06BANGKOK7335 NEXT STEPS FOR THAILAND’S COMPULSORY LICENSE BID

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C O N F I D E N T I A L SECTION 01 OF 06 BANGKOK 007335

SIPDIS

SIPDIS

STATE PASS USTR FOR BWEISEL, CWILSON

STATE PASS USPTO FOR KHAUDA, KFERRITER

COMMERCE FOR JKELLY

HHS/OGHA FOR ABAHT, EELVANDER

E.O. 12958: DECL: 12/08/2016

TAGS: ECON ETRD KIPR TH

SUBJECT: NEXT STEPS FOR THAILAND’S COMPULSORY LICENSE BID

REF: BANGKOK 7133

Classified By: DCM A. Arvizu for reasons 1.4 (b) and (d).

¶1. (C) Summary: On November 29, the RTG Ministry of Public

Health (MoPH) issued a statement announcing a compulsory

license (CL) on efavirenz, a Merck-patented medicine used to

treat HIV/AIDS patients. The Ministry’s statement cited the

high price of the drug as a barrier to access to effective

HIV drugs, and declared its intention to import generic

versions of the drug and also produce domestically. Supply

issues may also have been a factor in MoPH’s decision. Merck

was not notified prior to the announcement and to date has

not had the opportunity to meet with decision makers at the

Ministry. While Thailand probably has complied with both its

own law and the WTO in its action, the lack of prior

consultation with Merck and the absence of any attempt to

negotiate pricing with the U.S. firm weaken MoPH’s arguments

and suggest the MoPH is being heavily influenced by activist

NGOs. We do not believe the major RTG economic ministries

are aware of either the details or the implications of the

MoPH decision, something we hope to remedy. Although many

believe we are facing a fait accompli, it may yet be possible

to avoid CL implementation: Merck plans to counter MoPH’s

announcement with a price reduction and, with USG help, hopes

to salvage its patent. However, increasing numbers of

HIV-positive patients and spiraling treatment costs may bring

about further RTG moves on compulsory licenses. Embassy

action request is contained in para 28. End Summary.

¶2. (U) This is an action request, see para 28.

¶3. (C) As reported in reftel, on November 29, the Ministry

of Public Health’s Department of Disease Control announced a

compulsory license on efavirenz, an HIV/AIDS medicine

patented in Thailand by U.S.-based pharmaceutical firm Merck

& Co. Although both Embassy and Merck caught wind of the

Ministry’s intention soon before the announcement, no branch

of the RTG attempted to give official notification

beforehand. Embassy officers have subsequently contacted

relevant RTG officials, NGO reps, and Merck representatives

to obtain a more comprehensive picture of the facts

surrounding the CL action, as well as the political and legal

context of the decision.

¶4. (C) On December 4, Merck formally requested a meeting

with the Minister of Public Health, Dr. Mongkol Na Songkhla,

to discuss the Ministry’s compulsory license of their

product. According to Merck, the Minister’s office suggested

the meeting request be pushed down to the Director General of

the Department of Disease Control, but Merck has yet to

receive an official response and still hopes for a meeting

with the Minister. (Separately, the Minister of Commerce,

Mr. Krirk-krai Jirapaet, has tentatively agreed to meet with

Merck on December 20.)

How did it come to this?

————————

¶5. (C) The use of efavirenz has rapidly increased in Thailand

due to ever increasing numbers of HIV-positive patients and

an RTG commitment in 2005 to supply antiretrovirals (ARV) to

all eligible patients. A UNAIDS report earlier this year

estimated that approximately 580,000 Thais are HIV-positive.

Of these, only 133,000 are actually eligible for treatment,

the rest either unaware of their HIV status, yet to show

symptoms and not yet in need of treatment, or have such an

advanced case of AIDS that drugs can not halt their decline

in health. U.S. Center for Disease Control (CDC) estimates

92,000 Thais are now on ARV therapy. The RTG has set a goal

to have 122,000 on treatment by the end of 2007. Most

HIV-positive patients are on a locally produced first-line

treatment known as GPO-vir, a combination of d4T, 3TC and

nevirapine. However, 10 to 15 percent of patients have an

adverse reaction to nevirapine or are otherwise unable to

take the medicine. Merck’s efavirenz is an effective

substitute for nevirapine, but its use can triple the cost of

treatment. Given Thailand’s income level and a greater than

one percent rate of HIV prevalence, Merck says it sells

efavirenz at a “no-profit” price, its lowest price globally.

Approximately 13,000 patients receive efavirenz through the

government’s health insurance programs and several thousand

more outside these programs. With a lower price, MoPH has

said it hopes to move up to 100,000 patients to a therapy

including efavirenz to avoid the reactions to nevirapine

altogether. We believe MoPH’s plans to dramatically increase

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the number of patients using efavirenz is one factor behind

the decision to seek a CL for this medicine.

¶6. (C) The CL decision can be viewed as the culmination of a

long campaign by many health and HIV/AIDS NGOs in Thailand.

These groups have long advocated compulsory licenses for ARVs

and other patented medicines. As articulated here, the basic

NGO argument has been that access to life-saving medicines is

directly related to the price of those medicines, that the

government should have greater control over supply, and that

the commercial interests of for-profit pharmaceuticals firms

should take a back seat to saving lives. The contributions

of private sector pharmaceuticals companies in fostering

innovation in fields like HIV/AIDS treatment is given short

shrift, if it is mentioned at all. Opponents of actions such

as CL are condemned as money-grubbing foreign capitalists

profiteering on the blood of poor and desperately sick Thais.

Consistent with this characterization, the Minister of

Public Health was hailed in media headlines here for his

“brave” decision on CL. We suspect that Thai public opinion

on this decision generally is supportive of the Minister.

CL Decision Timeline

——————–

¶7. (C) Against this background, a commitment by the RTG to

provide ARVs to eligible HIV/AIDS patients and a concomitant

concern over rapidly increasing projected costs won sympathy

to the idea of a compulsory license among key officials

within the MoPH. According to a MoPH contact, earlier this

year the National Health Security Office (NHSO), a

semi-independent institution that manages Thailand’s

universal health care coverage program, made the initial

proposal to the MoPH. The former Minister accepted that

something had to be done and appointed a subcommittee to

further examine the issue. MoPH later brought in related

agencies including the Department of Intellectual Property to

provide legal advice. After the September 19 coup, the new

Minister picked up the issue and moved it forward to a

decision to issue the license. Foreign Minister Nitya

Pibulsonggram told DCM that the MoPH later presented the

decision to the cabinet as a done deal. We do not believe

the Cabinet was made aware of the potential significance of

this decision, particularly with regard to its potential

impact on the perceived foreign investment climate in

Thailand.

¶8. (C) The decision has the hallmarks of new MoPH Minister

Mongkol Na Songkhla’s personal involvement. A medical doctor

by training (he received some of his graduate training in the

Netherlands), Mongkol is a lifelong civil servant. He rose

up through the ranks of the RTG health services, serving much

of his early years as a medical officer in some of Thailand’s

poorest rural districts. This experience has, evidently,

made him an ardent supporter of public morals campaigns and

laws, especially in the area of alcohol abuse. His efforts

have not always been well received by the easy-going Thais.

As Minister, his recent “clean up the town” initiatives

include a proposed ban on alcohol advertising, and raising

the legal drinking age to 25. The latter proposal was

particularly poorly received. Critics have stated that

besides being out of touch with public opinion, such

far-reaching proposals go beyond the appropriate brief of an

appointed, interim government. One of his closest aides is

Senior Adviser on Health Economics Suwit Wibulpolprasert, a

strong ally of HIV/AIDS NGOs here and, we believe, a strong

advocate of the NGO agenda on provision of HIV/AIDS

medicines.

Do we have a CL?

—————-

¶9. (C) There remains some confusion among the RTG and

observers as to whether the MoPH has in fact issued a

compulsory license. In their November 29 statement, the MoPH

stated that the Ministry “exercised the right” against

efavirenz “by giving the right to the Government

Pharmaceutical Organization”. The first of the Ministry’s

self-imposed conditions on the compulsory license was that

“the right shall be applied immediately….” The Department

of Intellectual Property termed this as a statement of intent

rather than the actual compulsory license. However, MoPH

statements to the press have not mentioned any further steps

in the licensing process they believe they need to take to

begin importing or producing generic efavirenz, nor any

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intention to further negotiate with Merck as the patent

holder.

¶10. (C) The MoPH statement listed three conditions for the

license:

a) The right shall be applied immediately and end by December

31, 2011; (Note: Merck’s patent expires in 2013.)

b) Provision of the drug will be enough for not more than

200,000 HIV-infected people per year, exclusively for

infected people who are eligible under the National Health

Security Act, insured persons under the Social Insurance Act

and eligible persons under the government welfare on health

for officials and employees; (Note: these three programs

together cover the overwhelming majority of Thais.)

c) Royalty fee to be paid to the patent holder shall be set

at not more than 0.5 percent of trade value of the generic

drug by the GPO.

¶11. (C) The statement also declares that the Ministry’s

Department of Disease Control shall notify the patent holder

and DIP without delay. On December 1, Merck picked up the

official notification from the Ministry. The letter notifies

Merck that MoPH has taken the right to the drug and assigned

it to GPO. It does not request any further consultation or

negotiation.

The law

——-

¶12. (C) MoPH’s statement cited Section 51 of the Thai Patent

Act for authority to issue the license. Under Section 51, a

government entity may issue a compulsory license “(i)n order

to carry out any service for public consumption or which is

of vital importance to the defense of the country, or the

preservation or acquisition of natural resources or

environment or to prevent or alleviate a severe shortage of

food or medicines or other consumer goods and foodstuffs, or

for the sake of other public interests.” DIP sources say

MoPH is using the latter, acting “for the sake of public

interests.”

¶13. (C) There are a number of drafting flaws in Sections

46-51 that cover compulsory license procedures which make it

difficult to interpret what is the proper procedure for

issuing a compulsory license under Section 51. For example,

Article 51 requires that the RTG pay a royalty “under Section

48, paragraph 2.” Section 48 states that “the patentee is

entitled to a royalty under Sections 46, 47 and 47bis”;

however, Section 51 specifically states that compulsory

licenses issued under that article shall not be subject to

the provisions of Sections 46, 47 and 47bis.

¶14. (C) As to timing and pre-negotiation, the first paragraph

of Section 51 appears to allow a government entity to exploit

any patented invention and later “inform the patentee in

writing without delay.” The second paragraph of Section 51

requires the government entity to “submit its offer setting

forth the amount of royalty and conditions for the

exploitation to the Director-General (of DIP). The royalty

rate shall be as agreed upon by the (government entity) and

the patentee, and the provisions of Section 50 shall apply

mutatis mutandis.” The RTG would appear to have followed

these procedures by (1) announcing the compulsory license,

(2) notifying Merck in writing and (3) then entering into

negotiations solely relating to the royalty amount. This

appears to be the DIP’s interpretation of Section 51.

¶15. (C) However, Merck’s local legal counsel believes that

the language applying Section 50 mutatis mutandis could be

reasonably interpreted as requiring the following: (1) MoPH

applies to DIP to authorize the compulsory license, (2) MoPH

and the patentee enter into royalty negotiations mediated by

DIP, (3) either the parties agree on a royalty or DIP sets

the royalty, and (4) DIP issues a compulsory licensing

certificate. The problem with this interpretation is that

the procedures laid out in Section 50 relate back to licenses

granted under Sections 46, 47 and 47bis. Again, Section 51

specifically states that compulsory licenses issued under

that article shall not be subject to the provisions of

Sections 46, 47 and 47bis.

¶16. (C) When asked why MoPH had not approached Merck to

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request authorization on reasonable commercial terms as

required by the WTO TRIPs Article 31, DIP responded that MoPH

is using exceptions under Article 31(b) for “public

non-commercial use.” (NOTE: Embassy has seen a Reuters News

press report quoting MoPH officials that “informal talks” to

get a lower price from Merck had failed. Merck flatly denies

that any such talks have taken place.)

Getting behind the price and supply issues

——————————————

¶17. (C) In their statement announcing the compulsory license,

MoPH gave as their rationale that the patent on efavirenz had

kept the price double that of comparable generics and posed

an obstacle to access to drugs for HIV patients. They

pointed to availability of alternative generics at 700 baht

per month per patient, half the price the RTG pays for

Merck’s patented version.

¶18. (C) The Government Pharmaceutical Organization (GPO), a

state-owned profit generating enterprise, would be

responsible for importing the drug. GPO officials have not

been forthcoming on precisely where and under what pricing

conditions they would import efavirenz, but have mentioned

India as the likely source. GPO is reportedly under orders

from the MoPH to keep the final price of efavirenz to 700

baht. Earlier this year, Indian generic producers Ranbaxy

and Cipla announced that they would make generic efavirenz

available to developing countries for USD 240 per year. At

the current exchange rate, the price for Thailand would be

approximately 710 baht per month. However, the listed price

is F.O.B. and the final delivery price including shipping and

customs charges would likely be closer to 800-850 baht per

month. Thai Food and Drug Administration (FDA) says that FDA

approval could be waived but that GPO is moving through the

process anyway and could win approval through FDA’s expedited

process in a matter of weeks.

¶19. (C) Merck claims that they sell to the MoPH for 1310 baht

per month, plus 7.5 percent VAT, approximately 1400.

However, they also sell directly to NGOs for 1040 baht, the

higher RTG price reflecting additional local costs imposed by

the RTG. Merck has told us that higher production rates for

efavirenz have provided greater economies. If asked by the

RTG, Merck says that it could negotiate away some of the

additional local costs and work the price down to 850 baht,

close to what the RTG would pay to import a generic version.

¶20. (C) The GPO has reportedly already developed efavirenz

and is in the process of testing and doing bioequivalence

studies (the drug compound is easily replicable). GPO

officials said they hoped to begin local production of

efavirenz by June, 2007. MoPH’s statement quoted GPO’s

chairman that it could produce efavirenz for 700-800 baht for

a monthly treatment of 30 pills. It also put expected

production capacity at 5 million pills, enough to treat

approximately 14,000 patients annually. GPO’s actual costs

will not be known until production begins, but Embassy notes

that an ARV pricing guide put out in 2005 by Medecins Sans

Frontieres shows GPO as a consistently high cost producer in

comparison to Indian generic producers, typically double the

price for the most common ARVs. Whether GPO can bring their

costs for efavirenz equivalent to those of the Indians is

questionable.

¶21. (C) Although GPO has yet to pass a U.S. FDA or WHO

certification process, U.S. CDC says the quality of GPO’s

antiretrovirals is sufficient. Responses to ARV treatment

have been as good as any program in the U.S. and levels of

resistance development are within an acceptable range.

Nevertheless, the lack of certification excludes GPO from

participating in the President’s Emergency Plan for

Antiretrovirals (PEPFAR). The Global Fund is also restricted

from purchasing GPO-produced ARVs, and purchases only FDA-

and WHO-approved second line ARVs for use in Thailand.

Supply Problems?

—————-

¶22. (C) Separately, Medecins Sans Frontieres (MSF), the

health NGO that has promoted issuance of compulsory licenses,

maintained that there were also supply issues with Merck’s

provision of efavirenz, adding another reason to issue a CL.

Paul Cawthorne, MSF’s Head of Mission in Bangkok, told

Econoff they had documented cases of shortfalls at hospitals

BANGKOK 00007335 005 OF 006

that had resulted in treatment interruptions for HIV

patients. Hospitals have occasionally called on MSF to

provide from their own meager stocks of efavirenz to meet

these shortfalls. MSF’s own investigation concluded that the

sharp increase in demand for efavirenz worldwide had strained

Merck’s supply chain and had resulted in shortages. Merck’s

local representatives acknowledged the increase in global

demand in recent years (Thailand itself went from 2,000 to

over 20,000 patients on efavirenz in three years) that had

stretched global supplies. In 2004 in Thailand there was one

instance of a supply interruption, but Merck claims the

problem was MoPH’s inability to conclude a contract in time

rather than a lack of available supply. Merck insisted that

Thai hospitals had never suffered shortfalls due to Merck’s

inability to supply the drug. They did not dispute that

hospitals may have occasionally run dry of efavirenz, but

suggested the blame lies with gaps in MoPH’s own domestic

distribution system. Merck noted that at no time has the RTG

approached them to discuss supply issues regarding efavirenz.

Proposed Actions

—————-

¶23. (C) Notwithstanding what is probably an overwhelmingly

pro-CL public opinion climate here, consensus on the wisdom

of the compulsory license is not universal within the RTG.

Merck says its first notification of the MoPH’s intention was

from a staffer at the Ministry who disagreed with the

decision and hoped Merck could squelch it in time. MoC and

MFA contacts have also been less than enthused with the

compulsory license decision. Some officials in these (and,

probably, other) ministries are likely to view the CL

decision as the latest uncoordinated move by the increasingly

controversial Minister of Public Health.

¶24. (C) From a trade policy viewpoint, we have always

regarded the great value of the CL card as providing leverage

in governments’ negotiations with pharmaceutical firms on

pricing. Used with skill, the CL card can be used to obtain

lower prices while avoiding the costs and other problems

inherent in setting up new manufacturing or import

arrangements. What we find odd in this case is that the RTG

evidently never entered into price negotiations with Merck.

We suspect that the economic ministries of the RTG would also

find this odd (we doubt they are currently aware of these

details). Merck’s offer to reduce its price for efavirenz

may convince the RTG it remains in their interest, financial

and otherwise, to keep the patent intact and continue to

source the original ARV directly from the company. Keeping

the compulsory license open would give the RTG a face-saving

way out, allowing the Ministry to chalk up a success in

reducing the price of the drug while maintaining the option

to produce and/or import if supply problems ever arose.

¶25. (C) As our first proposed action, we suggest that senior

Embassy officers brief the appropriate RTG ministries on the

details of this issue, and suggest that the RTG enter into

price negotiations with Merck. (We will stress that we are

not questioning the legal right of Thailand with regard to

issuance of a CL.) Such a move would be in the spirit of the

WTO’s CL provisions (which envision the CL option as being a

last resort); is fair given the considerable assistance Merck

has provided to Thailand over the years; would send the right

signal to other foreign investors; and could well lead to an

economically optimal solution for Thailand.

Better Public Outreach, Please

——————————

¶26. (C) On this issue, for-profit medicines providers have

been completely outmaneuvered in Thailand. Their role in

saving lives through innovation has been almost totally

obscured, replaced with the image of rich foreigners taking

advantage of sick, defenseless Thais. Taking control of

technology through a CL is, in this climate, perceived as a

brave (and virtuous) act. In previous discussions with PhRMA

representatives, we were told that most PhRMA companies

believe that the issue of medicines IP is not of interest to

the majority of Thais, and that a broad-based public outreach

campaign would only serve as a lightning rod for opponents

and make the situation worse. We believe that Thailand has

emerged as a front-line state on the medicines IP issue and,

notwithstanding the relatively small market here, merits

increased attention by PhRMA. The placement of additional

PhRMA public relations resources in Thailand is fully

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justified, in our view.

¶27. (C) There is some urgency to our call for additional

resources. The MoPH has announced its intention to issue

compulsory licenses on other ARVs, most notably

lopinavir/rotinavir, sold under the brand name Kaletra, a

second-line ARV produced by U.S.-based Abbott Laboratories.

At approximately 7000 baht per month, the treatment is seven

times more expensive than available first-line treatments.

As HIV-positive patients build resistance to initial

treatments, a growing percentage will need to move to more

expensive second-line treatments such as Kaletra. The World

Bank recently predicted that continuation of Thailand’s

policy of providing HIV/AIDS medicines to all eligible

patients would raise overall health costs by 23 percent, and

noted Thailand could save upwards of USD 3.2 billion over the

next 20 years by using compulsory licenses. Although price

negotiations may save Merck’s patent this round, it is quite

likely that the RTG will seek a compulsory license again in

the near future.

¶28. (C) Action requested: We are unable to hazard a guess on

the likelihood of success of our proposed actions; some

knowledgeable observers here believe we are facing a fait

accompli. In any case, we think we have a strong case to

make to the RTG on this issue. That fact, plus the

considerable stakes involved for U.S. pharmaceuticals firms,

convinces us that the effort is worthwhile. Therefore,

Embassy requests Washington agencies’ concurrence as soon as

practicable on the actions outlined in para 25.