June 24, 2011
Gilded Lilly? Bayer challenges Elanco claims
Bayer challenges Elanco claims about diversion, loyalty to veterinarians
By: Jim Downing
For The VIN News Service
The question of whether — and how much — the retail availability of veterinary medications hurts business at veterinary clinics is heading to court.
In a lawsuit filed May 4, Bayer Healthcare LLC alleges that rival Eli Lilly & Co.'s Elanco division has been spreading the "maliciously false" notion that veterinarians have lost sales because of Bayer's February 2010 decision to sell its Advantage and K9 Advantix flea and tick prevention products directly to retailers in addition to through the traditional veterinary-clinic channel.
Elanco's marketing campaign, the suit contends, has inaccurately but successfully portrayed Bayer as a turncoat to the veterinary profession. Bayer claims Elanco has played a significant role in its loss of veterinary accounts worth more than $16 million in annual sales since 2010.
Elanco has denied any wrongdoing and is seeking a jury trial.
The suit was prompted by a "Dear Doctor" letter in April from Elanco to thousands of veterinary practices. In the letter, Elanco suggests that Bayer's decision to distribute its products through retail channels is responsible for falling sales of flea and tick medications at veterinary clinics. The company also touts the effectiveness of its "Track and Trace" system, which is meant to combat diversion — the reselling of pharmaceuticals by veterinarians or others with access to veterinary pharmaceuticals to distributors, who then supply retailers.
"Will you endorse companies which disrespect your profession and redirect patients to other sources?" the letter states. "Or will you support companies whose words are supported by action?"
The business of diversion is likely worth hundreds of millions of dollars annually. U.S. sales of flea and tick products alone come to roughly $1 billion, and by some estimates, a quarter of that market passes through diversion channels. The practice is the source of much suspicion and speculation within the veterinary community because those clinicians who engage in it are seen as undercutting others' sales. While drug makers' contracts with veterinarians and distributors typically prohibit diversion, it is generally legal (though pharmacy laws in many states require anyone selling significant amounts of pharmaceuticals to obtain a license to distribute).
Restricting retail sales of pet medications to licensed veterinarians with valid veterinarian-client-patient relationships is meant to be mutually beneficial: Veterinarians market drugs for the pharmaceutical companies in exchange for the assurance that clients won't be able to purchase those products outside of a veterinary clinic.
In the "Dear Doctor" letter, Elanco points out that parasiticide sales by volume through veterinary practices fell 5 percent from 2009 to 2010, and suggests that Bayer is at least partly to blame.
"In the past year, Bayer began selling Advantage® and K9 Advantix® products directly to pet retailers and websites. There appears to be a direct correlation between the decline in veterinary-dispensed flea medication and the availability of these products outside the veterinary channel. Sales at Bayer Animal Health rose by 14.6 percent in 2010."
But Lilly's animal health business has also enjoyed strong growth recently. According to figures in the company's 2010 annual report, Elanco's sales rose 15 percent, surpassing Bayer's in percentage terms. Comfortis, the chewable flea preventive, did particularly well: sales increased 69 percent, even as Elanco was purportedly doing its best to keep its products within the veterinary channel. (Comparing the companies' rates of sales growth is problematic, however. Sales from their substantial production-animal pharmaceutical lines are lumped with companion-animal sales in the financial reports; and Bayer has been established in the companion-animal market for much longer than Elanco, which launched its companion-animal business in 2007, the year Comfortis won FDA approval.)
Bayer's legal team is hoping to establish that Elanco used false or misleading information to convince veterinarians to stop carrying Bayer products.
"We've seen Elanco's letter. Now, we want to find out what else Elanco has been telling veterinarians," said David Bernstein, a partner at the New York law firm Debevoise & Plimpton LLP, which is representing Bayer. In the discovery process, Bernstein said, "We'll be looking at Elanco's internal documents — for example, to see if there were instructions to the sales force about what to say to veterinarians about Bayer, or whether field reps are reporting back to headquarters that they persuaded certain veterinarians to boycott Bayer products."
Elanco maintains that the company's marketing tactics have not broken any laws and represent legitimate promotional activities. In addition, the company is standing by its effort to control diversion with its "Track and Trace" system. Since that program's launch in January 2010, Elanco says it has restricted sales to 260 veterinarians across the country suspected of diverting its products.
It's unclear what effect Elanco's program is having on the diversion market as a whole. Comfortis continues to be offered by the online veterinary pharmacy PetMed Express, with new product reviews from customers posted frequently. Elanco concedes the program isn't catching everyone.
"It is important to note that Track and Trace is a reactive system. Despite all of our efforts, some product may find its way to the Internet channels," spokeswoman Colleen Parr Dekker said by e-mail. "Track and Trace allows us to track that after the fact and prevent further diversion from that source."
Elanco does not reveal the names of the veterinarians it suspects of diversion, citing privacy considerations. That policy has drawn criticism from some veterinarians, who maintain that peer pressure would be a deterrent.
"We don't have to form a lynch mob, but we could go out and talk to them," said Dr. Kara Amstutz, who runs a solo small-animal practice in Springfield, Mo.
On the Veterinary Information Network (VIN), an online community for the profession, the Elanco letter and Bayer's legal action have prompted a range of comments. Some veterinarians applauded Elanco's aggressive stand against diversion; others doubted it would have much effect.
Dr. Michelle Wilbanks, who started one of the VIN discussions after receiving the "Dear Doctor" letter, said that in her opinion, it's futile to try to clamp down on Internet commerce and that veterinarians should accept that many clients will choose to purchase medications outside the clinic.
"Realistically, we cannot get upset about these issues," she said in a telephone interview. "You are going to have to support your clinics with your medicine and your surgical skills and your customer service."
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