By Ricardo Amaral

BRASILIA, May 4 (Reuters) - President Luiz Inacio Lula da Silva signed a decree on Friday authorizing Brazil to break the patent on an AIDS drug made by Merck & Co. Inc. <MRK.N> and import a generic version from India instead.

It is the first time Brazil has bypassed a patent to acquire cheaper drugs for its AIDS prevention program, although it has threatened to do so before to force drug makers to lower prices.

Talks over the price of Merck's drug, Efavirenz, broke off on Thursday when the health ministry rejected the New Jersey-based company's offer to cut its price, $1.59 per pill, by 30 percent. Brazil wanted to pay what Merck charges Thailand, or $0.65 per pill.

"The compulsory licensing of Efavirenz is a legitimate and necessary measure to guarantee that all patients have access to the drug," Lula's office said in a statement.

At a ceremony in the presidential palace, Lula was applauded by representatives of some 200,000 AIDS patients who receive state-sponsored antiretroviral therapy in Brazil.

Merck said in a statement it was "profoundly disappointed by the decision of the government of Brazil" and called it an "expropriation of intellectual property."

Brazil's health ministry has said it plans to import a generic version of Efavirenz from India, paying about 45 cents per pill, and also start making its own copy of the drug.

Developing countries such as Brazil, India and Thailand are allowed to bypass patents on drugs deemed critical to public health under World Trade Organization patent rules.

But drug makers often scale down prices to keep countries as clients -- if they can agree on a price.

Merck said most middle-income countries like Brazil paid $1.80 per pill for Efavirenz.

For Brazil, supplying a patient with Efavirenz for one year costs $580 compared with $166 for a similar generic drug, according to the health ministry. Importing the generic drug from India will save $30 million a year.

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