and blood products, whereby any kind of commercialization is prohibited.

60
(i)

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

Based on these legal provisions it is possible to infer that: all (an animal or plant) or part (cells, DNA, genetic sequences, proteins etc.) of animals (including the human body) and plants are not patentable in Brazil, whether they are natural or result from direct human intervention in their genetic composition, even when they meet the three patentability requirements;

(ii) transgenic microorganisms (bacteria, fungus, virus,59 yeast etc.) and their genetic material are protectable, as long as the three patentability requirements are met. In flagrant conflict with the provisions of the IPL, item 2.15 of the Guidelines authorizes the processing of claims relating to hybridomas60 and monoclonal antibodies.61 Despite INPI recognizing that hybridomas result from the fusion of animal and human cell material fusion of healthy lymphocytes with malignant cell lines (myeloma) for the production of monoclonal antibodies , it adopts the legal fiction that hybridomas are microorganisms62 and, consequently, eligible. The inexistence of hybridomas in nature does not justify their protection via patent law; the IPL prohibits the concession of patents for hybridomas because they are built from biological material of animal/ human origin, as is the resulting monoclonal antibody, since it comprises elements of human origin.63 In principle, under the terms of the IPL, only processes for the obtainment/production of hybridomas that meet the patentability requirements are eligible, but not hybridomas per se. However, recalling the provision of article 28(1)(b) of the TRIPS Agreement64 and article 42, paragraph 2 of the IPL,65 if the process of obtaining hybridomas were protectable, the hybridomas directly obtained through this process would also be. Therefore, hybridoma production processes are also not eligible in Brazil.

(d) Processes Used to Obtain Animals


Item 2.3.1. of the INPI Guidelines authorizes the processing of patent applications which claim protection for processes of genetic modification of animals, as long as the three patentability requirements are met, and the invention claimed does not cause suffering to the genetically modified animals or, if it does cause suffering, the benefits for humanity outweigh the suffering caused to the animals. Based on the combination of articles 10(IX), 18(III) and paragraph 1, 42 paragraph 2, of the IPL and article 28(1)(b) of the TRIPS Agreement, processes used to obtain transgenic animals are not patentable in Brazil.
59 In general, science does not consider a virus to be a living organism, since it depends on a human being to reproduce itself, but in this study we have included virus in the category of microorganisms. 60 Hybridomas are cells produced by the fusion of two cells of different origin. In monoclonal antibody technology, hybridomas are formed by the fusion of an immortal cell (a cell that continually divides itself) and a cell that produces an antibody. Concept taken from the Department of Genetic and Evolution, Federal University of Santa Catarina, Fundamentos em Biotecnologia, p. 25. Available: http://labbi.uesc.br/apostilas/fundamentos_em_biotecnologia.pdf For further information about the concept of hybridomas, see: Carlos Sinoga, Imunologia: textos de apoio e protocolos experimentais, Universidade de vora, 2004-2005. Available: www.ensino.unievora.pt/imuno 61 Monoclonal antibody technology serves for the industrial production of antibodies for human use. Regarding technical matters on this technology, see Philip W. Grubb, Patents for Chemicals, Pharmaceuticals and Biotechnology. 4th edition, Oxford, Oxford University Press, 2004, pp. 261-263. 62 Cf. item 2.3 of the Guidelines. 63 Philip W. Grubb, op.cit., p. 263. 64 Article 28 (1) A patent shall confer on its owner the following exclusive rights: (b) where the subject matter of a patent is a process, to prevent third parties not having the owners consent from the act of using the process, and from the acts of: using, offering for sale, selling, or importing for these purposes at least the product obtained directly by that process. 65 Article 42, paragraph 2, IPL Violation of the right of patent of process shall occur (...) when the holder or the owner does not prove, through specific judicial determination, that its product was obtained by means of a fabrication process different to that protected by the patent.

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

61

(e) Synthetic Polynucleotides and Polypeptides


Put very simply, polynucleotides are the elements that comprise the deoxyribonucleic acid (DNA) of living beings the fundamental structure in which the genetic instructions that govern the functioning of human beings are stored. Polypeptides, in turn, are proteins coded by polynucleotides; proteins play a fundamental role in the functioning of living organisms, taking part in the building of tissues, defence of the organism, production of hormones.66 The IPL, through the combination of its articles 10 (IX) and article 18, paragraph 1, and the Federal Constitution (article 199, paragraph 4)67 prohibit the patenting of any of the elements that go to make up the human body, or the patenting of inventions that involve materials/substances from the human body, including genetic sequences or partial sequences of genes, chemical compounds, even those that result from the interference of the state of the art). The only exception made by the IPL refers to transgenic microorganisms, the concept of which adopted by Brazilian legislation is quite restricted (transgenic microorganisms comprise those organisms not visible to the naked eye that express, through direct human intervention in their genetic composition, a characteristic not normally achievable by the species under natural conditions, whereby plants, animals, and microorganisms developed with cells, and the genetic material of plants and animals are excluded from the definition). In other words, INPI is only legally authorized to process claims relating to technically modified polynucleotides and polypeptides of microorganisms, as long as they are not built with the genetic material of animals and plants.68 The Guidelines grant to DNA sequences (polynucleotides) the same treatment granted to chemical compounds.69 INPI permits, in an exemplified manner, the processing of the following claims involving DNA sequences (item 2.3 of the Guidelines): - DNA sequence characterized by presenting: (sequence); - DNA sequence characterized by the Seq. ID number being (y); - Recombinant protein characterized by being coded by the Seq. ID number (w). By starting from the premiss that DNA sequences are chemical compounds, and by not establishing any observation about polynucleotides and polypeptides not eligible for protection, INPI may be authorizing the patenting of DNA sequences and polypeptides de vegetable, animal and human origin or which include material of this nature. The Guidelines need to be reformulated with the aim of making explicit those polynucleotides and polypeptides excluded from protection. Moreover, it would be recommendable to monitor patent applications filed and granted by INPI relating to DNA sequences and polypeptides, with the aim of avoiding the granting of patents contrary to the limits provided for in the Brazilian legal framework.

66 David B. Resnik, Owning the Genome: a moral analysis of DNA patenting. New York: SUNI, 2004, pp. 13-30. 67 The Brazilian Constitution states The law will determine the conditions and requirements that facilitate the removal of organs, tissues and human substances for the purposes of transplant, research and treatment, as well as the collection, processing and transfusion of blood and blood products, and any kind of commercialization is prohibited (words italicized by us). 68 It is important to note that patent applications relating to transgenic microorganisms must be accompanied by a description of the method used to modify the structure of the microorganisms DNA and information on its application, in order to make it perfectly clear that it is not a natural organism. In the absence of this information it cannot be considered an eligible invention. 69 Item 2.3.1. of the Guidelines states: The observations above also apply to chemical compounds, given that they are indeed chemical compounds.

62

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

(f) Processes that Involve Stem Cells


Stem cells are non-differentiated cells that can be extracted from the umbilical cord or from human embryos. Their scientific and commercial value lies in their ability to form any of the 216 tissues that comprise the human body.70 The comments made on the patentability of hybridomas, synthetic polynucleotides and polypeptides and processes of obtainment from animals are equally applicable to the protection of processes that involve stem cells: the Brazilian legal framework and, above all, the Federal Constitution prohibit the patentability of processes involving stem cells, as well as inventions that include this material. This is because article 28 of the TRIPS Agreement determines that the granting of protection to process inventions equally extends protection to the products resulting from the protected process. Consequently, the granting of a patent for a technical process that involves stem cells will equally confer protection to the resulting invention comprised of cells of human origin. Because of the questions of ethics that pervade the discussions on the obtainment of patent ownership titles in relation to biological material, the patentability of processes that involve stem cells offers us the opportunity to discuss an issue neglected by Brazilian doctrine, namely: the establishment of a morality test for biotechnical and pharmaceutical inventions. The relevance of this issue is corroborated by the Direct Action of Unconstitutionality placed before the Supreme Court between 2005 and 2008, which demanded that the provision of article 5 of the Biosafety Law (Law No. 11,105, date March 24th 2005) be declared unconstitutional. The provision authorizes the performance of scientific research and the therapeutic use of stem cells of human embryos produced by in vitro fertilization.71 The INPI Guidelines permit the patenting of stem cell obtainment processes, applying to them the same general rules that govern the patentability of pharmacochemical and biotechnological product obtainment processes.72 The Guidelines equally authorize the protection of non-therapeutic processes involving stem cells for the obtainment of chemical compounds.73 Considering the restrictive effect that intellectual property can exercise over the development of Research and Development, it is recommendable that intellectual property be kept at a distance directly and indirectly from stem cells74, at least until the technical capacities of the local research centres are consolidated. To date only one single patent application has been filed relating to this matter by a Brazilian organization.75

70 Definition taken from the Wikipedia electronic encyclopaedia, available: www.wikipedia.org 71 Direct Action of Unconstitutionality No. 3510. In a narrow vote (six votes to five), the Supreme Court confirmed the constitutionality of the provision. After such a heated debate about the right of scientific freedom and the valuing of life by means of performing research that can revolutionize medicine, the granting of private property titles which extend to human germ cell material and which can create obstacles to scientific research in Brazil is contrary to morality and public order. Given the legal bases adopted by the votes for and against, calculated on the valuing of human life, it is possible to imagine that the INPI Guidelines, with regard to the patentability of stem cell obtainment processes, would be declared unconstitutional for breaching, inter alia, article 218, paragraphs 1, 2 and 3 of the Federal Constitution, which deals with the duty of the State to promote and encourage scientific development and technological research and qualification. 72 Item 2.33 of the Guidelines. 73 Item 2.36 of the Guidelines. 74 Law No. 11,105, dated March 24th 2005 repeals Law No. 8,974/95 that prohibited research involving genetic manipulation of human germ cells. 75 Rafaela Di Sabato Guerrante, Patenteamento de Clulas-Tronco no Brasil: Cenrio Atual. Rio de Janeiro, INPII, July 2007. Study available at: www.inpi.gov.br

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

63

According to the Guidelines the following process claims would be eligible: (i) Process for obtaining compound X characterized by using the stem cell with Y (and possibly other stages)

(ii) Process for obtaining compound X characterized by using stem cells (and possibly other stages). (iii) Process for obtaining compound X characterized by using stem cells modified by the gene that codes X (and possibly other stages)76. Even if the Brazilian legal framework authorized the protection of processes or inventions that incorporated stem cells which is not the case , INPI must establish specific rules to protect morally polemic inventions: article 27.2 of the TRIPS Agreement and article 18 (I) of the IPL establish that Brazil shall not concede patents to that which is contrary to morality, proper customs and public security, public order and public health. Notwithstanding the option of the national legislators to incorporate this flexibility into the Brazilian legal system, the Guidelines do not establish a morality test to be applied in special cases in which the invention for which protection is claimed potentially collides with interests of public order, morality and ethics. There is, however, an exception. Possibly as a consequence of the legal dispute in which the patentability of the Harvard oncomouse was discussed,77 within the European Patent Office (EPO),78 INPI has limited itself to including in its patentability guidelines a provision that governs the patentability of processes of obtainment from animals and processes of obtainment of a product, in which one of the stages involves obtainment from an animal. According to the INPI Guidelines, patents may be granted to those processes that modify the genetic identity of animals and do not cause suffering to the said animals and to those processes that, even causing suffering, produce some substantial medical benefit for human beings for animals.79 The morality test included in the INPI Guidelines mirrors the one developed by the EPO to solve the case of the Harvard oncomouse. The EPO, when compelled to examine the patentability of this invention in the face of article 53(a) of the Munich Convention on the Granting of European Patents, which prohibits the protection of inventions the execution of which would be contrary to public order or proper customs, proposed a balance between, on the one hand, the suffering of animals and the possible risks to the environment and, on the other hand, the use of the invention to humankind.80 A test, along the lines of the oncomouse test could be adopted by INPI, with the aim of implementing article 18(I) of the IPL in a more ample manner than is currently provided for in the Guidelines. Thus, the patent examiner and/or the Judiciary Body, when examining the patentability of inventions potentially in conflict with ethical, moral and public values in general, could compare the potential or real damages to morality, proper customs, public security, public order and public health with the potential benefits to humanity resulting from the invention being protected by patent. The adoption of a test along these lines does not require a decree for the implementation of article
76 These possible claims were elaborated based on the analogy with item 2.25.1 of the Guidelines. 77 The Harvard oncomouse is a genetically modified mouse, with a propensity to developing malignant tumours, favouring research into the development of cancer treatments, 78 Harvard/Onco-mouse, 1990, EPOR 501. 79 Item 2.31.1 of the INPI Guidelines. 80 Cambridge Biomedical Consultants, Ethical aspects of agricultural biotechnology, 1999, p. 16. Available: http://agbios. com/docroot/articles/2000329.pdf

64

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

18(I) of the IPL; the reform of the INPI Guidelines is sufficient. In order to implement article 18(I) of the IPL in the most efficacious manner, we recommend that the evaluation of the morality of certain inventions that may be harmful to morality and proper customs be performed by a bioethics committee, e.g. the Ministry of Healths National Council on Research Ethics. However, even if no morality test is included in the INPI Guidelines, the legal limitation on patentability discussed here can be opposed in administrative and judicial proceedings by, e.g., civil society organizations, bodies of the Public Attorneys Office or by any interested third party.81

1.1.2 INPIs Counterpoint: ANVISA


Quis custodiet ipsos custodes?82 Law No. 10,196/01, dated February 14th 200183 alters and adds provisions to the IPL and also provides two important legislative innovations: the introduction of the Bolar Exception84, which authorizes the performance of safety tests and tests on generic medication efficacy during the term of the patent, with the purpose of registering it with local regulatory authorities, so as to enable its commercialization immediately after the expiry of the patent.85 The second innovation refers to the creation of the mechanism known as Prior Consent86. Following this alteration, all the pharmaceutical patent granting processes depend both on the analysis of INPI examiners, with regard to the legal requirements and conditions relating to the IPL, and also on the consent of the National Health Surveillance Agency (ANVISA).

1.1.2.1 Legal enhancement of prior consent


Brazil, within the context of the adoption of a domestic and international governmental agenda directed towards the valuing of public health to the detriment of the international tendency of subjugating human interests to the logic of the market, includes this concern in the Brazilian industrial property legal framework, by sharing between two autonomous federal bodies (autarquias) INPI87 and ANVISA88 the competency to examine patent applications for pharmacochemical and biopharmaceutical products or processes. As such, since 1999 all the applications for the granting of biopharmaceutical patents filed with INPI depend on the approval of INPI examiners and ANVISA examiners as well.
81 To give an example of more concrete mobilization of third sector organizations in relation to industrial property, the German non-governmental organization Kein Patent auf Leben (Without Patents on Life) has challenged the EPO with regard to a series of biotechnological patents that allegedly offend morality, including patent EP 169672 on the Harvard oncomouse. For further information see: www.keinpatent.de 82 Quis custodiet ipsos custodes? can be translated as Who keeps watch on the watchmen? 83 Provisional Measure No. 2,006, dated December 14th 1999 is the predecessor of Law No. 10,196/01. 84 The legality and consistency of this exception under the TRIPS Agreement has been confirmed by the WTO in Canada. UNCTAD-ICTSD, Resource Book on TRIPS and Development, Cambridge, 2005, p, 438-439. UNCTAD-ICTSD, ibid., p. 431. 85 Ibid., p. 431. 86 The new article 229-C of the IPL. This article states that the concession of patents for pharmaceutical products and processes shall depend on the prior consent of the National Health Surveillance Agency ANVISA. 87 Autonomous federal body (autarquia) linked to the Ministry of Development, Industry and Foreign Trade. 88 Autonomous federal body (autarquia) linked to the Ministry of Health.

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

65

With regard to the division of competencies between INPI and ANVISA, article 229-C of the IPL makes no provision. In order to provide for the settlement of possible conflicts between the two bodies, ANVISA issued Resolution RCD 45, dated June 23rd 2008, that determines the administrative procedure relating to ANVISAs prior consent to the granting of patents for pharmaceutical products and processes.89 Without going into the details, the procedure for analysing patent requests for pharmacochemical and biopharmaceutical products follows two distinct phases: firstly, INPI undertakes a technical evaluation of patentability requirements and conditions and forwards to ANVISA those applications which it considers to be eligible for protection by patent. Secondly, ANVISA, after analysing the applications (re-examination of the legal requirements for patentability and other requirements set forth in the IPL) issues a report that consolidates its understanding as to the patentability of the inventions already examined by INPI. In the event of prior consent not being granted, the patent applicant can appeal to ANVISAs Collegiate Directorate. All of ANVISAs decisions are published in the Official Federal Gazette.90 According to information obtained in 2006 from ANVISA, only 4 to 5% of the applications made did not receive prior consent. On average, analysis of an application by ANVISA takes one hundred and twenty days. During this period, patent applications are screened in several ways, within the Agency, with the aim of avoiding decisions inconsistent with the IPL and the TRIPS Agreement, thereby protecting both public domain information and the private interests of inventors and companies. Given that ANVISAs function appears to coincide with that of INPI, a doubt arises: what would justify two public bodies working on the same issue, undertaking, at least formally, activities that overlap?91 The justification is in the fact of INPI and ANVISA having adopted partially conflicting patentability guidelines for the analysis of the patentability of pharmacochemical and biopharmaceutical inventions, inasmuch as they follow different policies. INPI consolidated its working method in the document entitled Guidelines for the Examination of Request for Patents in the Areas of Biotechnology and Pharmaceuticals made after 31/12/1994, which, as we have seen, incorporates patentability standards close to those followed by the Patent Offices of industrialized countries. ANVISA, in turn, although it does not adopt fixed patentability guidelines, since it considers that the quality of patent granting depends on an individualized examination of the requested submitted, adopts a more restrictive posture than INPI, given that it interprets the IPL in accordance with the constitutional provisions. As such, ANVISAs posture is not arbitrary: prior consent is only denied when the legal conditions and criteria are not fulfilled or, in other words, no patent that met patentability conditions and criteria has ever failed to obtain ANVISAs prior consent.92

89 Resolution available at: http://e-legis.anvisa.gov.br/leisref/public/showAct.php?id=31539 90 Article 7, Resolution RDC 45. According to information obtained from ANVISAs intellectual property division, the decision to publish ANVISAs decisions in the Official Federal Gazette is due to the fact that INPI does not publish decisions regarding patent applications that do not receive ANVISAs prior consent. The effect of INPIs omission is harmful to the public interest: firstly, while INPI continues not to publish the list of denied patent applications, generic medication producers, without certainty as to the eligibility of the invention, opt not to produce the subject matter of the application. The result is lower supply of products on the local market. Secondly, this omission leads to the annulment of ANVISAs functions with regard to its function established by article 229-C of the IPL. 91 Laura Igncio, Medication patent may have new rules (Patente de remdio pode ter nova regra). Valor Econmico, August 26th 2008. 92 There are countless cases before the Federal Courts filed by the Pharmaceutical Industry against ANVISA. According to the information to which we have had access, these cases are limited to discussing ANVISAs competency in the pharmaceutical patent examination processes.

66

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

It is worthwhile pointing out that this conflict of positions has never been a surprise: let us recall that in 1999, when the Executive Body issued the Provisional Measure that invested ANVISA with the competency of performing the compulsory re-examination of requests for biopharmaceutical patents filed with INPI, with the aim of preventing undue patents from impoverishing local biopharmaceutical public domain and, consequently, preventing undue barriers to access to medications from being established.93 It is precisely because of the awareness of this conflict that the amendment to the IPL obliges INPI to comply with ANVISAs decisions.94 Through prior consent ANVISA has mitigated the establishment, in Brazil, of the tendency of the undue extension of the duration of patents, the subject matter of which already exists in the state of the art and/or does not involve an inventive activity. ANVISA has denied prior consent for applications for given subject matters (items (i), (ii), (iii), (iv), (v)), and also in the case of applications that describe insufficiently the invention claimed (item (vi)): (i) patents for new pharmaceutical uses;

(ii) Markush groups: Markush group claims are claims that cover multiple functionally equivalent chemical entities in one or more parts of a chemical compound. The aim of Markush claims include not only the chemical structure expressed in the claim, but especially all the alternative chemical structures that form part of a large chemical structure.95

93 Because of the denouncements made against the pharmaceutical industry, in 1999 the Brazilian National Congress set up a Parliamentary Inquiry Commission (CPI) with the mission of, inter alia, investigating the reasons that lead to the abusive price mark-ups of the principal medications commercialized in Brazil at the time. One of the deponents of the Inquiry was the then Minister of State for Health, Jos Serra, in a session held in December 1999. Serra drew attention to the role of patents in the setting of medication prices and also to the role that INPI could play in increasing in price abuses if it were to relax the examination of biopharmaceutical patent applications. Still in December, the Executive Body issued Provisional Measure No. 2,006, dated December 14th 1999, creating the obligation for ANVISA to give its prior consent to the granting of pharmaceutical patents by INPI. See the Deposition of Minister Jos Serra to the CPI on Medication Prices in Brazil. Braslia, 02/12/1999, revised transcription, p. 17. Document available at: http://www.farmacia.ufrj.br/consumo/leituras/ lm_serra_cpi.pdf 94 Although it is not common for health authorities to intervene in biopharmaceutical patent examination processes, patent quality is a recurring theme of discussion in the industrialized world. In Europe the EPO Staff Union criticizes EPOs policy of valuing productivity to the detriment of the quality of the patents granted and states that the patent authorities have a social commitment that should be kept through granting patents of quality: The single-minded focus of the EPO senior management on quantity and the corresponding neglect of quality is less easy to understand. Sure, senior managers spent more time reading the Medium Term Business Plan than reading the European Patent Convention. And the concept of public service has gone out of fashion, at least in the Anglo-Saxon world, to be replaced by a more business-oriented way of thinking. ()The purpose of an Office like the EPO is not just to grant patents (an easy administrative act which does not require some 3500 examiners) but to examine patents and to grant only those that merit a patent, in a scope that is commensurate with the technical contribution made. It is the duty of the EPO examiners to protect the European public and the European economy against trivial, overly broad or otherwise unjust patents. Already under the current reporting system the emphasis is on productivity. Over the past 10 years alone the EPO has demanded an increase in productivity of over 30% from its examiners, against a background of increasingly complex files and steadily increasing prior art. The EPO has a highly refined system to measure the individual examiners productivity, but not the examiners quality. Staff Union of the European Patent Office, PAX: a recipe for bad quality. May, 2006. Article available at: http://www.suepo. org/public/ In 2004 SUEPO published a survey done with EPO staff on the quality of patents granted by the Office. 77.7% of those who replied to the survey were patent examiners. According to the survey, 77.86% of those interviewed believed that the quality of the patents granted is essential for the functioning of the patent system and for the future of EPO and 72.57% considered that the quality of patents granted by the EPO between 2002 and 2004 fell. SUEPO, Results of a staff survey on quality carried out in 2004. Available: http://www.suepo.org/public/qualsurv.pdf. 95 13 Fed. Cir. B.J. 295, Cases and Recent Developments, 2003/2005.

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

67

(iii) selections of chemical macrostructures: Correa defines a selection patent as one in which a single known element or a small segment within a more extensive group is selected and claimed in an independent manner, based on a characteristic not mentioned in the more extensive group.96 (iv) polymorphism: New physical forms of previously known chemical compounds that, in principle, present a technical advantage in relation to the known compound. Polymorphism is an inherent characteristic of chemical substances and does not result from a human invention. Between June and July 2007, INPI held technical discussions on the patentability of polymorphs and, based on the result of the discussions and on the practices of the patent offices of certain industrialized and developing countries, wrote draft guidelines on polymorph patentability which were made available for public consultation until June 6th 2008.97 (v) optical racemic/isomeric mixtures: The majority of the synthetic routes of organic chemistry lead to the production of racemates, or mixtures formed by ester isomers. Some chemical compounds present enantiomers, i.e. molecules that are like images in the mirror of another molecule, and which are not superimposable. Although the difference between enantiomers appears irrelevant, these compounds can present completely different biological activity;98 (vi) applications filed with insufficient description99: one of the principal justifications in the patent system is the sufficient description of the invention, making it possible for other inventors to generate innovation based on contributions that are part of the state of the art. The essence of the patent system is an exchange between the inventor and the State: the inventor exchanges perpetual and unlimited access to its invention for time limited patent rights.100 If the description filed with the application is not sufficiently clear, so as to enable persons skilled in the art to reproduce the invention, the patent is not justifiable.101

96 Carlos Correa, Pautas para el examen de patentes farmacuticas: una perspectiva desde la salud pblica. Geneva, WHO-ICTSDUNCTAD, 2008, p. 14. This document is a useful reference for those responsible for intellectual property in developing countries, in order to gain a better understanding, in technical terms, of some patenting strategies frequently used to extend the duration of patent privileges, without the due contribution of the state of the art, and the space that the TRIPS Agreement gives them to implement domestic patent norms in harmony with local public health demands. 97 INPIs proposal can be found at: http://www.inpi.gov.br/menu-esquerdo/patente/discussoes-tecnicas/polimorfismo/ index_html/ 98 Definition taken from: the Electronic Journal of the Department of Chemistry of the Federal University of Santa Catarina, Chiral Molecules: the pharmaceutical industry novelties that are making generics obsolete (Revista Eletrnica do Departamento de Qumica da Universidade Federal de Santa Catarina, Molculas Quirais: as novidades da indstria farmacutica que esto deixando os genricos obsoletos). Available: http://www.qmc.ufsc.br/qmcweb/artigos/drogas_quirais.html. It is these enantiomers with differentiated biological activity that are being the subject matter of patent claims, when a previous patent for one of the isomers is about to expire or has already expired. In other words, despite the clear lack of novelty and inventive activity, these claims are widely made in the industrialized countries to extend the validity of pharmacochemical patents. For more on the subject, see: Carlos Correa, op.cit., p. 56. 99 The granting of patents items having insufficient information to enable their reproduction by persons skilled in the art to reproduce them can be a barrier to the exploitation of compulsorily licensed inventions. 100 Justin Hughes, The Philosophy of Intellectual Property in Georgetown Law Journal, December, 1988 (77 Geo. L.J. 287). 101Article 24 of the IPL.

68

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

1.1.3 Critical observations on INPIs interpretation of the scope of patentability according to the IPL
Based on a brief analysis of the INPI Guidelines, we conclude that this body tends to protect incremental innovations lacking in inventive content,102 or inventions consisting of, inter alia, existing drugs presented in different doses and/or new forms of administration, combination of known products, new uses of known drugs/compounds.103 The INPI Guidelines maximize to the detriment of Brazilian social, human and technological interests the scope of the application of the IPL, so as to impoverish the public domain and, consequently, the space for the national scientific and industrial sectors to develop by learning public technologies and knowledge (or that should be public). The social impact of the policy of increasing the list of patentable subject matters and the role of public domain in scientific and industrial development appear to continue to be forgotten: academic or commercial inventors do not provide society with new technological contributions based on a brilliant idea arising solely from their creative genius; the idea is sustained by the accessible and usable collection of such contributions.104 If access to this heritage is restricted, the capacity for science to develop, the capacity of the local industrial sector and local human well-being deteriorate. The INPI policy of broadening the scope of the patentability of pharmacochemical and biopharmaceutical products is legally unsustainable and is not justified in economic terms. In practice it signifies the gradual harmonization105 of the Brazilian legal framework with the models of the industrialized countries, without our sharing the same level of industrialization and scientific development. SALOMO FILHO, when discussing the expansion of the IPLs scope of patentability, from the economic viewpoint, calls for the necessary removal of the hypothesis that this expansion was necessary, in all cases, to avoid free-riding. Free-riding would only occur if investment in research were made in Brazil, which is rarely the case. As to investments made abroad, one could only consider free-riding to be relevant from the competitive point of view if it did not permit the recovery of the investment. However, given that investment in technology is usually made by the head offices of the companies that use the technology here, whether or not it can be recovered has to be verified on the international market.... Let us take, as a hypothesis, the case of medication. From the strictly dogmatic point of view, it is inconvenient to admit its patenting. Accepting the thesis defended here, the prohibition of its patenting would result in its producers only being able to obtain normal
102 According to a recent media report, INPI plans to remove all obstacles to the protection of incremental innovations, including polymorph, pharmaceutical second uses, crystals and co-crystals. Laura Igncio, Patente de remdio pode ter nova regra. Valor Econmico, August 26th 2008. Apparently, INPI also supports a reform of the IPL, with the aim of expanding the list of eligible biotechnological sector subject matter. INPI, Specialists defend the flexibilization of the biotechnology laws (INPI, Especialistas defendem flexibilizao nas leis de biotecnologia). Available: http://www.inpi.gov.br/noticias/especialistasdefendem-flexibilizacao-nas-leis-de-biotecnologia [Accessed: October 15th 2008]. 103 International Chamber of Commerce - ICC, The Importance of Incremental Innovation for Development. Paris, May 27th 2005. 104 Yochai Benkler, The Commons as a Neglected Factor of Information Policy (working draft presented at Telecommunications Policy Research Conference 9/98). Available: http://www.benkler.org/commons.pdf. As an illustration of the important of the public domain of information, we quote the well-known statement made by Isaac Newton in a letter addressed to Robert Hooke, dated February 15th 1676: If I have seen further it is by standing on the shoulders of Giants. 105 The harmonization of the levels of intellectual property protection is not counter-productive per se. However, in order for harmonization to operate to the benefit of genuinely national interests, it is imperative that a certain level of technological development has been reached locally, which is far from Brazilian scientific and industrial reality. Hence, at this time, it is not advisable for Brazil to take on levels of patent protection that are more rigid than those provided for in the TRIPS Agreement. For more on this subject, see: Getachew Mengistie, Consecuencias del sistema internacional de patentes en los pases en desarrollo: estudio del Sr. Getachew Mengistie. Geneva, WIPO, September, 2003.

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

69

profit (and not a monopolistic profit) in this region, whereas they manage to obtain an above normal profit (monopolistic) in the regions where it is patented. There would be no reason for the company, operating in a rational manner, to abdicate this normal profit, especially considering that in no way could this fact affect the price in the regions where there is a monopoly, given that the vast majority of industrialized countries have strict rules against parallel importing.106 One of the possible justifications for INPI adopting low standards of patentability may arise from the idea that more relaxed levels of patentability could encourage local companies to claim patent protection107 for incremental developments of more sophisticated inventions108 or encourage technology transfer from industrialized countries to Brazil. However, the reality of the facts indicates that the policy of protecting incremental inventions has not had healthy results on Brazils industrial and technological development,109 despite the country having a certain degree of technological development and capacity to innovate, nor has it resulted in the desired transfer of technology.110 If there is no empirical data available regarding the Brazilian experience that justifies the policy of protecting incremental inventions, why does INPI continue to interpret and apply the IPL in a manner dissociated from the Brazilian foreign policy of valuing public domain? On the other hand, the creation of a mechanism for the Double examination of applications for patents in relation to an area that is essential to the achievement of human dignity offers an important counterpoint to the INPI policy. The strengthening of patentability levels leads to the conservation, in the public domain, of information which if the INPI Guidelines were complied with to the letter would be unjustifiably kept under the domain of few. Even if the ANVISA and INPI patentability guidelines become harmonized preferably in line with ANVISAs viewpoint , even so, because of pharmaceutical products being essential to life, we recommend that the examination of patent applications for pharmaceutical products should continue to be done by both bodies, with the aim of privileging only genuinely innovative and inventive contributions.
106 Calixto Salomo Filho, Conducts tending towards Market Domination: Juridical Analysis (Condutas Tendentes Dominao dos Mercados: Anlise Jurdica). Thesis submitted as part of the selection process for the post of full professor of commercial law, University of So Paulo Law Faculty, So Paulo, 2001, p. 154 and 156. 107 Prof. Hiroko Yamane, one of the members of the World Health Organizations Commission on Intellectual Property, Innovation and Public Health (WHO Commission), expressed her discontent with regard to the recent WHO Commission final report because of the unreflected adoption of the premiss, not empirically proven, that more flexible (relaxed) protection levels of intellectual property rights would benefit the interests of the developing countries (World Health Organization, Salud Pblica, innovacin y derechos de propiedad intelectual: Informe de la Comisin de Derechos de Propriedade Intelectual, Innovacin y Salud Pblica. Geneva, April 2006. Available: http://www.who.int/intellectualproperty/documents/thereport/ en/index.html) 108 In the document referred to in note 103, the International Chamber of Commerce defends that the adoption of lower levels of patentability in developing countries would favour their technological development and would be their way in to technological development. To corroborate its position, the ICC presents some case studies on incremental inventions. One of the flaws in this document lies in the presentation of cases that occurred in their overwhelming majority in industrialized countries, where R&D infrastructure and the material resources available to the sector are different to those in developing countries. 109 In 1973, under the then Law No. 5,772/71, Brazil granted 229 patents, of which 155 were owned by residents in Brazil and 74 by non-residents. In 2006, now under Law No. 9,279/96, INPI granted 2,465 patents, of which 233 were owned by residents in Brazil and 2,232 by non-residents. Data taken from the statistics database of World Intellectual Property Organization (table Patents Granted by Office (1883 to 2006) Breakdown by resident and non-resident, available at: http:// www.wipo.int/export/sites/www/ipstats/en/statistics/patents/source/wipo_pat_grant_from_1883_table.xls 110 Chapter 3 of this study Economic Evaluation , prepared by the economics team, based on data taken from the INPI database, suggests that the IPL has not encouraged technology transfer to Brazilian companies. This data is very important because it is contrary to the discourse current among some industrialized countries that rigid intellectual property systems are catalysers of investments in and transfer of technology to the developing countries.

70

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

Despite its legality, its contributions made to rebalance the Brazilian patents system and its role as a reference,111 the ANVISA model is once again at the centre of attention:112 congressman Rafael Guerra introduced Bill No. 3709/08, on July 9th 2008 following the publication by ANVISA of Resolution RCD 45, that explains and confirms its function as co-examiner of patents for inventions of the pharmacochemical and biopharmaceutical sector , with the aim of exterminating the conciliatory presence of ANVISA in the examination of pharmaceutical patent applications. According to the terms of the Bill, ANVISA would be temporarily responsible for co-examining pipeline patent applications, and once all applications of this kind were examined, ANVISAs participation in the process of patent examination would be permanently extinct. The comparison between the provisions of the IPL and the INPI Guidelines and the conflicts between ANVISA and INPI indicate that the governmental task of efficiently administrating intellectual property rights does not end with the approval of legislation that makes use of some of the TRIPS Agreement flexibilities, in keeping with local socio-economic needs. The need exists to go further than this: in order to prevent the crystallization of unbalanced interpretations of the provisions of the industrial property protection legal framework, there is an urgent need for the critical training of the professional staff of the national trademark and patent offices. Well written legislation coherent with domestic needs will not generate any local benefit if those who use it are not qualified to apply it in harmony with national policies on human development and the protection of public interests. The TRIPS Agreement, by not defining the terms novelty, inventiveness and industrial applicability, authorizes the WTO Member States to define them according to their national needs and levels of development.113 In order to neutralize the harm caused to Brazilian socio-economic development as a result of the INPI Guidelines, we recommend: (i) a review of all the patents granted by INPI, with effect from the date the IPL came into force, in order to identify those that have been granted to the detriment of its terms (interpreted in the light of the terms of the Brazilian Federal Constitution).

(ii) in the case of patents granted by INPI contrary to the terms of the IPL, we recommend that local pharmaceutical companies or those with interest in the local market, civil associations, especially those the aim of which is consumer protection and the promotion of access to medication, take out administrative proceedings aimed at having the patent declared null, within the time limit of six months with effect from the granting of the patent.114
111 Corroborating the efficacy of the ANVISA model, it is appropriate to point out that Bolivia approved Supreme Decree No. 29,004/2007 which establishes the sharing of competency for pharmaceutical patent application examinations between Bolivias National Intellectual Property Service (SENAPI) and its Medication and Health Technology unit (UNIMED). This Bolivian norm was clearly influenced by ANVISAs practice in Brazil, and the success of the model. This is, possibly, the first binding industrial property norm to make explicit reference to an international human rights agreement (International Covenant on Economic, Social and Cultural Rights). 112 For some examples of previous attacks on the mechanism, see Resolution No. 63 of the Brazilian Intellectual Property Association (ABPI) which vehemently criticizes ANVISAs actions, as well as two letters sent by the Biotechnology Industry Organization (BIO) to the Office of the United States Trade Representative, in 2006 and 2007. In these letters the prior consent is highly criticized, inasmuch as it is alleged to deprive the biotechnological industry of adequate and effective protection of its products. BIO, the 2006 letter is available at: http://www.bio.org/ip/international/20060331. pdf and the 2007 letter is available at: http://bio.org/ip/international/200702.pdf. 113 A model that the Brazilian INPI could use to reformulate its Guidelines and adapt them to the requirement of the IPL and the Brazilian Federal Constitution is contained in Carlos Correa, Pautas para el examen de patentes farmacuticas: una perspectiva desde la salud pblica. Geneva, WHO-ICTSD-UNCTAD, 2006. 114 Article 51, IPL.

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

71

If this time limit has already expired, an appeal can still be made to the Judiciary Branch, whereby any person with the due legal capacity115 can take out legal proceedings against INPI claiming nullity, as well as seeking to suspend the legal effects of the patent granted unduly.116 (iii) the third recommendation relates to the reform of the INPI Guidelines. The sectors adversely affected by the INPI Guidelines could have recourse to political bodies or the Judiciary Branch. The private sector, the Public Attorneys Office and civil society organizations could file an action for the annulment of the INPI Patentability Guidelines or a Direct Action of Unconstitutionality on the grounds that their contents exceed the legal limits set by the IPL and the Federal Constitution (breach of articles 1 (I and III); 3 (II) and 218 of the Federal Constitution, among others). The quickness and the commitment with which INPI examined the patent application for the ARV Tenofovir which was not granted protection because of lack of inventiveness following a request by the Ministry of Health, is a sign that this body may be open to reformulating its Guidelines, and rebuilding them in harmony with the interest of the Brazilian population and productive and scientific sectors in conserving public domain information.117

1.2 INPI and the Application of Patentability Standards of Industrialized Countries in Brazil
Alongside the reform/annulment of the INPI Guidelines, there is, moreover, the need to reexamine all the patents granted between September 9th 1999 and June 14th 2005, the granting of which was favoured by INPI Normative Act No. 152, dated September 9th 1999, repealed by Resolution No. 118, dated June 15th 2005. Although the Normative Act has been repealed, during the almost six years it was in force, INPI may have granted patents in the pharmaceutical area that harm Brazilian public and economic interests. Normative Act No. 152, by recognizing the work overload and INPIs inability to examine the patent applications filed in a reasonable period of time, offered, up until 2005, to the applicants of patent applications filed in Brazil, the opportunity of presenting evidence that their applications met the legal requirements of patentability. The evidence referred to in the Normative Act was consolidated through the submission of proof that a patent, with the same claims, had been examined and granted abroad. It is assumed, therefore, that in these cases INPI merely registered the patent, without effectively examining it or without examining it in depth. The Normative Act was
115 The legal term person with due legal capacity, provided for in article 56 of the IPL, should include not only the competitor but also especially all those adversely affected by the patent, including people with illnesses and their representative associations, medical associations, hospital, among others. For more on this, see Christopher Heath, The Limits of Patent Rights in Time, Geographic and Contents Terms (Os Limites dos Direitos Patentrios em Termos Temporais, Geogrficos e de Contedo), p. 37-38. In: Edson Beas Rodrigues Jr. and Fabrcio Polido, Intellectual Property: New International Paradigms, Conflicts and Challenges (Propriedade Intelectual: Novos Paradigmas Internacionais, Conflitos e Desafios). Rio de Janeiro, Elsevier, 2007. 116 According to article 56, paragraph 2, of the IPL (the judge may, preventively or incidentally, determine the suspension of the effects of the patent, as long as the associated procedural requirements are met), the following is sufficient proof to characterize the risk of serious and irreparable damage to competition (periculum in mora): economic data on concrete cases of medication price reductions arising from the introduction of generics on the market and data on the greater accessibility of the medication arising from the reduction. 117 In April 2008, the Brazilian Ministry of Health declared the ARV Tenofovir to be medication of public interest. Following the declaration, INPI finalized, some months later, its examination of the products patent application that had been filed with the Office ten years earlier. Newspaper Estado de So Paulo, INPI denies patent for ARV Tenofovir (INPI nega patente ao anti-retroviral tenofovir), September 2nd 2008.

72

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

elaborated based on the mistaken premiss that the concepts of inventive activity, industrial applicability and novelty are already harmonized internationally, this being a view that is not in keeping with reality, otherwise the pressure of the industrialized countries towards substantively harmonizing the patent laws through bilateral and multilateral agreements would be unjustifiable. This praxis on the part of INPI goes in the opposite direction to the more recent discussions involving the reform of the patent system, by bolstering the biased118 element of the patent examination system in favour of the applicants. The praxis of the Brazilian INPI, corroborated by the Guidelines and by the Normative Act referred to above, demonstrates lack of knowledge of the anticompetitive effects both of the relaxation of the patentability standards and also of the concession of weak patents, the applications of which were subject to incipient/partial examination. Apart from its anti-competitive aspect, INPI Normative Act No. 152 was contrary to article 4bis of the Paris Convention, which determines that it is the law of the country where protection is sought that must determine the conditions for acquiring protection.119 Based on the above, we recommend that INPI review all the patents in this period of almost six years and the applications of which availed themselves of the prerogatives invested in them by INPI Normative Act No. 152.

1.3 Pipeline Patents and the Suppression of the Requirement of Novelty


In principle the IPL limits itself to considering patentable any new invention that has inventive activity and industrial applicability,120 i.e., any invention that meets the three traditional conditions of patentability as provided for in the Paris Convention and the TRIPS Agreement. The INPI Patent Directorates General Guidelines on Patent Examination121 (General Guidelines) contain instructions on how to verify the novelty, inventiveness and industrial applicability of an invention. However, the IPL establishes, mistakenly, an exception to the condition of the inventions novelty which is highly prejudicial to Brazilian public and industrial interests: pipeline patents or revalidation patents. The IPL adopts the following definition of the requirement of novelty: the invention shall be considered to be new whenever its claims are not included in the state of the art.122 The state of the art, in turn, comprises all the information accessible by the public, in Brazil or abroad, whether by means of a written or verbal description or any other means, prior to the date of the filing of the patent application or the date of priority requested in the application.123 In order for a claim to be
118 In 2003, following ample and consistent field research, the USA Federal Trade Commission recognized that the system is biased towards the interests of patent applicants, by keeping direct and close relations with the applicant during the entire patent application examination procedure, while also minimizing the possibility of third party intervention (especially competitors and civil society in general) during the examination procedure. (Federal Trade Commission, To Promote Innovation: The Proper Balance of Competition and Patent Law and Policy, October 2003. Available: http:// www.ftc.gov/opp/intellecti. 119 Herman Cohen Jehoram, International exhaustion versus importation rights: a murky area of intellectual property law, GRUR International, 1996-4, pp. 280-284. Regarding the principle of territoriality, see also Maristela Basso: Private international law and the patent rights legal system (Direito internacional privado e o regime jurdico dos direitos patentrios), in O direito internacional contemporneo Estudos em Homenagem ao Professor Jacob Dolinger. Rio de Janeiro: Renovar. 2006, p. 693-704. 120 Article 8 of the IPL. 121 Patents Directorate of the National Institute of Industrial Property (INPI), Patent Examination Guidelines, December 2002. 122 Article 11 of the IPL. 123 Article 11, paragraph 1, of the IPL.

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

73

considered as lacking in novelty, INPI requires that all its elements the elements of the preamble and of the part that characterizes the invention124 already exist in one single state of the art document. As a consequence, a document that provides partial information on the subject matter claimed or that contains some but not all of the claims present in an application will not result in the invention being considered as lacking novelty.125 The IPL offers an exception to the requirement of novelty, inasmuch as it blocks the entry into public domain of inventions of some specific sectors, the publicizing of which occurred more that twelve months before the date the patent application was filed in Brazil or the date of priority. Both exceptions which enable the granting of patents known in Brazil as pipeline patents only benefit substances, matters or products obtained through chemical means or processes, or foodstuff or chemico-pharmaceutical substances, matters, mixtures or products, or chemicals for agriculture126 and medicaments of any kind, as well as their respective obtainment or modification processes.
The IPL authorized the filing of patent applications relating to the matters above, between May 14th 1996 and May 14th 1997,127 by Brazilian nationals or foreign persons domiciled in Brazil, as long as their subject matters have not been introduced into any market anywhere in the world, by direct initiative of the applicant or by a third party with its consent, and as long as no third parties in Brazil have made earnest and effective preparations to exploit the subject matter of the application.128 The IPL also offers another advantage to patent applications filed in Brazil that have already been granted a patent in the country where the first application was made: as long as patent applications do not relate to protection claims in breach of the limits provided for in the IPL129, the Brazilian legal framework ensures the granting of a patent, in Brazil, as granted in the country where the first application was filed.130 In this case, it is essential to prove to INPI that the patent was granted in the country where the first application was filed. The criticisms and observations regarding Normative Act No. 152, dated September 9th 1999 are applicable to this provision.

The period of protection that the IPL guarantees for pipeline patents is variable. The IPL guarantees the period of protection remaining in the country where the first application was filed, counted with effect from the date of filing in Brazil, and limited to 20 years. To give an example, a patent application for a pharmaceutical product filed with the European Patent Office (EPO) on January
124 The characterizing part of the application refers to the specific subject matter for which protected protection is being requested. See item 1.10.5.4, Patents Directorate of the National Institute of Industrial Property (INPI), Patent Examination Guidelines, December 2002 (General Guidelines) 125 Items 1.5.4. and 1.9.2.1., General Guidelines 126 Article 229, paragraph 1, of the IPL. 127 Article 231, paragraph 1, of the IPL. 128 Article 231 (caption) of the IPL. 129 Article 230, paragraph 3 of the IPL. Consequently, in accordance with the terms of articles 10 and 18 of the IPL, they could not refer to: (i) discoveries, scientific theories and mathematical methods; (ii) purely abstract conceptions; (iii) commercial, accounting, financial, educational, publicity, raffle and inspection schemes, plans, principles or methods; (iv) literary, architectural, artistic and scientific works or any aesthetic creation; (v) computer programs per se;(vi) presentation of information; (vii) game rules ; (viii) operating and surgical techniques and methods, as well as therapeutic or diagnosis methods, for application on the human body or the bodies of animals; and (ix) all or part of natural living beings and biological materials found in nature, or isolated from nature, including the genome or germplasm of any natural living being and the natural biological processes; (x) all or part of living beings, except transgenic microorganisms that meet the three requirements of patentability - novelty, inventive activity and industrial applicability provided for in article 8 and which are not merely a discovery; (xi) that which is contrary to morality, proper customs and to public security, public order and public health; (xii) the substances, matters, mixtures, elements or products of any species, as well as the modification of the physical and chemical properties and the respective processes of obtainment or modification, when resulting from the transformation of the atomic nucleus. 130 Art. 230, 3, IPL.

74

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

1st 1990, and then filed with INPI in Brazil on January 1st 1997, would be protectable for 13 years at the most on the Brazilian market, if the protection granted by EPO was for 20 years. In the case of a patent granted by the EPO receiving a certificate of complementary protection, on a date after the patent application was filed with INPI, the complementary period of protection is not taken into consideration, in Brazil, for the purposes of calculating the period of validity of the patent issued in Brazil.131 Notwithstanding, this is not a pacific matter: there are court decisions that the calculation of the remaining period should be based only on the remaining period the patent had in the country of origin, on the date of the publication of Decree No. 1,355, namely December 30th 1994132 (instead of the period remaining on the date the patent application was filed in Brazil).133 There are decisions that consider that the period of protection of a foreign patent revalidated in Brazil shall be calculated with effect from the date the first application was filed in the country of origin and not the date it was filed with INPI.134 A third line of decisions state that the remaining period of validity of the Brazilian patent shall be calculated with effect from the date of the first international filing of the application, and admits subsequent complementary patent protection initially granted abroad.135 Of the three lines of decisions, the only one that is in line with the wording the IPL is the second, i.e., the date used to calculate the period of the patents validity is the date the first patent application was filed in the country of origin, less the interval between the first application in the country of origin and the filing of the patent application with INPI. However, the discussion of jurisprudence on the calculation of the period of pipeline patent protection loses importance in the face of its unconstitutionality. The institution of revalidating foreign patents is unconstitutional, given that it breaches: (i) the vested right of third parties (article 5, XXXVI, Federal Constitution), given that a series of inventions which, under the repealed legislation were of public domain, became the object of intellectual property, this being a fact that represents the transgression of the vested right of the nationals previously consolidated;136 (ii) it does not meet the explicit conditions established by the Federal Constitution for industrial inventions to be eligible for the protection of the Brazilian system, i.e. Brazilian social, technological and economic interest (article 5, XXIX, Federal Constitution), by removing, unjustifiably, from the public domain technical information which until then had been freely accessible and usable by the local productive
131 Appeal decision, case number 2004.02.01.012855-5, Regional Federal Court of Appeals, 2nd Region. Appellant: F. Hoffmann Roche AG; respondent: INPI. 132 Decree which incorporated the TRIPS Agreement into the Brazilian legal system. 133 See Appeal decision, case number 2005.51.01.507479-8, Regional Federal Court of Appeals, 2nd Region. Appellant: Takeda Pharmaceutical Co., respondent: INPI. See also appeal decision, case number 2006.51.01.504837-8. Appellant: Altana Pharma AG, respondent: INPI. 134 Civil appeal number 2005.51.01.500712-8, Regional Federal Court of Appeals, 2nd Region; appellant: Pharmacia Corporation et al; respondent: INPI. 135 Appeal No. 2004.02.01.012859-2, Regional Federal Court of Appeals, 2nd Region, appellant: Roche Diagnostics GMBH; respondent: INPI. Summary of the decision: (...) It is therefore important initially to identify the remaining period of protection (the number of years, months and days) that the patent holder has in the country where the patent application was first filed, and then verify whether its remaining period of protection abroad exceeds or not the limit of 20 years. With regard to patent PI 1100057-0, it can be verified that the corresponding European patent No. EP 0 252 504 B1, was granted on 09/07/1987 (p. 122), valid until 09/07/2007. Afterwards an additional period of protection was granted for the period 10/07/2007 to 25/06/2011 (pp. 173/175), as per the extract of the record of the German Patent Office in file number 196 75 035.5. Therefore, considering the date the application was filed in Brazil - 30/09/1996 and the final term of protection abroad - 25/06/2011, it can be seen that the pipeline patent in question has a remaining period of protection in the country of origin of 14 years, 8 months and 25 days (counted with effect from the date the application was filed in Brazil), being less, therefore, that the limit of 20 years established by article 40 of the IPL. 136 Civil Appeal No. 2005.51.01.500712-8, Regional Federal Court of Appeals, 2nd Region; appellant: Pharmacia Corporation et al; respondent: INPI.

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

75

and scientific sectors; and (iii) by disrespecting fundamental principles of the Federative Republic of Brazil: sovereignty by revalidating foreign patents, Brazil, via INPI, would be reduced to the role of revalidating patents granted by foreign patent authorities; free initiative by taking away part of the working space of local pharmaceutical companies and research centres; and human dignity by authorizing a monopoly which, potentially, would have a negative impact on the price charged for the products that have their patent revalidated, which, in the final analysis, is prejudicial to the access by the most vulnerable sectors to the products that are part of the protected technologies. All this social harm arises without the patent owner having offered anything new to the state of the art; rather, national consumers and productive and scientific sectors suffer damages. Given the unconstitutionality of pipeline patents, we perceive that the best solution, for the preservation of local public domain information and, consequently, the preservation of the space in which the local pharmaceutical industry and/or civil society associations operate, is the bringing of a Direct Action of Unconstitutionality at the Supreme Court, with the aim of prohibiting them from being granted by INPI and revoking those already granted.137 National level civil society organizations have once more shown themselves to be committed to resolving this legal issue.138 But time passes: the sectors involved in defending health, the consumer and the public domain need to act rapidly.

2. Instruments of Industrial Property Rights Not Used by Brazil to Foster Competition and Access to Medication 2.1 Parallel Importing
Two important industrial property rights generally apply to a reference pharmaceutical product: patents and trademarks. In Brazil a trademark gives its owner the right to prevent third parties, without its consent, from importing products bearing the trademark, even if they are original, except in two cases, which are also equally applicable to patents and which will be analysed below139. A patent, in turn, gives its owner the right to prevent third parties, without its consent, from producing, using, offering for sale, commercializing and, in principle, importing products and processes protected by the patent.140 In this way, in Brazil only the patent owner or third parties, with its consent, can introduce onto the local market products and processes covered by the patent, that is to say, Brazil would appear to have adopted the Principle of the National Exhaustion of Patents/Trademarks.

137 The parties with legitimacy to bring a Direct Action of Unconstitutionality are listed in article 103 of the Federal Constitution. 138 In November 2007, the National Federation of Pharmacists (FENAFAR), representing the Brazilian Network for the Integration of the Peoples (Rede Brasileira pela Integrao dos Povos - Rebrip), submitted a petition to the Attorney General, requesting the bringing of a Direct Action of Unconstitutionality, with the aim of removing from the Brazilian legal system the provisions of the IPL that established the so-called pipeline patent. For further details on the petition, see: De olho nas patentes, A inconstitucionalidade das patentes pipeline: http://www.deolhonaspatentes.org.br/?cid=866. The Federal Public Attorneys Office is examining the petition. 139 Article 132 (III) of the IPL. 140 Article 42 of the IPL.

76

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

The most traditional intellectual property doctrine identifies just three exceptions to the Principle of National Exhaustion, as follows: (i) The first exception refers to the hypothesis of granting a compulsory license owing to the abuse of economic power . In this case, any third party (including both those licensed to exploit locally the object of the licensed patent and also any other third parties) can import it for the period of one year as long as it has been placed on the market (of foreign countries) directly by its owner or with the owners consent. The IPL limits the future local producers right to import: they will not have the right to import generic medications. The IPL, contradicting the very sense of the institution of the compulsory license (especially in a specific case of license granting owing to abuse of economic power by the patent owner), protects, in a concealed manner, the economic interests of the licensed patents owner. It should be remembered that local patents have parallel versions protected in the worlds principal markets, and that these parallel versions belong to the same owners.
141

(ii) The second hypothesis refers to the lack or incomplete local manufacturing of a patented product, or furthermore, the lack of integral use of the patented process142 because of questions of technical, legal and/or economic impracticability. In this case, not only the patent owner or the local licensee can import the object of the patent with the aim of exploiting it. Third parties can also import the product manufactured in accordance with the process or product patent, as long as it has been placed on the market directly by its owner or with the owners consent. Once again the IPL protects the right of the patent owners, and in this case also prevents the importation of generic products. Despite this limitation, this exception, if it is well used by the Brazilian public sector (and even the private sector143), can play an unequalled role in the sustainability of the Ministry of Healths National STD and AIDS Programme (and also in the sustainability of any other national, regional or local policy aiming to promote access to medications by the poorest populations). In the specific case of the National STD and AIDS Programme, given that the most costly medications purchased are patented imported ones144 i.e., the patents of which are not exploited locally the Brazilian Ministry of Health has the right import on a parallel basis such medications from markets were lower prices than those in Brazil are charged, as long as the medications purchased abroad have been placed on the foreign market by the patent owner or with its consent. This interpretation is corroborated by article 184 (II) of the IPL which sanctions those who II import a product that is the object of an invention patent or utility model or obtained by a means or process that is patented in Brazil, for the purposes provided for in the preceding subsection (* economic ends), and which has not been placed on the foreign market by the patent owner or with its consent (word underlined and boldened by us). Therefore, given that the purchasing of imported patented medications by the National Programme does not have economic ends, since they are distributed directly to people living with HIV/AIDS, the importing of protected medications commercialized at a lower prices is permitted,
141 Article 68, paragraph 3 of the IPL. 142 Article 68, paragraph 1(I) combined with paragraph 4. 143 National companies can import foreign medications with the aim of distributing them commercially in Brazil, as long as the imported medication has been introduced on the international market by the foreign patent holder or its licensee. 144 According to information provided by the National STD and Aids Programme, in 2005 three patented drugs (Lopinavir, Efavirenz and Nelfinavir) accounted for 63% of the ministry of Healths budget for the purchase of medication for people living with HIV/Aids, whilst the remaining 37% of the budget paid for a further 12 antiretroviral drugs. Cf. Ministry of Health/National STD and AIDS Programme, The Sustainability of Universal Access to Antiretrovirals Drugs in Brazil (A Sustentabilidade do Acesso Universal a Anti-Retrovirais no Brasil), Braslia. Document prepared for distribution during the 157th Ordinary Meeting of the National Health Council, on August 10th 2005.

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

77

and no prior license or negotiation with the local patent owner is required, nor is a court sentence. Furthermore, private companies can also import patented medication not produced in Brazil, as long as they only import products introduced by the patent owner or its licensee. (iii) The third exception refers to the cases of granting a compulsory license to meet situations of national emergency or public interest. According to the provisions of article 10, paragraph 1, of Decree No. 3,201/99 (2003 revised version), the Federal Union has the right to import generic medication to meet the requirements of emergency situations or situations of public interest. The restrictive interpretation of the exceptions to the Principle of the National Exhaustion of Intellectual Property Rights is echoed by the corporate specialists in intellectual property. This interpretation reflects a view of intellectual property isolated from its objectives and from other higher legal norms. The international tendency of maximizing the scope of intellectual property tends to corroborate (mistakenly) the interpretation that the intellectual property protection system should operate independently to the rest of the legal system. In other words, the norms of the intellectual property legal framework are interpreted independently of other legal rules and principles that are the basis of the protection of the fundamental rights and national and international public order.145 Nevertheless, we disagree with the interpretations which defend that Brazil adopted the Principle of the National Exhaustion of Rights; in reality, article 43 (IV) of the IPL refers only to national exhaustion and does not make any reference to international exhaustion, so that it can therefore be understood both as a maximum and a minimum rule. In other words, exhaustion is generated, at least, by domestic commercialization or only by domestic commercialization, and the setting of the limits of the application of the principle of international exhaustion is left to the discretion of the Brazilian judges, it being possible to set it in keeping with the Brazilian need for greater pharmaceutical product competitiveness.146 The most adequate interpretation of the protection of the Brazilian populations right to health, and the only one that is in harmony with the constitutional principle of free competition, is that of the adoption by the Brazilian courts of the principle of international exhaustion: the introduction of a patented product anywhere in the world, as long as this is done by the patent owner or with its consent, should be considered an act sufficient to exhaust the rights of the patent owner, whereby the patent owner cannot interfere in posterior commercial acts involving the product, i.e. exportation, importation, commercialization. In order to reach the correct interpretation of the real legal limits to parallel importation we must bear in mind, primarily, that any local intellectual property protection system whatsoever must have as its basic objective the generation of mutual advantage for technological knowledge producers and users, and must be conducive to social and economic welfare, and a balance of rights and obligations.147 Even more important, legal professionals dealing with intellectual property must be guided by the principle that intellectual property rights are islands of exclusivity in an ocean of freedom.148 If the limits of intellectual property rights are exceeded, we must return to the principle of freedom.149
145 Christophe Geiger, Fundamental Rights: a Safeguard for the Coherence of Intellectual Property Law? In IIC, 2004, Heft 3. 146 Christopher Heath, Os Limites dos (...), see note 115 above, pp. 33-34. 147 Article 7 of the TRIPS Agreement. 148 Chistophe Geiger, The role of the three-step test in the adaptation of Copyright Law to the information society. Paris, UNESCO, e-Copyright Bulletin, January-March 2007, p. 21.

149

Christophe Geiger, op.cit., note number 145.

78

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

The general rule that governs economic relations in Brazil is that of free competition. Given that intellectual property is an exception to this constitutional principle (and not vice versa), the exceptions to the principle of free competition have to be explicit in the Federal Constitution; if there is no mention of parallel importing, it is permitted.150 Moreover, industrial property has as its delimitations the social interest and the technological and economic development of the Country,151 in addition to consumer rights protection norms. Based on these legal delimitations, parallel importing is clearly authorized in Brazil. To interpret the IPL in such a way as to offer patent owners the opportunity to control the entire production distribution network, barring free international competition and taking away the Brazilian consumers right to purchase imported and cheaper products is in breach of one of the fundamental pillars of the Brazilian economic system, namely, consumer defence.152 Christopher HEATH153, when analysing the limits of patents under the system established by the Brazilian IPL, defends that the IPL is inconclusive with regard to the principle of international exhaustion, and recalls that the primordial objectives of the TRIPS/WTO system are the fostering of free international trade and the suppression of new commercial distortions. Hence why he suggests that the Brazilian Judiciary Branch should adopt the line of interpretation followed by the Japanese Supreme Court, which combines the principle of the international exhaustion of patent rights with the doctrine of tacit acceptance, applicable to patented products imported into Japan. This line of interpretation, apart from being in accordance with the principles and objectives consecrated in the TRIPS Agreement and in the Brazilian Federal Constitution - namely, the social function of property154 and the principle of free competition and consumer protection -, also has its application facilitated by the fact of the adoption of such an interpretation not requiring law reforms and not subjecting Brazil to possible legal disputes with the WTO.155 There follows part of the decision of the Japanese Supreme Court quoted by HEATH:156 ...some thought should be given to the relationship between the free movement of goods in international trade and the interest of the patentee. In our present day society, international trade and economy affect us very broadly and permit conditions of rapid development. Even in the case that goods are purchased abroad, imported into Japan and put into circulation in the domestic market, there is the need to create conditions for the free distribution of goods, including their importation. Even if economic transactions
150 Calixto Salomo Filho, International Trade and Development, Latin American and Caribbean Countries Post Doha Regional Seminar on Issues of Competitiveness in the WTO (Comrcio Internacional e Desenvolvimento, Seminrio Regional Ps Doha dos Pases da Amrica Latina e Caribe sobre os temas de Concorrncia na OMC), April 2003, Document: UNCTAD/DITC/ CLP/2003/8, pp. 85-86. Document available at: http://www.unctad.org/en/docs//ditcclp20038_en.pdf As the general rule is given by the principle of free competition (article 170 (III) of the Federal Constitution) and as patenting is an exception, any rule that aims to increase the scope of patent protection and limit competition even more must be expressly provided for. This is not the case with regard to parallel imports, it therefore being urgent to admit parallel imports in the case of patents, always respecting the condition of the product being placed on the international market by its owner or with its consent. 151 Article 5 (XXIX) of the Federal Constitution. 152 Article 170 (V) of the Federal Constitution. 153 Christopher Heath, Os Limites (...), op.cit., pp. 33-34. 154 Article 5 (XXIX) of the Brazilian Constitution explicitly conditions the protection of industrial property to Brazils social, technology and economic interests. 155 As per the provisions of article 6 of the TRIPS Agreement and paragraph 5, item d of the Doha Declaration on TRIPS and Public Health. 156 Christopher Heath, Os Limites (...), op.cit., pp. 34-35.

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

79

have been made abroad, as a general principle, the transferee obtains not only the object as such, but also the rights vested therein. In other words, the transferor transfers his rights vested therein. To enable such transactions and to set the conditions for international trade in modern society, it is assumed that the patentee who has transferred the ownership of patented goods abroad has also endowed the transferee or any subsequent purchaser with the right to undertake further transactions with third parties, including the importation to Japan, use in Japan, and transfer of ownership on our domestic market. Against this line the owner of the Japanese patent that commercializes products patented abroad and wishes to prevent their commercialization and use in our Country by subsequent purchasers, must make this wish/such restrictions very clear when negotiating with its foreign purchasers, and must explain the limits of such restrictions, for the good and protection of subsequent purchasers. In the absence of these explanations, such acts cannot be considered as being use of the patent in Japan, that is to say: (a) if the patented products were commercialized abroad, it is assumed that such products may be imported into Japan, if the patentee puts these goods into circulation, abroad, without any reservation at the time of sale. The direct purchaser or any other subsequent purchaser bought the goods without any restrictions that may be applied to the products when commercialized in Japan. (b) On the other hand, if the patentee reserves the right (...) regarding use in Japan when selling the products abroad, at the time of transfer the patentee informed the purchaser that the sale or use of the patented product would not be authorized in Japan. If clearly indicated on the products, this restriction will also be valid against subsequent purchasers of the patented product along the distribution chain, even in the case of there existing a large number of intermediaries. It is therefore understood that the products were sold under certain restrictive conditions, and that any purchaser is free to accept or not these limitations, at the time of the purchase. (c) In the case in which the activities of commercialization abroad were undertaken by an affiliated or subsidiary company or by a person with the same legitimacy as the patentee, the case should be treated as if the patentee itself had commercialized the patented products. (d) Given the fact that the right of the purchaser to distribute the patented products, it appears to us to be correct do disregard the existence of parallel importing in the country of commercialization. Within this context, the contents of article 43 of the IPL which lists the activities which when undertaken by unauthorized third parties do not configure infringement of the rights of the patent owner must be redefined, inter alia, according to the constitutional principles that govern the economic system. In order to evaluate whether or not a given act infringes or not the rights of the owner of a particular patent, one must verify whether or not the acts practised by third parties interfere or not with the patentees commercial monopoly, in an unreasonable and unjustifiable manner, as per the terms of article 30 of the TRIPS Agreement, this being a provision that is also included in Brazilian legislation157 and must always be taken into consideration by those dealing with the IPL, based on the hermeneutic technique of the doctrine of consistent interpretation.158 And interfere
157 Decree No. 1,355, dated December 30th 1994. 158 Frederick Abbot, Thomas Cottier and Francis Gurry. The International Intellectual Property System: Commentary

80

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

dos not assume that third parties have made profits, but that the action has interfered in the act of the commercial exploitation of the products produced by the patent owner.159 In order for the act of parallel importation not to interfere in this right of the patent owner,160 the only condition that must be observed is that parallel importing takes place in relation to objects introduced, abroad, by the patentee or third party with its consent and under monopolistic conditions161, in order to enable the patent owner to recover the investments made in the development of the patented object. That is to say, if the patent owner can freely set the price of its product, in a foreign country, its right to receive compensation for publicizing its innovation is exhausted internationally, there being no legal or economic reasons for renewing it just because the product crossed Brazils national frontiers.162 In the light of the fact that 99% of the 1,223 new active pharmaceutical ingredients commercialized between 1975 and 1996 were developed with exclusive focus on the needs of the industrialized countries and that the remaining 1% refers to pharmaceutical innovations originally developed for veterinary use or developed with public resources or in universities163 and, finally, that Latin America represents only 3.8% of the world pharmaceutical market164, it is not reasonable to sustain that the introduction of competition in the Brazilian pharmaceutical market, by means of the adoption of the principles of international exhaustion, would prevent the recovery of the patentees research and development investments. Bill No. 139/99165, introduced by Federal Congressman Alberto Goldman, explicitly includes the principle of international exhaustion in the IPL. The wording proposed for article 43 (IV) of the IPL, which establishes the limitations on patentee rights, is as follows: IV to a product manufactured in accordance with the process or product patent and which has been placed on the domestic or foreign market directly by the patentee or with its consent (word italicized by us) The principal justification of the Bill relates to the need to prevent abuses of economic power and to suppress commercial practices contrary to consumer interests, arising from the legal institution
and Materials: Part one. The Hague, Kluwer Law International, 1999, pp. 558-560. 159 Christopher Heath, Os Limites (...), op.cit., note 115 above. 160 In the USA the act of importing patented products is not considered to be an infringement of the patent; only subsequent acts of commercialization or commercial use of the product are an infringement. In: Resource Book on TRIPS and Development, op.cit., p. 420. 161 Christopher Heath, Parallel Imports and International Trade, WIPO, 1999, p.6. Article available at: http://www.wipo. org/sme/en/ip_business/export/international_exhaustion.htm For a patentee, the patent is the chance to cash in upon the first marketing of products under monopolistic conditions. When products are circulated in a country where patent protection has not been obtained, such monopolistic conditions are absent. On the other hand, if the patentee decides to cash in on his patent not by marketing patented products himself or with his consent, but rather by selling the patent to someone else who subsequently markets the products, then the patentee has obtained his reward and should not be able to object to parallel importation of products that were marketed without his consent under a patent he previously owned and sold.(words italicized by us). 162 S.K. Verma, Exhaustion of Intellectual Property Rights and Free Trade Article 6 of the TRIPS Agreement in IIC, vol. 29, no. 5, 1998, pp. 541-542. Vermas observations were equally based on the modern Japanese jurisprudence concerning making intellectual property norms compatible with the true spirit of free trade. 163 ROCKFELLER FOUNDATION, Access to Medicines for Developing Countries: The Contribution of the Global R&D (Draft), 2001. Available: www.rockfound.org 164 IMS Health: www.imshealth.com 165 This Bill also deals with the conditions for granting compulsory licenses; further on we will look at the other reform proposals included in the Bill.

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

81

of an absolute market reserve in favour of the patentees. Notwithstanding its being seen to be in keeping with the need to achieve a balance between intellectual property rights and the principle of free competition and fundamental rights, effectively the Bill will not be necessary since the Brazilian Federal Constitution requires that the IPL be interpreted and applied in such a manner as to permit the parallel importation of patented products, as long as the object of the patent has been introduced, on the international market, by the owner of the foreign patent or with its consent.166 However, the approval of the Bill proposed by Goldman will result in greater clarity for the consumer and the private sector. Nevertheless, after nine years of analysis in the House of Deputies the Bill has yet to be voted.167

2.2 Administrative and Judicial Proceedings to Annul Patents


Under the Brazilian system, INPI or any third parties with due legal capacity168 can take out administrative proceedings against INPI to annul patents. The time limit for taking out administrative proceedings is just six months with effect from the data of the patents publication. After this period, while the patent is in force, it is still possible to file a nullity suit with the Federal Courts. The TRIPS Agreement169 requires that proceedings of this nature be fair and equitable, not unnecessarily complicated or costly, or entail unreasonable time limits or unwarranted delays.170 The time-limit set by law for taking out administrative nullity proceedings is very short. The situation is even more unfavourable to the public interests considering that the Brazilian judiciary system is overloaded (sophisticated legal proceedings easily take ten years before the final decision is given).171 Also, considering that in Brazil pharmaceutical patents take eight to ten years to be granted, if proceedings are not taken out in the initial six month period, the chances of impugning the validity of a patent in the courts successfully and in reasonable time are minimum. As such, proceedings to impugn the validity of patents in Brazil are neither fair nor equitable. On the contrary, they are unnecessarily prejudicial to free competition and, in the specific case of the pharmaceutical sector, to access to medications as well. The delay in the judicial re-examination of potentially compromised patents can
166 The Bill introduced by Goldman could be criticized for not introducing the principle of international exhaustion in the section of the IPL that regulates trademarks (article 132, IPL). However, the need for explicit recognition, in the Brazilian legislation, of the principle of the international exhaustion of the trademark rights is of lesser importance: the principal function of the trademark is to protect consumers, offering guaranteed information about the source of the product, its characteristics and quality. The manufacturer of the product can only put the trademark on that product with the complete agreement of the trademark owner/licensee. If the product bearing the trademark is original, the economic interests of the trademark owner and the consumers will be protected, there being no legal justification for the Judiciary Body to grant a monopoly to the trademark owner, in order to create compartmentalized markets which favours the practising of abusive prices-, despite the provisions of article 132 of the IPL. We reiterate that the contents of this provision should be built through an interpretation delimited by the constitutional principles and norms, especially the principles of economic order. 167 Currently the Bill is awaiting the report of the House of Deputies Constitution, Justice and Citizenship Commission. To find out more about the Bills trajectory through the House, see http://www2.camara.gov.br/proposicoes. 168 Person with due legal capacity is a broad and indeterminate concept. Given the large-scale socio-economic consequences of intellectual property, we consider that it is not only companies that have the legal capacity to take out administrative proceedings for patent nullity, but also civil society organizations that defend human rights in general. 169 Article 62.4 combined with articles 41.2 and 41.3 170 Joseph Straus, Pre-Grant Appeal and Post-Grant Review Under the European Patent Convention in Nordiskt Immateriellt Rttsskydd 5, p.462 (2002). 171 This problem could be overcome in favour of free competition and the public interests in general if the suspensive effect of the judicial nullity proceedings were obligatory, instead of conditional (article 56, paragraph 2 of the IPL).

82

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

lead to excessive protection of the interests of the owners of low quality patents, whether national or foreign, since until a final decision on patentability is given, the productive sector may possibly not take on the risk of producing an invention that may result in the future obligation to pay damages.172 The solution to this impasse lies in the amendment of the IPL, extending the time limit for the taking out of administrative proceedings for patent nullity. The ideal would be that the time limit for taking out these proceeding be equivalent to the duration of the patent. Naturally, pressure to reform the IPL in this sense could be made via initiatives of local civil society and the local productive sector.

2.3 Compulsory Licensing


Inasmuch as the Brazilian and the international media frequently use the term patent-breaking as a synonym for the term compulsory licensing, and considering that the term patent-breaking engenders incorrect interpretations that lead the public in general, even those who are well informed, to characterize the act of compulsorily licensing a patent as an act of expropriation of private property, it is essential for us to define, in legal terms what a compulsory license is. A compulsory license is an authorization to exploit a patent of an invention which is granted by the State to third parties other than the patent owner and despite of the lack of the patent owners authorization.173 Under normal circumstances third parties negotiate patent licensing agreements with patent owners when the latter do not have the interest or the economic resources to exploit it. In other words, the patentee owns an exclusive right granted by the State to, inter alia, to exploit directly or to license (or not) its patent and, if it does decide to license, to establish the terms of its exploitation. However, the right granted to the patentee is not absolute and, under socially relevant conditions, the State may discontinue the exclusive right granted to the patentee, with the aim of protecting public interests. The interpretation that compulsory licensing is an illegitimate commercial practice174 results, possibly, from the general lack of knowledge that this instrument is widely provided for in the legislation of the developed countries and that it has been (and still is) used by developed countries as a development policy instrument,175 and that the provisions of the Brazilian legal framework that govern the granting of compulsory licenses have their roots in the Paris Convention and the WTO TRIPS Agreement.

172 On April 9th 2008, the Brazilian Ministry of Health declared Tenofovir to be of public interest (patent application no. PI 9811045-4). Following the declaration, INPI gave priority status to the examination of the application filed on July 23rd 1998, rejecting it on the grounds of lack of inventiveness (National STD and AIDS Programme, INPI rejects ARV Tenofovir patent registration (INPI nega registro de patente do medicamento anti-retroviral Tenofovir). Braslia, September 2nd 2008). 173UNCTAD-ICTSD, Resource Book on TRIPS and Development, Cambridge, 2005, p. 461. 174 San Francisco Chronicle, AIDS drug patent uproar Brazil attacks foundations of American prosperity, Robert J. Shapiro, July 14th 2005. The author of the article considers it to be inadmissible that Brazil should cogitate granting compulsory licenses, given that the National STD and ADS Programme accounts for only a small part of the Brazilian GDP. In contrast, the New York Times editorial defends that the American trade representative should make a public statement that the United States will not retaliate against Brazil for exercising its right to save lives (New York Times, Brazils Right to Save Lives, June 23rd 2005). 175 Jerome Reichman; Catherine Hasenzhal, Non-voluntary licensing of patented inventions: historical perspective, legal framework under TRIPS, and an overview of the practice in Canada and in the United States of America, UNCTAD/ICTSD Capacity Building Project on Intellectual Property Rights and Sustainable Development; B. Zorina Khan, Intellectual Property and Economic Development: Lessons from American and European History. Study paper 1a, Commission on Intellectual Property Rights, 2002. Available: www.iprcommission.org.

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

83

The basic principles established by the TRIPS Agreement regarding compulsory licensing are as follows176: (i) granting on a case by case basis;

(ii) the party interested in obtaining a license shall, prior to requesting the license, negotiate a voluntary license with the patentee; (iii) the license shall specify its scope and duration; (iv) the license shall be non-exclusive and untransferable; (vi) the license shall be granted with the aim of satisfying eminently (and not absolutely) the needs of the internal market; (vii) the licensee shall be bound to pay fair remuneration to the patentee; (viii) the validity of the license may be impugned. The IPL established as the basis for the granting of compulsory licenses: abuse of economic power through patents; abusive use of patent rights; non-exploitation/insufficient exploitation of the object of the patent on Brazilian territory; failure to satisfy the needs of the local market; dependent patents; national emergency and public interest. There follows an analysis of each of these hypotheses for the granting of compulsory licenses.

2.3.1 Abuse of Economic Power through Patents


The abuse of economic power through patents arises from the market power acquired as the result of a patent used in such a way as to infringe the economic order. One of the strong points of Law 8,884/94 (the law that deals with the prevention and repression of infractions against the economic order) is the way in which the act of the abuse of economic power is characterized. The list of conducts that infringe the economic order is not exhaustive.177 Furthermore, the occurrence of any of the practices listed in article 21 of the law is not sufficient in itself178; the practice must necessarily: (i) limit, frustrate or be prejudicial in any other way to free competition or free initiative; (ii) dominate a relevant goods or services market; (iii) arbitrarily increase profits; (iv) exercise in an abusive manner a dominant position (article 20 of Law 8,884).179

176 Michael A.Golin, Generic Drugs, Compulsory Licensing, and other Intellectual Property Tools for Improving Access to Medicine, Quaker United Nations Office, Geneva, May 2003. 177 article 21, Law 8,884. 178 The conducts listed in article 21 of Law 8,884 of most importance for the purposes of this study are: (i) the setting or charging, in agreement with a competitor, in any way, shape or form, of prices and sales terms for goods or services (subsection I); (ii) refusal to sell (subsection XIII); (iii) the creation of difficulties to the setting up, functioning or development of a competitor company (subsection v); (iv) preventing competitor access to the sources of supplies, raw materials, equipment or technology; (v) preventing the exploitation of industrial or intellectual or technology property rights (subsection xvi); (v) the imposition of excessive prices, or the increase, without a just cause, of the price of goods or services (subsection xxiv). Brbara Rosenberg, A interface entre o regime de patentes e o direito concorrencial no setor farmacutico, In Propriedade intelectual Estudos em homenagem Professora Maristela Basso. Curitiba, editora Juru, 2005, p.267-306. 179 Brbara Rosenberg, ibid.

84

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

The granting of compulsory licenses based on the abuse of economic power through patents depends on two distinct phases. The first phase, which can be administrative or judicial, aims to prove the practice of the abuse of economic power through the use of patents. This phase can be begun by filing a petition with the Ministry of Justices Economic Rights Secretariat (Secretaria de Direito Econmico - SDE) or with the Judicial Branch. Because of the specific nature of the matter, taking out proceedings with the SDE can be a good option,180 although there is no legal limitation to the case being taken to the law courts. Once the abuse of economic power through a patent has been established, new proceedings (administrative) must be taken out with INPI.181 For an understanding of the procedure182 of compulsory licensing on the grounds of abuse of economic power, BARBOSA recommends the combination of article 68 of the IPL with article 24, subsection IV, item a of Law No. 8,884/94. Moreover, because of the lack of legal clarity regarding the procedure for applying for compulsory licenses owing to abuse of economic power, we took recourse to the Ministry of Healths Prior Consultation No. 031/99 with the Administrative Council for the Defence of Competition (Conselho Administrativo de Defesa da Concorrncia - CADE) on the types of conduct that characterize violation of the economic order and which would justify the granting of a compulsory license. In short, the procedure is as follows: an interested party183 submits a petition to the SDE requesting the investigation of infractions against the economic order. Once it has received the petition, the SDE begins administrative proceedings or undertakes preliminary investigations. The latter occurs whenever the petition is not accompanied by sufficient evidence to be able to take out the proceedings. Once there is sufficient evidence and the proceedings are begun, if it is the SDEs understanding that there is infraction of the economic order, it forwards the case to the CADE for judgement. The CADE, in turn, may apply the sanctions provided for in article 24 of Law 8,884/94
180 In 2007, the National Association of Automobile Part Manufacturers (ANFAPE) submitted a petition against Volkswagen do Brasil Indstria de Veculos Automotivos Ltda., Fiat Automveis S.A., Ford Motor Company Brasil Ltda., to the Ministry of Justices Economic Rights Secretariat, for the alleged abusive use of intellectual property rights over industrial designs by these vehicle assembly companies. The preliminary investigation was shelved as the SDE considered the exercising of the intellectual property rights by the companies was above reproach. According to the report published by the SDE, based on international praxis, [it is] uncontentious that an antitrust intervention in cases involving industrial property rights is justified principally in those cases in which there has been abuse of the rights registration procedures (e.g., patents or industrial design). In other words, when an economic agent attempts to register or extend its register when it knows that it does not have the right to do so, which is not the case here (as recognized by ANFAPE itself) (Brazilian Ministry of Justice, Department of Economic Protection and Defence, case number 08012.002673/2007-51 (preliminary investigation), petitioner: ANFAPE; petitioned parties: Volkswagen do Brasil Indstria de Veculos Automotivos Ltda., Fiat Automveis S/A, Ford Motor Company Brasil Ltda., p. 2). Lamentably, it appears that the SDE ignored the decision of the European Court of Justice (ECJ) in the case of Volvo AB v Erik Veng (UK). In this case, the ECJ recognized three situations in which the refusal of the automobile industry to provide vehicle parts would be an abuse: the arbitrary refusal to supply spare parts to independent repairers, the fixing of prices for spare parts at an unfair level or a decision no longer to produce spare parts for a particular model even though many cars of that model are still in circulation, provided that such conduct is liable to affect trade between Member States. Decision quoted in V Korah, The Interface between Intellectual Property Rights and Competition in Developed Countries, (2005) 2:4 SCRIPTed 429. 181 Jos Carlos Vaz e Dias, Compulsory Patent Licensing and Antitrust Law, Journal of the Brazilian Intellectual Property Right Association (Licena Compulsria de Patentes e Direito Antitruste, Revista da Associao Brasileira de Direito da Propriedade Intelectual), October, 2001. 182 Denis B. Barbosa, Uma Introduo Propriedade Intelectual, 2nd edition, 2002. Available: http://denisbarbosa.addr. com/15.doc 183 Any interested party includes national or foreign pharmaceutical companies, bodies of the Public Attorneys Office, civil society organizations involved with the protection of consumer interests, for example. It is important to point out that although Brazil is one of the few developing countries with such a developed system for the defence of competitiveness, the national productive sector has never used it to obtain a compulsory license. It can therefore be seen that the national industry could make better use of the system for its own benefit and that of free competition.

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

85

(these sanctions include that of issuing a recommendation184 to INPI for the compulsory license to be granted), if (i) the infraction arises from the abusive use of the patent and (ii) the gravity of the infraction185 or if the general pubic interest186 demands the granting of the compulsory license. The recommendation does not signify that INPI will be able to use is discretion to evaluate whether or not it should grant the compulsory license. The following passage extracted from Consultation No. 31/99 establishes that INPI has the power-duty to impose the penalty provided for in article 68, inasmuch as the legal norm expresses the wish of those who have the right to it collectivity in this case and it is towards satisfying this wish the public interest that the Bodys (INPI) activity must be directed. VAZ and DIAS defend that INPI, after having been notified of the recommendation issued by the CADE, should publish the recommendation187 in the Industrial Property Journal (Revista de Propriedade Industrial - RPI), with the aim of publicizing it and offering it to the national productive sector. If any company is interested in exploiting the patent it must prove its technical and economic capacity to exploit the object of the patent,188 propose the license terms (remuneration of the patentee189, periodicity of the royalty payments, duration of the license190). The patent owner has sixty days to manifest itself against the terms proposed.191 Once the licensed patent owner has manifested itself, INPI will decide on the concession. Once INPI has granted the compulsory license, the licensee (as well as third parties in general,192 e.g., medication importing and distribution companies, the Government) may, for the period of one year, with effect from the granting of the license, import the object of the license, as long as it has been placed on the international market directly by the patent owner or with its consent.193 Despite the burdensome bureaucracy involved in obtaining a compulsory license on the grounds of abuse

184 Bill No. 5877/2005, which structures the system for the defence of competition and represses infractions against the economic order, introduced by the Executive Branch in September 2005, maintains the current procedure of granting compulsory licensing by means of issuing a recommendation to INPI. However, if the intention does exist to reform Law No. 8,884, it would be beneficial to competition if the granting of compulsory licenses became obligatory once the infraction of the local economic order has been verified. 185 According to article 27 of Lei No. 8,884 and according to the CADEs reply to Consultation No. 31/99, in order for the penalties provided for in article 24 (including the issuing of the recommendation to grant a compulsory license), the CADE takes into consideration: I the severity of the infraction; II the good faith of the infractor; III the benefit obtained or intended by the infractor; IV the consummation or not of the infraction; V the degree of harm, or danger of harm, to free competition, to the national economy, to consumers or to third parties; VI the negative economic effects produced on the market; VII the economic situation of the infractor; VIII - recurrence. These circumstances are not exhaustive and the CADE can take others into consideration to evaluate the severity of the conduct, such as, for example, how essential the product or service is to society as a whole. 186 The CADEs reply to the Ministry of Healths Consultation No. 31/99 defines the public interest as those aspirations or benefits licitly desired by all the community administered or a substantial part of its members. 187 Analogical application of article 64 of the IPL and its subsections. 188 Article 68, paragraph 2 of the IPL. 189 INPI may take into consideration the need to correct anti-competitive or unfair practices (...) when determining remuneration in such cases (article 31(k) of the TRIPS Agreement). 190 Article 73 of the IPL and subsections. 191 Article 73 paragraph 1 of the IPL. 192 Article 68, paragraph 4 of the IPL. 193 Article 68, paragraph 3 of the IPL.

86

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

of economic power, licensing has two advantages194: on the bureaucratic level, the petitioners do not need to negotiate a licensing agreement with the patent owner prior to submitting the petition to SDE. On the commercial level, the licensees may export the object of the patent without restrictions on quantities195, and this makes it possible to export Brazilian pharmaceutical products to those countries where there is no patent on the invention licensed in Brazil. The difficulty in setting the remuneration of the owner of the compulsorily licensed patent at adequate levels may be an obstacle to the granting of compulsory licenses. For this reason we recommend some possible guidelines for setting royalties.196 Although article 31 of the TRIPS Agreement leaves the setting of royalties to the discretion of the WTO Member States, remuneration must be adequate and set in keeping with the economic value of the authorization and the circumstances that lead to licensing.197 Given that INPI has not established guidelines for setting royalties in the case of compulsory licensing, international practice is of great importance.198 J. LOVE, in a 2001 study undertaken for the United Nations Development Programme (UNDP)199, indicates the levels of royalties commonly set in some countries in relation to the licensing of pharmaceutical products. Broadly speaking, the Pharmaceutical Research Manufacturers of America (PhRMA) consider 5% to be the average level for royalties in the North American pharmaceutical sector; in Japan royalties vary between 2 and 4%; in cases involving compulsory licensing Canada set royalties at around 4%. J. LOVE recommends that there be a scale for setting royalties, depending on the level of innovation incorporated in the licensed invention:200 Innovative inventions: between 3-5% Inventions with an average level of innovation: 2-3% Less innovative inventions (incremental): 1% at the most.

194 These advantages are also applicable to the hypothesis of the abuse of patent rights (article 31(k) of the TRIPS Agreement). 195 Article 31(k) of the TRIPS Agreement. 196 The observations and recommendations regarding remuneration presented in this item are fully applicable to the other legal hypotheses of the granting of compulsory licenses. 197 Article 31.h of the TRIPS Agreement. 198 Brazilian Treasury Ordinance No. 436/58 establishes the maximum percentage coefficients for the deduction of royalties in relation to the exploitation of trademarks and patents owned by foreigners in Brazil, when calculating the taxable income of corporations. In theory there is no restriction to the setting of royalty rates between unrelated companies. In practice, however, there are two restrictions: (a) it has to be proven to INPI that in other countries a rate of more than 5% is usual, and; (b) only the limit of 5% is tax deductible, i.e. it is considered as an expense when calculating taxable income. In this case expenses over 5% are taxed twice in Brazil, upon remittance and when declaring taxable income, so that it is not convenient to set royalty rates above the limits defined in Ordinance No. 436. The Ordinance sets an upper limit of 4% (tax deductible) for pharmaceutical product royalties. As such, in the absence of specific rules to establish the adequate remuneration of the owner of compulsory licensed patents, Treasury Ordinance No. 436/58 should be adopted as a criterion. 199 James Love, Compulsory Licensing: Models for State Practice in Developing Countries, Access to Medicine and Compliance with the WTO TRIPS Accord. United Nations Development Programme, January 21st 2001. 200 In a more recent study, made in 2005, James Love discourses in detail on royalty calculation mechanisms for compulsory licenses recommended by UNDP, Japan and Canada, as well as adding a proposal of his own. For further details on each of these recommendations, see James Love, Remuneration Guidelines for non-voluntary use of a patent on medical technologies. Geneva, United Nations Development Programme and World Health Organization, 2005 (doc.: WHO/ TCM/2005.1).

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

87

In a more flexible manner, the German Federal Patents Court, in a decision given at the beginning of the 1990s, set two fluid limits for calculating patentee remuneration in the case of compulsory licensing: the compensation to be paid to the patentee must be reasonable and must enable the licensee to continue with its business in activity.201 Comparing the model proposed by J. LOVE and the German model, the former provides greater juridical certainty to the pharmaceutical industries benefited by compulsory licenses and makes the process more expeditious. Finally, in its norms on the granting of compulsory licenses relating totally to the exportation of medication for the purposes of combating public health crises, Canada proposed the following equation for calculating the royalties to be paid and it could be adopted by Brazil:202 Royalty rate = 0.04 x (178 Brazils ranking on the UNO Human Development Index in the year the license was granted)/177203 In order to avoid juridical discussions arising as to the adequacy of the remuneration set which could lead to the exhaustion of the institution of the compulsory license , there can be no further delays to INPI issuing a resolution or a normative act establishing the guidelines for setting royalties. A suggestion to be considered would be the mechanism suggested by Canada or the system of scaling royalties vis--vis the level of innovation and therapeutic innovation of the licensed invention. Another aspect of importance that should be dealt with by means of an INPI resolution/ normative act is the basis for calculating remuneration. The alternatives are: the cost to the consumer of the generic medication produced under a compulsory license; the cost price of the generic medication; net income from commercializing the generic medication produced. Depending on the basis chosen for the calculation, the higher or lower the final price of medication produced under a compulsory license will be. Finally, another suggestion made by J. LOVE that we consider to be relevant to reproduce here concerns the conditions that the patentee must observe when appealing against the royalty amount: if the licensed patent owner does not agree with the royalties set, in order to impugn the amount it would be obliged to present a dossier (in a standard format, in order to facilitate INPIs analysis) on the costs of developing the product, its sales worldwide since its introduction on the market, so that the Government can evaluate, concretely, if the royalties set are, or not, adequate to the case in question. In the case of licensed inventions that involve multiple patents with different owners, in order to debureaucratize the system of dividing the remuneration, it is recommendable that a fund be set up. The generic products company would deposit the remuneration set by the State in the fund and the licensed patent owners would be responsible for dividing it between themselves.204

2.3.2 Abusive Use of Patent Rights


The IPL does not offer guidance on interpretation for delimiting this hypothesis of compulsory license granting. As such, we have taken recourse to the provisions of the TRIPS Agreement. Article 8
201 David Brennan, What is equitable remuneration for Intellectual Property use? Electronic Journal of Intellectual Property Rights, Oxford Intellectual Property Research Centre, January 2005. 202 James Love, Remuneration Guidelines for non-voluntary use of a patent on medical technologies. Geneva, United Nations Development Programme and World Health Organization, 2005 (doc.: WHO/TCM/2005.1), p. 72. 203 177 refers to the number of countries included in UNOs annual evaluation of the human development index. 204 James Love, Implementing TRIPS safeguards with particular attention to administrative models for compulsory licensing of patents. Document presented at a World Health Organization meeting in Harare, Zimbabwe, August 21st 2001.

88

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

(2) of the TRIPS Agreement refers to the the abuse of intellectual property rights by right holders205 and presents some guidance for delimiting the concept of the abusive exercising of patent rights: the practice which unjustifiably restrains trade or adversely affects the transfer of technology. Article 40 (2) of the TRIPS Agreement provides another legal parameter applicable to the case: contract clauses in agreements on technology licensing/transfer; licensing practices that may cause unjustifiable restrictions to competitiveness (even if the patent owner agrees to negotiate, the existence of abusive contract terms will be motive for requiring compulsory licensing). Finally, article 7 of the TRIPS Agreement offers us another tool for characterizing abusive practices by patent owners: business and licensing practices that inhibit the promotion of local technological innovation and the transfer and dissemination of technology, causing an imbalance between the benefits to producers and users of technological knowledge, in a manner contrary to social and economic welfare. As to the procedure for requiring compulsory licensing on the grounds of the abusive exercising of patent rights, article 68 (caption) and article 73, paragraph 2 of the IPL require the abuse to be proven through a judicial or administrative process. Given that INPI does not have a quasi judicial body with the competency to evaluate, specifically, the practice of abusive conduct arising from industrial property rights, the only viable alternative is the judicial process. A company that has technical and economic capacity to carry out the efficient exploitation of the object of the patent can file a judicial suit, so that, once the abusive exercising of the rights arising from patents has been proven, the Judiciary Body grants a non-exclusive compulsory license, notifying INPI to publish the decision granting the compulsory license in the Industrial Property Journal (Revista de Propriedade Industrial - RPI), it being the obligation of third parties interested in exploiting the licensed invention to take out administrative proceedings with INPI to set the terms of the compulsory license.

2.3.3 Non-exploitation/Insufficient Exploitation of the Object of the Patent on Brazilian Territory


This legal hypothesis for the requirement of compulsory licensing is characterized by the lack of local manufacturing or incomplete manufacturing of the product, or the lack of the integral use of the patented process, except cases of economic infeasibility, when importing will be admitted206 for the purposes of exploiting the patent. This legal hypothesis is governed by article 5.A.4 of the Paris Convention207, which in turn forms part of the WTO TRIPS Agreement, as provided for in its article 2, as follows: Article 2: 1. In respect of Parts II, III and IV of this Agreement208, Members shall comply with Articles 1 through 12, and Article 19, of the Paris Convention (1967).

205 Prof. Bodenhausen includes among the abuses arising from the exercising of exclusive rights conferred by patents, referred to by article 5, Section A, of the Paris Convention for the Protection of Industrial Property, the refusal to grant licenses with reasonable terms, preventing local industrial development, failure to supply the local demand for the patented product or the setting of excessive prices for the patented product, and concludes that the definition of abuses is left to the discretion of the Member States. G.H.C. Bodenhausen, Guide to the Application of the Paris Convention for the Protection of Industrial Property (as Revised at Stockholm in 1967), BIRPI/WIPO, 2004, pp. 70-71. 206 Article 68, paragraph 1 (I) of the IPL. 207 Stockholm Revision, 1967. 208 Part II of the TRIPS Agreement covers the matter of patents.

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

89

2. Nothing in Parts I to IV of this Agreement shall derogate from existing obligations that Members may have to each other under the Paris Convention, the Berne Convention, the Rome Convention and the Treaty on Intellectual Property in Respect of Integrated Circuits. (word underlined by us) Preliminarily, we highlight that in Brazil there is widespread interpretation that article 5 (A) of the Paris Convention was revoked by article 27 (caption) of the TRIPS Agreement, because of possible conflicts between the two provisions, especially concerning the alleged discriminatory nature of the Paris Convention provision.209 This interpretation would make sense to a certain extent if, primarily, the TRIPS Agreement had been constructed with the single objective for fostering international trade exchanges, which is not the case: intellectual property must be protected in a manner conducive to social welfare and not just economic welfare, as per article 7 of the TRIPS Agreement and the Doha Declaration on the TRIPS Agreement and Public Health. Secondly, such an interpretation would be legally sustainable if the TRIPS Agreement itself did not make explicit and incontestable reference to the provisions of the Paris Convention that form part of it and, therefore, remain in force. It is valid to recall that those who negotiated the TRIPS Agreement, when they intended to remove from its structure a given provision of one of the international treaties that form part of it, did so in an explicit manner: this is the case of moral rights under the Berne Convention to protect literary and artistic works (article 9.1 of the TRIPS Agreement). Having resolved the matter of the validity of article 5(A) of the Paris Convention, let us now deal with the conditions for the granting of compulsory licenses owing to the non-exploitation or insufficient exploitation of the object of a patent on Brazilian territory. The TRIPS Agreement requires that before petitioning for the granting of a compulsory license, the interested party must have made efforts to obtain authorization from the right holder on reasonable commercial terms and conditions, and if such efforts have not been successful within a reasonable period of time.210 The IPL, in turn, imposes a time limit for the granting of compulsory licenses based on the lack of or insufficient exploitation: the judicial/administrative petition can only be made with effect from three years after INPI has granted the patent. 211 A priori, this time limit would be especially restrictive in the Brazilian case: in view of the administrative difficulties faced by INPI (the administrative procedure for granting patents takes around eight to ten years) and taking into consideration that, according to information obtained from ANVISA, INPI has not published pharmaceutical patent applications that have not received ANVISAs prior consent, in principle, the provisions that govern compulsory licensing would continue to be inapplicable. However, we must bear in mind that law is not a static system: its interpretation and application take into consideration social and economic changes. Following the Doha Declaration on the TRIPS Agreement and Public Health, public health has been placed
209 See Marcos Levy; Otto Licks, The requirement for the complete manufacturing of the object of a patent on national territory (O requisito de fabricao completa do objeto de uma patente no territrio nacional), 2003. Available: www.interfarma.org.br 210 Article 31.b. Neither the TRIPS Agreement nor the IPL define what is a reasonable period of time. Under the North American legislation which governs compulsory licensing of technical data necessary for the registration of chemical products (The Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA)), 90 (ninety) days is taken to be the maximum obligatory time limit for finalizing the negotiation of licensing agreements. 211 Article 68, paragraph 5 of the IPL.

90

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

on a level higher than that of the private rights. The Brazilian Federal Constitution (article 5, XXIX), in consonance with the Doha Declaration, also considers Brazils social, economic and technological interests to be limits to industrial property rights. As such, the Brazilian Supreme Court has already decided that the right to health a fundamental human right indissociable from the right to life cannot be limited by bureaucratic issues so as to become a mere constitutional promise of no consequence.212 Consequently, according to the Supreme Courts interpretation of the status of the right to health, time limits, bureaucratic and legal procedures that represent a restriction of the right to health, can be contested judicially and disregarded, with the aim of preserving the right to life. Even in the hypothesis of the fulfilment of these conditions, both the Paris Convention and the IPL (article 68, paragraph 1, I) prevent the concession of compulsory licenses on the grounds of non-exploitation/insufficient exploitation if the patent owner justifies its lack of action with legitimate reasons or if it can prove the economic infeasibility of installing production in Brazil, or if it can prove that serious and effective preparations have been made for local exploitation, or if it justifies such lack of manufacturing because of a legal impediment. With regard to economic infeasibility, this circumstance only applies as a legitimate reason for preventing the granting of a compulsory license if no other company based in Brazil or with interest in the local market and the disposition and resources to set up business here has interest in licensing an unexploited or insufficiently exploited patent on commercially reasonable terms. Given that Brazil is one of the worlds largest pharmaceutical markets it is very unlikely that economic infeasibility could be proven. With regard to the procedure for petitioning for compulsory licensing on the grounds of local non-exploitation/insufficient exploitation, the observations made in the previous item also apply here. In sum, companies that have the economic and technical capacity to exploit a non-exploited/insufficiently exploited patent on Brazilian territory, can have recourse both to the Judiciary Branch and to INPI to obtain a compulsory license. In terms of the administrative process, we have had access to information that the company called Nortox S.A. petitioned INPI on October 9th 2003 in relation to the compulsory licensing of a patent owned by Ishihara Sangyo Kaisha Ltd.. INPI decided not to grant a compulsory license since the patent owner, after the application for compulsory licensing had been filed, licensed its patent to the company called Hokko do Brasil Indstria Qumica e Agropecuria Ltda.213 INPIs decision, given on January 15th 2007 39 months after the administrative process began denied the granting of the compulsory license because it considered the presentation of the licensing contract to be irrefutable proof of the exploitation of the patent. It may be that some information is lacking in the document to which we had access, but exploitation of the patent presupposes the industrial production of the patented invention and not just a contract. The delay in examining the petitions and the adoption of interpretations that increase the scope of the IPL undermine the utility of the institution of compulsory licensing.

212 Supreme Court, 2nd Panel, Appeal No. 271286/RS, Rapporteur Minister Celso de Mello, published in the Official Justice Gazette on 24/11/2000. 213 Solicitor Generals Office / INPI, Ref. NOTA/INPI/PROC/CJCONS/No. 023/2006, dated January 15th 2007.

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

91

Finally, with regard to this basis for compulsory licensing, it is valid to recall that in 2001 the USA placed Brazil on a WTO panel alleging that it was acting contrary to the provisions of the TRIPS Agreement.214 The case was not examined by the WTO because of an agreement made between Brazil and the USA that requires bilateral negotiations between the two countries before Brazil grants any compulsory license on the grounds of failure to exploit a patent locally. Although the agreement makes a generic reference to article 68 of the IPL, a thorough reading of the agreement leaves it clear that the need for prior negotiations with the USA is confined to the hypothesis that lead to the panel being set up.215 Within the Brazilian legal system, the agreement does not have any authority to alter the IPL and, as a consequence, does not create an additional requisite for the petitioning of a compulsory license on the grounds of non-exploitation/ insufficient exploitation, since the agreement was not approved by the National Congress and nor was it ratified by the President of Brazil. Hence why national and foreign pharmaceutical companies continue to have the vested right to petition for the granting of compulsory licenses on the grounds of non-exploitation/insufficient exploitation. This legal hypothesis for the granting of compulsory licenses gains importance when considering that the Brazilian pharmaceutical products market imports more than 80% of the active ingredients used in the formulation of pharmaceutical products.

FIGURE 1 BRAZILIAN PHARMACEUTICAL MARKET

Source: ABIQUIF 214 Brazil Measures Affecting Patent Protection (WT/DS199/1) 215 The agreement states Should the U.S. withdraw the WTO panel against Brazil concerning the interpretation of Article 68, the Brazilian Government would agree, in the event it deems necessary to apply Article 68 to grant compulsory license on patents held by the U.S. companies, to hold prior talks on the matter with the U.S. Government. These talks would be held within the scope of the U.S. - Brazil Consultative Mechanism, in a special session scheduled to discuss the subject. (WT/DS199/4)

92

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

FIGURE 2 BRAZILIAN PHARMACHEMICAL MARKET

Source: ABIQUIF

2.3.4 Failure to Satisfy the Needs of the Local Market


This hypothesis is characterized by the failure to supply deliberately or as a result of technical or economic incapacity the local market demand for the patented product by the patent owner or its licensee. The conditions shown in item 2.3.3 above (time limits and prior negotiation with the patent owner) for petitioning for compulsory licensing also apply to this legal hypothesis.

2.3.5 Dependent Patents


As a general rule, the development of new technologies involves previous inventions, the exploitation of which may depend on licensing agreements with the owners of the previous inventions absorbed into the development of the new one. In the case of the new invention depending216 on a previously patented invention, if the object of the dependent patent constitutes substantial technical progress in relation to the previous patent, and the owner of the previous patent does not authorize the owner of the dependent patent to exploit the previous patent, on reasonable commercial terms and conditions, and within a reasonable period of time, the owner of the dependent patent will be authorized to petition for the compulsory licensing of those patents that would be infringed as a result of the exploitation of its invention. The IPL is silent as to what substantial technical progress might be. We consider that technical progress will be substantial if the invention is eligible for obtaining the benefit of patent protection, i.e. if all dependent patents are eligible for obtaining the benefit of patent protection. To interpret this otherwise, so as to establish hypotheses by which the benefit of compulsory licensing is not applicable, would imply granting differentiated treatment to people who are in an equal situation (patent owners), thus infringing one of the fundamental objectives of the Federative Republic of Brazil: to guarantee national development.217
216 Article 71, paragraphs 1 and 2 of the IPL define dependent patents as: Paragraph 1 For the purposes of this article a dependent patent is considered to be a patent the exploitation of which obligatorily depends on the use of an object of a previous patent. Paragraph 2 - For the purposes of this article a process patent can be considered to be dependent on the patent of the respective product, and a product patent can be considered to be dependent on a process patent. 217 Article 3, II, Federal Constitution.

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

93

The comments presented in items 2.3.1 and 2.3.2 above concerning the process of license obtainment also apply to this hypothesis.

2.3.6 National Emergency and Public Interest


National emergency and public interest are the only legal hypotheses for the ex officio granting of compulsory licensing and do not, therefore, depend on prior negotiation with the owner of the patent to be licensed218, nor does it depend on judicial or administrative proceedings with INPI.219 To date, Brazil has only once taken recourse to compulsory licensing as a means of fostering sustainable access to essential medications: on May 4th 2007 the President of Brazil, by means of Decree No. 6,108, granted ex officio compulsory licenses on the grounds of public interest for patents number. 1100250-6 and 9608839-7 (relating to the medication known as Efavirenz). A year after the licenses were granted, ANVISA is now analysing an application for the registration of the generic version of Efavirenz, produced by means of a partnership between public and private pharmaceutical companies.220 In the case of national emergency compulsory licensing can be granted for private commercial use, that is to say, the companies benefitted by the compulsory license can produce, for purely economic purposes, the object of the patent compulsorily licensed by the Government. This would be the case, for example, in the event of an avian influenza pandemic in Brazil, whereby laboratory X the owner of the patent on the medication for the treatment of this disease does not have the capacity to supply the local demand for the medication. The companies benefitted by the compulsory license could produce the medication with the aim of making a profit. In the case of public interest, the compulsory license granted by the Government may only have a non-commercial public purpose.221 This expression is open to several possible interpretations.222 Given the manoeuvring space left by the TRIPS Agreement, and in the light of Brazilian reality, the most adequate definition of non-commercial public use is that which comprises the exploitation of the object of the patent by official or private laboratories with the aim of supplying public health services and providing the free distribution of the medication to the public. In this case, all the compulsory licensed medication produced by private laboratories must handed over to the government. Decree No. 3.201, which regulates these two forms of granting compulsory licensing, in its current version (as altered by Decree No. 4,830, dated September 4th 2003) does not enlighten as to what a situation of national emergency or public interest might be. The original version of Decree No. 3,201, dated October 6th 1999, understood a national emergency223 to be great public danger, even if only in part of the national territory; and public interest to be224 facts relating to (among others)
218 Article 31.b of the TRIPS agreement. 219 Article 71, paragraph one of the IPL. 220 Ministry of Health, EFAVIRENZ PRODUCED IN BRASIL (EFAVIRENZ PRODUZIDO NO BRASIL). Available: http://www.abifina.org.br/noticias.asp?secao=20&noticia=658 221 This does not mean that the private sector is not authorized to use the system proactively. In order to corroborate this assertion, we can taken as an example the public civil action filed by the Federal Public Attorneys Office together with the AIDS service NGO Associao Brasileira Interdisciplinar de Aids against the Federal Government, applying for the compulsory licensing of the patents relating to the drugs Ritonavir and Lopinavir. For further information on this lawsuit, see: http:// www.idec.org.br/emacao.asp?id=1041 222 UNCTAD-ICTSD, Resource Book on TRIPS and Development, op.cit., p. 471. 223 Article 2, paragraph 1. 224 Article 2, paragraph 2.

94

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

public health, nutrition, the defence of the environment, and facts of primordial importance for the Countrys technological and socio-economic development.225 Despite these provisions having been revoked by the 2003 Decree, these definitions serve as interpretation guidelines for those who put the norm into practice, with the additional advantage that, because the new version of Decree 3,201 is silent on this matter, other situations, apart from those provided in the original 1999 version of the Decree, can be considered to be a national emergency and in the public interest. Notwithstanding, article 3 of the Federal Constitution provides a firm guide to giving a minimum concrete definition of the term public interest. The articles establishes the utmost aims to be achieved by the Federal Republic of Brazil, namely: (i) the formation of a free, fair and mutually supportive society; (ii) the guarantee of national development; (iii) the eradication of poverty and marginalization and the reduction of social and regional inequalities; (iv) the promotion of the welfare of all citizens. Any situation that relates to these interests is of the public interest. Once either national emergency or public interest is seen to exist although there are situations in which the difference may be tenuous , the Government should, in principle, verify whether the patent holder (either directly or through a licensee) has the capacity to meet these public/emergency needs. Being able to meet emergency demands or public interests means that the patent holder or its licensee is qualified to supply, promptly, sufficient quantities to meet local demands and at affordable prices. If the patent holder or its licensee is able to supply the market demand without delays, but charges unreasonable prices,226 the condition necessary for granting a compulsory license on the grounds of public interest or national emergency will exist. Returning to the procedure for granting compulsory licenses in cases of national emergency and public interest, once either of these situations has been identified, the Minister of State responsible for the matter in question shall, in one single act, declare that such a situation is a national emergency or a situation of public interest to be protected by the State, in the form of the compulsory licensing of certain patents,227 and this act shall be published immediately in the Official Federal Gazette.228 This act must always determine the remuneration to be paid to the patent holder, the periodicity of the royalty payments, the duration of the license, the possibility of extension of the period of the license, the transfer of know-how from the licensed company, as well as the conditions of the making available of undisclosed information needed for the expeditious obtainment of authorization to commercialize the medication. 229 Under the 1999 Decree, if the Federal Government does not have the technical and/or economic capacity to exploit the licensed patent, it must contract or otherwise hire third parties (private companies) to do so, and the entire production must be employed in the use for which the license was
225 The definition of public interest was based on the terms of article 8(1) of the TRIPS agreement. 226 In order to prove the unreasonableness of medication prices we consider it necessary to compare prices at the international level. The study done by the non-governmental organization Mdecins Sans Frontires entitled Untangling the Web of Price Reductions: a pricing guide for the purchase of ARVs for developing countries, 8th ed, June, 2005, which, although it deals specifically with antiretroviral drugs, has useful methodology for comparing the prices of any medication. 227 When granting a compulsory license it is imperative that a preliminary survey be done of all the patents that cover the invention intended to be exploited locally. 228 Article 3, Decree No. 3,201 (revised in 2003). 229 Article 5, paragraph 1, of Decree No. 3,201 states: The act of conceding a compulsory license shall also establish the obligation for the patent owner to transfer that information necessary and sufficient for the effective reproduction of the protected object and all other technical aspects applicable to the case in question. If the patent owner fails to do so, the patent will be subject to annulment on the grounds of the protected object being insufficiently described.

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

95

granted.230 However, given that article 71 of the IPL does not establish that compulsory licensing on the grounds of public interest and national emergency shall be granted only in benefit of the Federal Government, which would be an exclusive compulsory license in favour of the Federal Government (in infringement of the provisions of article 31.d of the TRIPS Agreement, which requires that all compulsory licenses shall be non-exclusive), there is no legal basis for the requirement that a contract/agreement be made between the Federal Government and third parties with the purpose of authorizing them to exploit the patent. Once the compulsory license has been published in the Official Gazette, any company public or private may exploit the licensed patents, as long as they observe the conditions contained in the license. Article 10 of Decree No. 3,201 authorizes the importation of the object of a compulsory licensed patent if the local companies authorized to exploit the licensed patent are not able to meet the situations of national emergency or public interest. Under such circumstances the Federal Government may import the patented product, preferentially the product placed directly on the market by the patent owner (the owner of the corresponding foreign patent) or by its licensee. This solution, albeit pragmatic and expeditious, is only applicable to the importation of pharmaceutical products from industries based in countries in which the licensed invention is in the public domain. If the product is protected by patents in the exporting country it is intended to be purchased from, Brazil may suspend the compulsory license and import it in parallel, without the need prior authorization for the patent holder. However, if the only opportunity that remains is to order the production of the product/ active ingredient in a country where it is patented, then Brazil will have to obey the mechanism created by the WTO General Council Decision of August 30th 2003.231 The IPL, in its current format, also restricts the opportunities of the local private sector seeking new markets: under the terms of article 31(f) of the TRIPS Agreement, in the case of a compulsory license being granted, the local licensees may export that part of their local production with is not predominant232 (less than 50%) to countries where the products are not protected by patents.233 In the hypothesis of compulsory licenses being granted in Brazil for ARVs, the Brazilian legal system would benefit in particular African countries with less relative development and devastated by the

230 Articles 9 and 11 of Decree No. 3,201. 231 This Decision implements paragraph 6 of the Doha Declaration on the TRIPS Agreement and Public Health, and became definitive on December 6th 2005, by Decision of the WTO General Council, which altered article 31 of the TRIPS agreement. The 2005 Decision will only come into force internationally once it has been ratified by 2/3 of the WTO members. The deadline for its acceptance is December 31st 2009. Thus far Brazil has not accepted the protocol amending the TRIPS Agreement according to information on the WTO website (http://www.wto.org/english/tratop_e/trips_e/ amendment_e.htm) ; for the time being the 2003 Decision is applicable in Brazil. 232 There is no unequivocal interpretation of any such use shall be authorized predominantly for the supply of the domestic market of the Member authorizing such use. The Indian delegation, in a meeting of the Council on the TRIPS Agreement, on June 20th 2001, argued that the interpretation of this provision should be flexible and broad, pointing out that if the TRIPS Agreement itself allows this limitation (predominantly for the supply of the domestic market) to be suspended in the case of a compulsory license granted to remedy a procedure found to be anti-competitive or unfair, then why not apply the same interpretation to cases involving public health protection? Statement of India at the TRIPS Council meeting on June, 20, 2001 on Public Health and Access to Medicines. Available: http://commin.nic.in/doc/wtotrips3.htm. The most common interpretation is that predominantly means that more than 50% of what is produced will be used to supply the national market where the license was granted. 233 In those countries in which patent protection is in force for the patent compulsorily licensed in the exporting country, even if they adopt the principle of the international exhaustion of intellectual property rights, the local patent holder can prevent the importation of the generic product, given that the holder has the right to remuneration for a product commercialized in monopolistic conditions.

96

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

lack of access to HIV/AIDS treatment.234 For example, national industries that produce Efavirenz under the compulsory license granted on May 4th 2007 may export it to other countries, a long as the amount they export is less than 50% of local production. The local licensees may also export the predominant part of local production, in the case of a compulsory license granted on the grounds of abuse of economic power by the patent holder. In these two hypotheses the IPL would favour other countries as long as their needs were in line with those of Brazil, and if local production were sufficient to generate exportable excesses. Other than in these circumstances the IPL, in its current format, is unable to satisfy the specific needs of other countries that do not have the capacity to exploit pharmaceutical patents. Therefore, despite Brazil being authorized to import and export pharmaceutical products, without the restrictions provided for by article 31(f) of the TRIPS Agreement, until the IPL has been reformed, the Brazilian Government and productive sector cannot make use of the prerogatives offered by the WTO General Council Decision. Whilst Brazil loses opportunities, Canada and India use the 2003 Decision to the benefit of the development of their industries and to the benefit of people living with HIV/AIDS. On October 4th 2007 Canada notified WTO that the company Apotex Inc. will export the drug Triavir (Zidovudine, Lamivudine and Nevirapine) to Ruanda for two years, by means of the mechanism established by the 2003 Decision.235 In India, the company Natco Pharma recently filed for the compulsory licensing of the drug Erlotinib, owned by Roche, used to treat cancer, in order to export it to Nepal.236 In the following item we shall take a brief look at two experiences regarding legislation to implement the 2003 Decision which could serve as a source of inspiration for Brazils legislators. The strong point of the Canadian legislation is that it sets a maximum amount of time that an interested party needs to spend when attempting to obtain a voluntary license, before filing for a compulsory license. The strong point of the Norwegian system lies in obliging the local Government to grant a compulsory license as soon as certain conditions are met.

Canada
The Jean Chrtien Pledge to Africa Act incorporated the 2003 WTO General Council Decision into the Canadian Patent Law.237 The Canadian system requires the interested party to attempt to negotiate a voluntary license with the Canadian patent holder. If the interested party is not successful within 30 days, it may file for
234 Even if countries with less relative development that have adopted pharmaceutical patent protection norms (unless they are part of a bilateral trade agreement having a chapter that regulates industrial property rights) do not respect their own industrial property protection norms, this will not give rise to trade disputes within WTO, since the TRIPS system will only become binding on them with effect from 2016. On June 27th 2002, the WTO TRIPS Council extended to January 1st 2016 the deadline for countries with less relative development to implement rules for the protection of pharmaceutical inventions. A Decision adopted by the WTO General Council on July 8th 2002 provides that countries with less relative development will not be obliged to grant exclusive marketing rights (article 70.9 of the TRIPS agreement) for inventions for which patent applications are pending, until January 1st 2016. 235 WTO, Canada is first to notify compulsory licence to export generic drug. Geneva, WTO, October 4th 2007. See also Notificacin de conformidad con el prrafo 2 c) de la Decisin de 30 de Agosto de 2003 sobre la aplicacin del prrafo 6 de la Declaracin de Doha relativa al Acuerdo sobre los ADPIC y la Salud Pblica (Document IP/N/10/CAN/1 of the World Trade Organization). 236 Business Standard, Cancer drug puts licence patent rules to the test. January 16th 2008. Article available at: http:// www.business-standard.com/common/storypage.php?autono=310813&leftnm=1&subLeft=0&chkFlg= 237 Lalita Acharya, Kristen Douglas, BILL C-9: An Act to Amend the Patent Act and the Food and Drugs Act, March 3rd 2004. Available: http://www.parl.gc.ca/common/Bills_ls.asp?Parl=37&Ses=3&ls=C9. The complete version of the law is available at: http://www.canlii.org/ca/as/2004/c23/whole.html

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

97

a compulsory license. The duration of Canadian compulsory licenses is defined by law as being two years, renewable only once on the condition that the Canadian licensee has not exported the amount of pharmaceutical products allowed when the compulsory license was granted. The system is based on lists of products eligible for exportation and lists of qualified countries, and is not applicable to all pharmaceutical products that may required by an eligible importing country to meet local public health challenges. Only those pharmaceutical products already on the list can be the object of compulsory licensing for exportation; although there is the possibility of the Canadian Government being able to alter the list, but this decision is discretionary and cannot be immediate.

Finally, the Canadian model sets the royalties to be paid taking into consideration the position of the importing country on the United Nations Human Development Index royalty rates can oscillate between 0.02% and 3.5% of the value of the exported products and it sets an upper limit for the price of the pharmaceutical product in the importing country: less than 25% of the average price charged in Canada. If this upper limit is exceeded, the compulsory license can be revoked or the royalties can be increased.238

Norway
The amendment made on May 14th 2004 to the Norwegian Patent Law239 basically incorporates the terms of the WTO Decision dated August 30th 2003, although it does present some interesting novelties that Brazil could incorporate into the IPL with the aim of facilitating the exportation of pharmaceutical products. The first novelty is that not only WTO Member States can have recourse to the Norwegian pharmaceutical industry to attend to public health problems in the event of lack or insufficiency of local production capacity. Any country can do so, as long as it fulfils the conditions regarding the incapacity of its pharmaceutical sector and the products requested are destined to overcoming local public health problems. Once the conditions are fulfilled, the importing country must notify the Norwegian Ministry of Foreign Affairs of its intention to import pharmaceutical products. The most interesting aspect of the system is that the Norwegian government body responsible for processing the application for a compulsory license does not have the discretionary power to evaluate the exportation requirements of the compulsory license, nor to evaluate the public health needs of the importing country, as long as the crisis faced by the importing country has been described in a clear manner. Once the conditions set forth in the Norwegian Patent Law240 have been fulfilled, the local applicant company has the right to a compulsory license and the Norwegian government body responsible must grant it, without any space for discretionary evaluation.
238 For a critical evaluation of the Canadian legislation, see the study entitled The Innovation Partnership, Governance Issues in Intellectual Property: The Jean Chretien Pledge to Africa Act. Montreal, McGill University, 2008. Available t:http://www.theinnovationpartnership.org/ieg/documents/cases/TIP_C9_E.pdf 239 Utenriksdepartementet, Regulations amending the Patent Regulations (in accordance with the decision of the WTO General Council of 30 August 2003, Paragraphs 1(b) and 2(a)), July 1st 2004. Document available at: http://odin.dep.no/ ud/engelsk/p2500832/p30003923/032121-990069/dok-bu.html 240 Article 107 of the Norwegian patent law. The conditions set by the Norwegian law are: (i) eligible importing country (country with less relative development, as per the UNO list, or a country that does not have sufficient pharmaceutical capacity to produce the pharmaceutical product required to overcome local public health problems); (ii) the pharmaceutical product falls into the definition adopted by the WTO; (iii) unsuccessful attempt to negotiate a voluntary license with the owner of the Norwegian patent (this obligation is not applicable in cases of national emergency or other circumstances of extreme urgency, or in cases of non-commercial public use); (iv) if in the importing country there is no valid patent on the pharmaceutical produced requested of Norway, or if proceedings have already been begun for the compulsory licensing of the patent, or if the importing country has already issued a compulsory license for importation.

98

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

The Norwegian legislation also does not require that the pharmaceutical product produced under a compulsory license for exportation must have authorization for commercialization from the Norwegian health authority. The product must simply be produced in accordance with the local rules on good practices for the manufacturing of pharmaceutical products and must meet the health requirements of the importing country. Finally, the Norwegian legislation only allows the compulsory license to be suspended if the circumstances in the importing country change considerably.

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

99

SECTION II
3. Instruments for Promoting Access to Medication outside the Intellectual Property Protection System
3.1 The Brazilian Generic Medication Policy

With effect from 1999, following the approval of Law No. 9,787 (Generics Law), three kinds of medication have been available in Brazil, as follows: i) Reference medication: is innovative medication, commercialized in Brazil, the efficacy and safety of which have been proven by pre-clinical and clinical trials.241

ii) Similar medication: is that which contains the same active ingredient(s), having the same concentration, pharmaceutical form, method of administration, dosage and treatment indication, preventive or diagnostic, as the reference medication registered with ANVISA, but which has not had its bioequivalence proven. The products characteristics may differ with regard to size and shape, packaging, labelling, excipients and vehicles, and must always be identified by a trade name or mark.242 Similar medication bears a trademark and it is forbidden for them to be identified with the generic name, so as to assist the consumer in differentiating similar medication from generic medication. For public health reasons, similar medication can only be commercialized when prescribed by a doctor and is not interchangeable with reference and generic medication. With the aim of guaranteeing the efficacy and the safety of similar medication, ANVISA issued two Resolutions (Resolution RCD No. 133 and No. 134), in 2003, establishing a transition process for similar medication so that by the year 2013 similar medication must be totally in accordance with the quality and safety standards required of generic medication (having relative bioavailability and pharmaceutical equivalence test information). iii) Generic medication: is that which has the same active ingredients, dosage, pharmaceutical form, method of administration and treatment indication as the reference medication. It has the same efficacy, safety and quality as the reference medication, i.e., it has therapeutic equivalence proven through bioequivalence tests,243 and is interchangeable with the reference medication. In other words, generic medication, in addition to having pharmaceutical equivalence, is bioequivalent to the reference medication, as proven by clinical tests involving the administration of reference medication and tests in healthy volunteers.244 The requirements established by ANVISA for the registration of generic medication have placed Brazil in line with the quality requirement standards of the developed worlds most rigorous medication safety and efficacy regulatory bodies. Following the approval of the Generics Law, the
241 Vera Valente, Medication Interchangeability (PowerPoint Presentation). Goinia, December 9th 2003. 242 Ibid. 243 The purpose of the bioequivalence test is to prove that the generic medication has the same performance in the human body as the reference medication. 244 Vera Valente, Medication Interchangeability (PowerPoint Presentation). Goinia, December 9th 2003.

100

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

national pharmaceutical industry began investing massively in technology, human resources and, especially, in quality, building its capacity to produce generic medication for both the national and the international markets. More than US$ 170 million were invested between 1999 and 2004, and a total investment of US$ 710 million is expected by 2010. Generic medication is also responsible for an increase in the number of jobs in the pharmaceutical sector (26% increase in 2005 compared to 1999).245 In addition to the quality and technology incorporated by the production lines of the principal national pharmaceutical industries with effect from 1999, the Generics Law has brought unquestionable benefits for Brazilian public health.246 Since its approval, 7,569 forms of generic medication have been introduced onto the local market; the cost of treating certain diseases (especially chronic diseases) has reduced significantly (35-50% on average) and there has been proven increased access to medication.247 To give an example, over a period of five years the cost of treating hypertension with Atenolol fell more than 60% whilst access to it increased more than 40%. During the same period there was also a 53% increase in access to Metmorphine (diabetes) and a 148.7% increase in access to Simvastatin (hypercholesterolemia).248 Greater competition in the pharmaceutical sector, following the introduction of generic medication in the Brazilian market has also resulted in a reduction in reference medication prices. An example of this is the case of Amoxil (Figure 3): FIGURE 3: AMOXIL PRICE VARIATIONS FOLLOWINGTHE INTRODUCTION OF GENERIC MEDICATION ON THE BRAZILIAN MARKET

(*) date of the introduction of the first generic product on the Brazilian market Source: ABCFARMA

245 Vera Valente, Generic Medication in Brazil. PowerPoint presentation kindly provided by the organization PrGenricos. 246 The ARV cocktail (combination of three products) distributed by the Ministry of Healths National STD and AIDS Programme is comprised of some 17 different drugs. Of these, 9 are generic drugs produced by official government laboratories and as such they are not subject to any IPRs. There is a direct relationship between that fact that Brazil has a lower level of HIV resistance (around 6%, in strong contrast to the situation in Spain, where resistance rates exceed 25%) and the constant supply of treatment by the Government, without any cost to patients. 247 Data provided by the organization Pr-Genricos, in 2006. 248 IMS-Health data quoted by Vera Valente, in the documented mentioned in note 245.

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

101

Still with regard to the economic benefits for the consumer, the Brazilian organization PrGenricos calculates that between 2001 and 2005 Brazilian consumers were able to save some R$ 3.4 billion (Figure 4).

FIGURE 4: CONSUMER SAVINGS ARISING FROM THE REPLACEMENT OF BRAND FIGURA 4 MEDICATION WITH GENERICGERADA PELA SUBSTITUIO DE ECONOMIA AO CONSUMIDOR MEDICATION
MEDICAMENTOS DE MARCA POR GENRICOS

R$ (Million) R$ (000000)
4000 3500 3000 2500 2000 1500 1000 500 0 2001
Fonte: Source: Pr-Genricos Pr-Genricos

3422

2180 1305 656 221 2002 2003 2004 2005

A introduo dos genricos, no Brasil, desempenhou, ademais, o papel de grande catalisador do desenvolvimento da indstria farmoqumica brasileira: deve-se aos genricos a expanso da participao da indstria de industry. Generics have been farmacutico brasileiro. Entre 2002 of the Brazilian pharmacochemicalcapital nacional no mercadoresponsible for the expansion of the e 2005, enquanto o faturamento do capital in the Brazilian local (incluindo medicamentos share of companies controlled by national mercado farmacutico pharmaceutical market. Between de

The introduction of generics in Brazil also played an important role in catalysing the development

2002 and 2005, whereas thee genricos) como the local pharmaceutical market (including reference, de referncia, similares invoiced revenue of um todo cresceu cerca de 10,0%, o mercado similar and generic medication) grew overall by around 10%, the generic medication market,Entre maro de medicamentos genricos, especificamente, expandiu-se em mais de 100%.249 specifically, grew by moredezembro de BetweenoMarch 2000 de genricos correspondeu a 26,1% gained a than 100%.249 2005, and December 2005, the generics market do mercado 2000 e mercado 26.1% share of the national pharmaceutical market; in 2005, generic drugs gained market leadership farmacutico nacional; em 2005, os medicamentos genricos conquistaram a liderana de of the main 50 pharmaceutical substances commercialized in Brazil. These figures take on strategic mercado das 50 principais substncias importance when we take into consideration that comercializadas no genericsEsses nmeros ganham 87% of the Brazilian Brasil. market is supplied by importncia estratgica quando levamos companies controlled by national capital.250 em conta que 87% do mercado de genricos brasileiro The local generics industry does, however, face an important obstacle that inhibits its becoming stronger, namely the lack of a national strategy. There is an urgent need for ANVISA to devise an international strategy based on the making of international agreements, with the aim of establishing 249 Idem. 250 reciprocity in thearecognition of capital indiano detm 3% domedication, especially alemo 5%, o canadense Segundo IMS Health, o the registration of generic mercado brasileiro, o with the regulatory
1%, o suo 3% e o norte-americano 1%.

controlado por capital nacional.250

249 Idem. 250 According to IMS-Health, Indian capital has a 3% share of the Brazilian market, German capital 5%, Canadian capital 1%, Swiss capital 3% and North American capital 1%.

141

102

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

agencies of the more experienced pharmaceutical markets. The certificates of registration issued by ANVISA are already recognized by Portugals Institute of Pharmacy and Medication (Instituto da Farmcia e do Medicamento de Portugal - INFARMED). Nevertheless, if the aim is to facilitate the entry of Brazilian generic products onto the international market, this cannot be an isolated case. A suggestion is that ANVISA join the Pharmaceutical Inspection Cooperation Scheme (PIC/S), which has as its overall mission that of harmonizing the norms and practices of its members health surveillance agencies,251 thereby facilitating the entry of medication registered in accordance with PIC/S standards into the systems member countries. Furthermore, Brazil becoming a member of PIC/S would enable pharmaceutical products produced by Brazilian industry, in particular ARVs, to be considered as being pre-qualified by the Global Fund to fight AIDS, Malaria and Tuberculosis.252

3.2 The Brazilian Public Purchasing Policy


The Generics Law establishes that when the Government purchases medication for use in the National Health System,253 whatever the purchase modality, generic medication will have preference over the rest (reference and similar medication), under equal price conditions.254 A result of this may be that similar medication products may have priority over generic ones, as not all similar medication producers are bearing the burden arising from the performance of bioequivalence tests (for the time being) and, as a consequence, the end price of similar products may be lower than those of generic products. In principle, Law No. 8,666, dated June 21st 1993, which governs Public Administration procurement and contracting, does not contain specific norms for the procurement of medication and pharmaceutical raw materials. As a consequence, the judgement of the proposals submitted under procurements of this nature would be determined by the criterion of the lowest price. The principal consequence of this interpretation of Law No. 8,666 is the purchase by the Government (government laboratories) of pharmaceutical raw materials,255 especially imported ones, the quality of which leaves something to be desired: losses can be as much as 30% of the total raw materials purchased by the Government.256 Because of the low quality of the raw materials purchased and delays in the delivery of
251 Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Greece, Holland, Hungary, Iceland, Ireland, Italy, Latvia, Liechtenstein, Malaysia, Norway, Poland, Portugal, Romania, Slovak Republic, Singapore, Spain, Sweden, Switzerland, United Kingdom. EMEA, UNESCO, UNICEF and Estonia are PIC/S observers. 252 Regarding current initiatives on the harmonization of regulatory norms, see item 2.3 of the Economic Evaluation. 253 The National Health System (Sistema nico de Sade SUS) was created by the 1988 Federal Constitution, with the purpose of changing the situation of inequality in the health care provided to the population, making obligatory the provision of a public service to all citizens, and prohibiting charging for services under any circumstances. Through the National Health System all citizens have the right to consult, have examinations, in-patient care and treatment in health centres and services covered by the NHS, whether they be public (at the municipal, state or federal government level), or private, contracted by the public health authorities. The NHS is available to all citizens and is funded with resources gathered through taxes and social contributions paid by the population and comprise federal, state and municipal government resources. For further information on the Sistema nico de Sade see: http://www.sespa.pa.gov.br/Sus/Sus/ sus_oquee.htm. 254 Article 3, paragraph 2 of Law No. 9787/99 255 Currently, 85% of the imported raw materials purchased by Brazil come from India and China. Laboratories attack procurement rules (Laboratrios atacam regras de licitao), Jornal do Brasil, August 24th 2004. 256 The losses occur at the quality control stage of imported raw materials: quality studies on the raw materials are performed a posteriori by the official pharmaceutical laboratories. (Laboratrios atacam regras de licitao), Jornal do Brasil, August 24th 2004.

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

103

the products ordered,257 the official laboratories face difficulties in meeting the orders for medication placed by the Ministry of Health, especially ARVs. In order to adapt Law No. 8,666 o the safety specificities of the pharmaceutical sector, the national companies defend the establishment of a technical pre-qualification stage for bidding companies, that is to say, companies whether national or foreign , interested in taking part in procurements for the purchase of medication and pharmaceutical raw materials, would have to present (i) Certificate of Compliance with Good Manufacturing and Control Practices, issued by ANVISA, for the production line of the medication/ raw materials to be purchased258 and (ii) the ANVISA health registration certificates, in addition to the usual documents required under articles 27-31 of Law No. 8,666/93. Heeding the demands of the national industry,259 Federal Congressman Walter Feldman introduced Bill No. 3,536/2004 in the National Congress with the aim of adapting the procurement process for pharmaceutical products to the sectors peculiarities. The Bill requires that companies taking part in procurements for the purchase of medication and pharmaceutical raw materials: (i) Present the Certificate of Compliance with Good Manufacturing and Control Practices, issued by ANVISA for the production line of the medication object of the procurement contract;

(ii) In the case of generic medication, proof of pharmaceutical equivalence and, except when being able to prove exemption, bioequivalence; (iii) In the case of similar medication, proof of pharmaceutical equivalence and, except when being able to prove exemption, relative bioavailability; (iv) In the case of new medication, proof of its therapeutic efficacy, by means of presenting the results of the clinical trials.

257 The justification of Bill No. 3,536/2004 contains important data on the quality of the medication distributed by the Brazilian National Health System (...) these medications (purchased by the NHS) are still purchased from laboratories that do not comply with the Good Manufacturing Practices established by the National Health Surveillance Agency, ANVISA, and that also do not perform pharmacokinetic tests, such as bioequivalence and relative bioavailability tests. Equally problematic is medication used in the treatment of chronic diseases such as AIDS, cancer, diabetes, high blood pressure (arterial hypertension) and high cholesterol (hypercholesterolemia), given that an incorrect therapeutic dose, although it may not necessarily lead to the immediate death of the patient, may permanently jeopardize his/her treatment or provoke irreversible sequels. In financial terms, these medications account for a considerable proportion of the purchases made via procurement in the Country. It is therefore imperative that the purchasing institutions ensure the therapeutic efficacy and the safety of their composition, which can only be achieved by guaranteeing that they are produced by laboratories the factories of which are inspected annually by ANVISA. As such it is of concern that the production of the medications consumed in Brazil is undertaken by some 300 national and 500 international manufacturing units, giving a total of some 800 factories. And even though ANVISA requires that each factory has a Certificate of Compliance with Good Manufacturing and Control Practices issued following rigid inspection, only 238 certificates were issued in 2003. Therefore, the situation of the more than 550 other laboratories is questionable, given that undoubtedly without ANVISAs approval they are manufacturing medication placed on the market and, as a result, purchased by the Government for distribution throughout the National Health System. 258 The Certificate of compliance with good manufacturing and control practices is a document issued by ANVISA, in which it states that the licensed establishment complies with the requirements of good manufacturing and control practices. The certificates are issued following annual inspection by ANVISA. The matter is governed by Decree No 3,961, dated October 10th 2001 and Resolution RCD No. 157, dated May 31st 2002. 259 Organizations demand changes in public buying of pharmaceutical products (Entidades pedem mudanas em compra pblica de frmacos), Gazeta Mercantil, August 24th 2004.

104

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

If on the one hand the Bill is relevant for the protection both of national public health and also for the fulfilment of the constitutional principal of the efficient management of public resources,260 on the other hand we must point out that the alleged flaws result, to a large extent, from a blinkered legal interpretation of Law No. 8,666. The Bill can be dispensed with, as long as a systematic interpretation of the terms of Law No. 8,666 is adopted. Under Law No. 8,666, those interested in taking part in any procurement process must submit to the Government, preliminarily, a sort of dossier, that proves that they are qualified legally, technically, economically, financially and in fiscal terms to take part in the procurement process. The requirements for proving technical qualification are relevant to guaranteeing the quality of the pharmaceutical raw materials purchased by the Government: article 30 (IV) of Law No. 8,666 requires that the party interested in taking part in the procurement process must provide, inter alia, proof that it can meet the requirements provided for under special law, as appropriate. The special law, in the specific case of pharmaceutical products and raw materials, is Law No. 6,360, dated September 23rd 1976, as regulated by Decree No. 79,094, dated January 5th 1977, and amended by Decree No. 3,691, dated October 10th 2001 (Decree), which establishes strict requirements to be complied with by companies undertaking commercial activities involving pharmaceutical raw materials (in the broad sense). This means that companies wishing to take part in procurement processes in order to sell pharmaceutical raw materials must, at the technical qualification stage, prove compliance with the requirements stipulated by Law No. 6,360 and the decree that regulates it. We will not discuss in depth the obligations resulting from this norm because of the limited space available; notwithstanding, with a view to exemplifying its importance for the success of procurement processes for the purchase of pharmaceutical raw materials, we will list the obligations stipulated by Law No. 6,360 which, if they were complied with, would avoid the losses that are being imposed on the Government. Article 1 of the Decree establishes that medication, pharmaceutical raw materials and correlated drugs can only be extracted, produced, manufactured, packaged or repackaged, imported, exported, stored, dispatched or distributed, if this is done in compliance with the provisions of Law No. 6,360 and Decree No. 79,094. Given that the most of the low quality pharmaceutical raw materials purchased by the Government is imported, we consider it to be important to note that in order to operate in Brazil companies that import and/or export pharmaceutical raw materials must have Ministry of Health authorization to do so,261 and their premises must be licensed by ANVISA. Furthermore, in order to take part in the procurement process, the raw materials or products themselves must already be registered with ANVISA, inasmuch as article 11, paragraph 1, and article 14 require registration with ANVISA before pharmaceutical products or any pharmaceutical raw materials and the like can be imported for the purpose of purchases by and donations to public or private law entities, the quantities and quality of which may jeopardize the execution of national health programmes. In order to obtain registration of these products with ANVISA, the importer of the medication, pharmaceutical raw materials and the like must in addition to complying with other legal requirements262 prove, by means of ANVISA inspection of the foreign manufacturing units, that such units comply
260 Article 37, caption, Brazilian Federal Constitution. 261 The pharmaceutical industry needs to develop means of evaluating the quality of pharmaceutical products and raw materials that are introduced onto the Brazilian market through procurement processes. If it perceives that foreign companies taking part in procurement processes are acting unfairly, by exporting low quality and therefore less costly raw materials, we suggest that the Brazilian pharmaceutical sector intervene and inform the Ministry of Health in order to revoke the authorization for the importing/foreign company to operate in Brazil. 262 Provided for by articles 17 and 18 of Decree No. 79,094

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

105

with good manufacturing and control practices,263 in the same way as generic products, by means of scientific proof and analysis, are recognized as being safe and efficacious for the purpose for which they are intended, and as having the necessary identity, activity, quality, purity and harmlessness. If the procurement involves a new product, the importer must submit comprehensive information about its composition and its use, in order to enable its nature to be evaluated and its degree of safety and efficacy to be determined.264 As a consequence, Law No. 6,360 and Decree No. 79,094 have extraterritorial effects, in that they establish obligations for any foreign company wishing to export pharmaceutical raw materials to Brazil. In sum, procurement processes involving pharmaceutical products, raw materials and the like must comply not only with the obligations provided for in Law No. 8,666, but also with those provided for in Law No. 6,360 and the decree that regulates it. It is therefore unnecessary to approve new legislation specially governing procurement processes involving pharmaceutical products and raw materials. The recent problems arising from the government purchase of low quality pharmaceutical raw materials, in particular from foreign companies, are not due to Law No. 8,666 being in disagreement with the peculiarities of the pharmaceutical sector, but rather result from a formalistic interpretation of its provisions. Naturally, those companies that take part in procurement processes and perceive the participation of companies, whether national or foreign, that do not respect the norms mentioned above, are legally within their rights to impugn the validity of such processes in court. A second criticism echoed throughout the national pharmaceutical industry in relation to Law No. 8,666 refers to the lack of an industrial policy for the pharmaceutical sector, involving the granting of differentiated treatment that would favour the national pharmaceutical companies265 in public bidding processes. Contrary to this aspiration, we have Constitutional Amendment No. 6, dating from 1995 and which repealed article 171 of the Federal Constitution, which differentiated a Brazilian company (set up in accordance with Brazilian laws and with registered offices in Brazil) from a Brazilian company controlled by national capital.266 Constitutional Amendment No. 6 resulted in the restoration of the system of equal treatment of companies and extirpated all the privileges that this distinction enabled the ordinary legislation to confer.267 As such, the Amendment established a clause of the nation more favoured internally which extends, automatically, all benefits given to Brazilian companies controlled by national capital to foreign companies represented in Brazil. Despite the Constitution prohibiting the establishment of differentiated treatment in favour of Brazilian companies controlled by national capital, Law No. 10,973/2004 (Innovation Law) and Law No. 11,196, dated November 11th 2005, may meet the claims of the Brazilian private sector by establishing, respectively, the obligation for the Government to give preferential treatment, with regard to the purchase of goods and services, to companies that invest in technological research
263 Article 17, X, Decree no. 79,094. 264 Article 18, Decree no. 79,094. 265 In this context the expression national companies refers to companies the majority of the capital of which is Brazilian. 266 Article 171 (II) of the Federal Constitution states: a Brazilian company comprised of national capital is one the effective control of which is permanently under the direct or indirect ownership of individuals domiciled and resident in the Country or by Brazilian public law entities, whereby the effective control of the company is understood to mean the ownership of the majority of its voting capital and the exercising, in fact and in law, of the power of decision to manage its activities. 267 Passage taken from CONJUR Report No. 231/95, approved by the Brazilian Ministry of State for Science and Technology, published in the Official Gazette on 20.11.95, Section I, p. 18.596-18.600.

106

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

and development on Brazilian territory,268 and by allowing the Government to exempt from procurement the contracting of the supply of goods and services, produced or provided in Brazil, that involve, cumulatively, high technological complexity and defend the national interests.269 In other words, the Innovation Law has reformed the criterion of judging the best proposals with regard to the pharmaceutical area. In other words, the lowest price will not necessarily be the most relevant criterion for judging the winning proposal. In the case of a public tender in which one or more of the bidding companies invests in R&D, in Brazil, this criterion will replace that of the best price. Law No. 11,196, in turn, created the possibility of the Government exempting from procurement the purchasing of products and/or contracting of services, produced or provided in Brazil, which involve high technology and are closely related to the defence of the national interest. Even in the event of locally produced medication being more expensive than similar foreign medication, owing to its involving technological complexity being high in relation to national parameters,270 the Brazilian Government may exempt the purchase from procurement and buy the national product. Those rules do not just favour companies controlled by national capital but, and above all, those Brazilian companies that invest locally in technology. In other words, the rules may encourage companies controlled by foreign capital to invest in R&D in Brazil.

3.3 The Governmental Innovation Policy


In order for the sustainability of access to ARVs to be a politically plausible objective in the long term, taking into consideration the development of HIV resistance to the drugs currently used in the cocktail distributed by the National STD and AIDS Programme, as well as the increase in government spending on imported drugs,271 the development of Brazilian innovation capacity in the pharmaceutical sector can be delayed no longer. The Innovation Law (Law No. 10,973) came into effect on December 3rd 2004. The law provides for incentives for innovation and scientific and technological research in productive sectors and was regulated by Decree No. 5,563, dated October 11th 2005. This Brazilian law was strongly influenced by the 1980 USA Bayh-Dole Act, which allowed American universities to use intellectual property rights (IPR) to protect innovations funded with public resources. The Innovation Law aims to translate the human and technological capacities of the Brazilian public sector, in particular public Brazilian universities, into products and technologies useful for strengthening the Brazilian industrial platform. The praiseworthy aim of the Innovation Law is to establish an environment for innovation, the principal stakeholder of which is the Brazilian public sector. The Law has as its mainstays: (i) the formation of strategic alliances and the development of cooperation projects involving, on the one hand, companies that operate on the Brazilian market and, on the other, Brazilian

268 Article 27 (IV) of the Innovation Law, regulated by the provisions of article 26 (IV) of Decree No. 5,563/2005. 269 Law No. 11,196 altered Law No. 8,666. 270 In order to characterize what high technological complexity could be in concrete terms, it is necessary to take specific cases of current genuinely Brazilian technological development as a parameter, i.e., the technology developed on national territory and not the technological levels introduced into Brazil by the subsidiaries of multinational companies. The outcome will be that there will be cases in which the development of Brazilian technology to reproduce technologies originally developed abroad will be high complexity technology. 271 In 1997, annual Brazilian government expenditure on ARV drugs was US$ 6,240.00 per patient. Following the reduction in the number of patented ARVs forming part of the cocktail distributed by the government, a significant reduction was achieved in the costs of treatment, falling to US$ 1,336.00 per patient in 2004. After 2004 the government once more included patented ARVs in the cocktail of drugs and the average cost of ARV therapy increased from US$ 1,336.00 to US$ 2,500.00 in 2005. Cf. Ministry of Health/National STD and AIDS Programme, The Sustainability of Universal Access to Antiretroviral Drugs in Brazil (A Sustentabilidade do Acesso Universal a Anti-Retrovirais no Brasil), Braslia. Document prepared for distribution during the 157th Ordinary Meeting of the National Health Council, on August 10th 2005.

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

107

public scientific and technological institutions and non-profit private law organizations that undertake research and development activities; (ii) tax incentives; and (iii) the sharing of the benefits gained between the inventors and the organizations.272 The potential advantage of an innovation policy in which public research institutions play a role of primary importance is the development of products that foreign companies do not consider to be of commercial interest e.g. therapies for the treatment of neglected dieases, cultivated varieties resistant to plagues and climatic features present in the tropics and the facilitation of new technology transferral to other developig countries with less relative development. One of the novelties introduced by the Law relates to the obligation for the economic results to be shared with the creator/inventor (or with the members of the research team). The researchers are guaranteed a minimum share of 5% and a maximum of 1/3 of the economic gains resulting from the technology transfer and licensing contracts granted the right to use or explore a protected invention of which they were the inventor, obtainer (cultivated varieties) or author (software).273 The intellectual property rights and the sharing of the economic result between the researchers involved apart from other legal benefits offered may serve as an instrument to reverse the current tendency of the brain drain of Brazilian authors/scientists/creators/obtainers to foreign companies and foreign markets. In recognition of the fact that legislation lacking effective management instruments will not result in real social, economic and technical benefits, the Innovation Law establishes that all public administration bodies and institutions that have as their institutional mission the undertaking of basic or applied research activities shall create centres specialized in technology transfer and licensing. Achieving success in the innovation generation chain including its protection, commercialization and transfer requires specialized personnel (industrial property specialists, lawyers experienced in intellectual property and technology transfer, analysts responsible for evaluating intangible assets). Apart from these kinds of labour being scarce in Brazil, as a general rule the few professionals involved with these highly specialized issues also work in the private sector. The results achieved by the Law will depend on institutional capacity for their implementation. However, even if the Brazilian universities do organize efficient technology transfer and licensing centres, it is very possible that the expenditure incurred in keeping them functioning and protecting their inventions in Brazil and abroad will be greater than the income received through their technology transfer contracts.274 At the end of the day, scarce research resources may be diverted into maintaining a structure for research promotion that is not very functional. Another factor worthy of attention is the role that the intensive use of IPR really played in the expansion of USA innovation capacity. There is a myth that says that the boom that has occurred since the 1980s has been due to the massive use of IPR and that, based on this premiss, the intensive use of intellectual property is the solution to the delays in Brazils technological progress.275 However, empirical data indicates that the success of the
272 Article 5, paragraph 1 and Article 28 of the Innovation Law. 273 Article 13 of the Innovation Law. 274 The Brazilian Innovation Law is based on the 1980 USA Bayh-Dole Act. For this reason it is interesting for us to evaluate some of the concrete results of this legislation in terms of generating innovation in the USA. According to Richard Nelson, although the Bayh-Dole Act is considered to be principally responsible for the local innovation boom in the last two decades, many unrealistic expectations similar to those currently existing in Brazil have not been materialized. To take an example, Nelson mentions that few American universities really managed to achieve profit through licensing their inventions, whereas the costs incurred by organizing and maintaining expensive technology transfer and licensing offices have drained precious public resources which could have been used in research. Richard R. Nelson, Observations on the Post-Bayh-Dole Rise of Patenting at American Universities. Intellectual Property Quarterly, issue 1, 2001. 275 Michael P. Ryan believes that Brazil adopting less rigid patentability requirements, associated with the 2004 Innovation Law, will promote a biopharmaceutical boom in Brazil. Michael P. Ryan. Brazils Quiet Bio-Medical Innovation Revolution:

108

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

USA has been due to the large public investments in R&D during the entire second half of the 20th century and which are maintained, even today, at very high levels (some US$ 60 billion per annum).276 Successful innovation depends on the presence of a strong State which invests intensively in R&D and does not simply create difficulties for the private and scientific sectors to operate.277

3.3.1 Other Weaknesses of the Brazilian Innovation Policy


The Innovation Law is the least of Brazils innovation policy weaknesses. The policy disregards the fact that the intellectual property protection regulatory framework should be employed as an efficient public instrument for innovation generation. The innovation policy should contain the intellectual property legal framework, as well as the governmental practice of its application, and not vice versa,278 as currently occurs in Brazil. The history of the development of the intellectual property systems in Europe, the USA, South Korea, India, Japan and Taiwan indicates that merely approving intellectual property protection norms is not sufficient to generate local welfare. The reforms of intellectual property protection systems should take place in parallel to local economic, commercial and industrial development.279 In summary, history teaches that local intellectual property protection systems should be built around the economic, social, technological and institutional reality of the country in question, and that it is not advisable to merely import and reproduce foreign legal models without prior critical evaluation. Historically, the patent protection systems in the more advanced industrialized countries have been modified and become stronger as local innovation capacity consolidated itself and expanded. When it implemented the TRIPS Agreement locally, Brazil did not evaluate in any great depth the effects that intellectual property could have on its economic, social and cultural development: essentially it sought to satisfy the demands of the intellectual property owners of the developed countries, and to avoid possible unilateral trade retaliations. At that time Brazil was recovering from a long period of economic recession that had begun in the 1980s, and preserving the markets for its products was a vital issue. If, in some way, the reasons that lead to the legislative mistakes incorporated into the Intellectual Property Law (IPL) are understandable, as a result of external pressure and
Drugs, Patents, and the 10-90 Health Research Gap. George Washington University, 2006. Article available at: http:// www.law.gwu.edu/Academics/CIEC/Research+Papers.htm 276 Pedro Conceio, Manuel V. Heitor, Giorgio Sirilli, Robert Wilson, The swing of the pendulum from public to market support for science and technology: Is the U.S. leading the way? Technological Forecasting and Social Change, Volume 71, Issue 6, July 2004, pp. 553-578. 277 One of those interviewed as part of this study informed us that patents are being used by the Brazilian scientific community with a higher than recommended intensity, and are already become a sort of new instrument for evaluating the productivity of researchers and research groups. 278 Josh Lerner, 150 Years of Patent Protection, Harvard Business School. Study available at: http://www.people.hbs.edu/ jlerner/ In this study, Lerner examined 177 patent law reforms in 60 countries over 150 years. His study suggests that the changes to legislation that generated the most innovation took place in countries where patent protection was weaker, and that the patent system expanded at the same rate as local economic development. This historic lesson cannot be discarded by Brazil: contrary to the view held by INPI, which is incorporated into its Patentability Guidelines for pharmacochemical and biotechnological inventions, it will not be slacker patentability criteria that will generate an innovation boom in Brazil or in any other developing country, but rather an innovation fostering system linked to the local level of economic and technological development. 279 B. Zorina Khan, Intellectual Property and Economic Development: Lessons from American and European History. Study paper 1a, Commission on Intellectual Property Rights, 2002. Nagesh Kumar, Intellectual Property Rights, Technology and Economic Development: Experiences of Asian Countries. Study paper 1b, Commission on Intellectual Property Rights, 2002. Studies available at: www.iprcommission.org. KUMAR infers from the Japanese experience that the adoption of a weaker industrial property system favoured the local absorption of foreign technologies, which in turn lead to the strengthening of the local scientists capacity to innovate, through the freer use of sophisticated technologies.

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

109

the lack of internal experience and capacity in the management of intellectual property policies, the currently reality is different. Intellectual property is a current issue in the Brazilian media. The Brazilian diplomats involved in negotiations on intellectual property are considered to be first-rate, which reflects Brazilian institutional maturity. It is, therefore, incomprehensible that the Brazilian innovation policy is avoiding evaluating the effects that the intellectual property protection system may have on the local generation of innovation and the capacity of local institutions to provide good quality medication accessible by the entire population.

3.3.2 Some Concrete Results of the Brazilian Intellectual Property Policy


The basic premiss that encourages legislators in developing countries to establish strong intellectual property protection systems, in terms of the rights invested in IPR owners, is the alleged relationship between rigid protection rules and greater foreign investments in research and development. Although the IPL is still reasonably recent, some preliminary data gathered from the Brazilian biotechnological sector refute this premiss.280 As for the idea that a stronger patent system attracts more direct foreign investment research undertaken locally, DERENGOWSKI281 found that only 25% of foreign biotechnology companies based in Brazil stated that they invested in research and development in Brazil, compared to 82% of Brazilian companies which stated that they invest in research and development. Even though the greatest expenditure on research and development in the biotechnological is of Brazilian origin, the Brazilian presence in the INPI patent databases is very low.282 In another recent and more generic study, prepared by means of searching on the INPI databases, regarding invention patents, utility models and industrial designs deposited with INPI between 2000 and 2005, the conclusion was reached that the intellectual property protection system is used, essentially, by large corporations, and that the use of the system by very small, small and medium-sized Brazilian companies is insignificant.283 These companies, however, play a core role in the Brazilian economy: they account for a universe of 4.5 million industrial, commercial and service establishments, [and] are responsible for 48% of national production, 42% of those employed in industry; 80.2% of jobs in commerce, 63.5% of the labour force of the service sector and around 21% of the Gross Domestic Product.284 This preliminary data corroborates the assertion that the existence of strong intellectual property protection systems does not necessarily foster local development.

280 Maria da Graa Derengowski Fonseca, Institutional and financial requirements for the emergence of biotechnology in Brazil, study presented at the GLOBELICS Conference, Rio de Janeiro, November 2003. For a more in-depth evaluation of the subject, see the economic evaluation section of this study below. 281 Idem. 282 Between 1999 and 2001, whereas American, German, Japanese and French national companies deposited, respectively, 396, 94, 51 and 36 patent applications with INPI relating to biotechnologies, Brazilian companies deposited just 10 patent applications. Cf. idem 283 Srgio Paulino de Carvalho; Srgio Salles Filho and Claudencio Ferreira, (Very Small, Small and Medium Sized Companies Access the System Less (Pequenas e Mdias Empresas Acessam Menos o Sistema), Revista Inovao, Instituto UNIEMP, January-March, 2006. 284 Mrio Celso de Felippe, Norio Ishisaki, Factors conditioning the mortality of small and medium sized companies in the city of So Jos dos Campos (Fatores condicionantes da mortalidade das pequenas e mdias empresas na cidade de So Jos dos Campos), p. 2. VII Seminrios em Administrao FEA-USP, August 10th and 11th 2004.

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

111

SECTION III
4. The Right to Access to Health, Intellectual Property and Building the Capacity of the Judiciary Branch: a reconcilable relationship?
When dealing with the challenges imposed by Intellectual Property Rights (IPR) in the case of a developing country like Brazil, the details that emerge tend to centre around the importance of negotiation and the writing of new legal texts that govern the protection of innovation in harmony with local socio-economic interests and needs. Currently, the discussions in the national and international academic and political worlds are basically focussed on two international agendas, as follows: (i) The substantive international harmonization of the international patents system (international harmonization of patentability conditions and of the scope of protection by means of bilateral agreements with TRIPS-plus285 chapters and by means of multilateral agreements);

(ii) The Development Agenda, a movement lead by Argentina and Brazil that already figures as a counterpoint to the TRIPS-plus strategy of making the industrial property protection system more rigid. As we saw in the first part of this legal evaluation, the challenges raised by IPR do not come to an end through the negotiation of new levels of protection, whether they be rigid or more flexible. In order to bring Brazils domestic intellectual property policy closer to the sustainable development objectives defended by the Federal Constitution, there is an urgent need to build the capacity of legal professionals who work in the area of intellectual property.286 Few universities and local organizations are engaged in teaching IPR; and those that do have subjects on their curricula relating to this issue discuss them from a conservative perspective, that is to say, they examine them as a branch of company or civil law, separated from the rest of the legal system. The Brazilian IPL, as well as other legal texts that, directly or indirectly, impact on the degree of access to medication and development of a Brazilian pharmaceutical platform require trained personnel to exploit them in harmony with local economic and social interests: lawyers in private practice, lawyers of non-governmental human rights organizations,287 the Judiciary Body, departments of the Public Attorneys Office,288 technical staff of the Trademark and Patent Office are the actors that can make the difference, in Brazil and in any other country, in the arena of the disarmament of private initiatives tending towards increasing, unjustifiably, private rights to the detriment of public interests.
285 GRAIN, TRIPS-plus through the back door, July 2001, GRAIN publications (www.grain.org/publications/trips-plusen.cfm) 286 The Innovation Partnership, Toward a new era of intellectual property: from confrontation to negotiation. A report by The International Expert Group on Biotechnology, Innovation and Intellectual Property. Montreal, TIP, 2008, p. 43. 287 It is important to highlight that there are already civil society groups working on the interface between health rights/ intellectual property rights, including taking legal action to defend public rights allegedly restricted by patents. It is noteworthy that in December 2005 a group of non-governmental organizations (Conectas, Idec, Pela Vidda SP, Giv, Gestos, Gapa-SP) and the Federal Public Attorneys Office filed a Public Civil Action applying for a compulsory license for the local production of the drug Kaletra (case number. 2005.34.00.035604-3, which is before the Federal District branch of the Federal Justice Courts). The decision on the merits of the case is still pending. 288 The Public Civil Action referred to in note 287 is an illustration of the exemplary work of the Public Attorneys Office in the confluence between the right to health and patents.

112

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

Given the complexity of the new issues raised by the new intellectual property system, if the Judiciary Branch were to set up courts specialized in intellectual property, would this be capable of achieving the balance between IPR and Brazils social, economic, technical and free competition interests? We have identified three main positions on this matter. The first position289 recognizes the sophistication of IPR and the impossibility of a judge being able to have dominion over all its nuances, within an environment where the workload is heavy and human resources are scarce. Consequently, this position supports the creation of courts specialized in this area, following the example of what already exists in the Rio de Janeiro branch of the Federal Justice Courts.290 It is noteworthy that the history of the development of intellectual property in the USA indicates the Judiciary Branch as being one of the principal stakeholders responsible for North American economic development, not just because of its technical knowledge of IPR, but also because of its sensitivity and recognition of North American needs, at each historical moment, interpreting the norms of the intellectual property legal framework in harmony with local needs.291 Similarly, following the Second World War, Japan invested in building the Judiciary Branchs capacity with regard to IPR292-293, because it considered it to be strategic for Japans economic development. The second position is contrary to the setting up of specialized intellectual property courts, despite recognizing their potential benefits. According to S. DELBOUX, the problem that we face today, without specialized courts, arises from the lack of knowledge by judges on this matter, given that intellectual property is not an obligatory law course discipline and it is very rare for law faculties to include it on their curriculum. Furthermore, as the number of lawsuits involving intellectual property matters is small, judges have very few opportunities to judge cases within this area of the law and, consequently, do not go into the subject in more depth. With the creation of specialized courts, the cases will be judged by judges who will dedicate themselves to studying the subject in depth and who will be benefitted by the experience acquired in the judgement of other very similar cases this is the positive side. On the other hand, precisely because of the small number of cases, it will only be possible to create one specialized court, or two at the most, and as a result the position of these two judges (or four, considering their substitutes) regarding intellectual property matters will be absolutely dominant at the lowest court level.294 The third position, which is a point of equilibrium between the first and the second, supports the creation of Chambers specialized in intellectual property within the Justice Courts and Federal Appeal Courts, i.e., at the lowest court level everything would stay as it is at the moment and, at the second level, specialized collegiates would judge disputes involving intellectual property.
289 Resolution 15 of the Brazilian Intellectual Property Association, August 31st 2001, available at: www.abpi.org.br. 290 The 35th, 37th, 38th and 39th Federal Courts in Rio de Janeiro are the only courts specialized in intellectual property in Brazil. 291 B. Zorina Khan, Intellectual Property and Economic Development: Lessons from American and European History. Study paper 1a, Commission on Intellectual Property Rights, 2002. Available at: www.iprcommission.org. 292 For a brief background to the setting up of courts specialized in intellectual property law, see: http://www.ip.courts. go.jp/eng/aboutus/history.html 293 Countries such as China, Germany, Thailand and the United States also have courts specialized in intellectual property. In these countries the specialization of the Judiciary Body is held as an element fundamental to local economic and technical development. Currently the member countries of the European Patent Convention (EPC) are negotiating, within the sphere of the European Patent Office, for the establishment of a European patent disputes system, characterized by procedural rules and a legal system common to all the EPC member states, for the settlement of disputes involving patents. 294 Snia DElboux, Regulated intelligence: Rio is the first to setup intellectual property courts (Inteligncia regulamentada: Rio sai na frente na criao de varas de Propriedade Intelectual). Consultor Jurdico, September 3rd 2005, available at: www.conjur.com.br

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

113

The establishment in Brazil of courts specialized in IPR (lowest level courts) in those states that have a higher volume of cases, as well as the creation of specialized chambers in the state and federal courts in those states and regions with a higher volume of cases, could be an important instrument for redimensioning IPR. The specialization of Justice to settle disputes invovling IPR should not just be determined by the growing number of cases in Brazil or by the sophistication of the theme, but especially by the unforeseeable consequences that may arise from just one single incorrect decision. To this regard, Michael S. MIRELES makes an interesting observation about the restrictive potential of patents: ...in the space of less than a decade, we have converted the weapon, represented by the letters patent, from something like a pistol or a pocket knife, into a bazooka, and we have started to distribute it basically to all those that request it... The result has been a dangerous and expensive arms race which undermines, instead of fostering, the crucial process of technological innovation.295 The creation of courts and chambers specialized in intellectual property, nevertheless, may not be sufficient. As a complement to the creation of specialized courts, we recommend that the Magistrates Schools and the Public Attorney Schools consider the opportunity of including training programmes which offer the members of the Judiciary Branch296 and of the Public Attorneys Office297 a space for exploring the interface between Intellectual Property Rights, Human Rights and Competition,298 and the positive and negative consequences of IPR on Brazils economic and social development.

5. Final Observations
Although the TRIPS Agreement offers some flexibilities and manoeuvring spaces that can be used to protect local interests in strategic areas, what we have perceived through more direct and close contact with representatives of Brazils public, private and academic sectors is that the Agreement has such a level of sophistication that employing it, in a manner appropriate to the needs of the developing world, appears to be an objective that is more feasible on the theoretical level than on the practical level, owing to the lack of capacity building of public IPR operators in developing countries.
295 Michael S.Mireles Jr. Book Review: The United States Patent Reform Quagmire: A Balanced Proposal Innovation and its Discontents: How Our Broken Patent System is Endangering Innovation and Progress, and What to do about it. By Adam B. Jaffe & Josh Lerner. Minnesota Intellectual Property Review, May 2005. 296 The fact should not be neglected, however, that the Brazilian Judiciary Branch has shown itself sufficiently mature to deal with the tension between the right to health and patents at a high level: a recent and noteworthy example is the decision given by the Federal Appeal Court, via Minister Raphael de Barros Monteiro, which suspended the decision that authorized the exclusive commercialization of the medication gemcitabine hydrochloride, used in the treatment of breast cancer, based on article 70.9 of the TRIPS agreement. The Federal Appeal Courts decision in favour of the suspension of the right to exclusive commercialization considered that if the right were upheld it could cause serious damage to public health and to the public economy, inasmuch as it granted exclusive commercialization of the medication gemcitibine hydrochloride, used in the treatment of breast cancer, to the companies Eli Lilly do Brasil Ltda. and Eli Lilly and Company, manufacturers of the medication GEMZAR, making it impossible for those suffering from this disease to opt for more affordable treatment, through the use of generic or similar medication. (Federal Appeal Court, Suspension of temporary restraining order and of sentence number 818 - DF (2008/0021073-3), Appellant: ANVISA, Respondent: Federal Appeal Court Judge Rapporteur of Interlocutory Appeal number 200701000179160, Regional Federal Court of Appeals, 1st Region). 297 In a personal communication with an Attorney General, based in So Paulo, it was recognized that the inclusion of the subject of intellectual property in training courses for members of the Public Attorneys Office could be useful, since there are countless actions brought by the Public Attorneys Office concerning the matter of access to medication. Personal communication dated April 18th 2008 298 Maristela Basso and Edson Beas Rodrigues Jr., Exploring Options and Modalities to Move the IP Development Agenda Forward, UNCTAD-ICTSD Dialogue on IPRs and Sustainable Development: Revising the Agenda in a New Context, Bellagio, October, 2005. Available: www.iprsonline.org

114

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

This does not mean that the TRIPS Agreement places insurmountable obstacles in the way of defining local policies aimed at increasing access to medication and the strengthening of the local industrial platform. Brazil, despite its strong role on the international arena, also faces domestic challenges in dealing with IPR. If it were not thus, the INPI Patentability Guidelines for the pharmacochemical and biotechnological would not have broadened, inadvertently, the scope of the protection given by the IPL, the provisions of the IPL regarding pipeline patents would already have been cut out of our legal framework, and a substantial number of compulsory licenses on the grounds of national emergency and public interest would already have been granted during these ten years of the existence of the IPL, to enable the local production of ARVs and other medication for the treatment of illnesses for which the situation of (lack of) access is sounding alarms, as in the case of cancer.299 The belief that many problems of a social and economic nature can be solved by approving new laws does not apply, with efficiency, to the area of IPR. What we have been able to see, based on the interviews held with specialists on intellectual property policies is that beginning the legislative process to reform the IPL may result in amendments that make it even harder to achieve the objectives originally intended.300 Consequently, taking recourse to the Legislative Body is an instrument that, naturally, can be useful for better adapting the IPL to local needs, but on a smaller scale than we imagined at the preparation stage of this study. In other words, re-establishing the equilibrium of IPR in keeping with local needs of access to medication depends much more on the reform of the interpretation of the IPR than on law reforms by the National Congress. Below are some suggestions we make for internal measures that could be attempted, with immediate effect, with the aim of minimizing the obstacles to access to essential medication and the development of the Brazilian pharmaceutical industry, in particular: a. The development of policy coherence between the INPI and ANVISA patentability guidelines, following the guidelines applied by ANVISA. Coherence, it is important to state, does not imply diminishing ANVISAs role in the patent examination procedure which is precisely what the Bill discussed earlier intends to do , but rather to strengthen this role; Re-evaluation of the patents issued by INPI, to evaluate their compliance with the terms of the IPL, reinterpreted in the light of Brazils Federal Constitution; The organization of capacity building programmes aimed at offering the Judiciary Branch and the Public Attorneys Office a space to explore the tension between Human Rights, Intellectual Property Rights and Competition, and how to develop a better approach to them in terms of everyday issues that affect society;

b. c.

299 See: Portal Globo, Federal District Public Health Service suffering from lack of medication (Rede Pblica de Sade do DF sofre com falta de remdios), January 16th 2008. See also: Infonet, Meeting at the Attorney Generals Office defines measures to facilitate access to medication (Reunio no MP define medidas para facilitar acesso a remdios), January 25th 2008. 300 Changing the focus for a moment, the area of copyright is illustrative of the difficulties the legislative process can cause. Whereas the Brazilian Ministry of Culture, during the office of minister Gilberto Gil, defended (and still defends) the reform of the Brazilian Copyright Law in order to foster access to culture and essential training instruments, Bill No. 1,197/2007, introduced by Federal Congressman Bilac Pinto (PR-MG), proposes the absolute prohibition, in higher education institutions of photocopiers or any other mechanical or electronic device capable of reproducing protected works, e.g. scanners, cameras, among other electronic devices. This Bill may be a reflex of the 2008 USTR Special 301 Report, which kept Brazil on this North American trade offices watch list because of alleged problems of book piracy and other reasons.

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

115

d.

The adoption of a more proactive stance by the Brazilian productive sector in dealing with IPR, with the aim of, inter alia, monitoring patent applications deposited and granted, present guidance on the examination of weak patents, take out administrative and legal proceedings to revoke illegal patents, advocate for the reform of the INPI Patentability Guidelines, file for the granting of compulsory licenses. In order to minimize the costs involved in navigating through the complex and expensive imbroglio of the IPR, the private sector should join forces around a private organization with the aim of creating an effective and omnipresent structure301 to accompany cases of abuse in this area and to take rapid decisions to reverse them, as well as to share the costs arising from these activities;302 Legislative reforms.

e.

Nevertheless, although these may be plausible measures, putting them into practice is by no means simple. The reform of the current paradigm of maximalist IPR protection depends on the overall awareness that, primarily, intellectual property is now one of the most strategic instruments for fostering or hindering the material and cultural development of the Brazilian nation. Secondly, it is fundamental to bear in mind that the national and international legal framework for the protection of intellectual property offers flexibilities in favour of the secure incorporation of human rights and competition protection norms and principles into its structure. This reference to the human rights and free competition protection system303 is not mere rhetoric. Norms external to the intellectual property protection system offer to those who work with intellectual property rights a new concrete instrument for restricting intellectual property abuses. In a period of history marked by the exaggerated expansion of IPR protection, in parallel to the suppression of the exceptions/limitations to these rights, taking recourse to legal tools external to the intellectual property protection system is of unique practical importance for satisfying local interests. In 1999 Brazil ventured to establish the mechanism known as Prior Consent, which integrates an effectively local demand into the patent protection system and is one of the first practical steps towards integrating interests diffuse to the industrial property protection system. This innovative model must be protected against attacks that seek to dismantle it; but its defence and strengthening should not figure as an isolated initiative in the field of the integration of social demands into the intellectual property rights framework,304 inasmuch as there are other internal challenges to be faced.
301 The National Association of Automobile Part Manufacturers (ANFAPE), which unites independent Brazilian automobile part manufacturing and resale companies, was created as a result of the lawsuits filed by Volkswagen, Fiat and Ford, based on rights relating the to industrial designs of automobile parts, to prevent the commercialization of spare parts produced by third party companies. Since its creation, ANFAPE has already taken the case to the Brazilian Competition Defence System and brought the issue to the attention of the media. 302 The recommendation was influenced by Peter Drahos article, Intellectual Property and Pharmaceutical Markets: A Nodal Governance Approach, Temple Law Review, 77(2), 2004, p. 401424. Nodal governance is one of the strategies that the pharmaceutical and biotechnical industry of the industrialized countries employs to seek to protect its interests internationally. This same strategy, based on contact networks, could also be employed in the defence of public and fundamental interests. 303 Article 8.2 of the TRIPS agreement allows the adoption of measures to prevent the abuse of intellectual property rights by right holders or the resort to practices which unreasonably restrain trade or adversely affect the international transfer of technology. As a general rule, this flexibility is not exploited by the developing countries. 304 Although the issue of the impacts of the Brazilian taxation system on the development of a Brazilian pharmaceutical platform is beyond the scope of this study, it is important to point out that during its preparation stage, countless representatives of the pharmaceutical industries controlled by Brazilian capital indicated that the Brazilian tax system has been structured in such a way, whether deliberately or not, as to encourage the replacement of the local production of pharmaceutical products by imported ones. Under the current taxation system taxes are levied in the form of a cascade

116

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

Overcoming them, however, will bring benefits beyond Brazils domestic needs: it will bring greater force the Brazilian foreign policy dedicated to the reconstruction of the IPR from the point of view of sustainable development.305

effect, that is to say, the greater the number of productive stages undertaken in Brazil, the greater the level of taxation. This means that the greater the level of Brazilian technological development incorporated into a locally manufactured pharmaceutical product, the less competitive it will be. In the not too distant past, the Brazilian Government reduced taxes on vehicles in order to encourage local purchases, as well as reducing taxes on foodstuff products (the government of the state of So Paulo specifically) in order to promote the food security of the less privileged. The same can be done to encourage the strengthening of the capacity of the local pharmaceutical industry. As has been exhaustively discussed in this study, investing in the strengthening and consolidation of a national pharmaceutical industry is a strategic factor for the success of any serious public health policy. Please refer to the Economic Evaluation section of this study with regard to the impact of taxation on the competitiveness of the Brazilian pharmaceutical industry. 305 Brazils involvement with proposals for the reform of the international patent protection system is longstanding: on November 8th 1961, in the Second Committee for the 16th UN General Assembly Session, Brazil submitted, with sponsorship from Bolivia, a draft resolution entitled The Role of Patents in Technology Transfer to Underdeveloped Countries. The aim was to encourage the UN to get involved in the reform of the international patent system. However, as a result of the influence of commercial associations of industrialized countries, the resolution was dismantled. For more on this subject see KOURY MENESCAL, Andrea, Mudando os tortos caminhos da OMPI? A Agenda para o desenvolvimento em perspectiva histrica. In: Rodrigues Jr., Edson Beas; Polido, Fabrcio. Propriedade Intelectual: novos paradigmas internacionais, conflitos e desafios. Rio de Janeiro, Elsevier-Campus, 2007, p. 468-472.

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

117

ECONOMIC EVALUATION
ECONOMIC EVALUATION OF BRAZILS CAPACITY TO MANUFACTURE DRUGS FOR HIV/AIDS TREATMENT

Jos Eduardo Cassiolato306 Luiz Antonio Elias307 Graziela Zucoloto308

1 Introduction
The concept of national innovation systems (FREEMAN, 1995) will be used to organize the discussion in this chapter. The utility of the concept of national innovation systems lies in the fact of it dealing explicitly with important issues ignored by older technological change models specifically the issue of diversity and the role of intangible investments in innovative learning activities. This notion therefore involves not only companies but also teaching, research and financial institutions, the government, etc. In addition and based on the consideration that significant diversity exists between countries and institutions in the manner, level and pattern of investments in learning , particular focus is placed on the links between the institutions and their incentive and capacity building structures. It is possible to break down a national innovation system into different sectors, since the characteristics of technological progress and of the flow of scientific and technological information vary considerably (BRESCHI and MALERBA, 1997). As the health sector can be separated from
306 Ph.D. in development, industrialization and science and technology policy, SPRU/University of Sussex and professor at the IE/UFRJ. 307 INPI Economist; Technological Development and Innovation Secretary, Ministry of Science and Technology. 308 Master in economics from FEA-USP currently taking a Ph.D. in Economics at the IE-UFRJ.

118

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

other economic activities in terms of the dynamics of innovation, it is reasonable to discuss the idea of an innovation subsystem in the health sector (HICKS and KATZ, 1996). However, it must be borne in mind that the evolutionist sectoral view presented here differs significantly from the traditional sectoral perspective, since the latter does not capture situations in which the dividing lines between the sectors mutate, becoming fluid (MYTELKA and DELAPIERRE, 1999). To understand the conformation of the health innovation system, the idea of a medicoindustrial complex proposed by researchers of the health sector (CORDEIRO, 1980, p. 113) needs to be revisited. It is an articulation that involves medical care, the professional training networks (schools, universities), the pharmaceutical industry, the medical equipment and diagnosis instruments production industry and public policy. Figure 1, below, prepared by Gadelha (2002), seeks to delimit the sectors of activity that form part of this complex, characterizing their basic morphology. It is possible to identify an initial large group of products of chemical or biotechnological products, there being a tendency of the predominance and diffusion of standard pharmaceutical competition to the other sectors, consolidated in strongly interlinked corporative strategies (GADELHA, 2005). The process of health capital interpenetration and of the constitution of an economic complex impelled by the logic of the market is not new, having been identified by Cordeiro (1980) more than twenty years ago. More recently this perspective has been returned to by various authors, such as the book organized by Negri and Giovanni (2001), which covers both a general view of the process of health mercantilization following the period of capitalization (BRAGA and SILVA, 2001), and also the study of goods and services producing sectors that form part of the complex, as well as other articles or papers that seek to examine the health industries and/or the health innovation system from an economic viewpoint (ALBUQUERQUE and CASSIOLATO, 2000; GADELHA et al., 2002; TEMPORO, 2002; and GADELHA, 2002). The relevance of the focus on health innovation systems for the discussion made in this text is that it does not make sense to observe the possibilities of internal production of antiretroviral drugs without an understanding of the systemic processes of the organization of the diverse interconnected activities that are part of the system as a whole. Observing the question of the economic feasibility of antiretroviral drug production in Brazil from this point of view it can be stated primarily that the capacity to innovate is the decisive factor for health production dynamics from a structural and long-term perspective. In the developed countries, health research and development (R&D) is one of the R&D areas most benefitted by public efforts to generate new knowledge, along with the military area (ROSEMBERG and NELSON, 1994). With regard to academic research, its leadership stands out even more clearly. 27.4% of USA public spending on academic research was invested in the medical sciences, making it the highest individual area of expenditure of the federal government and subnational government levels (National Science Foundation apud ALBUQUERQUE and CASSIOLATO, 2000). As such, systemic conditions of competitiveness have been created in the more advanced countries, relating to the convergence of the following elements: advanced science and technology infrastructure, highly innovative industrial and corporate sectors and an important and fundamental action by the State which articulates the health system with the innovation system, despite the tensions and trade-offs between economic logic and health logic (GADELHA 2005). Gadelha (2005), Albuquerque and Cassiolato (2000), among others, suggest that in Brazil this scenario is dichotomous. On the one hand, the country has been following the international pattern of support to health-related scientific activity. On the other hand, from the technological point of view the results of the national policy have been considerably limited.

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

119

It is within this perspective that the feasibility of antiretroviral drug production in Brazil will be analysed. Item 2 (below) presents a panorama of the pharmaceutical industry worldwide, including a summary of the Indian case. Item 3 (below) provides a discussion on the Brazilian industry, presenting its structure and specifically discussing the issue of AIDS and the public policies concerning antiretroviral production in Brazil. Item 4 contains a discussion on intellectual property, whilst item 5 concludes by presenting policy suggestions. In addition to a bibliographical and statistical analysis, the results presented were obtained by means of applying questionnaires and holding interviews with the following laboratories: Cristlia, Nortec, Labogen, Alfa RioQumica, Mapel (Genvidaf), Farmanguinhos, Furp and Abifina.

FIGURE 1 MORPHOLOGY OF THE HEALTH INDUSTRY COMPLEX


Complexo Industrial da Sade Morfologia

FIGURA 1 MORFOLOGIA DO COMPLEXO INDUSTRIAL DA SADE

Indstrias Produtoras de
E S T A D O P R O M O O E R E G U L A O

Indstria Farmacutica Frmacos / Medicamentos

Indstria de Equipamentos Mdicos e Insumos Aparelhos no- eletroeletrnicos Aparelhos eletroeletrnicos Aparelhos de prtese e rtese Material de consumo

Indstria de Vacinas

Indstria de Hemoderivados

Indstria de Reagentes para Diagnstico

Setores Prestadores de
Prestadores Pblicos Prestadores Privados Prestadores Filantrpicos

Fonte: Gadelha (2002).

Morphology of the Health Industry Complex Industries producing:

2 Panorama internacional da indstria farmacutica Pharmaceutical Industries Pharmaceutical products / Medication


2.1 Caractersticas da indstria

Medical Equipment and Raw Materials Industry

Vaccine Industry

A produo de medicamentos envolve quatro estgios principais de atividade: pesquisa e desenvolvimento (P&D) de novos frmacos, produo industrial de frmacos, formulao e

Non-electronic equipment Electric and electronic equipment processamento final de comercializao e distribuio por intermdio de Prosthetic and orthotic apparatus varejistas e das unidades prestadoras de servios Consumables indstrias so importantes para de sade. Duas
intermedirios qumicos para a indstria farmacutica.

Blood products Industry

Diagnosis Reagents medicamentos e Industry

a produo de medicamentos: a indstria farmacutica e a indstria de qumica fina, produtora de

Service Providers Charity Service Providers

Public Service Providers State Promotion and Regulation Source: Gadelha (2002)

Private Service Providers

167

120

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

2 International Panorama of the Pharmaceutical Industry 2.1 Characteristics of the Industry


The production of medication involves four principal stages: research and development (R&D) into new drug chemicals, the industrial production of drug chemicals, medication formulation and final processing and commercialization and distribution through retailers and health services. Two industries are important in the production of medication: the pharmaceutical industry and the fine chemical industry, which produces chemical intermediates for the pharmaceutical industry. Globally, the pharmaceutical industry has a market turnover of some US$ 500 billion per annum, whereby the USA, the European Union and Japan account for 85% of this amount. The less developed countries, although they represent 80% of the worlds population, account for less that 20% of the sectors sales (BASTOS, 2005). The largest companies of the world pharmaceutical industry are shown in Table 1.

TABLE 1
Biggest world pharmaceutical industry companies (by sales, 2004) Empresas Pfizer GlaxoSmithKline Sanofi-Aventis Johnson&Johnson Merck Novartis AstraZeneca Roche Bristol-Myers Squibb Wyeth Abbott Laboratories Eli Lilly Schering-Plough US$ Bilhes 51,1 32,8 27,4 24,7 23,9 22,9 21,7 17,8 15,6 14,3 14,3 12,7 6,9

Bayer 6,4 Source: IMS Health, Thomson Datastream [The Economist (2005)] apud Bastos (2005).

The sector is highly internationalized, whereby the ten biggest multinational companies account for more than half the sectors sales, although none of them, individually, has a significant share in the industry as a whole. It is estimated that worldwide there are ten thousand pharmaceutical product manufacturers, although just one hundred of them are responsible for 90% of the products destined for human consumption (BASTOS, 2005). This industry is highly profitable: the operating margin of the large companies is 25%, compared to 15% for consumer goods in general. Based on information provided by the Fortune magazine on

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

121

the top 500 US companies, Love (2001) reveals that in the 1970s profitability in the pharmaceutical industry was twice as high as the average of all the other companies on the list. In 1980, profitability was three times higher and in the 1990s it was four times higher than the average on the companies on the Fortune 500 list. This tendency is not only observed in the USA: the Indian pharmaceutical industry, for example, which had high rates of growth throughout the 1980s and 1990s, has profitability rates consistently higher than those found in companies in all the other sectors for practically the entire period between 1970 and 2000 (DHAR and RAO, 2002). It is a differentiated oligopoly, characterized by significant barriers to entry. The main barrier relates to the role of marketing. As far back as the 1960s, the United Kingdoms Sainsbury Report revealed that the pharmaceutical industry spent more on marketing than on research and development (R&D), whilst in the USA marketing expenditure accounted for more than 20% of sales and was more than four times the amount spent on R&D. In the 1990s marketing expenditure accounted for 25% of the industrys sales. Another characteristic of this industry is that health service users (patients), besides not deciding which drugs they will buy (it is the doctor that decides), often do not pay directly for them. In many countries, heath insurance plans either public or private reimburse patients for the cost of medical treatment. This system, which separates payment from consumption and the consumer from the choice of the product, significantly affects the sectors competitive model and price structuring. As a result, price competitiveness has, historically, been of little importance to the pharmaceutical industry, and the companies tend to compete based on new or improved products. Competition therefore takes place through the introduction of innovations aimed at reducing the costs of production processes and, above all, the generation of new products. Whereas the periods of maturity in the electronics and engineering industries are characterized by cost reductions, small product variations, standardization and customization, design changes etc., this fact does not occur in the pharmaceutical industry. Despite the pharmaceutical companies traditionally producing small variations to existing drugs, both in terms of active ingredient chemical variations and also different formulations aimed at achieving differentiated dosages, the focus on price reduction through innovation is not a characteristic of the competition strategy of this industry. The strong focus on product innovation is the principal reason for the industrys dependence on R&D and on marketing aimed at convincing doctors to prescribe their drugs. Competition therefore takes place through the introduction of innovations aimed at reducing production process costs and, above all, the generation of new products. It is important to point out that, in this sector, product competition and differentiation do not occur throughout the industry as a whole. This is because the relevant markets are fragmented, or in other words, from the consumers point of view, it is not possible to substitute products belonging to distinct therapeutic classes.309 Furthermore, technological capacity building in one market does not guarantee success in others. It must be emphasized that strong differentiation exists between the therapeutic classes and that therefore in practice there is little competiveness. In truth, competitiveness only exists with regard to active ingredients, and even so not with regard to all of them, since it is possible to find products with a brand share above 75%. The effect of this is segmentation and differentiation. Nevertheless, the pharmaceutical industry encourages what it considers to be therapeutic class competition, rather than product competition, so as to be able to charge what it likes for patented products, for example.

309 A therapeutic class corresponds to a set of drugs that meet the same therapeutic purpose or function.

122

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

It is, however, usually less costly to develop a second or third drug within a same therapeutic class as the first one, given that the risks are lower. As soon as AZT was identified as a product for AIDS treatment, similar components began to be tested; after the first protease inhibitors had shown themselves to the effective in treating the disease, the risks were reduced for the next versions of drugs in the same therapeutic class. From the point of view of the dynamics of innovation, the most significant factors is perhaps its impressive 200 year historic record as a highly innovative industry (ACHILLADELIS and ANTONAKIS, 2001). Since its beginnings to this day the industry has an impressive history of collaborating with academic research efforts. Associated with this historical pattern of innovation the main companies can also be seen to have remained on the market over time. They have not only been capable of facing the successive radical technological changes the industry has gone though, but, owing to their oligopolistic and political power, they have also been able to effectively shape such transformations. Nevertheless, despite high expenditure on R&D by the pharmaceutical industry (compared to the other manufacturing sectors), it is increasingly rare for new highly innovative drugs to be launched that both contain new active ingredients and offer significant clinical improvement. The pharmaceutical companies have concentrated in particular on investing in small variations to drugs already existing on the market with the aim of getting evergreen (follow-on) patents, and in me-too products (having therapeutic activity similar to other existing products). From the strategic point of view, the companies aim is to continue exploiting a significant part of established markets.

Based on a study on drug innovation undertaken by the National Institute for Health Care Management - NIHCM (2002), Bastos (2005) emphasizes that despite the large number of new product launches on the North American market in the 1990s, the industrys innovative ability appears to be in decline. This apparent paradox is linked to the fact that, principally with effect from 1995, highly innovative drugs containing both new active ingredients and offering significant clinical improvement have become increasingly rare. Between 1989 and 2000, 53.9% of the new drugs approved by the Food and Drug Administration (FDA) were incrementally modified drugs, i.e. their active ingredients were already available in other products sold on the market. In addition, 65.7% of the new drugs approved were considered to be standard and not priority. To put it another way, these drugs do not offer clinical improvement in relation to products already available on the market, but merely increase the options for prescribing or for meeting the needs of specific patients. Between 1998 and 2003, of the 487 drugs approved by the Food and Drug Administration, 379 (78%) were classified by the agency as appearing to have therapeutic qualities similar to one or more drugs already existing on the market, and 333 (68%) were not new molecular entities, but merely new formulations or combinations of old drugs. Only 14% were new compounds, considered to be improvements in relation to the old ones. The cholesterol reduction market is an example: today there are on average six drugs (Mevacor, Lipitor, Zocor, Pravachol, Lescol and Crestor) available for this use, and they are all variations of the initial drug. As explicitly pointed out by Dr. Sharon Levine, director of the Kaiser Permanente Medical Group: If Im a manufacturer and I can change one molecule and get another twenty years of patent rights, and convince physicians to prescribe and consumers to demand the next form of Prilosec, or weekly Prozac instead of daily Prozac, just as my patent expires, then why would I be spending money on a lot less certain endeavor, which is looking for brand-new drugs? It is noteworthy that despite their less innovative nature, the products launched on the North American market after 1995 are responsible for most of the increase in government spending on new medication. High prices are found in modified versions of older drugs, such as Combivir (Lamivudine/ Zidovudine) used in the treatment of AIDS.

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

123

Patents are the main mechanism for the private appropriation of the results of innovations in the pharmaceutical industry. Once the patent has expired the pharmaceutical products remain exposed to competition with generic products. Generic drugs are usually copies of innovative drugs the patents of which have already expired (or that were not patented in certain countries, such as Brazil, where they were not recognized). They must contain the same active ingredient, dosage, administration, form, therapeutic indication and safety as the reference drug. Differently to the competition between patented drugs, with occurs via product differentiation and prices above those obtained in competitive markets, competition in the generics segment occurs principally via production costs and distribution structure. Competition via prices is fundamental: internationally, generic drugs are 30% to 60% cheaper than the reference products. The principal barriers to entry on the market are access to purchasing or production of drug chemicals and access to the medication distribution network (IPD-Farma, 2004). The generic drug market has its origins in the 1960s in the United States. However, it was only in 1984 that there were specific conditions available for the growth of this industry. These conditions were established by the Drug Price Competition and Patent Restoration Act, which determined simplified mechanisms for registering generic versions of all drugs approved since 1962, as long as (among other requirements) they were accompanied with information about their bioequivalence to the original product (IPD-Farma, 2004). Since the 1990s, many countries have adopted aggressive policies to promote generics as a means of providing the population with medication at more affordable prices and to reduce costs with pharmacy care. Although in Brazil their share in terms of volume is only 9%, in the USA they have already reached 56% and 40% in Germany (BASTOS, 2005). However, according to a survey done by IMS-Health in 2003, of the industrys US$ 500 billion sales worldwide, only 4-5% relates to generic medication. Although still limited in terms of amount, the market for generic products is promising, given that the patents of a large number of first-line brand drugs are due to expire. Between 2003 and 2010, for example, the patents of 7 of the 10 drugs most sold in the world will expire. International experience shows that the greatest success achieved in promoting generics has occurred in those countries where the actions are directed to influencing the behaviour of doctors and health professionals, through efficient information that proves the quality and the reliability of these products. According to the International Federation of Pharmaceutical Manufacturers Association (IFPMA), the implementation of a generic medication policy also depends on the average medication price levels prevailing in each country. In places where the average cost of medication is more accessible, such as France, Spain and Italy, generics have not had so much success, since the greater part of their populations have guaranteed access to the medication they need. But in countries where the pharmaceutical industry charges very high prices, such as the United States, England, Holland and Germany, the generics market has evolved in a more significant manner (IPD-Farma, 2004). It is also important to note that with the success of generic drugs not protected by patents, the larger companies in the industry have reacted by attempting to extend the period of their monopoly. On the other hand, it must also be emphasized that in countries that did not used to grant patents for pharmaceutical products (the vast majority of the developing countries, including Brazil, but also countries like Italy and Spain), the generic products industry has been the base of their national industries. With the advent of the WTO and the incorporation of the TRIPS Agreement into national

124

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

legislation in the countries, there has between a tendency towards the harmonization of the generics markets in accordance with the characteristics of the developed countries, as well as an important increase in international medication trading, accompanied by similar quality requirements.

2.2 The Role of the State in the Development of the Pharmaceutical Industry
One of the industrys important characteristics is its longstanding relationship with the State. The current emphasis, at least on the political and ideological level, on reducing state intervention in the sector, should not be analysed without exposing the fact that this is the industry that has most been regulated by the State over the last 200 years and that technological progress has also been made possible through this strong intervention. It is also important to take into consideration, especially with regard to the area of health in general and the production and consumption of pharmaceutical products in particular, that State intervention continues to characterize the dynamics of the sector from the point of view of the regulation of its activities, the encouragement of scientific and technological development and the use of purchasing power. Various characteristics of the health sector result in it being the sector in which government intervention has occurred most intensely historically. The State plays a special role in the conformation of the pharmaceutical industry, significantly affecting the pattern of the sectors organization and competition. The State acts as a regulator, a direct and indirect funder of scientific and technological development and, in the majority of cases, it is the principal purchaser. In these cases, it is the government and not the end consumer that pays for medication and distributes it to health system users. As stated earlier, this means that in certain segments of this industry the price mechanisms traditionally established through market supply and demand may not be relevant. As will be seen in more detail further on, this is the case of drugs for the treatment of AIDS, since under the policy adopted by Brazil all medication must be provided free of charge to those who have the disease and need treatment. By acting as a monopsonist310 in such a relevant market, the role of public purchasing becomes key to encouraging the investments, production and innovations implemented in the sector. In relation to its role as a funder of the technological innovations generated in the pharmaceutical industry, various international studies have shown that the State covers a considerable part of the costs involved in the process. According to Bond and Glynn (1995), in 1993 in the USA the federal government was responsible for 39% of the total of US$ 30 billions spent on R&D in the biomedical sector. At the state and municipal levels, the government was responsible for 7%. The productive sector was responsible for 50% and non-profit organizations for 4%. This situation is notably different from that encountered a little more than half a century earlier. In 1940, according to Bond and Glynn, the North American corporations invested US$ 25 million, non-profit organizations US$ 17 million and the federal government just US$ 3 million (7% of the total, amounts in current dollar values). More significant than the high share of public expenditure on R&D is that, according to the National Institutes of Health (NIH), public sector researchers are generally responsible for the basic, more risky and expensive research, thereby facilitating the profits earned by private companies. Throughout the world the basic research needed to develop new molecules is done in public institutions. These researchers do the work of identifying possible new medication, whilst the greater part of private company R&D expenditure only occurs once they have evidence of the existence of a market for the new medication. Furthermore, researchers funded by the public sector also undertake clinical trials.
310 The only purchaser.

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

125

In addition to concentrating on basic research, the government is also responsible for investing in more risky lines of investigation. The government also plays a particularly active role with regard to innovative medication for a variety of diseases, although this role is less significant in the case of the so-called me-too products. Table 2 shows pharmaceutical sector R&D expenditure by source of funding, in percentage terms, for some member countries of the Organization for Economic Co-operation and Development (OECD) for the years 1985 and 2001. Apart from showing the importance of the State in funding R&D, the data confirms the importance of other sources in funding the industrys R&D.

TABLE 2
Pharmaceutical sector R&D expenditure, by source of funding, 1985 and 2001 (%) Selected countries Country USA UK France Germany Itly Source: OECD. Year 1985 2001 1985 2001 1985 2001 1985 2001 1985 2001 Government 48,3 30,2 43,4 30,2 52,9 38,7 36,7 31,5 44,7 51,1 Industry 50,0 68,3 46,0 46,2 41,4 52,5 61,8 66,0 51,7 43,9 Others 1,7 4,8 10,5 23,6 5,6 8,8 1,5 2,5 3,6 5,0 Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

With this in mind, extreme care should be taken in relation to the argument used by pharmaceutical companies in defence of patents and high prices attributed to the risks involved in the discovery of new drugs and the importance of intellectual property to guarantee heavy investments in R&D. In truth, the risk involved is less, given the fact that the government is mainly responsible for a significant part of the research necessary, and it is precisely this research that is the most difficult and risky. Various studies indicate that important and popular drugs have been developed basically with public funding. Love (2001), for example, quotes: a) A study undertaken by the Massachusetts Institute of Technology (MIT) regarding the 21 most important drugs introduced between 1965 and 1992 showed that research funded by the public sector was present in the discovery and research of 14 of them (67%). b) The Boston Globe revealed that 45 of the 50 drugs most sold between 1992 and 1997 received public funding at some stage in their development and that at least US$ 175 million in public resources were invested in them. c) A National Institutes of Health (NIH) study showed that researchers funded by the public sector conducted 55% of the research projects that lead to the discovery and development of the five most sold drugs in 1995, whilst foreign academic institutions accounted for a further 30%.

126

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

Antiretrovirals such as AZT, ddI, ddC and Abacavir were created in public institutions using resources derived from North American taxes. Even in those cases in which companies were responsible for generating ARVs, the North American government had a significant direct contribution in testing the drugs, in addition to the basic research having been done in public institutions. The drug companies receive significant tax reductions for performing R&D, this being a form of government subsidy that results in companies overestimating their R&D expenditure. Love (2001) uses these arguments to defend the sale of medication at reasonable prices, given that they were developed with taxpayers money. It should be emphasized that in the North American case, with effect from the Reagan government and the enactment of the Bayh-Dole Act, the knowledge generated by public institutions has become increasingly commercialized. Despite affecting all areas of knowledge, this institutional change is felt more in the life sciences and those important to the pharmaceutical industry. This privatization of science, which has been harshly criticized even by North American academics, has increased the control of that countrys pharmaceutical industry over the progress of science, but has not generated increased innovation in the industry. There is significant evidence relating to the use of the evergreening strategy in the case of antiretrovirals as well. In India, an intense discussion took place following a patent application for an important second generation drug, Viread (Tenofovir). The arguments put forward by several NGOs is that the Indian government should reject the application, since the North American company Gilead is attempting to patent a new form of an already existing drug without evidence of increased therapeutic efficacy (Financial Times, 14/05/2005). The role of the public sector is also specific with regard to the regulations established in relation to the pharmaceutical sector. The establishment of a price policy, for example, is an instrument used in several countries both to enable the population to have access to essential medication and also to encourage the development of innovations. Despite being little used in the USA, Japan and the European Union it is nevertheless a substantial intervention, especially given the high level of government purchases. In the European case, even with the implementation of the Single Market, significant price variation between the different member countries can be observed (CASPER and MATRAVES, 2003). In the area of R&D, however, the level of intervention is even higher, as shown below. In the Indian case, the price control instrument (Drugs Price Control Order) was implemented in 1970, resulting in price stabilization and the availability of pharmaceutical products at reasonable prices for the population. Over time this mechanism has been revised, with an increasingly lower amount of controlled products. With the aim of encouraging innovation, it later allowed the production of drugs in bulk using Indian technology to be exempted from price control for a given period of time.311 These increasingly larger price control exemptions for innovative companies encouraged increasing investments in R&D. As such, the Indian price control mechanism was a dynamic political instrument applied to achieve equilibrium between the industrys needs to make a profit but in keeping with the governments social obligation to provide access to drugs at affordable prices. The use of price mechanisms as a means of achieving certain public objectives is not limited to developing countries. In the United Kingdom, for example, the government allows higher reimbursement prices for pharmaceutical companies with above average R&D expenditure. However,
311 The first time the price control order was revised, at the end of the 1970s, this period of time was five years. Following the 1995 revision, the time of price control exemption for drugs produced based on Indian technology was ten years. The 2002 revision increased it to fifteen years.

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

127

the price control mechanism has been practically removed from the institutionality of several countries as a result of the advice and pressure received from international agencies aiming to increase deregulation and free market mechanisms. With regard to institutionality, there are some movements that attempt to achieve greater international market harmonization. In the case of the European Union, given the legislation directed towards the common market, the European Medicines Evaluation Agency (EMEA) has played an important role in the community approval of biotechnological and other high technology drugs since 1995. EMEAs role is restricted with regard to other drugs, and in this case the firms negotiate directly with each government and the governments maintain their own specific rules. In 1990, the International Conference on Harmonization (ICH) was set up with the purpose of bringing together the governmental agencies of the USA, Japan and European countries and the largest companies in an attempt to harmonize regulatory procedures. In addition, the Pharmaceutical Mutual Recognition Agreement, signed by the USA and the European Union in 1997, eliminated some regulatory barriers, such as the inspection of production plants. However, each country still maintains important specificities in its regulatory system. In the Americas, the Pan American Health Organization heads a similar initiative, the Pan American Conference on Drug Regulatory Harmonization, which also aims to eliminate regulatory differences and facilitate international trade.

2.3 The State and the Pharmaceutical Industry: the case of India
International examples indicate that the strengthening of the pharmaceutical industry necessarily involves State action, through the establishment of public policies that prioritize its development. In a segment in which competition does not occur in a traditional manner, and regulation and funding significantly alter its performance, the State and the public policies established are key determinants in the directions taken by this sector. The case of India312 is emblematic with regard to the importance of public policies in strengthening the health sector. India, currently recognized as a large producer and exporter of drug chemicals and generic medication, has strengthened its industrial pharmaceutical structure in accordance with priorities established by the State. Following the 2nd World War practically all the large multinational companies set up facilities in India. By 1950, however, more than 90% of pharmaceutical products continued to be imported and their prices were amongst the highest in the world. Modern drugs reached no more than 20% of the population. Before independence (1947), the country suffered several devastating epidemics. Recognizing its industrys inability to respond to future situations such as these, in 1954 the government founded Hindustan Antibiotics Ltd. (HAL), with the aid of the World Health Organization and UNICEF,313 to produce penicillin, tetracycline and streptomycin. Encouraged by increased pharmaceutical products sales, the government took steps to achieve greater self-sufficiency in producing other medication and, using Russian technology, set up Indian Drugs and Pharmaceuticals Ltda (IDPL) in 1961. The two public undertakings lead the way as the principal producers of previously imported critical medication. It is important to highlight that right from the beginning of the 1950s, the creation of capacity in the Indian industry was guided by the industrial licenses system. Public policies set goals for building the capacity of different industrial sectors and licenses were issued to businessmen interested in investing in production.
312 Based on Bhojwani HR (2005) and Dhar and Rao (2002). 313 United Nations Childrens Fund.

128

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

Before the early 1970s very little R&D was done in India by the industry. With rare exceptions, R&D inputs and the human resources needed to generate them were essentially provided by public institutions. At the end of the decade, the government announced a variety of guidelines for the sector, with the aim of strengthening it through public sector leadership. According to the policy established, the operations of the foreign companies had to follow national priorities and objectives. In order to be able to operate in India, multinational companies had to respect the measures imposed by the State, which were more severe that those directed towards national companies. For example, given that the foreign companies were reluctant to increase the production of drugs in bulk, the government determined that the ratio between the production of bulk drugs and the production of formulations to be complied with by foreign companies was 1:5, compared to 1:10 for Indian companies. In addition, the operating licenses for foreign companies were only granted if they agreed to supply 50% of their bulk drugs production to non-associated formulators. In relation to technological development, the public policies were directed towards the local development of facilities for undertaking R&D and importing technology, when necessary. The local facilities were to be developed by using facilities made available by public organizations and through obligations imposed on foreign companies which, for example, had to direct at least 4% of sales income as recurring expenditure on R&D facilities. In addition to production and technological development, the public policy also aimed to encourage the supply of medication at affordable prices. As a result of this policy there was a sharp increase in R&D expenditure in the 1980s. R&D activities began to be directed towards new organic synthesis routes for existing drugs, the replacement of high cost imported intermediates, etc. With the achievement of technological maturity in the mid 1980s, Indian pharmaceutical products lead the way amongst the cheapest in the world. The public sector strategy began to encourage exports. To this end the government provided incentives for facility improvement and R&D and this encouraged many companies to sell on the external market. At the beginning of the 1990s, the attention of the leading companies turned towards new drug distribution systems and, by the end of the decade, following the growth of exports and the return obtained by the companies, some twelve leading Indian companies became involved with the discovery of new drugs. As a result there was a growth in the number of patents granted in the USA for Indian pharmaceutical products between 1999 and 2003, with the support of public R&D organizations. In this period technologically competent small and medium-sized companies also began to appear, producing active ingredients and intermediates to global standards for multinational and Indian generic drug companies. The Indian pharmaceutical industry is currently among the worlds largest and most diversified, recognized as being knowledge-driven and globally competitive, contributing to the availability of quality drugs for the Indian population at prices that are amongst the lowest in the world. Of the ten biggest pharmaceutical companies in India which account for approximately 40% of the internal market and exports , only three are global multinationals. Practically all the productive units are concentrated in the private sector. The public units, HAL and IDPL, and their subsidiaries and associated companies, encouraged the growth of the industry in the 1970s but have now lost their relevance. Exports reach some 90 countries and involve around 40% of industrial production. Exports of bulk drugs are concentrated on generic medication and Germany and the USA are the main importing markets. Drug exports to the main world markets, following patent expiry, have been possible thanks to the Indian companies capacity to perform reverse engineering and generate its own technology.

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

129

The growth of the world market share of generic medication, associated with low production costs in the country, have also been responsible for the growth of Indian exports in this market. The increase in the rate of new drug development is related to the growth of medium-sized companies which increase their expenditure on R&D and the discovery of new drugs. The leading Indian companies consolidated themselves by buying domestic units and trademarks in order to raise their therapeutic coverage, thus developing economies of scale. Most of these companies bought units abroad in order to obtain access to technology and to regulated markets. In recent years collaboration agreements have also been seen between leading Indian firms and foreign companies for licensing, production contracts and marketing agreements. Bhojwani (2005) emphasizes that domestic drug production is not only a viable option but also a logical imperative for countries the size of India with a large internal market, industrial production feasibility and a high level of intellectual infrastructure for R&D in biomedicine and pharmaceutics. It can be seen, therefore, that behind the evolution of the industry in the country there have always been public policy measures indicating the way to be taken. The policy for the pharmaceutical industry in India is seen essentially as an industrial policy and not a health policy. Nevertheless, the emergence of the country as a relevant producer of generic drugs and active ingredients on the international market is related to the limited protection of patents up until 2005. The creation of the Indian Patents Act, which came into force in 1972, determined that only production methods or processes relating to medication, foodstuffs and agrochemicals could be patented, but not the products themselves. Compulsory licenses were liberalized, and patents became subject to licensing by right if they did not start activities within three years following the date on which the patent was granted. The absence of patenting facilitated drug production in India. The construction of a base comprised of human resources, capacity and infrastructure for pharmaceutical R&D in the public system, associated with the human resource technical base that partially migrated from the Indian chemical industry, enabled the strengthening of the pharmaceutical sector. India joined the WTO in 1994 and, as a developing country, had the right to a ten year transition period to fully adhere to the TRIPS Agreement, which it made full use of. With effect from 2005, the countrys production conditions were altered but nevertheless its participation in the drug chemicals and generics market continues to be solid.

3 The Pharmaceutical Industry in Brazil 3.1 Characteristics of the Industry


The Brazilian pharmaceutical industry has historically been dominated by multinational companies, which currently absorb some 70% of the national market. These companies only concentrate medication manufacturing, marketing and distribution in Brazil, whilst their R&D and pharmacochemical production activities are carried out abroad. In 2004 the sectors ten largest companies of which four are national companies314 held 42% of the market. The Brazilian pharmaceutical industrys invoiced revenue was approximately US$ 3.4 billion in 1992, reaching US$ 8.5 billion in 1997 and US$ 6.8 billion in 2004 (BASTOS, 2005).

314 Ach, EMS-Sigma Pharma, Medley and Eurofarma.

130

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

The Brazilian medication industry is relatively developed, with high finished product production capacity and limited drug chemical production capacity, whereby the dependence on imports is currently generalized. Following the lifting of commercial restrictions with effect from the 1990s, the sector became heavily dependent on imports, which were privileged to the detriment of national production. Several multinational companies closed down their pharmacochemical units, replacing them with imports from their head offices or other subsidiaries.

TABLE 3
Principal medication and active ingredient (pharmacochemical) producers in Brazil Medication producers Sanofi-Aventis Pfizer Ache Novartis EMS Sigma-Pharma Medley Boehringer Ing Schering-Plough Schering do Brasil Eurofarma Bristol-Myers Squibb Mercado Total Source: Bastos (2005). 6,95 5,43 5,04 4,79 4,53 3,47 3,00 2,90 2,72 2,58 3,00 US$ 6,8 B Mercado Total US$ 816 M Outros 37,8 Formil, Libbs, Microbiolgica, Labogen, PVP, KinMaster 22,6 Market share 2004 (%) Pharmacochemical producers ABL, Novartis, Globe, Cristlia, Nortec Market share 2003 (%) 39,6

Indeed, as indicated by Gadelha (2005), similarly to what has happened in the health industry complex as a whole, the drug chemicals and medication sectors lost international competitiveness throughout the 1990s and in the first half of the current decade. The accumulated deficit has increased significantly over the period, reaching US$ 900 million in 1997 and approximately US$ 1.25 billion in 2001 (Tables 4 and 5). According to Ministry of Development, Industry and Foreign Trade data, prepared by Abifina, imports have had a practically constant tendency to increase between 1990 and 2005, both with regard to drug chemicals and medication (Graph 1, below). Countries such as India and China have significantly increased their share in the Brazilian market through the sales of pharmacochemical products, from 0.2% in 1990 to 9.2% in 1997 [Chamas (2005)]. It is significant to recall that when Brazil began producing ARVs, in 1992, Indian and Chinese ARVs were not even on the market. Gadelha points out the clearly structural nature of this deficit, considering that the strong devaluation that happened in 1999, despite having had a small effect on its reduction, did not change its level, which has remained practically constant during the period and has increased noticeably since 2001.

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

131

TABLE 4
Foreign Trade Evolution drug chemicals and medication (In current USD FOB amounts) Exports 1997 Medication Drug chemicals Imports Medication Drug chemicals 784.589.413 1.192.878.841 -673.450.296 -946.633.111 935.797.492 1.528.654.819 -783.697.706 -1.250.527.205 1.115.894.609 1.473.605.785 -929.804.479 -1.245.208.510 1.013.434.883 1.333.989.647 -847.529.836 -1.144.839.584 1.039.063.849 1.432.882.794 -859.900.906 -1.249.388.931 111.139.117 246.245.730 1998 152.099.786 278.127.614 1999 186.090.130 228.397.275 2000 165.905.047 189.150.063 2001 179.162.943 183.493.863

Trade balance
Medication Drug chemicals

Source: Gadelha (2005).

TABLE 5 FOREIGN TRADE COMPOSITION BY REGION, 2001

MERCOSUL Export. Medicamentos Frmacos 78.699.598 11.160.401 REST THE Export. Medicamentos Frmacos 72.847.859 84.767.900 Import. 60.509.864 7.834.600 WORLD Import. 410.593.569 537.384.712 Export. Medication Drugchemicals Source: Gadelha(2005). 179.162.943 183.493.863 Balance -337.745.710 -488.616.812 TOTAL Import. 1.039.063.849 1.432.882.794 Saldo -859.900.906 -1.249.388.931 Balance 18.189.734 3.325.801 Export. 19.712.755 22.160.569 EUROPEAN Export. 7.902.731 65.404.993

NAFTA Import. 233.340.448 337.584.880 UNION Import. 334.619.968 514.078.602 Balance -326.717.237 -448.673.609 Balance -213.627.693 -315.424.311

Fonte: Gadelha TECHNICAL, ECONOMIC AND LEGAL EVALUATION (2005).

132

OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

Grph 1 Pharmaceutical1Setor Imports Grfico Im portaes do Setor Farm acutico US$000


1,600,000 1,400,000 1,200,000 1,000,000 800,000 600,000 400,000 200,000 0
90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 19 00 20 01 20 02 20 03 20 04 20 05 20

US$ m il

Medicamentos

Frmacos

Although it has a consolidated scientific infrastructure, technological development undertaken in Brazil is minimum, being limited to a few private national companies and some public organizations. no Brasil mnimo, good resultspoucas empresas privadas nacionais e algumas companies in Brazil, Despite having restrito a in terms of their profit margin, the pharmaceutical organizaes whether foreign or national, practically do not undertake technological R&D activities. As mentioned, pblicas. Apesar de apresentarem bons resultados em termos de margem de lucro, as empresas in the majority of cases they limit their activities to formulating and packaging medication. Based farmacuticas instaladas no pas, estrangeiras ou nacionais, praticamente no realizam atividades on data taken from the Industrial Survey on Technological Innovation (PINTEC)/Brazilian Institute of de P&D tecnolgico. Como mencionado, na maior parte das vezes limitam-se a formular e embalar Geography and Statistics (IBGE) and the Organization for Economic Co-operation and Development (OECD) Com base em dados da seen that Industrial de efforts (relationship between medicamentos.relating to the year 2000, in can bePesquisa the technological Inovao Tecnolgica R&D expenditure and the value of e Estatstica (IBGE) da OCDE referentes ao ano 2000, (PINTEC)/Instituto Brasileiro de Geografiaindustrial production)eof the Brazilian pharmaceutical industry was just 0.93%, compared to 10.03% on average in the OECD countries. The relationship between observa-se que o esforo tecnolgico Brazils relativegastos em relationvalor daOECD countries are only the two variables indicates that (relao entre efforts in P&D e to the produo industrial) da indstria the smallest percentage among all the transformation industries (ZUCOLOTO, 2004).em 9.3%, farmacutica brasileira foi de apenas 0,93%, comparados a 10,03% realizados,
Embora possua uma infraestrutura cientfica consolidada, o desenvolvimento tecnolgico realizado mdia, pelos pases da OCDE. fragility of entre as production can be felt in the reduction in employment Other effects of the A relao national duas variveis indica que o esforo relativo do

generation, including the most qualified jobs, given that there is no incentive to invest in innovations and the industrial complex is becoming idle. 186 In general, Brazil has an attractive market for health products, a reasonably developed production capacity and a good capacity for undertaking research. On the other hand, its innovative capacity is still immature and there is low integration between scientific and industrial policies, and also between these and health policies. A scientific infrastructure directed towards biomedical research with relatively regular public investment is possibly the most privileged aspect of the Brazilian system. The barriers to this system are related to shortcomings in the education system and the low involvement of the companies, both national and multinational, in activities aimed at health innovations. As such, one of the challenges for public policies is the incorporation of researchers into the corporate environment. A peculiar and important feature of the Brazilian pharmaceutical industry is the existence of a network of public laboratories, comprised of federal, state and municipal level laboratories, the production of which is used to meet the needs of Ministry of Health and State and Municipal Health Department programmes. The production line of the majority of the laboratories is not very diversified, concentrating on lower cost medication. These laboratories only undertake activities relating to medication production, but not the production of raw materials.

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

133

This production contributes to reducing the problem of the supply of certain drugs and reduces the costs of public health programmes, either through supplying essential drugs at lower prices or through the inducing and regulatory effect they have on the prices of the private companies. This Em relao aos medicamentos genricos, eles surgiram no Brasil em 1999, por meio da Lei n has been evidenced in Ministry of Health negotiations for the price reduction of drugs for AIDS 9.787. Foram inicialmente international pharmaceutical industry companies. The Ministry of Health treatment sold by leading regulados pela Resoluo n 391, de 09/08/1999, passaram pela has obtained a de 02/01/2001, Resoluo RDC n 84, de 19/03/2002 e Resoluo RDC n direct Resoluo n 10,significant reduction in the prices of antiretroviral drugs, mainly because of the 135, deand indirect action of the antiretroviral producing institution linked to the Ministrye ps-registro. 29/05/2003, caracterizadas pela exigncia de medidas pr-registro, de registro of Health (Instituto de Tecnologia em Frmacos - Farmanguinhos, Fundao Oswaldo Cruz - Fiocruz) (Gadelha et al., 2003).
Por lei, Generic drugs camegenricos s Brazil in chegar ao consumidor No. 9,787. Initially they por os medicamentos into being in podem 1999, by means of Law depois de passarem were testes de bioequivalncia (19/03/2002) and Resolution RCD No. 135 (29/05/2003), absorvidos na Resolution RCD No. 84, realizados em seres humanos (garantindo que sero characterized by

regulated by Resolution No. 391, dated 09/08/1999, and then by Resolution No. 10 (02/01/2001),

pre-registration, registration and post-registration measure requirements. mesma concentrao e velocidade que os medicamentos de referncia) e testes de equivalncia

farmacutica (garantindo quecancomposiothe consumeronce they ao doundergone bioequivalence By law, generic drugs a only reach do produto idntica have medicamento inovador

tests deu origem). que lhe performed on human beings (guaranteeing that they are absorbed in the same concentration
Esse procedimento est demonstrado na Figura 2 a seguir (IPD-Farma, 2004).

and speed as the reference drugs) and pharmaceutical equivalence tests (guaranteeing the products composition is identical to that of the innovative drug that gave origin to it). This procedure is shown in Figure 2 below (IPD-Farma, 2004).
FIGURA 2

FIGURE 2 CRITERIA FOR THERAPEUTIC EQUIVALENCE

CRITRIOS PARA EQUIVALNCIA TERAPUTICA

B io e q u iv a l n c ia L A B O R A T R I O S L B O R I A U T O R IZ A D O S T O R Z A P E LA A N V IS A A A S
b io d is p o n ib ilid a d e co m p a r v e l C o m o ? : T e s te s e m v o lu n t rio s s a d io s , e ta p a s c ln ic a , a n a ltic a e e s ta ts tic a

E q u iv a l n c ia

F a r m a c u t ic a

M e s m o f r m a c o , d o s a g e m e fo r m a f a r m a c u t i c a C o m o ? : T e s te s e s p e c tr o s c p ic o s , e f s i c o - q u m i c o s f s ic o s

E q u iv a l n c ia T er a p u tica
B o a s P r t ic a s d e F a b r ic a o e C o n tr o le E M P R E S A E M R A
V a lid a o D e P ro c e s s o s C o m o ? : N o r m a s p r e v is ta s n a le g is la o v ig e n te

E N R IC O

I n t e rc a m b i v e l c o m o m e d i c a m e n to i n o v a d o r

F o n t e ; A N V I S A / P ro g e n ri c o s

Bioequivalence Pharmaceutical Equivalence Comparable bioavailability Same drug, dosage and pharmaceutical form How? How? Tested on healthy genricos podem, por lei, substituir os medicamentos de Spectroscopic, physical and Graas a esses testes, os medicamentos volunteers, clinical, physical/chemical tests referncia indicados nas analytical and statistical prescries mdicas. Quando o mdico no prescrever diretamente o stages Therapeutic equivalence Company Generic Interchangeable with the innovative medication

Laboratories Authorized by ANVISA

Good Manufacturing and Control Practices Process validation How: Norms stipulated in current legislation

188

Source: ANVISA / Pr-genricos

134

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

Thanks to these tests, generic drugs can, by law, replace reference drugs indicated on medical prescriptions. If a doctor does not prescribe a generic drug directly, pharmacists in charge of retail establishments selling drugs can recommend the generic drug with absolute safety for the consumer (IPD-Farma, 2004).315 Once generic drugs came onto the market, they were soon prioritized by public drug purchasing, with the aim of guaranteeing the populations access and promoting price reductions. Generic manufacturing companies controlled by national capital also basically carry out the stages of drug manufacturing, marketing and distribution in Brazil, but few of them produce pharmacochemicals internally and investment in R&D is limited. According to the organization Pr-Genricos, generic drugs are available in Brazil in 56 therapeutic categories, 249 active ingredients and 944 records. They account for more than 60% of prescribed drugs involving the illnesses that most commonly affect the population, as well as the majority of chronic diseases. Currently, approximately 80% of the generics commercialized in Brazil are produced locally and 75% of sales are made by local companies, followed by generics from India (10.3%), Germany (4.7%) and Switzerland (4.6%). [Chamas (2005)]. Despite the significant share in the national production of generic products, more than 80% of the raw materials (drug chemicals) used to manufacture them are imported, especially from the Asiatic countries, following a tendency observed in the pharmaceutical industry as a whole. (IPD-Farma, 2004).

3.2 The Explicit Policy for Strengthening Brazils Pharmaceutical Industry


Historically, in relation to Brazils health policy, the disarticulation between research and production has been clearly evident (GADELHA, 2005). Differently to the more advanced nations and to countries like China, Brazils science and technology policy on the production of drug chemicals and medication has been totally dissociated from the health policy as a whole and from the public purchasing policy in particular. More recently, in 2004, the Brazilian Government introduced its Industrial, Technological and Foreign Trade Policy, under which the drug chemicals sector was selected as one of the four areas to be prioritized. Standing out among the objectives of this programme are the support for R&D activities, including their internalization, the encouragement of the domestic production of medication, the strengthening of the generic medication programme and incentives for public laboratories. In line with these objectives, in the same year the BNDES launched its Pharmaceutical Production Chain Development Support Programme (PROFARMA), aimed at providing financial support for investment in production capacity, mergers and acquisitions and investment in research, development and innovation. With regard to R&D, it grants repayable support at fixed interest rates of 6% per annum, covering up to 90% of the total amount of the project, with repayment in up to 10 years and a 3 year grace period. In the same year the BNDES also set up the Technological Fund (FUNTEC), which provides for the possibility of making non-repayable grants for technological projects. However, obstacles
315 International controversy does exist, however, regarding the requirement of these tests for ARVs. Although the WHO recommends these tests as part of the pre-qualification system, the products used by the National STD and AIDS Programme are not bioequivalent, since they came onto the market before this legal requirement came into force. Nevertheless, it is clear that the efficacy of these products in the population is incontestable.

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

135

encountered in making the Fund operational lead to the BNDES suspending it and it is currently being restructured. With regard to the PROFARMA programme, Bastos (2005) emphasizes that the number of operations undertaken still has great potential for expansion, given that according to data made available through the 2005 PINTEC survey, some 300 pharmaceutical companies operating in Brazil stated that they work on innovations, but that one of the obstacles they face is the absence of resources to fund it. However, the authoress of the survey emphasizes that the PROFARMA resources are not adequate for funding projects of greater technological density, over longer periods of time and about which there is uncertainty as to increased income in the future. The activities of FINEP the Studies and Projects Funder , a public company linked to the Ministry of Science and Technology, are restricted to funding technological innovation using repayable and non-repayable resources. In addition to this, mention must be made of Law No. 10,973, dated December 2nd 2004, known as the Innovation Law. Through this Law an increase in partnerships is expected between companies, universities and scientific and technological institutes. Article 19 of the Law, which creates an economic subsidy for companies to promote R&D in technological innovation using Sectoral Fund resources, was recently regulated, whereby the non-repayable nature of the subsidy has been maintained, but companies are required to provide joint funding and to submit a project to the agencies. The advantage of the law is that it allows the State to allocate resources that are not repayable, exceeding the limits set by Law No. 8,666, and allowing the special character of medication purchases to be regulated.

3.3 Antiretroviral Drug (ARV) Production in Brazil


According to recent Ministry of Health data, in the last ten years there were around 290 thousand HIV/AIDS cases in Brazil (REDE-TB, 2005).316 During this period, both the clinical approach to HIV infection and its complications have become increasingly complex. With the advent of antiretroviral (ARV) therapy, whereby increasingly powerful drugs are being produced, its clinical manifestations are becoming less frequent and there has been a substantial improvement in the quality of life of those living with the disease. The main objective of the therapy is to delay the progression of immunodeficiency and/or, as much as possible, restore immunity, increasing both life expectancy and quality of life. Nevertheless, viral resistance, drug toxicity and the need for strict adherence to treatment continue to be significant problems in relation to ARV therapy. Currently several treatment regimens involving two or more drugs are indicated according to the stage of the disease as assessed by means of clinical examination and lymphocyte counts. With effect from the late 1980s the Ministry of Health has implemented a policy for the provision of ARVs. In 1991 Zidovudine began to be provided by the public sector to patients living with HIV, although supply did suffer a certain discontinuity. Decree No. 9,313, dated November 13th 1996, guaranteed that all patients infected with HIV have free of charge access to all medication necessary for their treatment. Distribution of drugs for triple therapy with protease inhibitors began in December of the same year. Following the establishment of free of charge access by the National STD and AIDS Programme, the demand for ARVs in Brazil became essentially public. As such, differently to that observed in a
316 According to World Bank data (2004), quoted by Hasenclever (2006), 600 thousand adults were estimated to be living with the disease in Brazil in 2002.

136

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

traditional market, in this case the State acts as an exclusive ARV purchaser, and this raises its ability to influence the sectors performance. Currently, in order to guarantee such access by 180 thousand patients taking treatment, some R$ 1 billion in public resources are allocated to purchasing ARVs (Table 6).

TABLE 6
Ministry of Health Expenditure on Antiretroviral Drugs Year 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005* Total ARV Expenditure (In R$ million) 14 149 219 487 556 515 612 551 621 945

Source: Ministry of Health, data provided by Abifina. N.B. * Estimate.

The tendency in the increase of this expenditure seen in recent years is related to the increase in the number of patients taking treatment, the updating of recommended therapies and the rise in the proportion of patients submitted to more complex therapies. Owing to the resistance developed by some patients to certain older compounds, the tendency exists of incorporating new patented drugs into the Treatment Consensus. Graph 2 presents both expenditure data and the growth in the number of patients covered by the National HIV and AIDS Programme with effect from 1997. The fall in expenditure between 1999 and 2002 is replaced by an increase with effect from 2003, with a particularly significant increase in 2005. In addition to the reasons mentioned previously, in the next item we will discuss how issues relating to the pattern of national taxation and the dependency on imports are having a prejudicial effect on public sector expenditure. Among the ARVs provided by the Ministry of Health, those protected by patents considerably increase the cost of treatment: some 80% of total expenditure relates to imported ARVs. The Brazilian pharmaceutical companies concentrate on manufacturing generic drugs. According to a survey publicized by the organization Rede-TB (2005), Brazil produces nine antiretroviral drugs for the treatment of people living with HIV/AIDS. Production takes place principally through public laboratories but does not involve the more modern drugs.

medicamentos antirretrovirais, principalmente por meio de laboratrios pblicos, para o tratamento de pacientes com HIV/Aids, entretanto essa produo no envolve os medicamentos mais modernos.
TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

137

GRFICO 2 GRAPH 2 TOTAL ARV EXPENDITURE PER AVERAGE NUMBER OF PATIENTS TREATED TOTAL DE GASTOS EM ARVs POR MDIA DE PACIENTES ATENDIDOS NO BRASIL IN BRAZIL

450 400 Gastos (US$ milhes)) 350 300 250 200 150 100 50 0 1997 1998 1999 2000 2001 2002 2003 2004 224 305 336 303 232 179 181

395

200 180 140 120 Nmero de pacientes (mil) 160

203

100 80 60 40 20 0 2005*

G a s t o ( U S $ m il h e s )
F o n tte :: P N S T D - A ID S / S V S //M H F o n e P N S T D - A ID S S H * P re vis o * ev s

M d i a d o n m e r o d e p a c ie n t e s ( m i l)

Expenditure (US$ million) Expenditure (US$ million)

Number of patients (thousand) Average number of patients (thousand) *forecast

Source: Ministry of Health/ National STD and AIDS Programme

193

The official laboratories that currently produce ARV drugs are: Oswaldo Cruz Foundation (Farmanguinhos - Rio de Janeiro); Ezequiel Dias Foundation (FUNED - Minas Gerais); Foundation for Popular Medication (Fundao para o Remdio Popular FURP - So Paulo); State of Gois Chemical Institute (Instituto Qumico do Estado de Gois IQUEGO - Gois); State of Pernambuco Pharmaceutical Laboratory (Laboratrio Farmacutico do Estado de Pernambuco LAFEPE - Pernambuco) and the State of Alagoas Industrial Pharmaceutical Laboratory (Laboratrio Industrial Farmacutico de Alagoas LIFAL - Alagoas). The public laboratories account for an expressive share of ARV production purchased by the National STD and AIDS Programme, currently standing out as the principal national producer. However, in financial terms, foreign producers have a 72.8% share as opposed to the 19.6% public laboratories share (2005). It is important to note that in 2001 the national laboratories share reached 39.4%, but has receded significantly since then. As mentioned previously, this has occurred because imported patented drugs are much more expensive than drugs produced nationally. The share of the private national companies is limited both in value (5.5%) and in quantity (7.1%) (Graphs 3 and 4 and Tables 7 and 8). It should be highlighted that failure to use compulsory licenses can be considered to be one of the causes of the weakening of national ARV production.

138

GRFICO 3 TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL
Participao na produo dos medicamentos para AIDS GRAPH 3 SHARE OF AIDS MEDICATION PRODUCTION

0, 7 59, 9% 0, 6 0, 5 0, 4 0, 7 0, 3 0, 6 0, 2 0, 5 0, 1 0, 4 0 0, 3 0, 2 0, 1 4 3,1% 0 ,0 % 199 6 56, 9% 52,0 % 4 3,1% 56, 9% 52,0 % 45, 7% 53, 9%

GRFICO 3

59, 3% 56, 3% 48, 6% 51, 0%

Participao na produo dos 8% medicamentos para3% AIDS 37, 40,


43, 4% 38, 3% 59, 9% 53, 9% 38, 3% 39, 1% 3 6, 4% 59, 3%

47 ,2%

4 3, 1% 39, 5%

15,8 %
43, 4% 40, 8%

56, 3%

48, 6%

51, 0%

2 ,3% 45, 7%
19 97

1,9 %
38, 1998 3%

4,3 %

12 ,3% 1,8 %
47 ,2% 4 3, 1% 7,1% 2005* 39, 5%

7,7%
199938, 3% 200 0

37, 3%

6,4 %

20 01 3 6, 4%

2 002

2 00 3

39, 1%

2004

Laborat rios Oficiais Laborat rios Privados Est rangeiros 15,8 % 0 ,0 %


0

Laborat rios Privados Nacionais 12 ,3% 6,4 %


200 0 20 01

2 ,3%

1,9 %
1999

4,3 % 7,7%

1,8 %

7,1%
2005*

Fonte: Ministrio 97 Sade da 199 6 19 Official Laboratories 1998

Private Foreign Laboratories Oficiais Laborat rios Source: Ministry of Health


0,9 0,8 0,7 0,6 0,5 0,9 0,4 0,8 0,3 0,7 0,2 0,6 0,1 0,5 0 0,4 0,3 0,2 0,1 0 1996 1997 1998 1999
22,0%

GRFICO 4

2 002 2 00 2004 Private National3 Laboratories

Laborat rios Privados Nacionais

Laborat rios Privados Est rangeiros

Participao nos custos dos medicamentos para AIDS


77,0%

Fonte: Ministrio da Sade 77,7%


70,7%

75,5%

81,7%

GRFICO 4

GRAPH 4 SHARE OF AIDS MEDICATION COSTS


55,4% 57,8% 57,7%

72,8%

Participao nos custos dos medicamentos para AIDS


39,4% 34,7% 25,6%

63,7%

77,7%

27,3%

75,5%
23,6% 16,6%

81,7%

77,0%
25,1% 19,5%

70,7% 2,0% 0,8%

55,4% 18,9% 1,7%

57,8% 2,8%

57,7% 7,7%

11,2% 63,7% 3,5%

5,5%

72,8% 19,6%

0,3%

1996

1997
27,3%

1998

1999

2000

39,4%

2001

2002
34,7%

2003

2004

2005

Laboratrios Oficiais 23,6%


16,6%

25,6% Laboratrios Privados Nacionais

Laboratrios Privados Estrangeiros 25,1%


19,5% 19,6%

Fonte: Ministrio da Sade 22,0%


0,3% 2,0% 0,8%

18,9% 1,7% 2,8%

7,7%

11,2% 3,5%

5,5%

2000

2001

2002

2003

2004

2005

Laboratrios Oficiais

Laboratrios Privados Nacionais

Laboratrios Privados Estrangeiros

195

Fonte: Ministrio da Sade

Official Laboratories Source: Ministry of Health

Private National Laboratories

Private Foreign Laboratories

195

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

139

TABLE 7
Cost of AIDS drugs (In R$ million) Production system share Official laboratories MoH Laboratory (Fiocruz/Farmanguinhos) Private national laboratories Private foreign laboratories
Total 1996 20.062 0 281 70.839 91.181 1997 52.196 0 3.739 135.123 191.058 1998 81.867 37.133 2.824 261.527 346.218 1999 94.088 42.057 9.619 464.086 567.793 2000 142.962 103.886 105.578 308.916 557.455 2001 2002 2003 137.687 58.922 61.656 349.464 2004 115.709 35.052 20.900 457.142 593.751 2005* 197.668 43.567 55.758 732.620 1.006.805

197.759 171.861 143.480 14.161 78.043 38.053

289.856 285.845

501.776 495.758 548.807

Source: Ministry of Health N.B. * In 2005 government ARV purchases included an additional amount of R$ 20,758,670 in relation restitution to the Argentine government and PAHO/UNICEF.

TABLE 8

AIDS drug production (Thousands of units) Production system share Official laboratories ficiais
MoH Laboratory (Fiocruz/Farmanguinhos) Private national laboratories Private foreign laboratories TOTAL 1996 36.000 0 24 47.467 1997 71.888 0 3.200 63.131 1998 86.200 29.966 4.168 1999 2000 2001 2002 2003 2004 118.502 37.899 4.603 128.165 251.270 2005* 209.039 51.462 34.603 191.973 485.464

103.877 136.815 202.443 28.673 20.998 87.914 49.835 134.946 14.742

194.274 153.561 93.522 22.208 69.278 38.858

134.829 146.235 128.778 124.381

128.734 123.767 345.216 316.187

83.491 138.218 225.197 271.110 315.428 341.566

Source: Ministry of Health N.B. * In 2005 government ARV purchases included an additional quantity of 49,850,100 units in relation restitution to the Argentine government and PAHO/UNICEF.

3.4 The Economic Feasibility of Antiretroviral (ARV) Production in Brazil: the role of public policies
The central argument of this text is that historically the production and consumption of pharmaceutical products have been marked by intense public intervention. This characteristic of the industry which is generalized sets very specific parameters for the analysis of the economic feasibility of drug production. There is no sense in using traditional cost and price measures in this market to define presumed economic feasibility. On the one hand, the price of imports is significantly influenced by the various drug production incentive measures the respective governments provide. On the other hand, the cost of internal production is influence by a series of factors (such as interest rates, the cost of labour, accounting practices, tax burden, etc.) that that leave local production at a disadvantage when compared to imported products. These two facts are the reason why a traditional cost comparison exercise, apart from being difficult to carry out, would be unnecessary.

140

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

The aim of this item is therefore simply to perform an evaluation of a qualitative nature. Two general elements need to be emphasized with regard to this. Firstly, whatever the real cost might be, there is significant potential for price reduction over time, as long as public policies aimed at fostering internal production are designed. Such policies would enable the local companies to plan better for the future. This is true both for drug production and for raw material production. Secondly, the production and innovation strategy, as well as the very performance of the drug and raw material producing companies, is affected in a very significant manner by that which the literature has referred to as implicit industrial and technological development policies. Such policies comprehend not only macroeconomic policies, including interest and exchange rates, but also policies on commerce, education, etc. The corollary of this debate is that pertinent policy proposals must be formulated in a systemic manner - based on the concept of the national system of innovation referred to above. The starting point of this discussion is the weak performance of the pharmaceutical industry in general, and that of the generic ARV production segment in particular. When observing that the productive and commercial performance of an industry is fragile, with high commercial deficits and limited participation in national production, various analysts would argue that this is nothing more than an indicator of the comparative national disadvantage of this sector and that the correct government action would be to not attempt to strengthen it, but rather to allow the country to concentrate on those segments that already have relative advantages. This liberal viewpoint which prevailed for years in Brazil and internationally (KAPLAN and LAING, 2005) has lead to the ever increasing fragility of the national pharmaceutical segment. Nevertheless, diverse arguments exist that indicate the importance of government actions aimed at the development of this industry, despite its current fragility. In most industries, competitiveness does not arise only through the relationship of demand and supply in a competitive market, but also depends considerably on the State acting as a regulator and funder, among a variety of other variables. As discussed earlier, this is especially true of the pharmaceutical sector and of the ARV segment in particular. The State has a leading role, for example, in price regulation and, in the case of ARVs, operates as a monopsonist on the Brazilian market. Therefore, the industrys performance is not determined by advantages intrinsic to the sector, but rather depends fundamentally on the relationship established with the State. The public purchases made by the government play a central role in the feasibility of ARV production and can be a mechanism for encouraging production by national companies. However, the public policy on drug purchasing currently in force does not prioritize industrial development, but rather has as its only objective the obtainment of the lowest price. This objective is established by Law No. 8,666, which governs purchases made by the Brazilian government in general. The procurement process (prego), which can involve national and foreign bidders, is conducted with the aim of purchasing the product for the lowest price offered and therefore achieving savings. By having as its exclusive goal the purchasing of products for the lowest price, the prevailing model does not privilege production according to company nationality or size. In a sector such as the pharmaceutical sector, the use of mechanisms like these can lead to inferior results. Recently Brazil underwent an experience that illustrated the problematical results arising from the use of the lowest price criterion. It was the case of national insulin production, essential for the treatment of diabetes. At the beginning of the decade, under the previous government, the use of the lowest price mechanism lead to the impracticability of national production by the Biobrs company, which was acquired by its principal international competitor. The resulting monopoly of this multinational company was reflected by price increases and increased costs for the government, which now seeks to make internal production by a national company viable once more.

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

141

Albeit controversial, representatives of variety of organizations interviewed affirm that Law No. 8,666 does not require procurement in the form of prego for the purchase of ARVs. Rather, they affirm, the Law relates to the purchase of ordinary goods, consumables etc., not necessarily needing to be employed in the purchase of goods essential to human health, such as drug chemicals and medication. Furthermore, despite defending open competition as a means of obtaining the lowest prices, public purchasing requires considerably complex bureaucratic procedures, so that companies wishing to bid in public tenders incur a variety of costs, such as expenses with obtaining certificates of tax regularity, understanding the process of government purchases, learning how to prepare proposals, among others (HASENCLEVER, 2006). These costs are proportionately higher for small companies, which makes it difficult for them to take part in this process. As a result, the model that intends to promote competition ends up contributing towards large companies and established companies winning the tendering processes. Apart from establishing the lowest price as the only criterion for public purchasing, the model prevailing in Brazil also has other limitations, particularly with regard to APIs317. By law, both national and international products participating in public tenders must have the same technical specifications. However, in practice, part of the APIs imported from winning tenderers has entered the country without meeting the required standard. According to people we interviewed, a significant part of the products is delivered below the required specification. Such products should be returned to the manufacturer which rarely happens or be purified in Brazil, resulting in additional costs for the purchaser, and losses that on one occasion were as much as 30%. During the interviews, mention was made of the case of a national company, which previously produced drug chemicals and which used its equipment to purify Indian APIs that arrived in Brazil without meeting the specifications established when they were sold. To quote another recently published example:

It is a widely known fact that most of the active ingredients for drugs to treat AIDS imported from Asia by the official laboratories have been reprocessed by the national industry because they do not meet the quality specifications. This leads to higher costs, which undoubtedly exceed the price difference verified during the procurement process, but state bureaucracy does not take this fact into consideration in its calculations (OLIVEIRA, 2006, p. 7). ANVISA,318 set up in 1999, has set rigorous regulation criteria for nationally produced generic drugs, requiring compliance with good manufacturing practices and applying strict inspection measures. By law, imported APIs should undergo a similar evaluation. In practice, however, the Agency does not certify imported APIs, and does not inspect the manufacturing conditions in the place where they are produced. In order to guarantee the quality of the APIs purchased, the Agency would have to certify them at their place of origin. A tracing process would be necessary, starting from the place where the manufacturer of the active ingredient purchases its raw materials (origin) and ending with
317 API - Active Pharmaceutical Ingredients. 318 National Health Surveillance Agency (Agncia Nacional de Vigilncia Sanitria), responsible for the sanitary control of the production and commercialization of products subject to health surveillance.

142

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

the final drug. The Agency only checks the product at the time of its arrival at the Brazilian ports and does not inspect the factory abroad.
It must be emphasized that the existence of good quality production in the Asian countries is not being denied. Developed countries such as Germany and the United States also import drug chemicals and medication from these regions, but they set up certification offices in the exporting countries to inspect the companies production conditions. As a result, the best quality production is directed towards developed nations, whilst products of lower quality are exported to countries like Brazil. As highlighted earlier, the national pharmacochemical industry is losing its competitiveness in relation to the Asian manufacturers, especially Chinese and Indian manufacturers which, in addition to receiving strong support from their governments, are not assessed according to the quality criteria applied by ANVISA to Brazilian manufacturers. In order for the public demand for ARVs to also be used as a means of encouraging the Brazilian drug chemicals and medication sector, without having negative impacts on the National Programmes budget, an evaluation must be made of the conditions needed for local companies to be able to produce competitively in relation to imported products. In addition to these harmful effects resulting from macroeconomic and regulatory policy mechanisms there are also elements of the trade policy which are also significantly detrimental to local production. This becomes clear when considering the different taxation treatment faced by national producers vis--vis imported production. All the companies interviewed emphasized that equal taxation is an essential condition for making it feasible to produce ARVs at similar prices to those charged by India and China. The removal of the tax burden is necessary for national producers to be able to achieve the same degree of competitiveness as their international counterparts. A study undertaken by Abifina reveals that the fragile drug production situation in Brazil has been made worse by the modifications made to the sectors taxation structure in 2004 changes to the tax rules regarding PIS/PASEP and COFINS contributions which removed the equal taxation of national and imported products. Whereas these contributions became due on imports, affecting the purchase price of raw materials used in the production of active ingredients, taxation on the importation and income arising from the sale of APIs on the national market was reduced to zero. The aim of this modification was to reduce costs in the sector and increase the populations access to medication. However, it had a perverse effect on the national pharmacochemical industry, since it removed the tax burden from the majority of APIs without eliminating the tax on their raw materials. The charging of PIS/ PASEP and COFINS on API raw materials cancels the effects of the import duty paid by foreign producers and, according to Abifina, the tax balance favours the foreign product.319 In the case of international procurements made by the official laboratories, this distortion becomes even more serious, since import duty and ICMS is not charged on these imported products. This burdening of national production forces the national companies to work with a significantly reduced margin in order to participate in the procurements. Differently to the importers (brokers), they face operational risks and significant capital costs. On the other hand, for the importers sales resulting from procurements are seen as a financial investment, given that they do not face operational risks or significant capital costs.

Tables 9 and 10 show the fall in the participation of the national companies in API purchase made by the pubic laboratories.

319 Abifina defends PIS/PASEP and COFINS exemption for synthesis intermediates imported by the pharmacochemical industry and the implantation of a mechanism that allows the use of PIS/PASEP and COFINS credits for the payment of duties on new import operations.

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

143

TABLE 9
Government purchases made by the official laboratories 2005 API Total (US$) Antiretrovirals Didanosine Estavudine Lamivudine Indinavir Sulphate Zidovudine APIs Other Total 20.306.497 2.627.384 1.157.894 4.425.345 2.131.448 9.964.426 811.225 21.117.722 8,9% 3,6% 49,5% 1,7% 0,0% 10,7% 9,4% Nat. Import. (%) 91,1% 96,4% 50,5% 98,3% 100,0% 89,3% 92,0% Total (US$) 6.508.519 457.771 316.576 2.481.393 0 3.252.779 930.925 7.439.444 2004 Nat. Import. (%) 24,6% 10,5% 90,0% 18,2% 25,0% 28,8% 25,1% 75,4% 89,5% 10,0% 81,8% 75,0% 71,2% 74,9% Total (US$) 14.979.657 0 226.953 3.213.662 1.691.207 9.847.835 558.434 15.538.091 27,4% 49,3% 45,2% 0,0% 25,7% 29,6% 27,4% 2003 Nat. Import. (%) 72,6% 50,7% 54,8% 100,0% 74,3% 70,4% 72,6%

20,1% 114,0%

Source: data provided by Abifina. N.B.: In 2004 there was a shortage of APIs for ARVs to the point that the government had to buy the formulated product on the external market. The information on the purchase of these drugs is not included in this table.

TABLE 10
Government purchases made by the official laboratories 2005 API Total (Kg) Antiretrovirals Didanosine Estavudine Lamivudine Indinavir Sulphate Zidovudine APIs Other Total 57.798 4.315 2.174 18.500 4.475 28.334 32.325 90.123 6,0% 3,6% 63,2% 1,6% 0,0% 7,6% 16,0% 9,4% Nat. Import. (%) 94,3% 96,5% 61,3% 98,4% 100,0% 92,9% 86,2% 91,4% Total (Kg) 18.871 849 600 8.229 0 9.193 22.920 41.791 20,2% 8,8% 86,7% 13,4% 23,1% 25,7% 23,2% 2004 Nat. Import. (%) 79,8% 91,2% 13,3% 86,6% 76,9% 74,3% 76,8% Total (Kg) 32.008 0 284 7.731 3.560 20.433 12.120 44.128 21,7% 28,9% 34,4% 0,0% 20,6% 29,1% 23,8% 2003 Nat. Import. (%) 78,3% 71,1% 65,6% 100,0% 79,4% 70,9% 76,2%

Source: data provided by Abifina. N.B.: In 2004 there was a shortage of APIs for ARVs to the point that the government had to buy the formulated product on the external market. The information on the purchase of these drugs is not included in this table.

The tables above reveal that both in terms of financial amounts and physical quantities, in 2005 more than 90% of API purchases by official laboratories for the production of the drugs shown in the

144

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

tables were imported. During the interviews, the national companies with ARV production capacity also confirmed the significant use of imported raw materials, which in general account for at least 20% of their production costs and, in some cases, can exceed 50%. Another particularity is associated with this characteristic of the Brazilian trade policy which privileges imports vis--vis internal production, this time relating to exports. Undoubtedly, our policy has been one of promoting exports in an almost absolute manner. As such, the interviews indicated the Kafkanian situation in which companies are compelled to export raw materials (thus obtaining export incentives), and later import them (thus obtaining import benefits) so that they can put competitive (sic) products on the Brazilian market. The winner in this process is the broker who operates this entire process abroad. This information indicates that the performance of the pharmaceutical sector could be competitive, depending on the relationship established with the State, and the public purchasing mechanism is one of the key elements of this relationship. When analyzing the competitiveness of this industry, we must make a dynamic examination of its potential, avoiding short-sighted conclusions. It is not possible to observe the industrys current performance and conclude that it is not competitive, without taking into consideration the distortions in prevailing public policies affecting it. It is worthwhile emphasizing yet again that when the initial stages of an industry are examined, analysis of the costs becomes irrelevant since they will decrease considerably as it evolves. The strengthening of the pharmaceutical industry, through economies of scale and the establishment of public policies generating equal conditions, will enable its capacity to compete with international players to increase significantly in the medium and long term. This Idea is confirmed by Fortunak and Antunes (2006), in a study aimed at analysing the ARV production capacity of Brazilian companies. They analyse whether in Brazil there is the potential to manufacture active ingredients and end products at competitive prices compared to international prices. To this end, they consider that emphasis should not be placed on current antiretroviral prices, since the cost of manufacturing drugs in the initial period of their commercialization is always significantly higher than it is once economies of scale in their production have been achieved. The authors concentrate their analysis of potential production costs on the principal factors that can contribute to these costs. A more precise calculation has to involve factors such as accounting practices, capital investment, workforce, interest rates, energy costs, environmental controls etc. The authors conclude that the potential exists for the industry to be cost-competitive in relation to Indian and Chinese companies, given that the principal elements determining prices in Brazil are, or can be, competitive with those observed in those countries. This would include costs associated with the environment, health and safety, which are substantially higher in Brazil than in China and some regions of India. Furthermore, the Brazilian companies could improve their cost structure by placing emphasis on the production chain and enhancing quality relating to good manufacturing standards, etc. With regard to the competition faced by national products, Eduardo Costa (2006), of Farmanguinhos, stated that the public purchasing system needs to be reviewed so as not prevent the predatory effect of international competition that is capable of having lower prices because at the origin there is less taxation and there are not the abusive interest rates that make money for investment or working capital so expensive in Brazil. In the view of the director of Farmanguinhos, enhancing the sector involves a political decision of commitment to industrial and technological development, adequate forms of risk financing, the guarantee of government purchases, the decision to put an end to the use of competitive tenders (preges) for the purchase of active ingredients, given that such

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

145

tenders do not require supplier pre-qualification and currently lead to the official laboratories loosing part of what they purchase through this system because of lack of quality. The role of the State goes beyond that of a purchaser. The strengthening of ARV production is also directly related to the support provided by the State to technological innovation. As mentioned earlier, internationally the sectors innovative activities are significantly supported by public resources. An R&D intensive industry such as the pharmaceutical industry will not become competitive in an environment which has been characterized, for some considerable time, by the inexistence of policies directed towards its technological enhancement. After years without establishing an industrial policy for the sector, with effect from 2004 the Brazilian government decided to implement some measures aimed at providing it with incentives (see item 3.2). However, the results of this cannot be completely felt yet. All the organizations interviewed stated that the sources of funding interfere in their capacity to invest in R&D. BNDES is the most used source. However, some companies suggest that the mechanisms existing in Brazil for funding innovations are not viable for them, given the high risk they will run. With regard to the Innovation Law, the unanimous opinion of the organizations interviewed is optimistic. They all argued that the instruments and mechanisms created by the Law are capable of influencing their decision to invest in R&D. Despite the limitations existing, all those interviewed stated that they are seeking to define manufacturing strategies in order to supply raw materials and first and second-line ARVs. The companies are practically unanimous in stating that in recent years they have introduced products and processes the fundamental characteristics of which in terms of technical specificity, raw material composition and synthesis routes have been altered significantly in relation to those existing previously, generating substantial technological progress and market gains. The competitive capacity of the Brazilian pharmaceutical companies will only be able to be fully felt when the public mechanisms for technological innovation are operational and, if necessary, are enhanced. As occurs in other countries, without the use of public resources the companies will not be able to enhance their products and production processes, obtain higher returns or participate more actively on the market. The role of the public sector is also relevant because of the research conditions in universities and national research institutes. In a science intensive sector like the pharmaceutical sector, in which there is high expenditure on R&D, the performance of these institutions is fundamental. Companies interviewed argued that, as occurs internationally, innovation should begin in universities and only be finalized by the companies. Universities should concentrate on basic research, which the companies are not in a position to perform. In sum, the competitiveness of the industry cannot be analysed in a short-sighted manner, only observing the current production and price conditions, without evaluating the current role played by the State, as a purchaser, regulator or funder, and without taking into consideration the strategic nature of this role. A pharmaceutical industry cannot be competitive if the State is absent. In the case of Brazil the situation has been even more perverse because the industrial policy that affects the sector is undoubtedly a policy of exportation and importation applied in an incorrect manner. Moreover, the remainder of the implicit industrial policy, including taxation, has been noticeably prejudicial to national production. Therefore, the possibility of strengthening the generic ARV drug industry in Brazil requires, above all, a new approach in the way public policies operate in relation to it.

146

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

The strengthening of the Brazilian pharmaceutical industry, by increasing the production of ARVs and related drugs, would generate a significant positive impact on the balance of trade, altering the increasing trend of imports and deficits shown earlier. In a country historically characterized by external vulnerability, an improvement in the balance of trade would lead to positive macroeconomic results. Emphasis must also be given to the issue of national health security. The international capacity to produce drug chemicals and generic drugs for AIDS treatment is not growing at the same rate as the demand for them. As such, we are running the risk of going through a shortage crisis. It must be highlighted that the products in question are not superfluous consumer goods, but rather products responsible for saving lives. As such, strengthening internal production is a guarantee for national public health. The recent ANVISA strike points out the danger of our depending heavily on imports: patients were placed at an unnecessary risk because drugs were trapped at the ports. Finally, in addition to representing a serious problem for Brazilian public health, the scarce national production limits the Brazilian governments bargaining power in relation to international suppliers. Therefore, obtaining lower prices in the short term, to the detriment of strengthening the national companies, may initially produce financial savings, but later it will limit negotiating power and the continued possibility of cost savings.

4 Intellectual Property
The issue of intellectual property, particularly industrial property and its interrelations with the economic transformations associated with the dynamism of the new technology intensive industrial sectors and with the new international division of production and trade, was the object of intense debates during the 1990s. During this period, similarly to other developing countries, Brazil was heavily pressured to alter its legal and institutional bases for protecting intellectual property rights. The turbulent process of their reformulation is related to their increasing importance as an instrument for regulating international trade flows, both of tangible and intangible goods (CASSIOLATO and ELIAS, 2003). As such, the Brazilian government, as part of the process of its Industrial, Technological and Foreign Trade Policy, introduced Bill No. 824/91 in the National Congress. After a considerable length of time the Bill was approved in the form of Law No. 9,279/96.320 The final act of the Uruguay Round was signed in April 1994 and ratified in December of the same year by the National Congress. With effect from January 1995, the agreements reached at the Uruguay Round, including the Trade Related Aspects of Intellectual Property Rights (TRIPS) Agreement,321 and the Agreement establishing the creation of the World Trade Organization (WTO) into force in the signatory countries.

320 Although repeating the entire form of the previous codes, the Bill introduced was analysed as a law, in disregard of the Internal Regulations of the Chamber of Deputies, based on the argument that its approval was urgent, which can be seen in the hasty way it was conducted. During analysis by the Commission of Constitution and Justice, the Commission of Science and Technology, the Commission of the Environment, the Commission of Economy and Finances and a Special Commission, the Bill suffered more than 1000 alterations and at least three complete amendments and was finally approved by the Senate in June 1993, before being transformed into Law No. 9,279/96. Given the complexity of the matter and the scanty knowledge regarding it on the part of society and the parliamentarians themselves, the way the Bill was conducted lead to the law having a series of substantive, technical and formal defects. The TRIPS Agreement is dealt with in Annex IC of the Marrakesh Agreement, which established the WTO, the 321 negotiation of which was concluded in April 1994. The Agreement establishes the obligation for the member countries (123) to grant protection to inventions in all the technological areas that meet the patentability requirements, whilst allowing exclusions on the grounds of public order, health, the protection of life etc. The essence of the TRIPS Agreement is similar and complementary to the Paris Convention.

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

147

Therefore, the coming into force of the TRIPS Agreement on January 1st 1995 broadened the scope of patents by determining that the signatory countries had to recognize pharmaceutical and foodstuff products and processes, contrary to the former Industrial Property Code which had been in force since 1971. The Agreement allowed the developing countries a ten year transition period to bring their legal systems into line with the international legislation. Although Brazil could have benefitted from this rule, it decided not to and approved its new Industrial Property Law as early as 1996 (Law No. 9,279, May 14th 1996). The principal arguments put forward by those stakeholders, professional associations and government representatives, among others, who defended radical changes to the Brazilian patent protection system were basically related to the following advantages, according to those who articulated them: a) an opportunity for the country to modernize itself; b) increased competitiveness and improved quality standards of the local industry; c) facilitate the exchange of industrial property with other countries; d) strong movement in favour of patenting inventions in Brazil; e) encourage investment in research and development by foreign companies based in the country; f) encourage direct investment from abroad, by making the market attractive through the adoption of protection rules similar to those of the industrialized countries; g) increased flow of technology transfer, by means of an increasing number of licensing contracts; and h) reduction in the technology gap, increase in local capacity building and human resource training. It is also appropriate to mention that in the so-called reform decade profound changes took place in the States patrimony and monopoly with an intensification of the process of the privatization of state-owned companies and the outsourcing of public services to the private sector. This produced impacts, albeit differentiated between the sectors, on the number of technology transfer contracts deposited with the INPI and consequently on the volume of remittances abroad. In general companies opted for technical assistance services, to make the most of the possibility opened by the legislation of using foreign labour. In the case of the pharmaceutical sector, as will be seen further on, the changes concentrated on the licensing of trademarks. The Brazilian law included provisions that go beyond the rigidity established by the TRIPS Agreement, allowing the inclusion of the pipeline mechanism (recognition, in Brazil, of patents granted abroad for the period of time left before they expire in their country of origin, as long as they have not previously been exploited in any other part of the world, or in respect of which serious preparation has taken place for their exploitation in Brazil), provided for in article 231 of Law No. 9,279/96, because of the pressure brought to bear by a strong international lobby. This mechanism was added despite various jurists arguing that its use violates the principal of novelty.

148

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

Another particularity of Brazilian law refers to the prior agreement for Brazilian patents. Patent applications involving pharmaceutical products and processes require prior analysis by ANVISA. ANVISA gives technical support to INPI in checking whether pharmaceutical products and processes are in accordance with the requirements of the TRIPS Agreement and Brazilian law, including novelty, inventive activity and industrial application. This mechanism does not infringe the TRIPS Agreement rules and is compatible with Brazilian legislation, as mentioned in the Legal Evaluation. Those who defend the establishment of severe patent systems argue that by fostering incentives for direct investment and licensing, technology transfer to Brazil is encouraged. However, the experiences of countries like Japan, Switzerland and India tend to contradict these arguments, indicating that a low level of patent protection was a key factor to the strengthening of production capacity and R&D in the pharmaceutical sector. As mentioned earlier, countries like India and China, which used the transition period offered to underdeveloped countries, were able to develop their pharmaceutical sectors and become large participants on the world market. Analysis of economic transformations requires the identification/delimitation of the time periods in which they occur, so as to facilitate their association with other phenomena and enable the interpretation of the empirical evidence found. As such, the objective of this item is to present how the principal alterations introduced into the industrial property regulatory apparatus assist with understanding the behaviour of the pharmaceutical companies located in the country in establishing technology transfer contracts, in view of the broadening of the scope of patenting, the new rules for trading (licensing) trademarks and patents, apart from the trading of know-how and technical assistance services. The period selected begins in the 1990s, with the introduction of vast framework of guidelines relating to the Industrial, Technological and Foreign Trade Policy, and ends in the early 2000s with the implementation of changes in the tax effects of registering technology transfer contracts. The imposition of rules that restrict or allow greater liberality in the taxation treatment conferred on technology transfer contracts undeniably influences the decision to license, especially in the case of contracts between companies belonging to the same economic group. The changes to the legislation lead to an increase in patent applications made to INPI, especially by foreigners. A study done by Oliveira et al. (2004) on pharmaceutical sector patent applications made in Brazil, according to country of origin, reveals this variation. Although the participation of Brazilian applicants has grown, proportionally it is still very small and indicates local technological fragility.

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

149

TABLE 11
Pharmaceutical patent applications in Brazil, by country of origin Country United States Germany France United Kingdom Switzerland Japan Japan Brazil Italy Italy Holland Denmark Canada Spain Australia Hungary Monaco Source: Oliveira et al. (2004) apud Chamas (2005). August 1992 to December 1995 1995 40 24 14 10 37 14 2 0 4 0 2 0 2 0 2 3 3 January 1992 to December 1995 2002 2.854 854 627 535 384 352 283 221 136 158 132 127 127 69 45 24 4

The increase in the number of patent applications is not a phenomenon observed only in Brazil, but rather an international tendency and a consequence of the growing number of countries that have incorporated themselves into the international system because of the commitments taken on under the TRIPS Agreement, together with the expansion of international trade in goods and services, whereby new regions around the world are gaining importance. Oliveira (2006) emphasizes that although the number of new patents has shown only a modest rate of growth, demonstrating a lack of dynamism in the process of innovation, the total number of patent applications made has increased owing to the need to protect inventions in a larger number of countries. Whereas at the beginning of the 1980s an invention was patented in three or four countries, by the end of the year 2000 applications for new patents were being deposited in at least fourteen or fifteen countries, on average. The need to apply for patents in several countries has raised costs for companies. From the point of view of the patent offices the consequences have been an increase in the period of time between the examination and the granting of patents and an increase in the number of weak patents granted, which are liable to being challenged in court because of flaws in the examination process. In the 1990s in the USA there was an increase in legal disputes motivated by the granting of questionable patents.

150

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

Similarly, there was an increase in patents granted in one country which had had their applications rejected, fully or partially, by other countries (OLIVEIRA, 2006). The data therefore shows that patents have become a market reserve mechanism, hindering rather than encouraging innovation. In practice the incorporation of the TRIPS Agreement into Brazilian legislation, as well as its application has favoured the performance of multinational companies to the detriment of that of local companies. The following table shows the patent applications made in Brazil between 1990 and 2001.

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

151

TABLE 12
Pharmaceutical sector patent applications (1990-2001) Company Abbott Ach Allergan Asta Astrazeneca Aventis Bayer Biosintetica Boehringer Ingelheim Bristol-Myers Squibb Cristlia Eli Lilly Eurofarma Glaxo Janssen Lundbeck Medley Merck Novartis Novo Nordisk Organon Pfizer Roche Sanofi-Synthelabo Schering Smithkline Stiefel Wyeth-Whitehall Zambon Total Resident IP UT ID IM 0 0 0 0 15 0 0 0 0 0 7 0 0 2 0 1 0 0 0 0 0 0 0 0 0 0 0 2 0 0 0 0 27 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Non-Resident IP UT ID IM 90 0 0 0 0 20 46 174 183 153 0 99 88 0 13 0 123 110 3 0 22 22 80 0 566 389 233 146 366 0 0 8 2.934 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Total per yar 90 15 20 46 174 183 153 7 99 88 2 13 1 123 110 3 0 22 22 80 0 566 389 233 148 366 0 0 8 2.961

Source: INPI, in Elias (2004). N.B.: The companies controlled by national capital are Ach, Biosinttica, Cristlia and Eurofarma. Legend IP UT ID IM Invention patent Use of trademarks Industrial design Industrial model

152

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

The products and/or processes with patent applications filed in Brazil were analysed using the international patent classification and identifying the area pertinent to chemical products and the production of active ingredients of pharmaceutical drugs. The companies were selected using list of Interfarma member companies, as well as the five largest national companies (in terms of invoiced revenue). The objective was to obtain a comparative analysis of the companies operating in the sector, using as an indicator their patenting capacity in Brazil. With regard to the multinational companies, the information reveals that it is their head offices that apply for patents in the country in which they are located. With the exception of two patents applied for by subsidiaries of the Schering company, no other branch of a multinational company has carried out this procedure in Brazil. Between 1990 and 2001, only 27 resident companies applied for patents in Brazil as opposed to 2,934 non-resident companies. In relation to the national companies, Ach deposited fifteen patents in the same period, followed by Biosinttica with seven. This data shows the low intensity of patenting by the national companies and the reduced local technological development of the multinational companies. Data concerning technology transfer contracts in the pharmaceutical sector are presented below.

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

153

TABLE 13
Pharmaceutical industry technology transfer contracts, by company (Brazil, 1992-2001) Company Abbott Ach Allergan Asta Aventis Bayer Bristol Myers Eli Lilly Eurofarma Janssen Merck Sharp & Dohme Novartis Novo Nordisk Pfizer Roche Schering Stiefel Wyeth - Whitehall Zambon Total Global Source: INPI, in Elias (2004). 3 138 1 1 15 3 33 1 0 1 19 14 14 5 20 2 1 1 5 13 6 1 5 4 1 1 2 1 6 1 FT UT 12 9 1 1 1 5 5 TAS SAT R&D FRA Grand total 12 14 2 1 1 24 14 14 6 26 2 1 3 5 20 10 3 15 3 176

Legend PT UT PE TAS R&D FRA Provision of technology Use of trademarks Patent exploitation Technical assistance services Research and development Franchises

Analysis performed by Elias (2004) of pharmaceutical industry contracts, by company, confirms that only the category Use of Trademarks is relevant, whilst the others appear sporadically over the decade. As emphasized earlier, as it is only the licensing of a right, the use of a trademark does not entail the acquisition of knowledge for the sector.

154

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

5 Policy Proposals
Various authors have indicated certain shortcomings in the standard of policies for the area of health, both from the practical point of view and, above all, from the conceptual point of view. Gadelha (2005) indicates that, from the point of view of the science and technology policy, knowledge generation is confused with innovation generation. Moreover, with regard to service provision, the interaction with the industry has been marked by a high level of mistrust and by low interactivity, which are at the root of a low quality welfarist supply based on products with a low requirement for quality and technological evaluation. We argue in this text that the policy relating to the Brazilian AIDS Programme, despite being successful in implementing free of charge and universal access to the necessary drugs by people living with HIV/AIDS, repeats some of the mistakes observed with regard to the area health as a whole. Drug purchasing, undertaken by the government based on Law No. 8,666, concentrates on minimizing costs and solving emergencies, without creating long-term strategies for strengthening the sectors production capacity. The importation of drug chemicals and finished generic products is currently adopted as a short-term solution to supplying medication to the population. Nevertheless, several sources of evidence presented suggest that this posture can lead to excessive expenditure in the mid and long term. The high costs of imported drugs and the fear of discontinuity in their supply has encouraged various countries to invest in their own production units. Examples of this are two countries smaller than Brazil in terms of their populations and economies, Namibia and Kenya, which in June and September 2003 announced, respectively, local production of ARVs. Similarly, in June 2004 a Zimbabwean pharmaceutical company announced that it was beginning production of generic ARV drugs322. Much can be done in Brazil to enhance ARV drug production. On the one hand, the use of compulsory licensing can make feasible the production of medication patented in Brazil. Despite Brazil not having used this instrument yet323, price reductions have been achieved through negotiations and the plausible threat of licensing and national production. On the other hand, encouraging generic ARV production depends only on the sector being treated as a public priority. Incentives for investment in R&D can create enhancements to products and production processes, generating significant gains in terms of productivity and quality. As proposals for the enhancement of the sector, we highlight the following: 1) The full use of the mechanisms provided by the Innovation Law (Law No. 10,973/2004) as regulated by Decree No. 5,563/2005, and the mechanisms of the so-called Asset Law (Law No. 11,196/2005), which are important instruments for increasing R&D activities in the country by means of economic subsidy, this being a longstanding aspiration of the corporate and academic worlds because it will provide a strong stimulus for the productive sector. The application of the new law will also encourage companies to form consortia to develop projects using the instruments of the R&D economic subsidy.

322 Some authors, however, question the sustainability of the proliferation of drug production in diverse developing countries, since the scarcity of qualified human resources, energy, water and the limited size of the market may be factors tending to limit success. On the other hand, Kaplan and Laing (2004) apud Rovira (2004) admit that industrial investments directed towards fostering the local manufacturing of pharmaceutical products in many developing countries could be used to enhance the infrastructure of the health sector or to stimulate existing markets. 323 As mentioned earlier, the Brazilian government made use of this instrument in 2007, after this study had been concluded.

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

155

By means of the provisions existing in current legislation, the Ministry of Science and Technology, through its Studies and Projects Funder (FINEP), should make public calls for proposals with the aim of selecting proposals to enable financial support, in the form of an economic subsidy, to be provided to national companies to fund research and development into innovative products, processes and/or services in Brazil. Providing an incentive for companies to innovate, with the aim of increasing their competitiveness, as well as the technological and dynamical enhancement of the production chains, could provide a strong impetus to increased expenditure on R&D, thus enabling the obtainment of new synthesis routes and/or the development of new molecules that permit technological progress in the production of certain active ingredients, as well as a reduction in the Programmes ever increasing expenditure which is due in particular to the burdensome importing of active ingredients not available on the internal market. 2) Guaranteed public purchases should be established for a period of time that is fixed, but sufficient for the companies to obtain a return on the investments that need to be made. Contracts that involve guaranteed purchases for only a few months will not result in the companies investing in ARV production. Suggestions for the length of the contracts vary between two and four years. It must be stated that we are not arguing in favour of a constantly guaranteed market for national companies. Furthermore, as it is a sector with a strong social impact, apart from the need to gradually reduce the volume of imports that excessively burden the Brazilian balance of payments, the agreement between these companies and the government must require the companies to achieve technological enhancement and to seek to achieve production at competitive prices. This is one of the reasons why the contracts should be for a fixed period of time. 3) Establishment of a public-private partnership between public laboratories and private producers for technological development in the area of pharmacochemical production for HIV drugs. Contracts of this nature, in addition to minimizing dependency on imports, are relevant for guaranteeing the quality of the end product, given that it is unlikely that ANVISA will be able to inspect the production of imported active ingredients in the short term. 4) Joint purchasing of drug chemicals by the public laboratories. One of the limiting factors on the national production of drug chemicals is the difficulty in obtaining economies of scale. This is because of government purchases for the public laboratories being split. Each laboratory buys the raw materials it needs separately, purchasing quantities insufficient to generate a scale of production that is sufficiently cost-competitive. Unifying laboratory purchases would enable scale to be obtained as well as the increased competitiveness of the national companies. 5) Encouraging technological development by financing R&D activities. 6) Using the intellectual property legislation that is more favourable to Public Health. This measure would necessarily require greater rigour in issuing patents, as well as the use of compulsory licensing, since an industry with ARV production capacity is vital for the sustainability of the National STD and AIDS Programme. The objectives of these proposals are to reduce production costs, raise the quality of the products and processes used, to foster technological innovation in the Brazilian pharmacochemical industry, reduce the commercial deficit of the health sector, to increase and qualify jobs and social benefits for Brazilian workers, thus generating positive effects for the other sectors of the economy.

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

157

REFERENCES LEGAL EVALUATION


BARBOSA, D. B. Uma introduo propriedade intelectual. 2 edio, 2002. Available at: <http://denisbarbosa.addr.com/15.doc>. BODENHAUSEN, G. H. C. Guide to the application of the Paris convention for the protection of industrial property (as revised at Stockholm in 1967). BIRPI/WIPO: 2004. BRASIL. Ministrio da Sade/Programa Nacional de DST/Aids. A sustentabilidade do Acesso Universal a Anti-Retrovirais no Brasil. Braslia: Document prepared for distribution during the 157th Ordinary Meeting of the National Health Council, on August 10th 2005. BRAZILS disregard for books. The Economist, 16 Mar. 2006. BRAZILS right to save lives. New York Times, New York, 23 June 2005. BRENNAN, D. What is equitable remuneration for Intellectual Property use? Electronic Journal of Intellectual Property Rights, Oxford Intellectual Property Research Centre, Jan. 2005. BYSTRM M.; EINARSSON P. Consequences for developing countries: implications for Swedish development cooperation. Swedish International Development Cooperation Agency: Aug. 2001. CARVALHO, S. P. de; SALLES FILHO, S.; FERREIRA, C. Micros, pequenas e mdias empresas acessam menos o sistema. Revista Inovao, Instituto Uniemp, jan.-mar. 2006. COMPARATO, F. K. A propriedade ou a vida. Folha de So Paulo, So Paulo, Nov.1st 1993, cad.1, fls. 3. apud DELGADO, J. O juiz na sociedade complexa do seu tempo. Centro de Estudos Jurdicos, Justia Federal do Rio Grande do Norte. Available at: <http://www.jfrn.gov.br/cejrn_ed_especial.htm>. ______. Direitos e deveres fundamentais em matria de propriedade. Revista da Fundao Escola Superior do Ministrio Pblico do Distrito Federal e Territrios, ano 5, n. 10, jul.-dez. 1997. DRAHOS, P. Intellectual property and pharmaceutical markets: a nodal governance approach. 2004. Available at: <http://cgkd.anu.edu.au/menus/PDFs/Drahos%20Temple.pdf>. ______. The universality of intellectual property: origins and development. Geneva: WIPO, Panel Discussion on Intellectual Property and Human Rights, Nov., 1998. ENTIDADES pedem mudanas em compra pblica de frmacos. Gazeta Mercantil, Aug. 24, 2004. FONSECA, M. G. D. Institutional and financial requirements for the emergence of biotechnology in Brazil. GLOBELICS, 2003, Rio de Janeiro. Trabalhos. Rio de Janeiro: Nov. 2003. GEIGER, C. Fundamental Rights: a Safeguard for the Coherence of Intellectual Property Law? IIC, Heft 3, 2004. GOLIN, M. A. Generic drugs, compulsory licensing, and other intellectual property tools for improving access to medicine. Genebra: Quaker United Nations Office, May 2003. GORASIA. The impact of article 27 of the TRIPS Agreement on foreign direct investment and transfer of technology to developing countries. IPR: Apr. 2002. Available at: <www.iprsonline.org>. HEATH, C. Os limites dos direitos patentrios em termos temporais, geogrficos e de contedo. In: Propriedade intelectual e desenvolvimento temas controversos. So Paulo: Editora Quartier Latin, 2006. In print.

158

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

______. Parallel Imports and International Trade. WIPO: 1999. Available at: <http://www.wipo.org/sme/ en/ip_business/export/international_exhaustion.htm>. INTERNATIONAL CHAMBER OF COMMMERCE (ICC). The Importance of Incremental Innovation for Development. Paris: ICC, 27 May 2005. KHAN, B. Z. Intellectual Property and Economic Development: Lessons from American and European History. Commission on Intellectual Property Rights, study paper 1a, 2002. Available at: <www. iprcommission.org>. KUMAR, N. Intellectual Property Rights, Technology and Economic Development: Experiences of Asian Countries. Commission on Intellectual Property Rights, study paper 1a, 2002. Available at: <www. iprcommission.org>. LABORATRIOS atacam regras de licitao. Jornal do Brasil, Rio de Janeiro, 24 Aug. 2004. LERNER, J. 150 Years of patent protection. Harvard Business School: 2002. Available at: < http://www. people.hbs.edu/jlerner/>. LEVY, M.; LICKS, O. O requisito de fabricao completa do objeto de uma patente no territrio nacional. Interfarma: 2003. Available at: <www.interfarma.org.br>. LOVE, J. Compulsory licensing: models for state practice in developing countries, access to medicine and compliance with the WTO TRIPS Accord. UNDP: 21 Jan. 2001. ______. Implementing TRIPS safeguards with particular attention to administrative models for compulsory licensing of patents. Document prestened in a World Health Organization meeting in Harare, Zimbabwe, 21 Aug. 2001. ______. Remuneration guidelines for non voluntary use of a patent on medical technologies. Geneva: WHOUNDP, 2005 (Health economics and drugs TCM series, n. 18). MENGISTIE, G. Consecuencias del sistema internacional de patentes en los pases en desarrollo: estudio del Sr. Getachew Mengistie. 39 srie de reunies da Ompi. Genebra: WIPO, Sep. 2003. MORAES, A. de. Direito Constitucional. 15ed. So Paulo: Atlas, 2004. NELSON, R. Observations on the post-bayh-dole rise of patenting at American universities. Intellectual Property Quarterly, n. 1, 2001. NEVES, F. Novas drogas e patentes. CGEE: 2003. Available at: <http://www.cgee.org.br/arquivos/rhf_ p1_nd_francisco_neves.pdf>. ORGANIZAO MUNDIAL DA SADE (OMS). Salud Pblica, innovacin y derechos de propiedad intelectual. Informe de la Comisin de Derechos de Propriedad Intelectual, Innovacin y Salud Pblica, abr. 2006. Available at: <http://www.who.int/intellectualproperty/documents/thereport/en/index. html>. RA, A. K.; EISENBERG, R. S. Bayh-Dole reform and the progress of biomedicine. Law & Contemp. Problems, n. 289, winter/spring 2003. REICHMAN, J. H.; HASENZAHL, C. Non-Voluntary licensing of patented inventions: historical perspective, legal framework under TRIPS, and an overview of the practice in Canada and the United States of America. Unctad-ICTSD: 2003 (Issue Paper, n. 5). Available at: <http://www.iprsonline. org/unctadictsd/projectoutputs.htm>.

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

159

ROCKFELLER FOUNDATION. Access to medicines for developing countries: the contribution of the global R&D (Draft). Rockfeller Foundation: 2001. Available at: <www.rockfound.org>. ROSENBERG, B. A interface entre o regime de patentes e o direito concorrencial no setor farmacutico. In: Propriedade intelectual Estudos em homenagem professora Maristela Basso. Curitiba: Editora Juru, 2005. RYAN, M. P. Brazils quiet bio-medical innovation revolution: drugs, patents, and the 10-90 health research gap. George Washington University: 2006. Available at: <http://www.law.gwu.edu/Academics/ CIEC/Research+Papers.htm>. STRAUS, J. Pre-Grant appeal and post-grant review under the European patent convention. Nordiskt Immateriellt Rttsskydd, n. 5, 2002. TACHINARDI, M. H. A guerra das patentes: o conflito Brasil x EUA sobre propriedade intelectual: So Paulo: Editora Paz e Terra, 1993. UK COMMISSION ON INTELLECTUAL PROPERTY RIGHTS. Workshop 1: technology, development and intellectual property rights. 25 Jan. 2002. Available at: <www.iprcommission.org>. UNCTAD-ICTSD. Resource Book on TRIPS and Development. Cambridge: Unctad-ICTSD, 2005. VAZ E DIAS, J. C. Compulsory license de patentes e direito antitruste. Revista da Associao Brasileira de Direito da Propriedade Intelectual, Oct. 2001. VERMA, S. K. Exhaustion of intellectual property rights and free trade article 6 of the TRIPS Agreement. IIC, v. 29, n. 5, 1998.

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

161

REFERENCES ECONOMIC EVALUATION


ABIFINA. Anlise dos efeitos da tributao PIS e COFINS sobre a competitividade da indstria farmoqumica no Brasil. Rio de Janeiro. 2004. ______. Quebra de patentes em anti-retrovirais. Rio de Janeiro: Abifina, 19 jul. 2005. ACHILLADELIS, B.; ANTONAKIS, N. The dynamics of technological innovation: the case of the pharmaceutical industry. Research Policy, n. 30, p. 535-588, 2001. ALBUQUERQUE, E. M.; CASSIOLATO, J. E. As especificidades do sistema de inovao do setor sade: uma resenha da literatura como introduo a uma discusso sobre o caso brasileiro. Estudos FeSBE, Belo Horizonte, 2000. ARANTES, R.S. Projeto de Lei Contratao de Frmacos e Medicamentos. Braslia: Ministrio do Planejamento, Oramento e Gesto, Secretaria de Logstica e Tecnologia da Informao, Feb. 2006. BARREIRO, E. J. Pesquisa e Desenvolvimento de Frmacos. 1 Seminrio Nacional sobre o Complexo Industrial da Sade. Rio de Janeiro: BNDES, 5-7 May 2003. BASTOS, V. D.. Inovao farmacutica: padro setorial e perspectivas para o caso brasileiro. BNDES Setorial, Rio de Janeiro, n. 22, p. 271-296, Sep. 2005. BERMUDEZ, J. Medicamentos genricos: uma alternativa para o mercado brasileiro. Cadernos de Sade Pblica, Rio de Janeiro, v.10, n.3, Jul.-Sep. 1994. BHOJWANI, H. R. Developing innovative capacity in India to meet health needs, MIHR report to CIPIH, WHO Ref. CIPIH Study 10d (DGR), April 2005. BOND; GLYNN. Recent trends in support for biomedical research and development. In: ROSENBERG, N.; GELIJNS, A., DAWKINS, H. Sources of medical technology: universities and industry. Medical Innovation at the Crossroads, v. 5. Washington: National Academy, 1995. BRAGA, J. C. S.; SILVA, P. L. B. A mercantilizao admissvel e as polticas pblicas inadiveis: estrutura e dinmica do setor sade no Brasil. In: NEGRI, B.; GIOVANNI, G. (Orgs.). Brasil: radiografia da sade. Campinas: Nepp/Instituto de Economia Unicamp, 2001. BRESCHI; MALERBA Sectorial innovation systems: technological regimes, schumpeterian dynamics and spatial boundaries. In: EDQUIST, C. (Org.). Systems of innovation: technologies and organizations. London: Pinter Publisher, p. 130-156, 1997. CASPER, S.; MATRAVES, C. Institutional frameworks and innovation in the German and UK pharmaceutical industry. Research Policy, n. 32, p.1865-1879, 2003. CHAMAS, C. Developing Innovative Capacity in Brazil to Meet Health Needs, MIHR report to CIPIH, WHO Ref. CIPIH Study 10d (DGR), April 2005. CHEQUER, P. Acesso aos anti-retrovirais e propriedade intelectual contextualizao. Braslia: PN DST e Aids, 2004. CORDEIRO, H. A indstria de sade no Brasil. Rio de Janeiro: Graal, 1980. CORREA, C. M. O acordo TRIPS e o acesso a medicamentos nos pases em desenvolvimento. Emory International Law Review, Atlanta, v. 17, n. 2, 2003.

162

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

COSTA, A. L. M. C. O custo oculto da medicina. Carta Capital, 23 Nov. 2005. COSTA, E. Poltica de medicamentos: tecnologia e produo no Pas. Abifina Informa, n. 216, mar. 2006. Available at: <http:/www.abifina.org.br>. DHAR, B.; RAO, N. C. Transfer of technology for successful integration in the global economy: a case study of pharmaceutical industry in India. Unctad-Dite Investment Policy and capacity-building branch, p. 1-65, 2002. ELIAS, L. A. Transferncia de tecnologia: indicadores recentes sobre a indstria farmacutica. Apresentado em 10 anos do TRIPS: democratizao do acesso sade, So Paulo, Mar. 2004. ERNST; YOUNG LLP Pharmaceutical industry R&D costs: key findings about the public citizen report. Aug. 2001. FELIPE, S. A sustentabilidade do acesso universal a anti-retroviriais no Brasil. Document prepared for distribution during the 157th Ordinary Meeting of the National Health Council, on August 10th 2005. Braslia: Ministrio da Sade, Aug. 2005. FERRER, M.; THORSTEINSDTTIR, H.; QUACH, U.; SINGER, P. A.; DAAR, A. S. Brazil Biotechnology. Nature Publishing Group, v. 22, Dec. 2004. FORTUNAK, J. M.; ANTUNES, O. A. C. ARVs production in Brazil: an evaluation. Document funded by the NGOs Associao Brasileira Interdisciplinar de Aids and Mdecins Sans Frontires. Rio de Janeiro: Abia, 2006. FREEMAN, C. The national system of innovation in historical perspective. Journal of Economics, Cambridge, v. 19, p. 5-24, 1995. FRENKEL, J.; GADELHA, C.A.G.. Estudo da competitividade de cadeias integradas no Brasil: impactos das zonas de livre comrcio. Cadeia: Farmacutica. Campinas: Universidade Estadual de Campinas, Instituto de Economia, Dec. 2002. GADELHA, C. A. G. O complexo industrial da sade e a necessidade de um enfoque dinmico na economia da sade. Cincia e Sade Coletiva, Rio de Janeiro, v. 8, n. 2, 2003. ______. Complexo da Sade. Relatrio de Pesquisa desenvolvido para o projeto Estudo de Competitividade por Cadeias Integradas, sob a coordenao de Coutinho, L. G., Laplane, M. F., Kupfer, D. e Farina, E. Ncleo de Economia Industrial e da Tecnologia do Instituto de Economia, convnio Fecamp/ MDIC/MCT/Finep, 2002. ______. O complexo industrial da sade: desafios para uma poltica de inovao e desenvolvimento, 2006. Mimeografado. ______. QUENTAL, C.; FIALHO, B. C; CASTRO, B. Sade e inovao: uma abordagem sistmica das indstrias da sade. Cadernos de Sade Pblica, Rio de Janeiro, v. 19, n. 1, 2003. GALENO, R.; JANSEN, R. Indstria ignora doenas de pases pobres. Jornal O Globo, Mar. 2002. GEFFEN, N. Pharmaceutical Patents, Human Rights and the HIV/AIDS Pandemic. Apresentado no World Business Council for Sustainable Development Project on Innovation and Technology, May 2001. HASENCLEVER, L. (Coord.). Propriedade intelectual, poltica industrial-tecnolgica e mercado de anti-retrovirais. Rio de Janeiro: Instituto de Economia, Universidade Federal do Rio de Janeiro, Grupo Inovao, Feb. 2006.

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

163

HICKS, D., KATZ, J. Hospitals: the hidden research system. Science and Public Policy, v. 23, n. 5, p. 297304, Oct. 1996. IMS HEALTH. Bioequivalent generics displace copies in Latin America. 25 May 2005.WWW IMSHEALTH. ORG . IPD-FARMA. Termos de referncia para uma poltica industrial e tecnolgica para farmoqumicos e medicamentos. IPD-Farma: Jun. 2004. JACK, A.; JOHNSON, J. HIV/AIDS victims in India protest over drug patent. Financial Times, International Economy, 11 May 2006. JUMA, C.; YEE-CHEONG, L.Y. Reinventing global health: the role of science, technology, and innovation. Millenium Project, v. 365, 19 Mar. 2005. KAPLAN, W. Pharmaceutical product development. Boston: Center for International Health and Development of Boston University School of Public Health, Jan. 2005. KAPLAN, W.; LAING, R. Local productions of pharmaceuticals: industrial policy and access to medicines an overview of key concepts, issues and opportunities for future research. Washington: The International Bank for Reconstitution and Development/ The World Bank, Jan. 2005 (HNP Discussion Paper). KATZ, J. M. (Ed.). Apertura econmica y desregulacin en el mercado de medicamentos. La industria farmacutica y farmoqumica de Argentina, Brasil y Mxico en los aos 90. Buenos Aires: Cepal/IDRC Alianza Editorial, 1997. LEVIS, M. Role, perspectives and challenges of the generic pharmaceutical industry in Latin America. Document presented at the ICTSD-Unctad Dialogue on Ensuring Policy Options for Affordable Access to Essential Medicines, Bellagio, 12-16 Oct. 2004. LI, Z. Developing innovative capacity in China to meet health needs. MIHR report to CIPIH, WHO Ref. CIPIH Study 10d (DGR), Apr. 2005. LOVE J. Evidence regarding research and development investments in innovative and non-innovative medicines. Consumer Project on Technology, Sept. 2003. ______. From TRIPS to Rips: a better trade framework to support innovation in medical technologies. Workshop on Economic issues related to access to HIV/AIDS care in developing countries. France, Marseille: Universit de la Mditerrane, May. ______. How much does it cost to develop a new drug. MSF Working Group on R&D, Apr. 2000. ______. Paying for health care R&D: carrots and sticks. MSF/DND Working Group. Geneva: MSF/ DND, p. 1-11, Jan. 2001. ______. Policies that are access to medicine, and promote innovation, with special attention to issues concerning the impact of parallel trade on the competitive sector, and a trade framework to support global R&D on new care inventions. WHO/WTO Joint Secretariat workshop on differential pricing and financing of essential drugs. Hosbjor: WHO/WTO, Apr. 2001. MAAIRA, L. A. A capacitao produtiva brasileira para anti-retrovirais. Abifina Informa, n. 216, Mar. 2006. Available at: <http://www.abifina.org.br>. McKELVEY, M.; ORSENIGO, L. Pharmaceuticals as a Sectoral innovation system, ESSY Project, p. 1-74, Nov. 2001.

164

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

MDICOS SEM FRONTEIRAS. A nova crise de acesso a medicamentos antiaids: preos de antiretrovirais financeiramente inviveis. Brasil: MSF. Available at: <http://www.msf.org.br/campanha/ MSF_OMC_Hong-Kong.pdf>. ______. Fatal imbalance: the crisis in research and development for drugs for neglected diseases. Mdicins Sans Frontires Access to Essential Medicines Campaign and the Drugs for Neglected Diseases Working Group, Geneva, p. 1-21, Sept., 2001. MUSUNGU, S. F.; OH, C. The use of flexibilities in TRIPS by developing countries: can they promote access to medicines? Commission on Intellectual Property Rights, Innovation and Public Health, study 4C, p. 1-74, May 2005. MYTELKA, L.; DELAPIERRE, M. Industrial dynamics, knowledge-based networked oligopolies and the emergence of new modes of competition. DRUID on Industrial Dynamics and the New Modes of Competition, Skagen, Denmark, 1997. NEGRI, B.; GIOVANNI, G. (Orgs.). Brasil: radiografia da sade. Campinas: Nepp/Instituto de Economia Unicamp, 2001. NICOLSKY, R. Novas regras do incentivo inovao tecnolgica. Abifina Informa, n. 214, Jan. 2006. Available at: <http://www.abifina.org.br>. OFFICE OF TECHNOLOGY ASSESMENT. Pharmaceutical R&D: costs, risks and rewards. Chapter 1, summary. OLIVEIRA, M. Patentes: tempo de crise, tempo de mudana. Abifina Informa, n. 214, Jan. 2006. Available at: <http://www.abifina.org.br>. OLIVEIRA, N.B. O governo brasileiro est doente. Jornal O Globo, Rio de Janeiro, 19 May 2006. Seo Opinio. ORSI, F et al. Direitos de propriedade intelectual, poltica anti-AIDS e drogas genricas: lies do programa brasileiro de sade pblica. PALMEIRA FILHO, P. L.; PAN, S. S. K. Cadeia Farmacutica no Brasil: avaliao preliminar e perspectivas. BNDES Setorial, Rio de Janeiro, n. 18, p. 3-22, Sep. 2003. PUBLIC CITIZENS CONGRESS WATCH. Rx R&D myths: the case against the drug industrys R&D Scare Card. Washington D.C.: Jul 2001. REDE-TB. Prospeco nacional de competncias e parcerias para consolidao de plataforma tecnolgica de P&D de novos medicamentos para HIV/AIDS no Brasil: Relatrio final. Rede-TB: Jun. 2005. REIFFEIN, D.; WARD, M. R. Generic drug industry dynamics. Feb. 2002. ROSEMBERG, N; NELSON, R. R. American university and technical advance in industry. Research Policy, n. 23, p. 323-348, 1994. ROSENBERG, T. Look at Brazil. The New York Times Magazine, Nova York, 28 Jan. 2001. ROVIRA, J. Creating and promoting domestic drug manufacturing capacities: legal and economic feasibility assessment. ICTSD-Unctad Dialogue on Ensuring Policy Options for Affordable Access to Essential Medicines, Bellagio, 12-16 Oct. 2004. SEITER, A. Pharmaceuticals: local manufacturing. HNP Brief 3, 32193, Mar. 2005.

TECHNICAL, ECONOMIC AND LEGAL EVALUATION OF ANTIRETROVIRAL PRODUCTION CAPACITY IN BRAZIL

165

SIMES, J. O que e para que serve a Lei da Inovao. Portal Inovao. So Paulo: Instituto Inovao, Unicamp, Campinas, 2004. Available at: <http://www.institutoinovacao.com.br/estudo. php?escolha=28>. TEMPORO, J. G. Complexo industrial da sade: pblico e privado na produo e consumo de vacinas no Brasil. 2002. Thesis (Ph.D.). IMS/UERJ, Rio de Janeiro, 2002. THE CENTRE FOR MANAGEMENT OF IP IN HEALTH R&D. Developing innovative capacity in developing countries to meet their health needs. Commission on intellectual property rights, innovation and public health, Apr. 2005. ______. Innovation in developing countries to meet health needs: experiences of Brazil, China, India and South Africa. Commission on Intellectual property rights, innovation and public health, 2005. ZUCOLOTO, G. F.; TONETO JR., R. Esforo tecnolgico da indstria de transformao brasileira: uma comparao com pases selecionados. Revista de Economia Contempornea, Rio de Janeiro, UFRJ, Aug. 2004.