Merial executives say that — despite widespread belief to the contrary — the company absolutely does not participate in making Frontline, its market-leading flea and tick killer, available to consumers at big-box stores, pet stores, Internet pharmacies or any other general retail outlets.
“We can say without any equivocation whatsoever, and with no loopholes and no exceptions, that we do not sell into the OTC (over-the-counter) market, period,” said Don Schwartz, executive director of business services for Merial. The company’s long-standing sales policy is to sell product only to licensed, practicing veterinarians.
Over several discussions by telephone and e-mail in the past week with the VIN News Service, Schwartz and Dr. Zack Mills, vice president of pet sales for Merial U.S., outlined their company’s position on the diversion of Frontline to general retailers. They said the company is limited in its ability to aggressively pursue diverters because diversion is not illegal and because Frontline is the market leader, putting Merial under particular scrutiny to avoid breaking laws against restraint of trade, anti-competitive behavior and collusion.
“Merial’s ability to stop diversion is not absolute,” Schwartz said. “We do actively enforce our sales policy. We limit Frontline sales to any given clinic based on criteria such as number of doctors, historical purchasing patterns and other factors. If we do identify policy violations, we limit or cut off sales. At the same time, we have to be extraordinarily careful that our efforts don’t go further than the law allows.”
Mills declined to identify veterinarian clients who have been limited or cut off, but said they number in the hundreds. He said 26,500 practices in the United States buy Merial products.
Merial’s policy of selling exclusively to veterinarians has come under increasing scorn by veterinarians as Frontline products for cats and dogs have become increasingly available outside clinics. The warehouse club Costco and the Internet pharmacy Pet Med Express are just two examples of major retail outlets for Frontline parasiticides.
Merial elicited a fresh volley of sneers this month after it mailed letters to all of its customers, reaffirming its sales policy.
The letter, dated Feb. 11, was prompted by an announcement two days before by competitor Bayer Animal Health that it would begin in March to sell its parasiticides, Advantage and K9 Advantix, through pet specialty stores and Internet sites. Like Merial and other animal health companies, Bayer had a policy of selling veterinary products via licensed veterinarians only. Nevertheless, Advantage products, too, are widely available outside of veterinary clinics.
Merial felt compelled to address Bayer’s announcement because, Mills said, “our competitors are running around saying, ‘Well, Merial’s next.’ ”
Sent by United Parcel Service (UPS) two-day delivery in an envelope marked “urgent,” the letter reads in part:
“At Merial, we believe that an effective flea and tick control program requires a highly efficacious product combined with the education and instruction provided by veterinary professionals.
“For that reason, Merial’s policy has always been to sell Frontline products only to licensed practicing veterinarians. I want to personally assure you that this policy remains unchanged. So if you hear that Frontline products are ‘going OTC,’ it isn’t true.”
The letter, signed by Merial U.S. Operations President Thomas Zerzan, broadly was met with incredulity, judging from comments posted on a Veterinary Information Network (VIN) online discussion board
“Today, I got an ‘extremely urgent’ letter from Merial saying Frontline is not ‘going OTC,’ ” wrote Dr. William Aufderheide of Imperial Beach, Calif. “I've seen it at both Costco and Petco. What are they talking about? I’m sure they know where these products are turning up.”
Dr. Jennifer Bouthilet of Maplewood, Minn., chimed in: “I got the letter today, too. They must have spent a lot of money to send a useless, lying letter to everyone by FedEx, marked ‘extremely urgent.’ It went directly into the shredder. I ... don’t really care if they let it be OTC. Just don’t keep trying to tell us it’s not.”
Dr. Nicki Kominek of Auburn, Calif., suggested the issue puts the company’s reputation at risk. “It makes me distrust the entire company, which is a shame since I have been a huge fan of their vaccines and Previcox (canine osteoarthritis pain medication),” she wrote.
In some eyes, the letter served to make Bayer look more honorable, by comparison.
“I actually think Bayer took the high road by just saying, ‘This is what we are going to do, now let’s move on,” said Dr. Keith Niesenbaum of Garden City Park, N.Y.
Mills said Merial sent the letter by UPS so that it wouldn’t be overlooked, and that the “urgent” marking is a standard label on all such UPS envelopes. “We sent it out in a way that it would be read,” he said. “...It got read! It’s allowed us to start conversations with veterinarians.”
Mills added that the reason Bayer cited for selling Advantage OTC — growing consumer demand for wider access to the product — is not compelling for Merial.
“I don’t care what reasons Bayer has,” he said. “I don’t care what reasons other companies have, and what they do. We’re going to focus on what we’ve been doing for the past 10 years. We’re going to remain a veterinarian-focused company.”
Schwartz said an open question is what effect Bayer’s decision will have on the demand for diverted product. “Will this situation start to take care of itself?” he speculated. “Maybe the OTC demand will be satisfied — but I really don’t know.”
Supposing it were, Schwartz said he does not know whether Merial would lose a significant share of sales. Regardless, he said the company would be pleased to see diversion vanish. “If we could wave a magic wand and stop it, we would,” he said.
Schwartz and Mills said that because Frontline is the top-selling pet flea and tick product in a nearly $1 billion market, Merial particularly is subject to oversight by the U.S. Federal Trade Commission (FTC) and state attorneys general for anti-competitive activities.
Merial and other manufacturers of pet parasiticides, along with the Alliance of Veterinary Hospital Owners, Inc. (AVHO) and two other veterinary trade organizations, recently were investigated
by the Florida Office of the Attorney General for possible violations of state antitrust law.
The investigation was spurred by a complaint by Pet Med Express, which is located in Florida, about a letter-writing campaign by the AVHO demanding that manufacturers enforce their veterinarian-only sales policies. The case ended with two settlements involving the AVHO and its founder, Dr. Phillip Raclyn, a practitioner in New York state; and with Dr. Wesley Borgman, a practitioner in Florida who assisted Raclyn with the campaign.
Under the settlements, Raclyn as AVHO’s representative and Borgman agreed they would not directly or indirectly threaten to boycott or encourage others to boycott any manufacturer of pet heartworm or parasiticide products. They also paid $3,000 each to reimburse the state for the cost of the investigation. The settlements did not involve admissions of any wrongdoing.
The Attorney General’s Office said that although the specific case is closed, it will continue to monitor parasiticide marketing.
At the FTC, a spokesman declined to comment on whether manufacturers’ policies of selling product exclusively through veterinarians could be considered anti-competitive behavior.
Some animal health companies aggressively attempt to identify and stop diversion. Summit VetPharm, maker of Vectra, for example, uses a “track and trace” technology
that enables the company to follow the path of every package. Merial’s Schwartz said Summit is able to do so with impunity because of its position as a newcomer to the market. If it had a greater share of sales, he said, “They would have exactly the same worries as we.”
Tom Brodowski, the official at Summit responsible for implementing the tracing technology and keeping product out of unauthorized sales channels, disagreed.
“I have never heard of such a thing,” Brodowski said. “...Track and trace technologies are investments that companies make to assure their products stay within the proper distribution channels, and (that their) products are not compromised by copycats or forgeries, to assure the safety and efficacy of the medicines being applied.
“To my knowledge,” he said, “it does not have any implications to antitrust.”
Brodowski added that Summit has never been questioned by government authorities about its anti-diversion strategies.
For Merial, the upshot is this, Schwartz said: “We’re caught between having a sales policy that we enforce and legal constraints that dictate that we must be extremely careful how we enforce it.
“It may sound like a story we’re concocting,” he added. “We haven’t raised it much before because it’s a legalistic argument, and I’m afraid people may not understand the extent to which this is a very important concern.”
To address the question of how Merial could possibly not know the sources of so much diverted material, Mills sketched a scenario using industry estimates that say about 20 percent of the roughly $810 million flea-and-tick-product market (not including products that also protect against heartworm) is diverted to general retail channels.
The scenario goes like this:
If 20 percent of product from a $810 million industry is diverted, the value of the diverted product is $162 million. If Frontline represents half or more of the market, then, calculating conservatively, some $80 million of Frontline product alone is being diverted.
That’s equal to 10 million doses of Frontline, enough to treat more than 800,000 pets every month for a year.
How many veterinary clinics would it take collectively to divert that much product and escape the notice of the company? Mills said he doesn’t know what proportion of clinics might be involved in diversion, but offered 10 percent for the sake of discussion.
Ten percent of Merial’s 26,500 customers would be 2,650 clinics. To divert $80 million in product, each of those clinics on average would have to divert some $30,000 worth each year, or $2,500 per month.
Mills said that’s plausible.
Thirty thousand dollars worth of Frontline is enough to keep 312 animals on the product a year. Mills said the average one-veterinarian clinic easily could sell three times that amount and still be treating only half the animals in the practice.
“I personally know multiple clinics which purchase over $150,000 to $200,000 (worth) of flea and tick products and dispense all this product to their clients,” he said. “So could a clinic purchase $30,000, or add $2,500 to $5,000 worth of Frontline per month, allowing them to divert from $30,000 to $60,000 worth of product without anybody knowing? Yes.
“Does it happen?” he went on. “Yes. The question is, which clinic is it? The clinic that purchases $30,000? The clinic that purchased an additional $60,000 in a year? Or the 7-practitioner clinic that just ordered $100,000 after reportedly switching from a competitor’s product? It could be occurring in all these accounts. It could be none. As a customer, the question is, do you want Merial acting as the flea and tick police requiring you to prove how much product you dispense every time you purchase?”
To test his figures, Mills referred VIN News Service to his friend Dr. Terry Clekis, a small-animal practitioner in Florida, which he called “the heart of flea country.”
Clekis’s practice employs two full-time and one part-time veterinarian and has 10,000 active patients. Last year, the practice spent over $90,000 for five different flea and tick control products. Of that, $42,157 went to Frontline.
Although Clekis’s clinic in Bradenton is not one of Merial’s biggest accounts, Clekis said his purchasing history shows one way a person could order extra product and escape notice. “My (sales) rep would be happy to sell me a little bit more Frontline, as long as it’s not enough to make the red flags go up. Let’s say I did that with Merial, with Lilly and with Bayer,” he said, referring to manufacturers of other products he uses.
The excess supply he ordered, he posited, could then be sold to diverters. “The diversion thing is doable for any practitioner, as long as you don’t get greedy,” Clekis said.
The question is, would many practitioners do it?
Schwartz looks at it this way: “There’s a lot of money to be made in diversion, and there are a lot of middle men who make it easy to do.”
He added that he doesn’t expect veterinarians who have doubted Merial’s efforts to control diversion to change their minds. “I understand their frustration and their skepticism,” he said.
VIN News Service commentaries are opinion pieces presenting insights, personal experiences and/or perspectives on topical issues by members of the veterinary community. To submit a commentary for consideration, email firstname.lastname@example.org.