Brazil moved a step closer yesterday toward bypassing Merck & Co. Inc.'s Brazilian patent on the HIV drug Stocrin after declaring the company's offer of a reduced price insufficient.

It made Brazil the second government to consider overriding a patent on an AIDS treatment, stirring concern that others would follow suit. Thailand is considering bypassing patents on three anti-AIDS drugs there, including those made by Abbott Laboratories Inc. and Merck. The United States has placed Thailand on a list of copyright violators.

Brazilian President Luiz Inacio Lula da Silva signed a law allowing the government to buy a generic version of efavirenz - sold under the brand names Stocrin and Sustiva - from laboratories certified by the World Health Organization.

Brazil has threatened to bypass drug patents in the past but always has reached last-minute agreements with manufacturers.

Health Minister Jose Gomes Temporao told reporters the government still would consider a new proposal from Merck, although he called the prospects unlikely.

Merck, which has huge research and manufacturing operations in suburban Philadelphia and headquarters in Whitehouse Station, N.J., said in a statement that it was "profoundly disappointed" by Brazil's decision.

"As the world's 12th-largest economy, Brazil has a greater capacity to pay for HIV medicines than countries that are poorer or harder hit by the disease," Merck's statement said.

It said the "expropriation of intellectual property sends a chilling signal to research-based companies about the attractiveness of undertaking risky research on diseases that affect the developing world."

Merck had offered to cut its price to the Brazilian government by 30 percent, to $1.10 a pill from $1.59. The government demanded a price of 65 U.S. cents a pill, the same as Thailand pays.

"We can't pay more for a medicine when the same drug is sold at a much cheaper price in another country," Lula said, adding that Brazil was acting under a WHO ruling that countries with emergency health issues could, within limits, break patent protections.

Drug companies regularly set different prices for each country, calling it the best way to maximize drug availability for patients and revenue for shareholders.

Brazil is trying to limit its cost of providing free treatment to all 200,000 people in the country infected with AIDS and the HIV virus.

The president of the U.S.-based AIDS Healthcare Foundation, Michael Weinstein, called Brazil's action a "victory" for AIDS activists.

But U.S. Chamber of Commerce vice president Daniel Christman called it a "major step backward" economically for Brazil that "will likely cause investments to go elsewhere."