Last month, Brazil made a splash in the pharmaceutical and healthcare world when it became the first country to set a deadline for breaking a patent on an AIDS drug. Until recently, all threats have been implicit. So on June 24 eyebrows were raised when departing health minister, Humberto Costa, issued an ultimatum to Chicago-based Abbott Laboratories to further reduce the costs of its antiretroviral combination drug, Kaletra. Brazil gave Abbott ten days to reduce the price to what Brazil deemed an acceptably low level -- effectively forcing the company to take a loss -- or it would copy the drug.
Much of the surprise emerged from the fact that such threats to break medical patents are only considered legitimate when designed to help poor countries experiencing health emergencies. Brazil is a mid-income country -- with one of the planets ten largest economies. And its HIV rate is 0.6% of the population, which is only slightly higher than the US rate of 0.5% -- so it is hardly a health emergency.
In principle, companies cannot be forced to sell their products at prices that make a loss, so the short-term risk in issuing the threat was that Abbott would simply withdraw from the market. The company probably decided that the precedent of giving up on a major market, and the bad publicity attendant with such a move, might be too great to live with. Mind you it could have argued -- and initially did and with good reason -- that it had already acted in good faith in defending its patent from extortion, but had been pushed too far. But with many media reports simply blindly backing the Brazilian Government, it decided to stay and negotiate.
The longer-term threat, which extends to all research companies, is that in the face having their drugs effectively confiscated, Abbott will cut back on research and development of drugs whose main markets would be in developing countries.
Seemingly, these effects were well understood by most business and many political actors, in both developed and developing countries, who had previously found workable compromises. Companies could sell at cost in most African countries so long as least some profit was made in mid-income countries like Brazil. So what happened in Brazil with Kaletra?
The easiest explanation is that Mr. Costa was prepared to press the nuclear, compulsory license button for two reasons. He would be a hero to the political left that despises capitalism. And he was leaving his job anyway and would not bear the consequences.
But the arrival of a new health minister, Jose Saraiva Felipe, coinciding with the publication of an internal review of drug stocks, provides new information which throws light on the mystery, and also reflects badly on the outgoing minister. Arriving at his new job on the same day (July 8th) that his new health ministry colleagues announced a deal with Abbott on Kaletra, Mr. Felipe, no doubt, wanted the details of the deal in writing. But he found no document signed by the government and no deal sanctioned. He has since taken up negotiations with Abbott Laboratories.
But it was the government's survey of drug stocks which was most revealing. Between 2003 and 2005 -- that is during Mr. Costa's term of office -- 59 batches of medicines, including AIDS treatments, stored by the Ministry of Health, expired and had to be destroyed. Earlier this year, having failed to inspect the delivery and distribution schedule of the drugs, the Ministry also failed to negotiate the replacement of expired drugs with the manufacturer or order new stocks in time to avert a serious crisis of availability. The Director of the Brazilian NGO Group for Life, Mrio Scheffer, called the episode "an unquestionable example of incompetence." In other words, Mr. Costa may have simply wanted a grand exit to cover up his abysmal work as Minister.
The wider ramifications are significant, and a new sustainable deal must be struck. Simplistic but prevalent opinion holds that companies, especially pharmaceutical companies, are purely profit-driven and that governments, especially of developing countries, are purely driven by the welfare of their people. This is a pity because such views are dangerously wrong, and inevitably mislead public debate. Government Ministers like making grand exit gestures that screw up future decision making. And companies will stay in unprofitable research for a long time, but not forever. Consider that 27% of companies working on HIV research have already left the field in the past 7 years, because companies are profit-orientated and money can only be made in the richer countries, and mid-income countries. If Brazil becomes a no profit zone too, exodus from HIV research may accelerate -- a tragedy for HIV patients.