Bayer Animal Health has lost another major client — the distributor Webster Veterinary — as a result of its new policy of selling products directly to pet stores and licensed Internet pharmacies rather than exclusively to practicing veterinarians.

But the pharmaceutical manufacturing giant said it has established or expanded relationships with Webster’s biggest competitors: Butler Schein Animal Health and MWI Veterinary Supply.

Bayer spokesman Bob Walker said the company also has new sales agreements with major online and bricks-and-mortar outlets, including PetMed Express, Doctors Foster & Smith and PETCO.

Those vendors already had been selling at least some Bayer products but were obtaining the goods from unauthorized suppliers — a shadowy arena known as the “gray market.”

Gray market sales of veterinary products is a huge source of friction in the animal health community. Until Bayer changed its approach in March, all the major veterinary drug companies followed a policy of selling products only to licensed, practicing veterinarians, regardless of whether the products required prescriptions.

The manufacturers’ rationale is that pets benefit when their owners are educated by veterinarians on the proper use of products. The policy also benefits veterinarians, who profit on product sales; and manufacturers, through veterinarians’ recommendations or dispensing of their products.

Despite the policies, veterinary goods increasingly have been available from pet stores and online vendors that are supplied by diverters. This has been particularly true for topical parasiticides such as the top-selling flea prevention treatment Frontline. Consequently, many practitioners are suspicious that manufacturers secretly are supplying the stores, a charge the companies deny. Manufacturers, in turn, say the gray market is supplied by products diverted by renegade veterinarians.

Citing diversion and pet owners’ desire for better access, Bayer in March ended its long-standing policy of dealing only with veterinarians. The move elicited a few kudos from practitioners who lauded Bayer for honesty, at the same time that it generated a wave of criticism and lost business.

Among those that turned away from Bayer is Banfield, The Pet Hospital, which owns the largest chain of veterinary hospitals in the country, with more than 750 clinics.

Also dropping Bayer was Veterinary Study Groups, an organization composed of veterinarians who own or operate 330 practices in North America, which until this year treated Bayer as a “preferred provider.”

Webster Veterinary, the nation’s second-largest companion animal veterinary supply house, last week became the third major player to sever its relationship with Bayer.

George Henriques, president of Webster Veterinary, said his company couldn’t support Bayer’s decision philosophically.

“As an organization, we’re committed to supporting the veterinary industry and our clients, and (we) felt that the decision to forgo their policy of selling only to licensed, practicing veterinarians was contradictory from philosophically what we’re about,” Henriques said in an interview.

He said the share of Webster’s revenues generated by Bayer products was “significant” but declined to give a number.

At the same time it is dropping Bayer, Webster has picked up companion-animal products from Bayer rival Merial. That was made possible by changes in manufacturer-distributor contracts. Up until this year, Merial prohibited distributors who carried their flea, tick and heartworm products for dogs and cats from selling competitors’ flea, tick and heartworm products. Those distributors, such as Webster, that chose not to carry the Merial lines exclusively carried other manufacturers’ products for small animals but not Merial’s.

Henriques said the Merial-only agreements came apart at the end of 2009 when Butler Animal Health Supply merged with Henry Schein Animal Health to become the nation’s largest veterinary distributor, Butler Schein Animal Health.

“That was really driven (by) Butler Schein’s merging, when they decided they were not going to continue on with Merial’s exclusive. Butler was exclusive; Schein wasn’t. MWI,” he said, referring to another major distributor, “was exclusive; Webster wasn’t.”

Once those arrangements ended, Webster and others picked up Merial. But now that it no longer carries Bayer, Webster is at a disadvantage, at least for the moment, Henriques said. “Those that continue to have (Bayer’s) line and everything else, obviously they have a broader portfolio,” he said.

Webster is hoping the disadvantage can be parlayed into an advantage if by dropping Bayer it gains greater loyalty from veterinarians. “We’re hoping to gain customer support; that they recognize we are committed to continuing to support the industry and we’re committed to continuing to support their needs,” Henriques said.

Dr. Ebalinna Vaughn, a solo practice owner in Virginia and Webster customer, wrote in an online discussion of the Veterinary Information Network (VIN) about Webster’s decision: “Well, that doesn’t surprise me and I don’t blame them. I’ve got to figure who still does business with them, though, as I use Drontal and Profender [dewormers] a lot.”

In an interview by e-mail with the VIN News Service, Vaughn said she stopped carrying Bayer’s Advantage and K9 Advantix in her clinic due to the drug maker’s new sales policy. But the deworming medications she said she dispenses several times a week.

“I am not going to forgo using all Bayer products but I’m not happy with their move at all,” Vaughn said. “Frankly, if I do find something better by another company loyal to veterinarians, I will switch to that product in a heartbeat. I have no loyalty to Bayer but I do understand their priorities are to profit-making and not support of the veterinary community.”

Bayer spokesman Walker said the company regrets losing Webster. “We’ve had a good relationship with Webster and they were very upfront with letting us know that they were ending the relationship and why,” Walker said. “We respect that. It’s a business decision on their part.”

Walker said the end of Merial-exclusive agreements with distributors has enabled Bayer to establish a relationship with Butler Schein and to expand its relationship with MWI Veterinary Supply.

MWI for many years represented Bayer products for livestock only. Later it added Bayer companion-animal drugs except for heartworm, flea and tick products. But as of this year, MWI represents the full array of Bayer products.

John Ryan, vice president of marketing for MWI, said: “We believe veterinarians are best qualified to make product decisions for their patients, and we believe distributors should offer a wide range of products to meet the needs of their veterinary customers.”

Kevin Vasquez, CEO of Butler Schein, did not respond to several requests from VIN News Service for comment.

Walker said Bayer is seeking relationships with regional veterinary supply houses as well as distributors serving small and independent pet stores.

He said the company has enlarged its network of outlets to include “six to 10” pet store chains and online pharmacies. PetSmart was the first pet store chain to carry Bayer’s Advantage and K9 Advantix flea and tick medicines after Bayer’s new sales policy took effect. It also was the only major pet outlet not to already carry those products with the help of gray-market diverters.

Walker said one reason Bayer changed its policy was to try to end diversion of its products. Bruce Rosenbloom, CFO of PetMed Express Inc., which operates the online veterinary pharmaceutical giant 1-800 PetMeds, said he expects the gray market for Bayer products to dry up, although he did not preclude obtaining supplies from sources other than the manufacturer.

“If we’re buying direct from Bayer, we wouldn’t go anywhere else but there, unless there’s a better deal somewhere,” Rosenbloom said.

Asked whether Bayer attempted to obtain a commitment from PetMed Express to buy from Bayer exclusively, Rosenbloom and Walker both cited a confidentiality agreement that prevents public disclosure of the contract terms.

Noting that PetMed Express has been selling the full line of Bayer products all along, Rosenbloom said, “The way I see it, there’s really no major change except hopefully we’ll be able to buy it at a better price than we got it previously.”