In the market for new pharmaceutical products, research and development costs are a formidable barrier to new entrants. The skills, expertise, high tech equipment and laboratories are expensive to acquire or build. This is not to mention the costs of testing and the long wait for approval to bring new preparations to market. But once these sizeable hurdles have been cleared, pharmaceutical firms have the chance to make high profits, with patents protecting their inventions for up to a decade, depending on the country studied. The US company Pfizer, which developed Lipitor, an anti-cholesterol drug, sold close to $11bn worth of this product last year. This made Lipitor the world’s biggest selling prescription drug in 2010.

The cost of groundbreaking drugs to individuals and governments is a major contributor to the development of what are called ‘generic’ pharmaceuticals. Generics are near-identical reproductions of medications whose patents have expired. One of the most powerful recent arrivals into the generics market is Brazil. In 2010, laboratories in Brazil produced more than 22 different off-patent drugs to treat illnesses as diverse as AIDS, asthma, osteoporosis and Alzheimers. But Brazil’s journey to get to this position has not been without difficulties. It has had battles with big pharmaceutical firms and cases to be fought within the World Trade Organisation.

The roots of Brazil’s now burgeoning generic drug industry can be traced to 2001, when the government threatened to break a patent on an anti-retroviral treatment for AIDS. Actions against Swiss firm Roche, Pfizer and Merck were aimed at bringing treatment costs down for Brazil’s estimated 600,000 AIDS sufferers. Brazil sought to deal with its AIDS crisis by offering free anti-retroviral therapy, which is usually too expensive for those in developing countries. Brazil’s patent law made this possible by allowing local firms to make a drug if its foreign maker refuses to set up production in Brazil within three years of receiving its patent, so-called ‘compulsory licensing’. It also allows ‘parallel importing’ from the lowest cost international supplier of generic drugs.

The Brazilian government argued that these patent tactics were designed to be a bargaining chip to be used only as a last resort. If it asked a drug firm to cut prices in order to make state treatment programmes affordable and was denied, it would feel empowered to take action. In the 2001 case, the drug companies backed down, agreeing to cut the prices of five drugs by between 40 and 65%. In 2007, though, Merck was hit by the first enacted case of compulsory licensing, when its Efavirenz drug had its patent broken by the Brazilian authorities. Faced with an uphill struggle to sell their own patent-protected drugs in a big market such as this, the pharmaceutical firms have come up with the next best strategy: buy up Brazil’s generic drug-producing laboratories.

So in 2010 Pfizer bought a 40% stake in Teuto Laboratorio Brasiliero. The year before, French pharmaceutical group Sanofi-Aventis acquired Medley for almost $700m. But it is not all one-way traffic; late last year, university scientists at Sao Paolo announced that they had devised a new, lower cost version of Lipitor. Not only that, but they want to seek permission to patent the drug as they claim that it uses new sequences not used by Pfizer’s top-ranking product.

In the absence of new blockbuster products, multinational drugs companies fear losing revenue and are cutting research in several locations, such as Pfizer at Sandwich, Kent and Novartis at Horsham, Sussex. These moves are likely to signal a change in strategy as these global organisations target developing markets in Brazil, the rest of Latin America, India and China. Pharmaceutical firms’ staff at other European sites may lose out in the process, but populations in less developed regions could benefit with better quality of life and increased longevity.