Mehdi Baig

ALS 359
October 6, 2015
The Kaletra Kontroversy
The Brazilian government has been determined to lower prices for antiretroviral drugs
(ARVs) in order to cap the cost of its HIV treatment program, promising free access to
HIV/AIDS treatment for Brazilians. Drugs such as Kaletra, an ARV produced by Abbott, have
been shown to lower deaths from HIV/AIDS, but unfortunately the expensive prices of these
novel drugs prevent developing countries from gaining access to them, specifically middleincome countries (MIC) within Mercks tiered pricing program. In spite of the affordability
barrier, MICs such as Brazil and Thailand have resorted to a controversial strategy, compulsory
licensing, which enables them to develop generic versions of these ARVs without the permission
of the innovator. In this case study, Abbott is faced with a difficult decision to revise the initial
proposal made to Brazil, as the current deal is considered exorbitant for the Brazilian
government. Factoring in the compulsory licensing power Brazil contains coupled with their
successful history in bringing the prices of ARVs down by an average of 87%, I believe Abbott
should renegotiate with Brazil to make this deal happen or else they will lose intellectual
property (IP) of Kaletra with the emergence of generics and simultaneously generate poor public
relations (PR) for not coming to the aid of a MIC (Despande 2006). Additionally, if these types
of stalemates persist, the World Trade Organization should seek to reform the classifications of
the tiered pricing program.
Abbotts hesitation in renegotiating a deal is understandable because of Brazils history of
abusing intellectual property rights (Bate 2007). In addition, novel drugs require extensive

research and development (R&D) averaging over $1 billion per drug and companies, like Abbott,
are simply trying to offset these costs (Rosenblatt 2014). However, I still believe it is in Abbotts
best interest to take Brazils threats seriously because there is the chance that generics,
manufactured from the compulsory licensing, could infiltrate the markets in the U.S.
Consequently, Abbott would have to drastically lower the price of the drug to outcompete the
generic and thus lose revenue. By renegotiating with Brazil, Abbott not only maintains
intellectual property of Kaletra, but they can also devise a contingency that disallows Brazil from
pursuing generics for Kaletra in the future.
Ultimately, Brazil has the bargaining power because of their position as a MIC with
160,000 patients suffering from HIV/AIDS (Deshpande 2009). The Brazilian government is also
covering the costs for treatment by paying roughly $4,137 per patient, thus their government are
void of any criticisms from the public eye (Deshpande 2009). Therefore, this places all of the
pressure in terms of PR and politics on Abbott to make the right decision. By potentially walking
away from the deal, Abbott would hinder U.S.- Brazil relations and consequently effect
economies for both nations. Restructuring the deal and decreasing the price of Kaletra from
$1.17 to $0.63 would be a wise tactic to bring Abbott into the proper light by assisting a MIC
(Bjordberg 2007).
Upon dissecting the possible outcomes, I believe a resolution of the Kaletra controversy
still leaves the larger issue unresolved. The practice of charging lower prices in MICs does not
yield equitable access or affordability to a novel drug. Thus negotiating with MICs such as Brazil
in the future will continue to be in a lose-lose situation for Abbott. They will either negotiate a
deal that does not offset R&D costs or walk away with the threat of losing IP to generics and
jeopardizing their public image by being seen as unethical. Until the current system steps away

from relying on the ability of pharmaceutical companies to recoup R&D costs, Brazil and
company will continue to give compulsory licensing threats to gain access to medications. I
believe that if an alternate method could be implemented that separates medicine prices from
R&D costs, Abbott could make affordability for patients more feasible and mitigate many
problems raised by tiered pricing.

References
Bate, R., & Boateng, K. (2007, August 1). Drug Pricing and Its Discontents. Retrieved October
8, 2015, from https://www.aei.org/publication/drug-pricing-and-its-discontents
Deshpande, Rohit, and Ricardo Reisen de Pinho. "AIDS in Brazil." Harvard Business School
Case 506-062, February 2006. (Revised February 2009.)
Jennifer Bjornberg, Brazil's Recent Threat on Abbott's Patent: Resolution or Retaliation, 27
Nw. J. Int'l L. & Bus. 199 (2006-2007)
Rosenblatt, M. (2014, November 17). The Real Cost of "High Priced" Drugs. Retrieved
October 9, 2015.