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UNCLAS SECTION 01 OF 03 BRASILIA 000271 
 
SIPDIS 
 
DEPT FOR EB/IPE SWILSON, AMADAMO AND WHA/BSC 
DEPT PLEASE PASS TO USTR MSULLIVAN, VESPINEL 
DEPT PLEASE PASS TO USPTO FOR JURBAN 
USDOC FOR 3134/USFCS/OIO/WH/EOLSON 
USDOC FOR 4332/ITA/MAC/WH/OLAC/MWARD 
NSC FOR SCRONIN 
AID/W FOR LAC/AA 
HHS FOR WSTEIGER 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: KIPR ETRD TBIO ECON BR
SUBJECT: INTERFARMA BRIEFS CHARGE ON DIFFICULTIES IN DOING BUSINESS 
IN BRAZIL 
 
REF:  2005 Brasilia 2729 (Notal) 
 
¶1.  (SBU)  Summary.  During a recent trip by Charge to Sao Paulo, 
officials from Interfarma - the local industry group representing 
international pharmaeuticals firms - described the challenges member 
companies face in operating in Brazil.  Chief among Interfarma 
complaints was that the high tax burden had lowered  pharmaceutical 
industry sales (and employment as well) and that the Brazilian 
government did not afford adequate protection to intellectual 
property rights (IPR).   Interfarma reps worried that legislation, 
currently in the Brazilian Chamber of Deputies, prohibiting the 
patenting of AIDs drugs might move forward to the Brazilian Senate. 
In a side conversation, the Brazil President of Merck told us that 
his company was in the process of negotiating with the Ministry of 
Health so as to avoid issuance of a compulsory license for that 
firm's anti-AIDs drugs; talks were proceeding smoothly. Finally, 
given their negative experiences in the 1990s with then-Minister of 
Health Jose Serra, company officials stated that they strongly 
preferred that the PSDB candidate opposing Lula in the upcoming 
presidential elections not be Serra - but instead Sao Paulo Governor 
Geraldo Alckmin.  End Summary. 
 
An Industry in Steady Decline 
----------------------------- 
 
¶2.  (SBU) On January 18, Charge, Sao Paulo Consul General, and 
various Consulate/Embassy officers received a briefing in Sao Paulo 
from Interfarma spokesmen.  Founded in 1990, Interfarma represents 
27 international pharmaceutical laboratories based in Brazil - with 
these companies accounting for 54% of the domestic pharmaceutical 
market.  Among the U.S. firms that are Interfarma members are 
Abbott, Merck, Eli Lilly, and Bristol-Myers Squibb.  Our 
interlocutors declared that all was not well in the Brazilian market 
as sales, in dollar terms, had declined since 1997 through 2004 
(from US$7.68 billion to US$5 billion) as had units sold (from 1.35 
billion to 1.32 billion).  In terms of relative rankings, Brazil had 
fallen from the 7th largest pharmaceutical market in the world in 
1998 to 13th in 2004 - just behind Mexico and Australia. 
 
¶3.  (SBU)  The principal reasons for the industry's decline, 
Interfarma reps told us, was the high value added taxes imposed by 
the government (18% just for the ICMS) and the high margin charged 
by retail pharmacies (28%).  When combined with freight costs, the 
cumulative effect of these fees/levies meant that for a drug sold 
wholesale by the industry for R$1, a prospective retail customer 
would pay R$2.08.  Worldwide, this compared to a 1.14 mark-up ratio 
in the United Kingdom, 1.44 in Mexico, 1.76 in Argentina, and 1.8 in 
Germany. (Note: this calculation reflects 2002 data.)  The high 
prevailing cost structure, Interfarma declared, had contributed 
greatly to the stagnation of the industry during recent years.  From 
1997 to 2004, both employment and investment had decline, from 
23,074 to 20,393 and from US$256 million to US$109 million, 
respectively.  Interfarma officials estimated that had conditions 
for doing business been better, over the past six years the industry 
could have generated over 15,000 new jobs and an additional US$2.2 
billion in fixed asset investment. 
 
Weak IPR Protection 
------------------- 
 
¶4. (SBU)  Yet another problem, we were told, was the government's 
lack of commitment to providing protection for intellectual 
property.  After the passage of the 1997 Industrial Property Law - 
which first allowed pharmaceuticals to be patented - the government 
had not adopted an investor-friendly regulatory stance. 
Specifically, industry officials complained that Article 229-C of 
the IPR law, added to the legislation in 1999, was 
TRIPs-inconsistent as it made the issuance of a pharmaceutical 
patent contingent upon prior approval by Brazil's drug regulatory 
agency (ANVISA).  ANVISA, they continued, while nominally 
independent in practice, was subservient to the Ministry of Health. 
The biggest problem, they felt, however, was that ANVISA and INPI 
(i.e., the patent agency) were just plain slow.  Out of 20,000 
 
BRASILIA 00000271  002 OF 003 
 
 
pharmaceutical patents applied for in 1996, the year after IPR law 
as enacted, to date only 149 had been approved. 
 
¶5. (SBU)  Our interlocutors opined that the situation could get 
worse if Sao Paulo Mayor Jose Serra received the PSDB presidential 
nomination and ended up beating Lula in the upcoming October 2006 
elections.  As Minister of Health during the previous Fernando 
Henrique Cardoso government, they said, Serra took a number of 
industry-unfriendly steps.  For instance, he was the driving force 
behind Article 229-C, he imposed retail price controls on 
pharmaceuticals, and he threatened the manufacturers of anti-AIDs 
drugs with compulsory licensing unless they lowered the prices they 
offered to Brazilian government purchasers.  Serra, they stated, was 
loathe to dialogue with the industry.  They much preferred the rival 
candidate for the PSDB nomination - Sao Paulo Governor Geraldo 
Alckmin. 
 
Bill 22 - the Biggest Challenge 
------------------------------- 
 
¶6. (SBU)  While our Interfarma contacts flagged a number of, in 
their view, objectionable bills currently pending in the Brazilian 
Congress, they made clear that the item which was receiving most of 
their attention was Bill 22 - a measure which, if enacted, would 
prohibit the patent of new anti-AIDs drugs.  Introduced by PT 
Federal Deputy Roberto Gouveia, the bill had already been approved 
by three lower house committees.  The bill was headed for debate (as 
yet unscheduled) on the lower house floor, although Interfarma 
lobbying had resulted in the creation of an additional hurdle: 
after the floor debate, it would need to pass through the Foreign 
Affairs committee prior to returning to the floor for a plenary 
vote.  Given popular sentiment in favor of the bill, Interfarma 
officials stated that it would be difficult to stop in the lower 
house. Its sponsor was a member of President Lula's party and the 
Speaker of the lower house had, on his own, previously introduced 
similar legislation.  Preparing for the worse, Interfarma was 
already reaching out to its Brazilian Senate contacts in an effort 
to stop the legislation there. 
 
¶7.  (SBU)  In response to Interfarma's request for assistance with 
respect to Bill 22, Charge stated that he would raise this issue 
with the Speaker of the Lower House the next time the two spoke.  In 
addition, Charge offered to host a strategy session with other 
affected embassies the next time Interfarma came to Brasilia to 
lobby the congress. 
 
Good News on Compulsory Licensing 
--------------------------------- 
 
¶8. (SBU)  In a side conversation with Merck's Brazil President, we 
were told that Merck's talks with the Ministry of Health regarding 
the GOB purchase of anti-AIDS pharmaceuticals were going well.  (See 
Reftel.)  The company had offered to co-produce its anti-retrovirals 
with government-owned labs, with any cost savings reaped being 
returned to the GOB in terms of lower prices.  Merck emphasized that 
this arrangement would not be a voluntary license.  The only 
problem, our Merck contact said, was that the GOB was slow in 
responding to Merck's proposal and if the Minister of Health ended 
up departing the cabinet in March to seek elective office, the talks 
might have to end up restarting from ground zero.  In post's 
continuing discussions with Gilead Science, the remaining U.S. 
pharmaceutical maker at risk, officials representing that company 
have expressed similar fears - while adding that the tenor of the 
talks to date had been positive. 
 
AVIAN FLU 
--------- 
 
¶9.  (U)  Finally, in response to a query from FCS Senior Commercial 
Officer, Interfarma officials stated that Brazil was well-situated 
with respect to a possible avian flu.  The GOB, they stated, was 
buying up the necessary stocks of anti-flu medicines. 
 
 
BRASILIA 00000271  003 OF 003 
 
 
CHICOLA