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### Viewing cable 06BANGKOK7335, NEXT STEPS FOR THAILAND'S COMPULSORY LICENSE BID

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
06BANGKOK7335 | 2006-12-10 05:05 | 2011-02-06 21:09 | CONFIDENTIAL | Embassy Bangkok

`

    VZCZCXRO1076
    PP RUEHCHI RUEHDT RUEHHM RUEHNH
    DE RUEHBK #7335/01 3440528
    ZNY CCCCC ZZH
    P 100528Z DEC 06
    FM AMEMBASSY BANGKOK
    TO RUEHC/SECSTATE WASHDC PRIORITY 3372
    INFO RUCNASE/ASEAN MEMBER COLLECTIVE PRIORITY
    RUEAUSA/USDOHHS WASHDC PRIORITY
    RUCPDOC/USDOC WASHDC PRIORITY
    RUEHGV/USMISSION GENEVA PRIORITY 1745

` `

    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

    BANGKOK 00007335 002 OF 006

    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

    BANGKOK 00007335 003 OF 006

    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

    BANGKOK 00007335 004 OF 006

    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

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    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.
    BOYCE

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