An Analysis of the Generic Pharmaceutical Industries in Brazil and ...

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An Analysis of the Generic Pharmaceutical Industries in Brazil
and China in the Context of TRIPS and HIV/AIDS

By Sasha Kontic


Introduction

Recently, a paradigm shift has occurred in international public health with respect
to the treatment of HIV/AIDS inf
ected people living in developing countries.
Previously, many policy makers and academics had assumed that people living with
HIV/AIDS in Sub
-
Saharan Africa, for example, would never be able to access live
-
extending pharmaceuticals because treatment was
neither cost
-
effective nor feasible.
Prevention of new infections was the only option. Unfortunately, prevention efforts
have had limited effect. This old thinking is being replaced by a new recognition of the
need to provide people living with HIV/AID
S with anti
-
retroviral medicines (ARV
medicines). This new objective is exemplified by the World Health Organization’s “3 by
5” initiative to supply three million people living with HIV/AIDS in developing and
middle income countries with ARV medications b
y the end of 2005.
1

Several factors
have led to this change is thinking, such as: widespread political awareness of the rapid
increase in the rate of new infections worldwide, especially in Africa, Asia, and Eastern
Europe, the availability of substantial

amounts of humanitarian funding from
governments, organizations and private charities to obtain AIDS medicines and look for
AIDS vaccines, the advent of lower priced generic antiretrovirals due to competition
among manufacturers in countries such as India
, and the disappointing results of over two
decades of AIDS prevention education in these most affected regions.
2

Furthermore,
widespread consensus now exists that antiretroviral medicines should be available to
everyone who needs them as a matter of huma
n rights.

Treatment is urgently needed for those individuals infected with the HIV/AIDS
in sub
-
Saharan Africa, where 25 million people were estimated to have been infected by
the end of 2003.

3

HIV/AIDS is now classified as a pandemic in sub
-
Saharan Afri
ca, and
yet less than ten percent of people who need treatment have access to it.
4

A significant
barrier to access to treatment is the exorbitant price of antiretroviral medicines (ARV).
All ARV medicines are currently under patent protection in develope
d countries, and
only beginning in 2006 will the twenty years of patent protection expire for the three
medicines that were developed first.
5

However, less expensive generic versions of some



1

World Health Organization, The 3 by 5 Initiative Homepage, Online:
http://www.who.int/3by5/en/

2

Markus Nolff, “Paragraph 6 of the Declaration on the TRIPS Agreement and Public He
alth and the
Decision of the WTO Regarding its Implementation: An “Expeditious Solution?” (2004) 86 J. Pat. &
Trademark Off. Soc’y 291 at 305

3

UNAIDS, “2004 Report on the global AIDS epidemic: 4
th

global report” at 30. Online:
http://www.unaids.org/bangko
k2004/GAR2004_pdf/UNAIDSGlobalReport2004_en.pdf


2004

Update available online at:
http://www.unaids.org/wad2004/report.html

(reports median number of
those infected increased to 25.4 million)

4

WH
O, “Progress Report for 3x5: Executive Summary” at 7. Online:
http://www.who.int/3by5/en/execsummary.pdf

5

The three drugs are Didanosine (ddI), Zalcitabine (D4T) and Zidovudine (AZT). Please see:
P. Boulet, J.
Perriens, F. Renaud
-
Théry / Joint UNAIDS/WH
O publication, “Patent Situation of HIV/AIDS
-
related
of the patented ARV medicines are being produced legally, as a r
esult of differences in
the domestic intellectual property schemes that existed in some countries prior to 1995.
6

Brazil, China and India are developing countries with extensive domestic pharmaceutical
manufacturing capacity that are eligible to produce a

select variety of ARV medicines in
generic form. In particular, the generic industry in India has had a major impact on
reducing the cost of ARV medicines; however, India’s ability to supply generic
medicines will be impeded because the Indian government

has harmonized its patent
legislation with international standards imposed by the World Trade Organization to take
effect in March 2005.

Although Indian companies will continue to be able to produce several of the
ARV medicines that they manufactured befo
re the legislative changes, and will remain a
major exporter of generic drugs, other sources of inexpensive generics are required. In
this paper, I will provide an overview of the pharmaceutical industry in two candidate
developing countries
-

Brazil and
China


and I will offer insight into how these countries
can assist with the supply of affordable medicines to people living with HIV/AIDS in
developing countries. These two countries were selected because of their population
sizes, levels of economic de
velopment, domestic HIV/AIDS problems, and existing
generic pharmaceutical industries. All three factors affect the price of pharmaceuticals,
as the large demand for the ARV medicines and the lower production costs in developing
economies allow generic ma
nufacturers to sell at low prices and still make a profit. Yet
despite Brazil and China’s promise to become important exporters of ARV medicines,
neither country has realized its potential as India has. In order to understand the situation
in both countr
ies, sections II and III of this paper will provide case studies of the generic
pharmaceutical industries in each country in the context of international intellectual
property rules and domestic policies for managing HIV/AIDS.

The case studies will focus

on three major areas:

1)

the capacity and development of the pharmaceutical industry in each respective
country, identifying the number of generic manufacturers, the quality of drugs
produced and the level of supply available to the domestic market;

2)

the pat
ent status of ARV medicines in each country, including the history of
amendments to Brazilian and Chinese patent laws; and

3)

the ability of each country to export patented ARV medicines under compulsory
licenses. This topic is of particular importance beca
use as treatment continues for





drugs in 80 countries
(2000). Online:
http://www.who.int/medicines/library/par/hivrelateddocs/patenTShivdrugs.pdf
; Also see Pascale Boulet,
Christopher Garrison and Ellen ‘t Hoen, “Drug Patents Under the

Spotlight


sharing practical knowledge
about pharmaceutical patents” Medecins Sans Frontieres, May 2003. See Annex A


Patent Table. Online:
http://www.aerzte
-
ohne
-
grenzen.de/_media/1256__msf

6

In 1995 the World Trade Organization (the WTO) was establis
hed, and all members of the WTO were
required to harmonize their domestic patent laws. However, as will be explained in Section I, not all WTO
members amended their patent legislation at the same time, resulting in the situation where some drugs
patented
in developed countries were not eligible for patent protection in certain developing countries.

HIV/AIDS patients, the primary first
-
line medicines that are easiest to produce
generically lose their efficacy.
7



Many of the second and third line medicines were discovered later than the first
-
line
treatments and will re
main under patent protection for several years in developed as
well as developing countries. As will be discussed next in Section I, a generic
manufacturer may be granted the right to copy a patented drug through a compulsory
license. Although generic co
mpanies in both developed and developing countries can
be granted the ability to copy second
-
line drugs through compulsory licensing, it is
more economical to produce them in developing countries where a domestic demand
for the drugs already exists.


Sec
tion I


TRIPS and a Changing of the Guard in the Generic Industry

Despite political will, financial aid and lower drug prices, there are still many
obstacles to accomplishing the “3 by 5” initiative in sub
-
Saharan Africa. One of the
greatest challenges i
n providing access to AIDS medicines arises from international
intellectual property rights and obligations imposed on the member countries of the
World Trade Organization (the WTO).
8

Upon becoming WTO members, all countries
are obliged to amend their pat
ent legislation to comply with the Agreement on Trade
-
Related Aspects of Intellectual Property Rights (the TRIPS Agreement), and introduce
patent legislation, if no such legislation existed beforehand. The rationale behind the
TRIPS Agreement is to standa
rdize domestic intellectual property regimes in order to
establish minimum standards in the area of intellectual property.

Article 27(1) of the TRIPS Agreement mandates that all member states make
patent protection “available for any inventions, whether
products or processes, in all
fields of technology, provided that they are new, involve an inventive step and are
capable of industrial application.” An important consequence of Article 27(1) is that all
WTO members must ensure that their pharmaceutical p
roducts are recognized as
patentable inventions.
9

This provision is problematic for developing countries, because
(aside from the generic industry in India), the pharmaceutical industry is dominated by a
small number of countries and companies that market

patented drugs at monopolistic
prices, unaffordable to most people in low
-
income countries.
10





7

Please see the following reference for more information about ARV Treatment. WHO, “Scaling up
Antiretroviral Therapy in Resource
-
Limited Settings: Treatment
Guidelines for A Public Health Approach”
(2003 Revision). Online:
http://www.who.int/hiv/pub/prev_care/en/arvrevision2003en.pdf

8

The WTO was established in 1995 and is the successor of the multilateral trade system under the General
Agreement on Tariffs
and Trade (GATT). In order to promote and regulate the liberalization of
international trade, all signatories to the WTO must observe the multilateral agreements comprising the
WTO Convention.

9

The TRIPS Agreement also standardized the length of protect
ion for pharmaceuticals to be twenty years

10

WHO, “The World Medicines Situation” (2004) Ch.1 at 3. Online:
http://www.who.int/medicines/organization/par/World_Medicines_Situation.pdf

Prior to the enactment of the TRIPS Agreement, most developing countries did
not provide patent protection for pharmaceuticals. Excluding pharmaceuticals from
p
atent protection allowed developing countries with pharmaceutical industries to
manufacture generic versions of high cost drugs (patented in developed countries) at a
lower and more affordable cost. Developing countries without pharmaceutical industries
a
lso benefited because they could legally import the lower
-
cost generic drugs at
competitive prices.
11

Developing countries with generic pharmaceutical capacity that did
not recognize pharmaceutical and product patents
12

prior to the TRIPS Agreement
include
Brazil, China and India. Of the three, India has developed the most successful
generic drug industry, and extensive domestic competition within India has been a major
cause of the lowering in price of many pharmaceuticals including ARV medicines.
Althoug
h India only exports 20% of its generic products, the quantity is significant as
India provides roughly 67% of the pharmaceuticals purchased by developing countries.
13

However, Indian patent legislation finally became TRIPS compliant on January 1, 2005,
an
d the impact that this will have on the production of affordable medicines is unknown.

It is important to note why India only just amended its patent legislation in 2005,
and was able to continue to promote generic production of patented drugs after becomi
ng
a signatory of the WTO Convention. After the TRIPS Agreement came into force on
January 1, 1995, countries were granted different time frames for compliance based on
economic and financial reasons. Article 65 dictated that all developed members had on
e
year (1996, if membership began in 1995) to amend their patent legislation whereas
developing members had five years (until 2000) to become TRIPS compliant. However,
special provision was made under Article 66.1 of the TRIPS Agreement for countries like

Brazil and India, which did not recognize product patents, to have ten years (until 2005)
to implement a TRIPS compliant patent system.
14

Both Brazil and China implemented a
patent system recognizing product patents earlier than India,
15

which led to a sit
uation
whereby India was only one of a few countries that could legally produce generic
versions of drugs patented after 1995. However, India eventually was going to have to
standardize its patent legislation, and in anticipation of the new system a speci
al mailbox
system was implemented to accept applications for products patented during the interim
years between 1995 and 2005. India opened the mailbox on January 1, 2005 and its
patent office must now review 8,926 patent applications
16

that want durationa
l patents for
medicines and medical devices. Fortunately, in the case of HIV/AIDS medications, all of
the first
-
line treatment drugs were patented prior to 1995 and therefore the TRIPS



11

Hoi Yan Pang, “Implementation of Compulsory Licensing Provisions Under

TRIPS in China” (LLM,
University of Toronto, 2003) [unpublished].

12

The advantage of a process patent system is that any small change in the steps used to create a drug
allows a generic producer to sidestep the patent. The goal is for several manufacture
rs to produce the same
drug by using different methods, thereby stimulating competition and lowering drug prices.

13

Supra note 11 at Ch. 3, p. 24

14

The period under Article 66.1 was extended until 2016 for least developed countries at the Doha
Conference i
n November 2001.

15

I will explain the implications of early compliance with TRIPS in the case
-
studies of each country

16

HIV Treatment Bulletin, Volume 6 Number 4 April 2005. Online:
http://www.i
-
base.info/htb/v6/htb6
-
4/Patent.html

Agreement will not impact the generic production of these drugs in Ind
ia.
17

However, as
demand for AIDS drugs patented after 1995 increases, natural price controls arising from
generic competition in India will no longer exist.

Although Indian, Brazilian and Chinese generic companies are prohibited from
unrestricted producti
on of patented medicines, access to less expensive generic versions
of patented ARV medicines can technically be accomplished. The TRIPS Agreement
does not allow generic competition during the life of a patent, but is amenable to

countries waiving pharmac
eutical patent exclusivity rights for public health emergencies.
In special circumstances, a
country may issue compulsory licences in accordance with the
procedure outlined in Article 31 of the TRIPS Agreement.
18

Article 8 states that
countries may “adopt

measures necessary to protect public health and nutrition and to
promote the public interest in sectors of vital importance to their socio
-
economic and
technological development, provided that such measures are consistent with the provision
of this Agreem
ent.” At the Fourth WTO Ministerial Conference in Doha, Qatar,
November 9
-
14, 2001, the
Declaration on the TRIPS Agreement and Public Health

(the
Doha Declaration) was enacted, which clarified the meaning of article 8, stating that the
TRIPS Agreement shou
ld not prevent a WTO member from taking measures to protect
public health (paragraph 4) and that member countries may decide what constitutes a
public health emergency (paragraph 5(c)).
19


However, the provisions of Doha Declaration were not useful for dev
eloping
countries without pharmaceutical production capacity, because Article 31(f) of the TRIPS
Agreement authorizes a compulsory license predominantly for supply of the domestic
market of a manufacturing country. Therefore, the TRIPS Agreement was furth
er
amended by a decision made by the WTO on August 30, 2003 (August 30
th

Agreement)
20
. Paragraph 2 of the August 30
th

Agreement enabled countries with
development capability to waive their obligations to manufacture only for domestic
purposes under Article

31(f) and export generic pharmaceuticals produced under
compulsory license. However, the requirements for issuing a compulsory license to
export medications are quite difficult for importing countries to meet.
21

For example, an
importing country must asse
ss its generic industry's capacity to produce the medicine



17

Supra note 6 (patent c
harts). However, generic production of second
-
line drugs such as Ritonavir (1992),
Lopinavir+Ritonavir (1995) and Nelfinavir (1993) may be granted patent protection if the mailbox system
accepts applications for drugs that have pre
-
1995 filing dates but w
ere not marketed prior to 1995. Indian
generic companies that were producing these drugs under the former patent regime may be able to continue
doing so, subject to undetermined (and probably expensive) licensing fees.

18

A compulsory license is a mechanis
m through which the national government of a Member state can
grant a third party permission to manufacture for domestic purpose a drug which is currently under patent
protection.

19

WTO Ministerial Conference. Fourth Session. Doha, 9
-
14 November 2001. W
T/MIN(01)/DEC/2,
November 20, 2001.

20

The Decision of the WTO is titled
Implementation of paragraph 6 of the Doha Declaration on the TRIPS
Agreement and Public Health
, and is set out in WTO document WT/L/540. Paragraph 6 of the Doha
Declaration recommend
ed that provisions be made to allow export of patented pharmaceuticals via
compulsory licensing to countries without pharmaceutical manufacturing capability.

21

John S. James, “WTO Accepts Rules Limiting Medicine Exports to Poor Countries” AIDS Treatment
Ne
ws, September 12, 2003. Online:
www.findarticles.com/p/articles/mi_m0HSW/is_394/ai_108394861

locally, and if capacity is insufficient, it must then notify the WTO of its decision to
import and explain and justify its decision. Next, the importing country must notify a
potential exporter,
and that exporter must in turn seek a voluntary license from the
patentee. Failing that, the exporter then seeks a compulsory license from its own
government on a single
-
country basis.

In addition to demanding technical requirements, compulsory licenses

pose a
particularly vexing problem by making it difficult to establish a continuous market for a
generic drug. This is because any given drug can only be produced in quantities specified
by short
-
term orders. Thus, in most case, it is not economically vi
able for a generic
manufacturer to incur the time and expense needed to produce a drug that may be
supplied infrequently or to only one purchaser.
22

However, compulsory licensing can
work, especially where exporting countries are also producing the drug
for domestic
demand under an existing license. This may eventually become the situation in countries
such as Brazil, China and India, where the prevalence of HIV/AIDS is high and the
majority of the population cannot afford the cost of patented medicines.

Demand will be
ongoing and probably predictable in this situation because the Government can designate
a small number of state
-
run manufactures to produce the drugs for a variety of domestic
sources. Yet because Brazil, China nor India wants to infring
e the TRIPS Agreement,
compulsory licenses will predominantly be for domestic use, if they are granted at all.
Nonetheless, domestic use of compulsory licenses may hopefully be the impetus to
eventually use the flexible provisions in the TRIPS Agreement t
o enable export of
affordable versions of second and third
-
line ARV medicines to developing countries.

Although the problem of producing affordable generic versions of second
-
line,
third
-
line and future
-
line ARV medicines is certainly immediate, there is

still an on
-
going
and urgent need to supply basic first
-
line treatments to people suffering from HIV/AIDS
in sub
-
Saharan Africa. India will continue to play a major role in the provision of these
drugs, but as the next two sections will show, Brazil and
China have the potential to
become major exporters and suppliers of these drugs as well. Both countries will perhaps
also have an opportunity to change the old guard as the Indian pharmaceutical industry
enters a new era of growth under its recently estab
lished TRIPS compliant intellectual
property system. India followed the lead of many developed countries, such as Japan,
Italy and Switzerland, who only began granting patents in the pharmaceutical industry
after developing a national drug manufacturing i
ndustry.
23

Generic production of
medicines will still play an important role in the Indian drug sector, but there will
certainly be greater investment in research and development companies and
biotechnology start
-
ups.
24

Consequently, Brazil and China may b
e better poised to
produce generic versions of those second
-
line, third
-
line and future
-
line ARV medicines.




22

Heather Watts, “Bill C
-
9: The Complaints of the Generic Drug Manufacturers and the Perspective of
Developing Countries”.
Online: http://www.dww.com/articles/bill
_c
-
9.htm

23

Supra note 11

24

Nandini K Kumar et al., “Indian Biotechnology


Rapidly Evolving and Industry Led” (2004) 22 Nature
Biotechnology Supplement DC31

Section II


Brazil

Domestic production of generic ARV medicines in Brazil is closely tied to the
country’s 1996 public health initiative (Law 9.113
/96)
25

to provide free medications to all
HIV/AIDS infected persons in need. In 1992, Brazil had the highest rate of HIV/AIDS
infection in the world, and the World Bank estimated that 1.2 million people in Brazil
would be infected with HIV/AIDS by 2000.
26

Eight years later, however, the number of
cases remained stable at 600,000, due to strong prevention and treatment campaigns.
27

Brazil is the first developing country to prove that it is possible to provide essential
medicines to those in need, and that it

is actually cost effective to do so in terms of
overall savings to the health care budget. To achieve success, Brazil has been able to
meet two essential conditions: 1) increase local production of generic medicines and 2)
negotiate for lower prices of i
mported drugs.
28

In addition to procurement of medicines,
other factors were in place to facilitate access to drugs in Brazil, such as a consensus on
the use of ARV therapy, and the development of a logistical system for the purchase,
storage, distribution

and availability of medicines.
29

However, Brazil’s success story has
been turbulent, and this section will follow the development of the domestic drug
industry in Brazil to provide an example of the struggles a developing country may
encounter in trying t
o domestically produce generic versions of patented drugs in
accordance with the TRIPS Agreement. This section will also analyze the potential role
for Brazil to become a major exporter of ARV medicines.

An established pharmaceutical industry has existed
in Brazil for many years, and
today this sector includes research
-
based pharmaceutical companies, generic drug
manufacturers, and biotechnology companies. Currently, there are approximately 370
pharmaceutical companies in Brazil, of which 296 are domestic

and 74 are foreign
owned.
30

Until the end of the 1980’s, most pharmaceuticals sold in Brazil were locally
produced.
31

However, import laws were liberalized in the early 1990’s, allowing



25

Joint United Nations Programme on HIV/AIDS (UNAIDS)/WHO/Ministry of Foreign Affairs France,
“Impr
oving Access to Care in Developing Countries: Lessons from Practice, Research, Resources and
Partnerships” (2002) at 82. Online:
http://www.who.int/hiv/pub/prev_care/en/ImprovingaccessE.pdf

26

Martin Foreman, “Patents, Pills and Public Health


Can TRIPS D
eliver?” (2002) Panos Report No. 46 at
35. Online:
http://www.panos.org.uk/PDF/reports/TRIPS_low_res.pdf

27

Ibid

28

Ibid

29

Supra note 26 at 80; Brazilian National Drug Policy (1998) “established a basis for activities and
priorities, including the adoption o
f a national essential medicines list, health
-
related regulation of
medicines, re
-
orientation of pharmaceutical services, promotion of rational drug use, scientific and
technological development, and promotion and production of pharmaceuticals”. Cited in
the WHO
Commission on Intellectual Property Rights, Innovation and Public Health (CIPIH), Background Document
for 3
rd

Commission Meeting Brazil, Jan 31


Feb 04, 2005 (Commission Report). Online:
http://www.who.int/intellectualproperty/events/en/Backgroun
dPaper.pdf

30

Industry Canada Report: Brazil, Country Commercial Guide FY 2003: Leading Sectors. Online:
http://strategis.ic.gc.ca/epic/internet/inimr
-
ri.nsf/en/gr110629e
.html
.

Note that the UK Commission Report (see FN30) indicates that there are 450 authorized drug
manufacturers in Brazil, but the source is written in Spanish and therefore I cannot confirm this number
(OMS.
Cuestionario sobre estructuras y procesos de l
a situatión farmacéutica nacional: Brasil.
Fecha:
09/06/2003.)

31

Supra note 27 at 36

subsidiaries of multi
-
national corporations to increase foreign impor
ts into the Brazilian
market. Brazil is the 11
th

largest pharmaceutical market in the world as per drug sale
figures, and accordingly has been targeted by research based multi
-
national drug
companies as a strategic market.
32

In response to the increase in

drug importation, the
Brazilian share of the market substantially decreased, and by the year 2000 drugs from
multinational companies accounted for 80% of sales.
33

The pharmaceutical market in
Brazil in general is highly fragmented and no single company ha
s greater than five
percent of the market.
34

Companies also tend to specialize within the therapeutic market,
which decreases the overall level of competition.
35

Due in part to the need to ensure access to essential medications, Brazil initiated a
policy to

stimulate domestic pharmaceutical production through the manufacture of
generic medicines. The Government of Brazil enacted Law 9.787/99
36

in 1999 (the
Generic Law) to establish guidelines for the introduction of quality generic drugs into the
Brazilian m
arket, as well as to increase competition for non
-
brand name drugs. For
example, Article 3, Paragraph 2 of Law 9,787/99 states that if a generic and patented drug
cost the same amount, the Unified Health System (SUS) shall give purchasing preference
to th
e locally produced generic drug. The strategy has arguably worked, as there are now
56 Brazilian companies manufacturing generic drugs, 27 of which are nationally
owned.
37

Domestic generic companies generate 80% of the generic drugs marketed in
Brazil, an
d the generic industry aims to reach 30% of the overall drug market share by
2007.
38

Brazil’s generic production policy has also proved attractive to foreign investors,
who have been incorporating generic plants in Brazil since 1999.
39

Pro
-
Genéricos,
Brazi
l’s generic pharmaceutical manufacturers’ association, has data that apparently
supports the position that the pro
-
generic policy has strengthened the local
pharmaceutical industry in Brazil.
40

The association calculates that the generic industry
has inves
ted roughly R$1 billion into the construction and modernization of
pharmaceutical companies in Brazil.

Before the Generic Law was introduced in 1999, Brazilian companies had already
been producing generic drugs including a small number of ARV medicines. T
hese ARV
medicines were produced legally and in accordance with the TRIPS Agreement, because
they are first
-
line antiretroviral generics that were patented internationally prior to 1997.
Between the years 1945 to 1997, Brazil did not provide patent protec
tion for



32

Supra note 30 (Commission Report) at 12

33

Supra note 27 at 36; Multinational companies are currently responsible for supplying 70% of the internal
market, not including
direct sales to the Government (see FN 25 (UK Commission Report) at 12, which
cites FebraFarma, the Brazilian Federation of the Pharmaceutical Industry, at the following web
-
site in
Portuguese:
http://www.febrafarma.org.br/areas/febrafarma/quem_somos.asp
)

34

Supra note 30 (Commission Report) at 5

35

Ibid

36

Law 9,9787 English translation online:
http://www.anvisa.gov.br/hotsite/genericos/legis/leis/9787_e.htm

found on the Minist
ry of Health web
-
page providing information about ANVISA and generic drugs

37

Supra note 30 (Commission Report) at 13

38

Ibid

39

Supra note 27, at 36

40

Supra note 30 (Commission Report) at 13. I am unable to find this information in English.

pharmaceutical products or patents obtained by chemical means.
41

However, Brazil
became a member of the WTO in 1995 and was obligated to amend its patent legislation
in accordance with the TRIPS Agreement. The Brazil Industrial Property Law (Law

9.279, of May 14, 1996)
42

was revised in accordance with the TRIPS Agreement in 1996
and came into force in May of 1997.
43

Although all of the older ARV medicines were
patented prior to 1997, newer drugs such as Lamivudine (3TC), Nelfinavir, Efavirenz,
L
opinavir+Ritonavir (Zaleestra), and Ritonavir, received patent protection in Brazil
because of special pipeline protection.
44

Article 230 of the Industrial Property Law
authorizes protection for products that were patented protection prior to 1997 if they
meet
two criteria: they received patent protection in another country and also had not been
marketed previously in Brazil. Fortunately, several other ARV medicines were either not
eligible or did not file for pipeline protection. They are: Delaviridine,
Didanosine,
Nevirapine, Stavudine (dt4), Zalcitabine, Indinavir, Lamivudine (3TC) and Zidovudine
(AZT).
45


AZT was the first drug developed to treat AIDS and was the first ARV legally
produced in generic form in Brazil. The drug was manufactured in 1993 by

a private
firm, and then the public sector firm LAFEPE (Laboratorio do Estado de Pernambuco)
also began producing it one year later in 1994.
46

By 1999, almost one
-
half of the ARV
medicines purchased by the SUS were from domestic firms, the majority of the
m being
public companies.
47

However, there were no drug regulatory standards that applied to
copied medicines until the Generic Law was introduced in 1999. Prior to the new law, all
non
-
brand name products were labelled as “similar medicines”. “Similar m
edicines”
simply had to be comparable to brand
-
name (“reference”) drugs, but did not have to meet
requirements of inter
-
changeability or bio
-
equivalence.
48

The Generic Law imposed
technical standards and norms by defining concepts of bioavailability and
bi
oequivalence, and also defining standards for generic, innovative, reference and similar
drugs.
49

A generic drug, as defined by the Generic Law, must have the same presentation
and dosage as the patented drug (must be interchangeable) and it must be approv
ed by
ANVISA in relation to its effectiveness, safety and quality. ANVISA is the Federal
Sanitary Surveillance Agency, and was created in 1999 in conjunction with the Generic
Law to monitor drug regulation.
50

It is similar in organization to the FDA or He
alth
Canada and has an overall mandate to protect public health. In relation to
pharmaceuticals, ANVISA oversees many aspects of regulation including: registration of
both locally
-
produced and imported drugs, authorizing medical products on the market,



41

Supra note 30
(Commission Report) at 4. It is interesting to note that Brazil was one of the original 14
countries to sign the Paris Convention of 1883, and has recognized intellectual property protection since its
international inception.

42

Online English Translation:

http://www.sice.oas.org/int_prop/nat_leg/Brazil/ENG/L9279eI.asp

43

Brazil had the opportunity to delay TRIPS compliance like India until 2005


see page 7.

44

Supra note 6 (MSF Annex A)

45

Supra note 6 (MSF Annex A)

46

Supra note 30 (Commission Report) at 9

47

Ibid

48

Supra note 30 (Commission Report) at 13

49

Supra note 26, at 80

50

Please see
www.anvisa.org
.

All the information that I mention about ANVISA can be found at this link.

li
censing manufacturers, and providing technical support to the National Institute of
Industrial Property in making patent assessments of pharmaceuticals.

Generic drug approval by ANVISA did not begin until the year 2000; one year
after the Federal agency
was created. Drug regulation and quality were certainly areas of
weakness in Brazil before ANVISA increased regulatory capacity. For example, between
1997 and 1998, the Ministry of Health received 172 reports of counterfeit drugs.
51

After
ANVISA was crea
ted however, there were only seven confirmed cases of counterfeit
drugs between the years 1999 to 2003.
52

With respect to quality, a WHO test conducted
in 2001 on sampled tracer medications indicated that failure rates of 18% occurred in
both public and pr
ivate laboratories in Brazil.
53

In 2003 there were 72 drugs that were
apprehended and destroyed and 39 that were withdrawn.
54

In terms of approving generic
drugs, by December 2004 ANVISA granted 1377 approvals for 284 active ingredients in
5,960 dosage for
ms.
55

Technically there is a 90
-
day review period for drug application
registration, but processing can often take 8 to 12 months. An exception is made for
ARV medicines, however, which normally take less than one month to register.
56

Overall
quality cont
rol measures include compliance with Good Manufacturing Practices
(GMP)
57
, certified inspection by ANVISA, and further monitoring of first batches as well
as double
-
checking by university laboratories accredited by the Ministry of Health.
58

Brazil, along wi
th Bolivia, Argentina, Peru, Uruguay and Paraguay, is also a member of
MERCUSOR (The Mercado Comun del Sur), which is the South American Common
Market. MERCUSOR developed its own non
-
binding regulations for pharmaceutical
production based on WHO recommend
ations such as the GMP.
59

In addition to enacting the Generic Law to improve quality and production of
generic medicines, the Brazilian Ministry of Health also initiated a strategy to invest in
local manufacturers to increase local production and local sale
s to the Government.
60

The policy worked. For example, before 1999 Brazilian producers accounted for only
18% of antiretroviral medicines purchased by the Government.
61

But two years later, the
Federal manufacturer Far
-
Manguinhos alone supplied 30% of med
icines used to treat



51

Supra note 30 (Commission Report) a
t 11(FN24), which cites the following national counterfeit
prevention web
-
site at:
http://www.opas.org.br/medicamentos/docs/HSE_FAL.pdf


52

Ibid

53

Supra note 11, table 9.7

54

Supra note 30 (Commission Report) at 11


same Brazilian source as FN52

55

Supra not
e 30 (Commission Report) at 11


citing the following Brazilian source:
http://www.anvisa.gov.br/hotsite/genericos/estatistica/geral.pdf

56

Supra note 30 (UK Commission) at 11

57

GMP is an international “system for ensuring that products are consistently pro
duced and controlled
according to quality standards. It is designed to minimize the risks involved in pharmaceutical production
that cannot be eliminated through testing the final product”. Many international health organizations, such
as UNICEF, insist

on GMP inspections. Supra note 11.

58

Supra note 51

59

OLIVEIRA, Maria Auxiliadora, BERMUDEZ, Jorge Antonio Zepeda, CHAVES, Gabriela Costa

et al
.,
“Has the implementation of the TRIPS Agreement in Latin America and the Caribbean produced
intellectual prope
rty legislation that favours public health?” WHO (2004) Online:
http://www.scielosp.org/scielo.php?script=sci_arttext&pid=S0042
-
96862004001100005&lng=en&nrm=iso

60

Supra note 27, at 36

61

Supra note 27, at 26

HIV/AIDS.
62

By 2001, domestic firms were supplying 63% of ARV medicines used for
treatment, and were producing seven ARV medicines in total.
63

In 2003, seventeen
national manufacturers were producing generic ARV medicines in Brazil, in
cluding the
one Federal producer Far
-
Manguinhos mentioned above, and sixteen state
-
owned
companies
64
. The number of national companies is now apparently 27 out a total of 56
generic companies in Brazil.
65

In 2003, public laboratories produced 5,110,904,498

units
of medicines, which were mainly sold to the SUS. Note that 57% of public laboratories
designate the Ministry of Health as their main client, 29% designate the State Health
Secretariats as primary clients and 14% indicate the Township Health Secreta
riat as the
major client.
66


Yet despite a strong domestic generic manufacturing industry, Brazil still relies
heavily on foreign imports. Brazil’s pharmaceutical sales totalled US$6.14 billion in
2004, but Brazil also imported US$1.6 billion in pharmaceut
ical products.
67

Of particular
importance is the fact that Brazil is unable to legally produce all of the first
-
line ARV
medicines, and currently imports seven of the fifteen ARV treatments distributed by the
Ministry of Health.
68

Although the SUS has a la
rge budget for purchasing ARV
medicines ($573 million annual budget in 2003
69
), it used nearly 80% of the budget by
the end of 2004 to purchase patented medicines.
70

Brazil has threatened on several
occasions to invoke compulsory licences to produce domesti
cally certain ARV
medicines, but has always managed to negotiate with pharmaceutical companies and
obtain lower prices.
71

Yet, the costs are now too great because of the increased need to
use alternative and second
-
line ARV treatments that are under patent

protection in Brazil.
Pedro Chequer, Head of Brazil’s AIDS programme, has stated that Brazil’s universal
treatment program will not be sustainable unless Brazil is able to produce most of the
drugs locally.
72





62

Supra note 26, at 83; Far
-
Manguinhos is also
responsible for generic research and development in Brazil,
including determining the manufacturing process of final products and reverse
-
engineering drug
compositions.

63

Supra note 30 (Commission Report) at 9

64

James Love, “Brazil Considers Compulsory Lic
enses, Defends Doha P6 Deal” IPS news article,
September 6, 2003. Online:
http://lists.essential.org/pipermail/ip
-
health/2003
-
September/005237.html


65

See footnote 38

66

Supra note 30 (Commission Report) at 11

67

Supra note 30 (Commission Report) at 5, citin
g FEBRAFARMA figures in Portuguese online at:
http://www.febrafarma.org.br/areas/economia/economia.asp?area=tc

68

BBC News, “Brazil to Break AIDS Drug Patents” Dec 1, 2004 Online:
htt
p://news.bbc.co.uk/go/pr/fr/
-
/2/hi/health/4059147.stm
; see note 40 for a list of drugs that Brazil can produce.

69

Supra note 25 (UK Commission Report) at 9

70

Mario Osava, “New Offensive Against Drug Patents” IPS News article, Nov 30, 2004. Online:
http://
www.ipsnews.net/africa/interna.asp?idnews=26494

71

In 2001, Brazil could no longer afford to continue paying for the antiretroviral medications efavirenz and
nelfinavir and managed to lower the price by threatening both Merck & Co. and Hoffman
-
La Roche that

if
prices were not reduced the Government would grant a compulsory license to Far
-
Manguinhos, the
Government’s Federal Institute of Pharmaceutical Technology. The Institute had already imported the raw
materials from India to conduct testing and research
to produce the drugs. See note 75.

72

Supra note 69

Consequently, in November of 2004 the Brazili
an Ministry of Health announced that it
was implementing plans to manufacture generic versions of between three to five ARV
medicines, without the consent of the patent owners if voluntary licensing deals could not
be arranged.
73

This is a major step for B
razil because despite its ability to manufacture
locally, Brazil has faced an incredible amount of pressure to purchase patented drugs
directly from international drug manufacturers
-

from the companies themselves and from
the United States
74

(the pressure
may explain why Brazil amended its patent legislation in
1996 to become TRIPS compliant earlier than was necessary). Yet Brazil managed to
pressure the multi
-
national pharmaceutical companies through negotiations to
compromise and reduce drug costs. Brazi
l’s advantage is found in Article 68 of the
Industrial Property Law, a controversial provision introduced along with other TRIPS
amendments, which allows for compulsory licensing in the case of abusive use of patent
rights. Article 68(1) enables the Gover
nment to invoke a “local working requirement”,
and demand that a product be manufactured in Brazil. The United States filed a
complaint with the WTO in 2001
75

alleging that the “working requirement” violated the
rules set out in the TRIPS Agreement.
76

The
matter was settled when the United States
withdrew the complaint after Brazil agreed to not use the requirement unless it had
already negotiated with pharmaceutical companies for price decreases.

The “working requirement” provision is important because

it enables Brazil to
either issue a compulsory license to a local manufacturer to produce the drug or allow
parallel importation from the cheapest international source without the patents holder’s
consent.
77

Brazil is electing to domestically manufacture
the patented drugs that the
Ministry of Health now considers too expensive to purchase, but Brazil will first try and
negotiate voluntary licences in respect of the earlier WTO dispute. Brazil therefore has
asked for voluntary licenses from Merck (Efavire
nz), Abbot Laboratories (Lopinavir and
Ritonavir), and Gilead (Tenofovir) to allow local manufacture of their ARV medicines.
78

These companies have until April 4
th
, 2005 to devise a suitable arrangement; otherwise
the Brazilian Ministry of Health has state
d that it will permit compulsory licenses for
domestic manufacture of the medications.
79

In addition to these drugs, Brazil has already
received permission from Merck to produce the drug Efavirenz, which is under patent
until 2012.
80

Brazil capped the pric
e of Efavirenz at $1.75US, a price that is not
profitable for Merck, but still too expensive for Brazil to procure.




73

Supra notes 69 and 71

74

Oxfam, “Brazil Fights for Affordable Drugs Against AIDS” (2001) 9(5) Pan Am J Public Health 331.

75

Richard Elliot, “US Files WTO Complaints against Brazil Over Requirement for “
Local Working” of
Patents” (2000) 5(4) Canadian HIV/AIDS Policy and Law Review. Online:
http://www.aidslaw.ca/Maincontent/otherdocs/Newsletter/vol5no42000/patentsandprices4.htm

76

It can be argued that the “working requirement” rule is a safeguard only to b
e used in the case of “abuse
of rights or economic power”, and therefore does technically comply with the TRIPS Agreement


Ibid.

77

Supra note 75

78

Reuters, “Brazil Requests Voluntary Licensing for AIDS Drugs to Treat More Patients, Reduce Costs of
Importi
ng Patented Drugs, March 17, 2005. Online:
http://www.medicalnewstoday.com/medicalnews.php?newsid=21378#

79

Ibid

80

Mike Palmedo, “Merck to give Brazil voluntary license for Efavirenz” Bloomberg, Decemeber 3, 2004.
Online:
http://lists.essential.org/piperma
il/ip
-
health/2004
-
December/007216.html

As of the date of this paper (April 28, 2005), Brazil has still not issued compulsory
licenses for any of the drugs mentioned in the precedi
ng paragraph. Overall, Brazil is not
yet self
-
sufficient in supplying sufficient ARV medicines to meet local demand.
81

As
outlined above, Brazil has a large domestic pharmaceutical industry, but patents on
several drugs prevent its generic manufacturers f
rom producing the entire first
-
line
regimen otherwise known as a fixed
-
dose combination. A first
-
line regimen was
designed for use in resource
-
limited settings, such as Sub
-
Saharan Africa, by the WHO.
The WHO recommends that in resource
-
limited settings,

a single first
-
line regimen
should be identified for the treatment of the majority of new patients. This regimen would
consist of 2 nucleoside analogs and either a non
-
nucleoside or Abacavir, or a protease
inhibitor. Zidovudine plus Lamivudine AZT/3TC is
the initial recommendation for a dual
nucleoside analog with d4T/3TC, AZT/ddI and ddI/3TC as possible alternatives.
Efavirenz and nevirapine are recommended non
-
nucleosides, while recommended
protease inhibitors include ritonavir
-
boosted PIs (indinavir, lo
pinavir, saquinavir) or
nelfinavir. A second line regimen should be chosen to substitute first line regimens when
needed (for toxicity or treatment failure).
82

Brazilian manufacturers are able to produce the first component of the fixed
-
dose
combination, wh
ich is the AZT/3TC drug. GlaxoSmithKline also produces the AZT/3TC
drug, which carries the trade name Combivir. Combivir is not under patent protection in
Brazil, but the tablet formulation is apparently still under examination with the Brazilian
Patent
Office.
83

However, except for Indinavir, all of the other drugs that formulate the
second component of the first
-
line regimen are under patent protection. To provide
complete first
-
line therapy, therefore, Brazil currently has to import several drugs. Thi
s
also means that Brazil is unable to export complete first
-
line therapies.

Should Brazil issue compulsory licenses for the ARV medicines listed above, it is
most likely that the drugs will only be manufactured for domestic supply. It is a major
step for
Brazil to issue the compulsory licenses, and it is unlikely that Brazil will want to
antagonize the United States or major pharmaceutical companies any more than
necessary. Neither does Brazil have a provision in the Industrial Property Act to allow
expor
t of medicines through compulsory licensing. Although the licenses will help
Brazil maintain its public health initiative to provide free ARV medicines to everyone in
need, it also means that Brazil will not be able to export many drugs to other areas tha
t
need them such as sub
-
Saharan Africa. Yet Brazil may be a greater exporter in the future
because Brazil is in a position to immediately export ARV medicines once they lose
patent protection. In 2001 Brazil amended the Industrial Patent Law to incorpora
te an
early working exception (or “Bolar” Provision).
84

This exception allows generic
companies to complete all of the procedures and tests necessary to register a bio
-



81

Supra note 30 (Commission Report) at 9

82

See:
www.who.int/hiv/topics/arv/en

Note: in developed countries, such as Canada, the standard of care
first line regimen

would consist of 2 nucleoside analogues in a bid fixed
-
dose combination (e.g. Combivir


AZT+ 3TC) plus two protease inhibitors in a bid fixed dose combination (e.g. Zaleestra


ritonavir+lopinavir) at a cost of over $1300 CAD per person for 28 days of tr
eatment.

83

Supra note 6 (MSF Annex A)

84

Supra note 60, at 818

equivalent generic drug before the original patent expires.

85

Brazil is sure to take
ad
vantage of this provision for domestic needs, and an increase in production is
(technically) all that will be necessary to also export these medicines when patents
expire.
86

There has also been interest expressed by Brazilian generic manufacturers, such
as

the private firm Cristalia, to export ARV medicines to sub
-
Saharan Africa. These
generic companies insist that they can start additional production lines quickly to produce
drugs for export.
87

But in order to export the drugs, they must ultimately be pri
ced at a
cost low enough to reach those in sub
-
Saharan Africa.



As a final note, it is important to mention that Brazil is already making an
international impact in HIV/AIDS treatment through a policy to provide free drugs to
other developing countries,
as well as provide transfer technology to enable these
countries to begin local manufacture of drugs. Brazil has unique experience in the matter
of controlling an HIV/AIDS epidemic in a developing country, and has offered to supply
other developing countr
ies with advice, technology and drugs for export to help deal with
HIV/AIDS.
88

In December of 2002, the Brazilian Ministry of Health signed a three
-
year
Memoranda of Understanding
with ten countries who received ARV medicines from
Brazil worth an estimated

US$ 1 million.
89

These selected countries were also assisted in
developing pilot projects to treat people living with HIV/AIDS. The countries include
Guyana, Namibia, Mozambique, Kenya, Burkina Faso and Burundi. Each pilot project
offers treatment and c
are to one hundred HIV positive individuals. On the whole, a
thousand patients in each of these countries received Brazilian AIDS drugs through the
"International Cooperation Program for HIV and AIDS Prevention and Control Activities
for Other Developing C
ountries", launched during July 2001 by the Ministry of Health at
the International AIDS Conference, held in Barcelona, Spain.
90

Brazil continues to
expand the program to other countries in Africa as well as South America, which now
also includes

training
of medical personnel.
91

Section III


China

Generic manufacture of ARV medicines has evolved at a slower pace in China
than in Brazil. Brazil was faced with an HIV/AIDS epidemic almost a decade earlier
than China, and was one of the pioneers in the generic

production of ARV medicines.
Brazil recognized the serious situation posed by HIV/AIDS and initiated strong
prevention as well as affordable treatment campaigns, whereas China, in contrast, has
been slow to acknowledge the recent emerging public health t
hreat of the HIV/AIDS
disease within its borders. With respect to legal ability to generically manufacture ARV



85

Ibid

86

Patented drugs that will soon lose protection include Saquinavir (Dec 2010) and Abacivir (2009).

87

CBS News.com, “Brazil’s Drug Copying Industry”, Sept. 25, 2003. Online:
http://www.cb
snews.com/stories/2003/09/25/health/printable575168.shtml

88

Brasilia, Ministry of Health, Press Release issued December 19, 2002. Online:
http://www.cptech.org/ip/health/c/brazil/brazil12192002.html

89

Ibid

90

Ibid

91

“Brazil Exporting HIV Treatment to Six C
ountries”, ACAN
-
EFE (translated from Spanish to English by
World News Connection) August 26, 2004. Dialog® File Number 985 Accession Number 194500771

medicines, China faces basically the same limitations as Brazil. For example, although
many of the first
-
line ARV medicines received internatio
nal filing dates several years
before China’s patent laws were amended, China allowed “administrative protection” for
several of the common ARV medicines. Yet despite the legal and manufacturing ability
to produce many other first
-
line ARV medicines, unti
l recently Chinese generic
companies differed from their Brazilian counterparts and produced either no ARV
medicines or low quality illegal versions.
92

It has only been in the last three years that
Chinese generic firms have been manufacturing state licens
ed first
-
line ARV medications


probably in recognition of the growing HIV/AIDS problem in China itself, and an
expanding international market for the drugs. This section will analyze the connection
between the rise of the HIV/AIDS epidemic in China and c
hanges to the pharmaceutical
industry in China, to show how the country has somewhat overnight become a world
supplier of anti
-
AIDS drugs materials and a growing exporter of inexpensive HIV/AIDS
medicines.

The generic medicine production capacity of China
is substantial. The
pharmaceutical industry in China has grown by an average of 17.5% per year since
1979
93
, when China first adopted economic reform and open
-
door policies.
94

In 2000,
production of raw pharmaceutical materials reached 240,000 tons, the se
cond highest
amount globally after the United States.
95

Within China there are thousands of small
manufacturers that produce traditional medicines and low quality generics, but only a few
large pharmaceutical companies.
96

It is estimated that there are ove
r 7,500 manufacturers
in China,
97

and that 97% of the drugs they produce are generics.
98

According to the
United Nations Industrial Development Organization, China is designated as having
“innovative capability” for medicine production.
99

This classificatio
n means that China
has discovered and marketed at least one new pharmaceutical between 1961 and 1991.
Brazil, in contrast, is classified as having “reproducer capability”, making both active
ingredients and finished products. Although China has produced
only two successful
new drug formulations, the future of China seems likely to proceed in the area of research
and development as international pharmaceutical companies and foreign investment
replace former publicly owned companies.
100

In order to place the
Chinese pharmaceutical situation in context, it is necessary to
describe recent amendments to Chinese patent legislation. China became a member of
the WTO in 2001, but voluntarily amended its patent legislation to become TRIPS
compliant several years earl
ier in anticipation of joining the WTO. The earliest patent
law in China was enacted in 1984 (1984 Law), and based on the level of development at



92

Supra note 27, at 22

93

Ibid

94

Supra note 12

95

Supra note 27, at 22

96

Supra note 11, at 110

97

Supra note

11, at 2

98

Supra note 27, at 23

99

Robert Balance, Janos Pogany and Helmut Forstner for UNIDO,
The Worlds’s Pharmaceutical
Industries

(England: Edward Elgar Publishing Limited, 1992) at 8, table 1.1

100

Supra note 27, at 23; supra note 12, at 14

the time, did not recognize patent protection in major areas of national interest such as
pharmaceuticals.
101

There were several other provisions in the 1984 Law that hindered
China’s economic and trade reform, and consequently China amended the 1984 Law in
1992 (1992 Law).
102

The 1992 Law, enacted on January 1, 1993, complied with the
proposed TRIPS Agreement (whi
ch itself was not finalized under 1994) and incorporated
all of the necessary provisions of the finalized TRIPS Agreement. Consequently, Article
25 of the 1992 Law was amended to include pharmaceutical patents; and importantly,
compulsory licensing provis
ions were amended under Article 52 to include the ability to
issue a compulsory license for domestic manufacture “where a national emergency or an
extraordinary state of affairs occurs, or where the public interest so requires”.
103

However, regulations spec
ifying how to implement compulsory licenses were either
absent or ambiguous.

As China proceeded through the 1990’s, the seeds for rapid dissemination of the
HIV/AIDS virus were planted. Many injection drug users living in provinces that border
countries w
ith high HIV/AIDS infection rates, such as Yunnan, acquired the disease
throughout the decade.
104

Injection drug use is now the most prevalent cause of the
spread of the disease in China, accounting for two
-
thirds of victims.
105

China also had a
terrible tai
nted blood problem that arose from an unsafe blood collection system during
the 1990’s. Commercial blood banks would pool blood from paid donors, separate out
the plasma, and then return some of the blood to the donors to facilitate more frequent
blood do
nation.
106

Yet donated blood was not screened for HIV/AIDS, and incidents of
contamination were overlooked, leading to the infection of 250,000 blood donors who
participated in the re
-
injection system.
107

It was not until the late 1990’s that AIDS
symptoms b
egan to appear noticeably in the Chinese population, unlike in Brazil where
the disease has been a threat for over a decade. However, there were no quality generic
ARV medicines being produced domestically during the 1990’s even though China could
legally

manufacture several of the drugs. The spectre of this public health crisis though
may have been the impetus for China to finally being producing generic first
-
line
medications a few years later.

A large number of HIV/AIDS medicines have not been patented

in China because
the original patent applications were filed prior to 1993. Although China did not
recognize product patents until January 1
st

of 1993, the Government permitted
“administrative protection” for pharmaceuticals that had obtained a foreign p
atent
between January 1, 1986 and January 1, 1993.
108

The
Regulations on Administrative
Protection for Pharmaceuticals

(the 1992 Regulations) came into force with the 1992



101

Supra note

12, at 15

102

Supra note 12, at 16

103

Supra note 12, at 16
-
17

104

John Cohen, “Poised For Take
-
off?” (2004) 304 Science 1430, at 1433

105

Ibid, at 1431

106

Ibid

107

Ibid; also see Patrick E. Tyler, “China Concedes Blood Product Contained AIDS Virus”, New York
Times
(10/25/1996)


Online:
http://www.aidsinfobbs.org/library/cdcsums/1996/0963

108

Gao Xia
-
Yun, “An Introduction to Administrative Protection For Pharmaceuticals”, (1998) 9 Duke J. of
Comp. & Int'l L. 259

Law, and set out the requirements for administrative protection which are as follows
: the
pharmaceutical product must have been granted a product patent in the U.S. during the
period January 1, 1986 to January 1, 1993; it must have been approved for marketing in
the U.S. by the Food and Drug Administration (FDA); it must not have been sol
d in the
territory of China prior to an application for protection; and the patentee must have
signed a contract for manufacturing or distribution with a Chinese enterprise.
109

Prior to
the 1992 Regulations coming into force, China signed a Memorandum of U
nderstanding
with the United States, agreeing to provide administrative protection.
110

Subsequent to
the enactment of the 1992 Law, China signed further bilateral agreements on
administrative protection in succession with Switzerland, the European Union, Ja
pan, and
Norway.
111

The Office of Administrative Protection for Pharmaceuticals reviewed all of
the applications, and those accepted were granted seven and one half years of protection.

I have not been able to determine with confidence which of the ARV medi
cines
were granted administrative protection, but the patent duration for both Saquinavir and
Lamivudine (3TC) indicates that these drugs probably received additional protection
rights.
112

These two drugs both have a priority filing date of 1989, and have b
een granted
patent protection by the USPTO and EPO until 2010. Patent protection for both these
drugs expires in 2005 (December 12
th

and February 8
th

respectively)
113

in China, which is
five years earlier than international standards. According to the expi
ry date,
administrative protection would have been granted in 1997, which may mean that it took
more than three years to process the applications. ARV medicines that have probably
never been patented in China include Delaviridine (priority date 1989), Nev
irapine
(priority date 1989), Stavudine (dt4


priority date 1986), Indinavir and Ritonavir
(priority date 1992).
114

The drugs Didanosine (ddI), Zalcitabine and Zidovudine (AZT)
have never been eligible for patenting in China because their priority date is
1985.

Although China has the legal ability to produce generic versions of several ARV
medicines, the Chinese Government has been slow to sanction generic production.
Beginning in 2001, however, key changes occurred to make China an important producer
in t
he supply of low
-
cost ARV medications. In 2001, two Chinese manufacturers applied
for “compulsory licenses” to produce four ARV medicines.
115

A small private company
known as
Shanghai Desano Biopharmaceutical Co.,

applied to the State Drug
Administration t
o make ddI, d4T and Nevirapine. The
state
-
owned Northeast General
Pharmaceutical Factory (NEGPF) also applied during 2001 to produce AZT.

Both



109

Ibid

110

Ibid

111

Ibid at 262

112

Supra note 6 (MSF Annex A)

113

Ibid. Please note that 3TC has 3 separate patents depending on the formulation, and that the patent on
just the original formulation just expired in China in February 2005.

114

Ibid.

115

Leslie Chang, “China Companies May Use Patent Law to Produce Cheap Dr
ugs for AIDS”, Wall St. J.,
Nov. 15, 200. Online:
http://www.aegis.com/news/wsj/2001/WJ011103.html
.
Note that the terminology
“compulsory licensing” is confusing, because the four drugs were

not under patent protection at the time of
request. The terminology could mean instead that the Chinese Government recognized the manufacture of
these drugs as legal and in accordance with GMP.

companies were already producing raw materials for AIDS drugs and were exporting
them to Brazil and India.
116

T
he HIV/AIDS infection rate was beginning to rise at this
time, and the Chinese Government probably began to realize the importance of domestic
production to lower the price of necessary medicines.
117


In August 2002, the Chinese Government allowed NEGPF to
manufacture d4T
and AZT for domestic production, and in September of the following year the
Government also granted approval to Shanghai Desano to produce ddI, d4T and
Nevirapine for domestic use as well as APIs for export.
118

Shanghai Desano plans to
produ
ce enough drugs to supply 500,000 people in China each year with combination
therapy, at treatment costs between US$435
-

$560 per year.
119

Xiamen Mchem Pharma
Group was granted the right to produce AZT in 2002, for both the domestic Chinese
market and for
export to thirteen countries in Africa.
120

The thirteen African countries
are not named, but information indicates that Xiamen had to wait for compulsory licenses
to be issued by the countries to allow import. The countries are probably members of
ARIPO, b
ecause AZT is currently under patent with ARIPO.
121

The fourth
pharmaceutical company to receive approval from the Chinese Government for ARV
manufacture both domestically and for export is Zhejiang Huahai Pharmaceutical Co.
Ltd. It is the first Chinese ge
neric company to produce ddI in tablet form, and intends to
produce 500,000 tons of the tablets eventually.
122


Although China has the capacity to produce and export several generic versions of
first
-
line ARV medicines, the focus of generic production may r
emain domestic for the
next few years as China deals with a growing HIV/AIDS crisis further hampered by
specific drug patents. Recognizing the public health issue, the Chinese government
announced a new initiative in 2003 to provide free ARV medicines to
the many people in
China who cannot afford to purchase them otherwise.
123

Yet a major treatment problem
exists in China because although many of the first
-
line ARV medicines such as AZT and
nevirapine are not patent protected, the fixed dose combinations C
ombivir (AZT and
3TC) and Trizivir (AZT, 3TC and Abacivir), as well as the ingredient 3TC have been
patented in China.
124

Consequently, Chinese manufacturers have only been able to
provide unfavourable combinations of ddI, d4T, AZT and nevirapine.
125

The fou
r drugs
often cause toxic reactions when combined to make double nucleoside analogs, and also
are susceptible to high levels of resistance by the virus.
126

Glaxo Smith Kline (GSK)



116

Ibid

117

People’s Daily On
-
line English version, “China
-
made

anti
-
AIDS medicine benefiting developed
countries”(May 23, 2004). Online:
http://english.people.com.cn/200405/23/eng20040523_144142.html

118

TREAT Asia , “TREAT Asia Special Rep
ort: Expanded Availability of HIV/AIDS Drugs in Asia
Creates Urgent Need for Trained Doctors” (July 2004) Appendix 1. Online:
http://web.amfar.org/treatment/news/TADoc7.pdf

119

Ibid

120

Ibid

121

The patent for AZT will expire internationally in 2006

122

Supra note

119

123

Supra note 105, at 1430

124

Supra note 6 (MSF Annex A)

125

Supra note 105, at 1433

126

Ibid

owns the patents for Combivir and Trizivir, as well as 3TC, which is an activ
e ingredient
in both combination drugs. The patent for 3TC (Lamivudine) just expired on February
8
th
, 2005, so Chinese manufactures should be able to make alternative double nucleoside
analogs such as d4T/3TC, AZT/ddI and ddI/3TC.
127

GSK had been unwilling

to
voluntarily license 3TC to Chinese manufacturers, because the drug can also be used in
lower doses to treat hepatitis B and therefore would dilute the market for the drug.
128

Now that 3TC is off patent, it remains to be seen whether GSK will allow volun
tary
licensing of Combivir in China. The patent for Combivir is expected to expire in 2007.
129


Interestingly, China may now find that itself in the same position as Brazil with
respect to issuing


compulsory licenses for domestic manufacture. There are
a
lternatives to Combivir, but it is still the best double nucleoside analog and is very
important to providing appropriate treatment for HIV/AIDS infected persons.
Fortunately, the compulsory licensing provisions for domestic manufacture of
pharmaceuticals

have been amended recently to improve ease of use. China did have the
option of granting compulsory licenses under the 1992 Law, but in addition to weak
provisions, the Government refused to grant such licenses in order to prove China’s
determination to
protect the rights of patent holders.
130

However, in 2001 and 2003,
China further amended its compulsory licensing provision to make it adhere to the
requirements listed under Article 31 of the TRIPS Agreement. The June 2003
amendment, which is an Order of

the Commissioner of State Intellectual Property Office
No. 31, entitled “Compulsory Licensing Method”, seems to facilitate the use of
compulsory licenses in a positive manner.
131

It aims to provide clearer guidance for the
following situations: application

for a compulsory license by the manufacturing entity;
method by which a patentee can respond to the license request; examination rules to be
used by the State Intellectual Property Office; and licensing fee adjudication.

If China begins to produce Combi
vir domestically via compulsory licensing, the
door may be opened for the export of the drug as well. Even more so than Brazil, China
has the production capability to provide patented drugs for export if it amends its
compulsory licensing legislation, all
owing exports in accordance with the August 30
th

Agreement. However, it seems unlikely that either country will want to be the first to
issue such licences and both would face strong pressure not to do so. In addition, it
appears that China is choosing t
o focus its role in supply of affordable ARV medicines
towards the production and export of active pharmaceutical ingredients (API’s) rather
than the finished generic drugs. China and India are the worlds leading suppliers of
API’s
132
, which are almost more

important that the actual ARV medicines. The biggest
challenge in manufacturing ARV medicines is not producing the final formulations, but
rather is producing the APIs for the final formulations.
133

APIs are very expensive as
well as difficult to produce,

and require substantial inventories of raw ingredients and



127

Please see pages 21
-
22 for a brief summary of first
-
line treatment regime drug combinations.

128

Supra note 105, at 1433

129

Supra note 6 (MSF Annex A)

130

Supra note
12, at 18

131

Supra note 12, at 21
-
22

132

Supra note 119, at 6

133

Ibid

costly laboratory equipment.
134

API manufacturers are also faced with the problem of
demand, because manufacture is based on predictability of demand. Both China and
India produce APIs inconsisten
tly due to shifts in demand for ARV medicines, which is
usually linked to lack of sustainable funding.
135

Chinese APIs are inexpensive and of
high quality
136
; they are exported to Brazil, India, Thailand and the Republic of Korea.
137


There are two other main
reasons why China may prefer to produce APIs rather
than ARV medicines. One reason for concentrating on the manufacture of the raw
materials is avoidance of patent infringement and TRIPS issues. The United States has
China on its 301 list as a country th
at practices trade violations, and China will probably
remain on the list if it attempts to issue compulsory licences for export of patented
products. Another reason relates to the fact that many generic producers in China
produce illegal copies of drugs,

and do not meet quality production standards. Currently
only 87 companies have been awarded GMP certification
138
, despite the fact that under
China’s Drug Administration Law proof of GMP is necessary for registration
139
. China
has implemented quality contro
l mechanisms, requiring that samples from four stages of
drug development are tested at a national laboratory. The samples are taken during: 1)
inspection of the manufacturer; 2) public proceedings; 3) drug registration; and 4)
inspection of retail outlet
.
140

There is not enough evidence about manufacturing practices
in China, however, to determine whether the quality control mechanisms apply to all
pharmaceuticals companies and whether they are enforced. However, if Chinese generic
manufacturers do not cu
rtail counterfeit and low quality production, they will be given
severe financial penalty fees, which could total between $400 million to $1 billion US
dollars.
141

It will take substantial investment as well as increased government drug safety
enforcement t
o ensure drug development standards are met, and it is not likely that China
will be able to achieve either requirement soon. Quality of drugs therefore remains a
serious impediment to generic production. For example, even the four companies
mentioned ea
rlier that have state
-
licenses to manufacture ARV medicines do not meet the
WHO’s benchmark quality standards.
142


In addition to TRIPS and drug efficacy compliance issues, a more broad threat to
the generic industry is the influx of foreign investment into

once publicly owned
production facilities. Foreign investment may change the focus of the pharmaceutical
companies from generic production to research and development of new drugs.
Furthermore, membership in the WTO has removed distribution restrictions

and opened



134

Ibid

135

Supra note 119, at 6

136

Supra note 118

137

Supra note 118. In fact, Xiamen Mchem Pharma Group signed a five
-
year contract with the Brazilian
government in September 2003 to become onl
y the third appointed supplier of APIs to Brazil.

138

Supra note 27, at 23

139

Supra note 11

140

Ibid

141

Supra note 27, at 23

142

Procurement, Quality and Sourcing Project: Access to HIV/AIDS drugs and diagnostics of acceptable
quality. Suppliers whose HIV
-
related

Products have been found acceptable, in principle, for procurement
by UN agencies. Version: 23
rd

Edition: 4
th

(Updated: April 2005). Online:
http://mednet3.who.int/prequal/hiv/hiv_suppliers.pdf

up the market for foreign multi
-
national drug companies to import pharmaceuticals into
the Chinese market.
143

During 2005, customs duties on pharmaceuticals will be reduced
from 10 to 4.2 percent, which will reduce the competitive edge of domest
ically produced
generic drugs.
144

Severe competition in recent years has already caused production
companies to reduce profits to a minimum.
145

It is also important to note that China is the
only developing country that exports most of its pharmaceuticals to

industrialized
countries.
146

Consequently, without a steady source of demand for ARV medicines from
African countries, Chinese manufacturers will not find the market lucrative. Only
domestic need for ARV medicines may initiate more Chinese production of t
hese drugs.
Therefore, in the face of privatization and a market
-
based economy, China will have to
make it a policy to prioritize production of ARV medications.


Conclusion

This paper has analyzed whether Brazil and China have the production capacity,
as
well as legal ability under the TRIPS Agreement, to supply necessary inexpensive
ARV medicines to countries in sub
-
Saharan Africa. Although neither country has the
export ability of India, each country has the potential to contribute significantly to the

world supply of affordable medicines. As several HIV/AIDS drugs lose their patent
protection during the next few years, Brazil will be able to manufacture these drugs
immediately due to early working provisions found in the Brazilian Industrial Property
Law. China already plays a very important role in the production of medicines by
supplying high quality yet inexpensive active pharmaceutical ingredients to India and
Brazil for the manufacture of ARV medicines. China also has a very large generic
indust
ry, but issues of quality and illegal manufacture plague it. However, as the
HIV/AIDS infection rate steadily rises in China, there will probably be more incentive to
increase local production of quality ARV medicines to contain the disease before disease

reaches epidemic proportions. While both countries have the ability to produce several
first
-
line ARV medicines, they too are caught by the problem of how to produce patented
second and third
-
line treatments. Although neither country is keen to break ex
isting
patents, the HIV/AIDS treatment situation demands that both countries will have to
eventually issue compulsory licenses for domestic production. This would be a major
step in the fight to provide affordable HIV/AIDS treatments, as it may in the fut
ure open
the door for export of these medicines via compulsory licensing.





143

Supra note 27, at 23

144

Ibid

145

Ibid

146

Supra note 11, at p24

(chapter 3)