Editor's note: This is the first in a three-part series detailing the experience of one practitioner in the shadowy world of veterinary product diversion.

In the short period that Dr. Peggy Guy ordered more than $130,000 of the popular flea and tick killer Frontline Plus, she stepped way beyond her normal role as a veterinarian. She became a double agent. 

Acting on behalf of the Veterinary Information Network (VIN), a professional membership organization of veterinarians, Guy spent 13 months exploring the gray market where dog and cat parasiticides are purchased and sold repeatedly on their way to consumers’ hands. Her participation in secretive sales channels entailed chicanery, the movement of sizable sums of money and a waggish tracking scheme employing golden tickets. 

Until the sting, Guy was a bit player in the flea and tick market. She lives in an arid region where fleas are scarce. In nearly 20 years of practice, she’s spent very little money on flea treatments. But in late 2010, a company in Florida with the unforgettable name WTF Wholesale Supply Corp. asked Guy to purchase on its behalf mass orders of Frontline Plus, which it would, in turn, sell to retail outlets. 

WTF solicited Guy and veterinarians like her because Merial, the company that makes the Frontline brand, has a policy of selling product only to licensed practitioners who directly treat pets. Merial and most other veterinary pharmaceutical companies say they do not sell veterinary therapeutics to retail merchants. 

Yet Frontline and similar types of “spot-on” flea treatments for dogs and cats are available from the largest general retailers in the country, including Wal-Mart, Costco, Target, Amazon.com and Kroger, as well as from pet stores, feed stores and online pharmacies. How they obtain their supplies is an industry secret but at least part of the answer is that they buy from brokers like WTF that buy from veterinarians. 

Most of those veterinarians sell to pet-products brokers for one simple reason: to make money. The brokers request tens of thousands of dollars of product at a time and pay commissions based on order size. 

WTF’s proposition attracted Guy, but not because of the money. Guy saw an opportunity to collect information on how flea-product brokers operate, what retailers they supply and whether Merial would figure out that she was circumventing its sales policy and take steps to stop her. The profits she earned from the sales she would donate to charity. 

With support from Dr. Paul Pion, president and co-founder of VIN, and VIN attorney Raphael Moore, and in consultation with the VIN News Service, Guy decided to take up WTF’s offer to join its “purchasing program.” 

Guy was careful to make sure that everything she did was legal, but she worried that her actions were risky, all the same. That’s because the veterinary profession disapproves of veterinarians reselling pet therapeutics, an activity known as gray-market diversion.

If she publicly acknowledged diverting Frontline, Guy thought she might be criticized as harshly as other veterinarians who have owned up to what the profession considers unethical behavior.

“I know for a fact that people do not read carefully and they will see WTF, diversion and (my name) in the same sentence and I will be branded forever,” she said. 

To avoid the chance of being ostracized by the veterinary community, she asked to use a pseudonym for this article. Peggy Guy is not her real name. 

Lifting the veil 

In agreeing to resell pet flea and tick treatments, Guy entered a clandestine realm of contradictions and deception. Here, in a nutshell, is what she learned in 13 months of diverting Frontline Plus: 

• Merial did not question her dramatic uptick in purchases. Company officials have stated repeatedly that they monitor clinic buying patterns in order to identify and discourage diversion but Merial did not investigate the basis for Guy’s orders, even though her purchases in one year exceeded by a factor of six that of her purchases the entire seven years before. 
• WTF misstated the product’s destination. An information sheet describing the business said the company mainly supplied stores in central Florida. A representative assured Guy that WTF sold primarily to farm and feed stores. But by tracking some product, Guy and VIN determined that Frontline Plus brokered by WTF landed all over the country, including at pharmacies owned by Kroger, one of the nation’s largest grocery chains. 
• Diversion is made more attractive by Merial’s generous payment terms. Guy’s final net was about $6,500, making for an average commission of 5 percent. But more worthwhile than the profit, Guy found, was the flow of cash generated by the transactions. 

Here’s why: Once she received a shipment from Merial, Guy would send a copy of the packing slip to WTF, which paid her before she forwarded the shipment to them. Her payments from WTF ranged between $10,000 and $40,000. Guy had the use of that cash for months before her debt to Merial was due. Merial routinely gives extended payment terms to clinics that order in bulk. Whereas Guy got 30 days to pay when she was a small customer, she was given 180 days as a big customer. 

“It’s an interest-free loan for six months,” Guy said. “If you’re short a month ... and you’ve got $30,000 sitting there, you’ve got time to make money to pay off a Merial bill. And once you’re in, you’re sucked in: ‘OK, we don’t quite have enough this month, let’s make another purchase.’ ‘We don’t have them paid off yet, guess we’d better make another purchase.’ ” 

It can become, in short, something of an addiction. 

The VIN News Service has been for years researching how diversion works and who participates. Key aspects that remained elusive were how product brokers coax veterinarians to participate; what manufacturers such as Merial do to detect and curb the activity; and the path products travel from clinics to retail outlets. 

After reading articles on the subject, Guy was aware of the lingering questions. One day late in 2010, her clinic received a fax from WTF offering a “lucrative opportunity.” Veterinarians periodically receive such solicitations from pet-products brokers, but this was the first time Guy remembered getting one. Her immediate reaction was to discard the offer. 

Then she recognized a chance to find answers to questions her colleagues have long wondered. 

Guy picked up the telephone and called the toll-free number. An effusive representative emailed Guy a “welcome packet” that included a statement signed by general manager Nancy Ben-Hamo describing WTF as a “sales and distribution firm providing retail outlets hard-to-find veterinary products.” 

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