Jose Serra said he would use a clause in Brazil's 1997 intellectual property law that allows patents to be broken in cases of national emergency or when companies employ abusive pricing policies.
"This is a question of absolute emergency," he said. "Brazil is not against patents, but when the pricing is abusive, it takes money away from other needy areas like malaria, tuberculosis and leprosy."
Showing Brazil's AIDS fight is more than a war of words, he said that Brazil will go ahead with plans to break the patent nelfinavir, which is sold by Roche as Viracept, and produce a low-cost version by next February.
"By producing nelfinavir here in Brazil we can reduce the price by 40 percent, so Roche would have to offer at least that," Serra said.
The decision came after six month of negotiation "and after exhausting all the possibilities for an agreement," the ministry said in a statement. Roche will continue to supply the drug until December 2001, when the contract with the Health Ministry ends.
The move marks the first time Brazil has stripped the patent on an anti-AIDS medication, despite previous threats to do so.
In Basel, Switzerland, where Roche is headquartered, spokesman Daniel Piller said the company was "surprised" by the news and denied that negotiations had broken down.
"We are on good terms in negotiations with the ministry of health and we were waiting to fix a date for another meeting as previously agreed," he said Thursday.
"In our negotiations with the ministry of health we had already given them discounts very close to what they wanted," he said. He added that the company also had made a certain amount of the drug available free of charge.
Because Nelfinavir has a U.S. patent, the Brazilian government should have consulted with the United States, as it agreed to do when the two countries settled their trade dispute in July, Piller added.
He said the company would now be checking "exactly who did what and why" before deciding what to do next.
Brazil, which has the highest number of AIDS victims in Latin America, distributes a "cocktail" of anti-AIDS drugs free to anyone who needs it. Last year, some 90,000 people received the drugs that would have cost each of them up to $15,000.
Thanks largely to the drug handout, in just four years the number of AIDS deaths in Brazil has fallen from 11,024 to 4,136. The program has been hailed by doctors as a model for other developing countries, where few can afford expensive treatment.
By manufacturing most of the drugs itself, the government reduced costs by as much as 79 percent. But Brazil has achieved those savings by ignoring drug patents.
With new anti-AIDS drugs coming to market, the government said it might be necessary to employ compulsory licensing if drug companies did not move to lower osts.
Brazil spends about $88 million a year, or 28 percent of its anti-AIDS budget, on Nelfinavir every year. About a quarter of all Brazilian AIDS patients use the drug.
Last week, scientists at the government's Farmanguinhos lab said they had successfully copied Nelfinavir and were subjecting it to equivalency tests expected to last three months.
© MMI, CBS Worldwide Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press and Reuters Limited contributed to this report