updated 5/4/2007 12:29:34 PM ET 2007-05-04T16:29:34

President Luiz Inacio Lula da Silva took steps Friday to make an inexpensive generic version of an AIDS drug made by Merck & Co. available in Brazil despite the U.S. drug company’s patent.

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Silva issued a “compulsory license” that would bypass Merck’s patent on the AIDS drug efavirenz, a day after the Brazilian government rejected Merck’s offer to sell the drug at a 30 percent discount.

A compulsory license is a legal mechanism that allows a country to manufacture or buy generic versions of patented drugs while paying the patent holder only a small royalty.

Brazilian law and rules established under the World Trade Organization allow for compulsory licenses in a health emergency or if the pharmaceutical industry uses abusive pricing.

Merck had offered to sell the drug for $1.10 per pill, down from $1.57, while Brazil was seeking to purchase the drug at 65 cents a pill, the same price Thailand pays.

Earlier in the day, Amy Rose, a spokeswoman for Whitehouse Station, N.J.-based Merck, said the company would be “profoundly disappointed if Brazil goes ahead with a compulsory license.”

It was the first time Brazil has bypassed a patent.

After Thailand moved to override patents on three anti-AIDS drugs, including those made by Abbott Laboratories Inc. and Merck, the United States placed Thailand on a list of copyright violators.

“As the world’s 12th largest economy, Brazil has a greater capacity to pay for HIV medicines than countries that are poorer or harder hit by the disease,” Merck said in a statement after Silva’s announcement.

Ballooning costs
While AIDS activists applauded the move, the U.S.-Brazil Business Council denounced the move as a step backward.

“Just days after Brazil was recognized for improving its enforcement of intellectual property rights, this is a major step backward for the country’s development. Brazil is working to attract investment in innovative industries that rely on IP, and this move will likely cause investments to go elsewhere,” the council said in a statement.

Although Brazil had threatened to bypass drug patents in the past, the country had always reached a last-minute agreement with drug manufacturers.

Brazil provides free AIDS drugs to anyone who needs them and manufactures generic versions of several drugs that were in production before Brazil enacted an intellectual property law in 1997 to join the WTO.

But as newer drugs have emerged, costs ballooned and health officials warned that without deep discounts, they would be forced to issue compulsory licenses.

Efavirenz is used by 75,000 of the 180,000 Brazilians who receive free AIDS drugs from the government. The drug currently costs about the government about $580 per patient per year.

The Health Ministry says that a generic version of efavirenz would save the government some $240 million between now and 2012, when Merck’s patent expires.

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