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On June 21, 2024, the Ministry of Health (“MoH”) published the new regulation of the Partnership for Productive Development - PDP Program (Ordinance #4,472/2024)¹. The draft was subjected to Call for Contributions #54/2023 for 74 days, when it received 1,265 different contributions from stakeholders. Despite having an idea of what was to come, stakeholders got surprised with MoH’s announcement that it was going to publish said regulation within three days (this happened during a meeting on June 18,2024) since it was expected a new round of discussion. The perception is that one more round could have solved some questions that have arisen with the new provisions or have solved some old ones that the new regulation did not address.

The first question that arises is what the Government’s Accountability Office’s position will be (named “TCU” in the Portuguese acronym) in relation to the fragilities it has pointed out in the PDP Program when the old regulation was still in force. In 2023, TCU recommended the MoH to refrain from signing new PDPs until it had been established “mechanisms to objectively evaluate the completion and effectiveness of the tech transfer and absorption”². TCU has also identified other points of concern whose solution depended on changing the regulation. The Federal Attorney General's Office (named “AGU” in the Portuguese acronym) filed a motion for reconsideration against said “recommendation”, but it is still pending. In any case, on June 24, 2024, MoH opened a 90-days deadline for interested parties to submit new proposals for PDPs projects³ apparently regardless of hearing TCU’s position. The 80 Articles of the new regulation present some novelties – believed to be inserted in an attempt to address the questions raised by TCU – but not so many, since some of them only put down on paper what already occurred in practice.

There has been a significant change regarding products eligibility for PDPs. As per the revoked regulation, MoH used to publish lists comprising these products by their active pharmaceutical ingredient (API). This dynamic has changed. There is now what is called “Matrix of Productive and Technological Challenges in Health”, which lists eligible products by more “open” criteria, such as therapeutic indication (“for HIV/AIDS treatment and viral hepatitis”) or category (“biologics and blood derivatives”). This represents a substantial expansion of the Program’s scope, which raises doubts on the effectiveness of this new dynamic. The lack of a prior and objective definition of the products can hinder effective competition since leaves room for situations in which only one potential partner submits a proposal for a product, therefore, leaving the Public Administration without option to compare it with another proposal and chose the one that offers the best conditions.

In relation to PDP’s participants, it was maintained as an arrangement with the MoH, the Government-Owned Pharmaceutical Industry (“GoPI”) and the Private Entity (“PE”), but with some changes. A Scientific, Technological and Innovation Institution (“ICT”) without manufacturing capacity can now be a participant jointly with or without a GoPI (Article 2, item XIII; Article 5, I and Paragraph 2). Moreover, the new regulation suggests that it will be possible for the GoPI/ICT to be exempted from the role of manufacturing the product itself, in which case this burden will fall on the PE’s shoulders. This is a possible interpretation considering Article 46, which leaves open the question of which party will be responsible for actually manufacturing the product in Brazil, and Article 45, particularly paragraph 3, which uses the phrase "when applicable" when stipulating the timing for submitting a MA application amendment to include the GoPI/ICT as the product's manufacturing location.

Another change is the new way to name the participants, which facilitate the identification of their role: Entity that owns or develops the API or the Technological Device (“TD”) (Article 2, VIII); Technology Transferring Entity (“ETT”) (Article 2, XI); and Technology Receiving Entity (“ERT”) (Article 2, X). Also, the new regulation provides that PEs can simultaneously transfer and receive technology (Article 2, IX). This is an example of provision that only puts down on paper what has always happened in practice: many of approved and ongoing PDP involves a foreign PE transferring the technology to a Brazilian PE, that, in turn, transfers it to the GoPI.

Regarding the prices to be practiced in product procurements, there were two main criticisms. From the market's perspective, abrupt price reductions throughout the PDP. From the TCU’s perspective, there should be transparency about how much of the agreed price refers to the product and how much refers to the technology that will be transferred. Only with such transparency can the Public Administration evaluate the advantages and economic viability of each acquisition.

The new regulation seems to have addressed the market’s criticism by establishing that the proposed price for each acquisition can only be adjusted in case of an “extraordinary event”, i.e. adjusting the price is an exception (in Article 40, III, a). Prior to entering into phase III (phase corresponding to product procurements by the MoH), the price shall be updated in order to correct any distortions generated by the time lapse since the proposal filing date (Article 33, Paragraph 5). In other words, the price to be paid to PE will be updated so that it is observed during the execution of the product supply, allowing changes only in exceptional situations. That is what it seems at least.

Regarding the TCU's criticism, the MoH at first stated that it would not be feasible to define a mechanism for pricing the technology itself – which does not seem believable. Nevertheless, the MoH seems to have tried to address said criticism by predicting that the price proposed in the PDP should be justified “considering the value of the product and the technology” (Article 8, Paragraph 3). However, the proposal template released by the MoH does not require a specification in the way intended by the TCU, se depending on what is accepted as justification, the provision will not be sufficient to remedy the weakness.

The main focus of change in the new regulation seems to have been the improvement regarding the monitoring of tech transfer in order to ensure the partnerships success. This was one of the main fragilities pointed out by the TCU, and rightly so. Public information shows that of the 130 PDPs signed by 2024, only 27 reached Phase IV with the technology absorption, of which only 13 were 100% completed with the GoPI manufacturing the product and the PE manufacturing the API in Brazil⁴.

Examples of novelties regarding the monitoring are: (i) automatic suspension of the PDP at the end of the term approved for Phase II, so that the Technical Assessment Commission (“CTA”) and the Deliberative Committee (“CD”) can reassess the feasibility of its maintenance in case it has not met the schedule outlined in the proposal (Article 32); (ii) a new analysis by CTA and CD of main PDP elements before initiating Phase III, such as the price and MoH’s demand (Article 33, Paragraph 5); (iii) the requirement that, in each acquisition procedure, the MoH’s unity responsible for monitoring the PDP shall be consulted on the stage and progress of the tech transfer (Article 42); (iv) the establishment of two new reports, the “Tech Transfer and Absorption Report”, which must be sent by the GoPI/ICT to the MoH within 90 days of the end of Phase III, proving the tech absorption and the national production of the API (Article 49), and the “Tech Transfer and Absorption Verification Report”, which must be prepared by SECTICS (Department of Science, Technology, and Innovation and the Health Economic-Industrial Complex) after visiting the ETTs in loco (Article 50).

Based on these two new reports, the unity responsible for monitoring the PDP must prepare an official statement regarding the proof of the technology absorption, which will support the evaluation by the CTA and the decision by the CD on whether or not such proof exists. If not, the regulation provides that the CD may recommend the MoH to sanction the partnership’s participants as per Chapter VIII of the Ordinance (Article 51, Paragraph 1). The criterion for sanctioning is not specified, leaving it to the CD's discretion.

In addition, it is new the provision that expressly establish which sanctions can be imposed by MoH in the event of non-compliance with the applicable regulations and legal instruments governing the PDP (Article 76), which include a warning, fines, and/or temporary suspension from participating in new PDPs (Article 77). It is true that there was no provision like that for the in the revoked regulation, but this should not be an excuse not to sanction, as the MoH has alleged. Signing a PDPs has always involved signing agreements with the government. Thus, the Brazilian Government Procurement and Agreements Act (Statute #8,666/1993 and Statute #14,133/2021) has always been applicable. In any case, if there is a provision in the regulation, the MoH will no longer be able to avoid applying them on the grounds that there is a gap.

Finally, there were also changes in the legal instruments that implement PDPs. These changes, besides being relevant, are numerous and quite specific, so they will be addressed in a second part of this article.

On paper, the above changes were the most significant brought by the new regulation. As can be seen, there are still some doubts that could have been avoided if the final draft had been further discussed prior to its publication. The MoH recently presented a statement informing the TCU that the new regulation would meet the Court’s previously determinations. Thus, it is also necessary to monitor the TCU’s stance as it seems that it had not previously analyzed the draft. In short, it doesn't seem to have been a good start for a program with so much positive potential, but everything will depend on how the MoH puts the new regulations into practice. We'll have to watch and see.

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