Brazil on Friday overrode the patent on a pivotal HIV medicine, becoming the second emerging economy aggressively to challenge the pharmaceutical industry in seeking a sharp reduction in drug costs.

President Luiz Inácio Lula da Silva on Friday signed a “compulsory licence” for Efavirenz, Merck’s HIV drug, allowing the government to purchase from rival generic suppliers under provisions permitted by World Trade Organisation rules.

The move marks a sharp escalation in clashes over drug pricing between developing countries and industry, following a recent decision by Thailand to issue compulsory licences for several patented medicines including Efavirenz.

Health activists welcomed Brazil’s action in boosting affordable medicines for patients with a life-threatening disease, but the pharmaceutical industry warned it could severely harm supplies of cheap drugs to the world’s poorest countries.

Michael Weinstein, president of AIDS Healthcare Foundation, which operates clinics in Latin America, said: “Today is a victory for Aids activists and patients everywhere, and proof that drug companies will go down in defeat every time they place themselves in the way of justice for Aids patients.”

However, Jeffrey Sturchio, a vice-president at Merck, said: “If Brazil expropriates our intellectual property, it will have a chilling effect on whether companies research diseases of the developing world and in the long term will have an impact on the poorest countries.”

The decision leaves a few days for discussion in Brazil, while Thailand meets drug companies this month to avert the cheaper purchases from rivals. Brazil has negotiated by brinkmanship over HIV drug pricing, threatening in recent years to issue compulsory licences but stopping short after winning deeper discounts from companies. Talks broke down earlier in the week between the authorities and Merck, which resisted Brazil’s calls to reduce its price from $1.57 a patient a day to the 65 cents at which it is sold to Thailand.

Merck said the difference was that Thailand had a much higher prevalence of HIV, which put it into its category of sales for Efavirenz at cost price.

Mr Sturchio argued Merck continued to lower the price of the medicine, but emerging economies such as Brazil had a role to play alongside the developed world in helping not only cover production costs but also funding future drug innovation.

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