Drugmakers Feel the Heat in Mexico

Víctor González Torres sure doesn't look like the kind of guy who could strike fear in the heart of the U.S. and European drug industry. A jovial 56-year-old Mexican, González is president of Farmacias Similares, a fast-growing drugstore chain based in Mexico City. González has a charitable streak that's also good for business. His 1,050 pharmacies cater to some 50 million uninsured Mexicans. Under the banner "the same, but cheaper," the stores sell knockoffs of widely prescribed off-patent drugs, often for one-fourth the price charged by rivals. "Our main competition is the Virgin of Guadalupe, to whom people pray because they cannot afford to buy medicine," says González.

Doing well by doing good: What's wrong with that? But González, whose pharmacy chain and drugmaking laboratory racked up $200 million in sales last year, is also pushing for a major change in Mexican law. In September, the Senate will consider whether to allow the compulsory licensing of drugs used to treat illnesses such as AIDS and cancer. That means the government could grant local laboratories licenses to churn out cheap copies of patented drugs, whether Pfizer (PFE ), Merck (MRK ) or Eli Lilly (LLY ) like it or not. In exchange, the holder of the patent would get a modest royalty payment. That's no compensation for the profits Big Pharma stands to lose if the law passes. Mexico is the fastest-growing drug market in Latin America, with more than $7 billion in 2002 sales.

The prospect of losing a chunk of a big market isn't the only problem drug companies face. Using his marketing savvy and connections, González has turned Mexico into another battleground in a global drug war that pits poor countries against rich. In South Africa, India, and Brazil, activists and politicians have clashed with drugmakers and forced down prices for life-saving treatments. In the U.S., there's mounting concern that a defeat for intellectual-property rights in Mexico might embolden other countries. "We're watching this closely," says an official at the U.S. Trade Representative's office.

No surprise, then, that foreign drugmakers want to block the law. "It is populist and shortsighted," says Victor Manuel Miguelez, general director of Grupo Roche Syntex de México, who argues that efforts to circumvent patents could hamper innovation if they spread worldwide. "If compulsory licensing is passed, pharmaceutical investments could be frozen in Mexico," adds Julio E. Portales, director of corporate affairs for Eli Lilly's Mexico subsidiary. When Brazil enacted similar legislation, Eli Lilly withdrew some of its drugs from the market. Yet activists point out that since Brazilian government labs began producing generic versions of several AIDS drugs in 1997, U.S. and European drugmakers have dropped prices on some products by as much as 65%.

González is pulling out all the stops. His nephew heads a small political party, the Greens, that has allied with members of the powerful Institutional Revolutionary Party to push for the legislation's passage. González is also doing charity-cum-public relations: His foundation runs 200 clinics that distribute medicine free to the poor. He already managed to get one version of the licensing law passed in the lower house in April. "The lobbying from both sides was intense," recalls Silvia Alvarez, a congresswoman from the ruling National Action Party.

González' customers understandably care only about their wallets. "Private doctors and hospitals are for the rich," says Jorge Ruiz. To treat his son's ear infection, the unemployed technician paid $11 at a Farmacias Similares for medicines that would have cost $50 elsewhere. That's a price difference González is shrewdly exploiting.

By Geri Smith in Mexico City

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