Drug price regulation in Brazil: Roche faces IP rights abuse claims
The increasing price of medicines is a controversial and challenging issue worldwide. Countries adopt mechanisms to regulate such prices, generating an assumption that sales within regulated limits are legitimate.
However, on June 7 the Brazilian Federal Prosecutor’s Office (MPF) filed a class action against Roche’s Brazilian subsidiary arguing that its sales of Herceptin (trastuzumab) to state governments involves an alleged abuse of IP rights, even though they are compliant with the price regulatory framework. The abuse, according to the MPF, results from higher prices charged to states in named patient sales in order to comply with court orders, compared to sales to the Ministry of Health (MoH).
This case is of unparalleled relevance for the Brazilian pharmaceutical sector as it challenges a common belief that complying with the requirements of price regulation suffices.
Brazilian pricing system
Pharmaceutical companies in Brazil are not free to set their prices; they must comply with certain criteria defined by the Pharmaceutical Market Regulation Chamber (CMED). This applies for both the public health system (SUS) and private market. In general, once marketing authorisation is granted by the Brazilian National Health Surveillance Agency, a company must file a price request to the CMED.
CMED is a multidisciplinary chamber formed of members from ministries and the Civil Cabinet following Law 10,742 back in 2003. Its role is to promote access to drugs for the population, using mechanisms to stimulate the increase of supply and the competitiveness of the pharmaceutical sector (article 5). Law 10,742 also sets forth several objectives of CMED (article 6), including to establish the guidelines and procedures for the economic regulation of the pharmaceutical market (item I), and to monitor the pharmaceutical market to ensure the compliance with the price regulations (item XII).
At the regulatory level, the Brazilian pricing system is composed of resolutions issued by CMED. According to these rules, the price submission, filed after a marketing approval is granted, must be substantiated with documents and information to enable CMED’s appraisal. CMED’s executive secretariat will review the price request and issue a decision, setting a price limit for the product. If the company does not agree, it can file an appeal to the technical-executive committee.
Once the decision is final, the drug will have three different price limits:
- The price limit for sales to consumers—the ceiling price at which a drug store can sell a drug to consumers;
- The price limit for wholesales (PF)—the maximum price at which a drug manufacturer or distributor can sell a drug to drug stores;
- The price limit for sales to the public administration (PMVG)—the maximum price at which a drug can be sold to public entities, such as the federal, state and local government. PMVG is equal to PF, less the mandatory discount (CAP) established by the legislation in favour of the public administration. CAP is applicable only to products that are distributed within certain public health programmes (for treating HIV and cancer) or products that the public administration buys in order to comply with a court decision given in a lawsuit filed by a patient seeking the supply of the drug by the public administration. Whenever CAP is not applicable, sales to public administration are limited to PF.
That being said, it is necessary to expose that the Brazilian price system is often criticised for its lack of effectiveness and that there is an acknowledged need for updates to fulfil its purpose of promoting access of the population to drugs.
Irrespective of those flaws, the MPF class action seems to ignore the system’s constitutional legitimacy and the existing statutory means to encourage the improvement and enforcement of the pricing system in place.
Government drug acquisitions
Before addressing the grounds of MPF’s class action, an overview of how drug acquisitions are made by the public administration is required. Brazil has a publicly funded healthcare system, called the Unified Health System (SUS). All government levels (federal, state and local) are jointly responsible for SUS. One of SUS’s goals is to supply free treatment to those who duly need it, including drugs.
SUS only supplies drugs included in one of its lists or recommended by its National Committee for Health Technology Incorporation (CONITEC) and adopted by the MoH. The legislation establishes which drugs the federal, state and local governments will regularly buy. Due to its high cost, Herceptin has undergone a health technology assessment from CONITEC. Based on CONITEC’s opinion, Herceptin is subject to a centralised annual purchase by the MoH and is subsequently distributed throughout Brazil.
“The MPF alleged that the price difference is not reasonable, lacks commercial justification and results from Roche’s business decision to take advantage of the states’ lower bargaining power.”
However, CONITEC has a limited publicly-funded supply of Herceptin as it did not recommend it for the treatment of breast cancer in the metastatic stage. Therefore, SUS does not proactively supply Herceptin to patients with that condition.
To have access to Herceptin in this case, patients often file lawsuits, relying on the predominant case law on the adjudication of the constitutional right to health, seeking a court order against governments to determine its supply. Patients often file lawsuits directly against their home states. If the injunction is granted, the state has to buy Herceptin to comply with the court decision.
While the MoH’s annual acquisitions comprise a large planned number of products and are made regularly, states’ acquisitions are exceptional, random and made amid urgency in order to comply with short deadlines established by courts’ decisions. Consequently, the bargaining power of states is lower than the MoH’s.
Economic power abuse?
According to the MPF, despite having complied with CMED’s price limits, Roche abused its IP rights by imposing higher prices of Herceptin’s sales to states (approximately $$2,226.62 per vial), compared to the price of sales to the MoH (approximately $$1,059.81 per vial).
Based on a preliminary investigation, the MPF alleged that the price difference is not reasonable, lacks commercial justification and results from Roche’s business decision to take advantage of the states’ lower bargaining power.
Within the investigation, Roche alleged that several factors such as volume, logistic costs and risk of payment default contribute to a higher price for states, while reiterating it complies with price regulation.
MPF has challenged those grounds based on assumptions comparing similar scenarios with different drugs but ignoring paramount singularities that set them apart. As per the MPF’s standpoint, Roche had supposedly opted to apply the highest permitted price to the states due to existing IP connected with Herceptin. Thus, the MPF concluded this price results from an abuse of IP, which would also constitute a violation of the Brazilian Antitrust Law (article 36, paragraph 3, item XIX of Law 12,529/2012).
Based on those grounds, the MPF is asking the Federal Court of Brasilia to grant an injunction ordering Roche to refrain from “selling overpriced Herceptin” to the states. It also seeks a final ruling ordering compensation for material and moral damages of at least $100 million. Moreover, the MPF is requesting the compulsory licensing of Roche’s Brazilian patents (which it has not ascertained) covering Herceptin in order to allow government-owned pharmaceutical industries to manufacture a Herceptin biosimilar. To achieve that, the MPF sought a court order against the MoH to declare public interest in the drug to support a compulsory licence and the Brazilian Patent and Trademark Office to implement it.
What to expect
Roche has not yet presented its defence in the proceedings. However, the fact that Roche respected the price limits fixed by CMED for Herceptin seems to be the starting point. Roche sold Herceptin only by the price perceived by the legitimate authority as appropriate to promote the access of the drug to the population.
It also seems wrong that discretionary discounts given by Roche to the MoH based on a negotiation for large annual sales with national coverage may work as evidence against the company.
Furthermore, all MPF rhetoric is based on the assumption that Roche abuses its IP. Nevertheless, it is widely known that the mere ownership of IP cannot be attacked as an abusive conduct. In that sense, the MPF has first failed to ascertain the existence of IP protecting Herceptin and failed to demonstrate any improper exercise of those rights that could amount to an abuse.
Last but not least, the MPF also claimed that the judiciary should provide a proper response to companies’ abuse as CMED lacks qualified staff and does not enforce the regulation. The shortcomings of the Brazilian pricing system cannot justify claims for damage compensation and compulsory licensing of IP rights of a company which simply complied with the regulations.
Putting aside the legal discussion, if the system is inadequate, then improve it. If it requires qualified staff, then hire them. However, suing a company complying with the rules creates additional legal uncertainty in a market already dealing with unique political and economic turmoil.
No decision has been issued yet.
Anderson Ribeiro Nascimento is a partner in the life sciences practice at Provedel Advogados. He can be contacted at: anderson.ribeiro@provedel.com.br
Ricardo Campello is a senior associate at Provedel Advogados. He can be contacted at: ricardo.campello@provedel.com.br
