R281938Z MAY 87
FM AMEMBASSY BRAZILIA
TO SECSTATE WASHDC 5744
[snip]
SUBJECT: RECENT DEVELOPMENTS IN THE BRAZILIAN
PHARMACEUTICALS SECTOR
[snip]
1. ECONOFF RECENTLY SPOKE WITH VARIOUS INDIVIDUALS
ACTIVE IN THE LOCAL PHARMACEUTICALS INDUSTRY/MARKET TO
OBTAIN AN UPDATE ON THE SITUATION IN THAT SECTOR.
PATENTS
2. THE THREATENED FILING OF A SECTION 301 PETITION BY
THE PMA HAS MOVED MEDIA REPORTS ON PHARMACEUTICALS FROM
THE BACK PAGES (IF SUCH REPORTS EXISTED AT ALL) TO PAGE
ONE OF THE MAJOR DAILIES HERE. MANY OF THESE ARTICLES
CHARACTERIZE THE 301 FILING THREAT AS THE OPENING OF A
"NEW FRONT" IN THE ONGOING SERIES OF TRADE DISPUTES
WITH |ME U.S. EVERY GOB OFFICIAL QUOTED HAS EXPRESSED
OPPOSITION TO THE ADOPTION OF PHARMACEUTICALS PATENT
PROTECTION.
3. REASONS ADVANCED BY VARIOUS GOB OFFICIALS AS TO WHY
BRAZIL DOES NOT WANT TO RECOGNIZE PHARMACEUTICALS
PATENTS, HOWEVER, ARE VARIED AND NOT ENTIRELY COHERENT.
IN RECENT WEEKS, THE FOLLOWING OBJECTIONS TO DRUG
PATENTS HAVE BEEN RAISED: A) CITING UNNAMED "OFFICIAL"
SOURCES, THE DAILY "FOLHA DE TARDE" STATES THAT THE
PRIMARY REASON FOR GOB OPPOSITION IS THAT "THE EVENTUAL
PATENTING OF PHARMACEUTICAL PRODUCTS MAY BE EXTENDED TO
BIOTECHNOLOGY AS A WHOLE, WHERE BRAZIL'S TECHNOLOGICAL
BACKWARDNESS IN COMPARISON WITH THE U.S. IS TODAY MUCH
WIDER THAN IN THE TRADITIONAL PHARMACEUTICALS FIELD";
B) OFFICIALS AT THE NATIONAL INSTITUTE FOR INDUSTRIAL
PROPERTY PROTECTION HAVE BEEN QUOTED AS ARGUING THAT
THE TIME IS NOT RIPE FOR RECOGNITION OF PATENTS SINCE
LARGE, WELL CAPITALIZED NATIONAL PETROCHEMICAL
COMPANIES ARE ON THE VERGE OF MAKING INVESTMENTS IN THE
AREA, AND THESE PLANNED INITIATIVES WOULD BE PREEMPTED;
C) A SLIGHT VARIATION ON THE ABOVE THEME IS SEEN IN
VARIOUS NEWS REPORTS WHICH CITE THE "INFANT INDUSTRY"
STATUS OF BRAZIL'S LOCAL DRUG SECTOR; VARIOUS OFFICIALS
ARE QUOTED AS SAYING THAT THE INDUSTRY NEEDS THE
LIBERTY OF NON-RECOGNITION OF DRUG PATENTS IN ORDER TO
MATURE; D) FREQUENTLY MENTIONED IS THE CLAIM THAT
MULTI-NATIONALS ALREADY CONTROL ABOUT 80 PERCENT OF THE
LOCAL DRUG MARKET (WE BELIEVE THIS FIGURE TO BE
INCORRECT; THE CORRECT FIGURE IS 72 PERCENT), SO IT
WOULD BE LUDICROUS TO CONCEDE TO THE ADDITIONAL
ADVANTAGE OF PATENT PROTECTION; E) "FOLHA" RECENTLY
QUOTED UNNAMED OFFICIALS AS SAYING THAT SINCE
INVESTMENTS IN THE CHEMICALS SECTOR (WHICH PRESUMABLY
INCLUDES PHARMACEUTICALS) IS HIGH, THERE IS "NO NEED TO
CHANGE A WINNING TEAM." (COMMENT: THIS ARGUMENT, WHICH
WAS ALSO ADVANCED BY AN INPI OFFICIAL AT THE MARCH
BILATERAL MEETING IN RIO DE JANEIRO, APPEARS TO
CONTRADICT ARGUMENT "D" IF A "WINNING TEAM" IS
INTERPRETED AS A STRONG LOCALLY-OWNED PHARMACEUTICALS
INDUSTRY. END COMMENT)
[snip]
6. FRIDAY, MAY 23, ALL PHARMACEUTICAL PRODUCTS
RECEIVED A 25.6 PERCENT PRICE INCREASE. THIS COMES ON
THE HEELS OF OTHER PRICE INCREASES GRANTED EARLIER IN
1987 THAT AMOUNTED TO A CUMULATIVE 111.7 PERCENT OR
143.7 PERCENT (DEPENDING ON THE TYPE OF DRUG) FROM
MARCH 1, 1986 THROUGH APRIL 1, 1987. THUS, CUMULATIVE
PRICE INCREASES SINCE MARCH 1 OF LAST YEAR NOW COME TO
140.3 PERCENT OR 180.5 PERCENT, WHICH COMPARE FAVORABLY
WITH THE OFFICIAL INFLATION RATE FOR THE PERIOD OF
APPROXIMATELY 107 PERCENT. PRICES ARE PRESENTLY STILL
AT RELATIVELY HIGH LEVELS - A DRUG THAT COST CRUZADOS
10 IN NOVEMBER OF LAST YEAR NOW COSTS AROUND CRUZADOS
28 - AND MOST LABS ARE OPERATING AT A PROFIT.
HOWEVER, INFLATION HAS BEEN RUNNING IN THE AREA OF 20
PERCENT PER MONTH (800 PERCENT ANNUALIZED) RECENTLY, SO
THESE INCREASES ARE NOT AS GREAT IN REAL TERMS AS THEY
MIGHT SEEM.
7. THE HISTORICAL PROBLEM WITH THE INDUSTRY HAS BEEN
THAT THE GOB PRICING AUTHORITIES HAVE REFUSED TO ACCEPT
THE OFFICIAL INFLATION INDEX IN SETTING PHARMACEUTICALS
PRICES. PRICES TYPICALLY WERE SET LOWER, AND THE
CUMULATIVE "LAGGING" EFFECT HAS RESULTED IN NET LOSSES
FOR THE INDUSTRY AS A WHOLE FOR 5 OF THE LAST 6 YEARS.
THIS PROBLEM COULD SOON BE RESOLVED WITH THE SIGNING OF
A PROTOCOL ESTABLISHING A SO-CALLED "TRIGGER MECHANISM"
THAT, WHEN INFLATION ATTAINED A CERTAIN LEVEL, WOULD
AUTOMATICALLY RAISE DRUG PRICES BY A CORRESPONDING
AMOUNT. IN FACT, THE LATEST 25.6 PERCENT INCREASE WAS
ESTABLISHED USING THE BASIC TRIGGER CONCEPT, I.E., THAT
OF USING INFLATION AS THE BASIS FOR PRICE ADJUSTMENTS.
USING THE TRIGGER FORMULA, THE BRAZILIAN PHARMACEUTICAL
INDUSTRY ASSOCIATION (ABIFARMA) ASKED FOR A 33 PERCENT
INCREASE. THE INTER-MINISTERIAL PRICE COUNCIL (CIP)
GRANTED A LOWER PRICE INCREASE, ARGUING THAT THE LABOR
COMPONENT OF ABIFARMA'S REQUEST CONSISTED OF THE SALARY
INCREASE TRIGGER THAT WAS ONLY ACTIVATED MAY 1 AND AS
SUCH WAS NOT INCURRED IN THE PERIOD FOR WHICH THE PRICE
INCREASE IS INTENDED TO COVER.
[snip]
DETERIORATION IN MARGINS
9. THE INDUSTRY FEARS THAT CONSUMER RESISTANCE - AND
RESENTMENT - TO THE HUGE INCREASES AT THE DRUGSTORE
THAT HAVE ALREADY BEEN GRANTED MIGHT COMPEL THE GOB TO
REVERT TO ITS OLD PRICE DEPRESSING POLICIES. THERE ARE
SIGNS SUGGESTING THAT SUCH A PUBLIC REACTION MAY
ALREADY BE OCCURRING. THE MAY 19 EDITION OF THE DAILY
"O ESTADO DE SAO PAULO" CARRIED AN ARTICLE HEADLINED
"MEDICINES, ONLY FOR THE PRIVILEGED." THROUGH
INTERVIEWS WITH MANAGERS OF PHARMACIES IN POORER SAO
PAULO NEIGHBORHOODS, THE AUTHOR MAKES THE POINT THAT IN
THE WAKE OF THE LATEST PRICE INCREASE MANY WORKING
CLASS INDIVIDUALS CAN NO LONGER AFFORD ESSENTIAL MEDICINES.
10. ONE EXAMPLE CITED IN THIS ARTICLE SHOULD SUFFICE TO
GRASP ITS TONE: "IN SANTO AMARO, AT THE LARGO 13 DE
MAIO, A SPOT THROUGH WHICH A LARGE PART OF SAO PAULO'S
LOWER INCOME POPULATION PASSES, THE NOSSA SENHORA
APARECIDA DRUGSTORE IS ALREADY FEELING THE EFFECTS OF
THE PRICE ADJUSTMENTS. GIROTI, THE MANAGER OF THE
PHARMACY, REPORTS THAT HIS SALES HAVE FALLEN 30 PERCENT
IN VOLUME IN THE LAST MONTH. 'THE MIDDLE AND UPPER
MIDDLE LEVEL CLASSES CONTINUE TO BUY, BUT THE LOWER
INCOME GROUPS HAVE FEW ALTERNATIVES', HE SAID." SUCH
ARTICLES HAVE AN UNDENIABLE EMOTIONAL IMPACT WHICH
COULD AFFECT FUTURE GOB PRICING DECISIONS.
11. PFIZER DIRECTOR RICHARD DOBE REPORTS THAT HIS
COMPANY HAS YET TO FEEL ANY FALL-OFF IN DEMAND. IN ANY
EVENT, HOWEVER, DUE TO THE NATURE OF THE MEDICINES
DISTRIBUTION SYSTEM HERE A DROP IN DEMAND AT THE RETAIL
LEVEL WOULD NOT BE FELT AT THE MANUFACTURER FOR AT
LEAST 2 MONTHS.
[snip]
17. THE ANGLO-U.S. PHARMACEUTICAL MANUFACTURERS
ASSOCIATION (CIFAB) HERE RECENTLY HIRED A LOBBYIST TO
WORK ON CONSTITUTIONAL ISSUES WITH THE FEDERAL CONGRESS
IN BRASILIA. CIFAB IS NOT PUBLICIZING THIS ACTION
OWNING TO AN EARLIER PLEDGE MADE TO ABIFARMA THAT IT
WOULD KEEP INDEPENDENT LOBBYING EFFORTS TO A MINIMUM.
PRIORITY ITEMS ARE COMBATING ANY WORDING IN THE NEW
CONSTITUTION THAT MANDATES NATIONALIZATION OF THE
PHARMACEUTICALS SECTOR AND/OR MARKET RESERVE, AND
WORKING FOR RECOGNITION OF PHARMACEUTICAL PATENTS.