Insiders lift veil off veterinary drug distribution practices

Upcoming FTC meeting prompts disclosures

Published: September 25, 2012
By Jennifer Fiala

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In Gordon Magee’s hand rests a box from Novartis.

The spokesman for Drs. Foster & Smith refuses to say where it came from, but he’s adamant that the online pharmacy received several shipments of Novartis products last Friday, and none of the animal- or human-health medications came from the so-called gray market — unauthorized sales channels that are legal but deemed unethical by many in the veterinary profession.

“We only sell product that’s direct from drug companies or licensed distributors,” he firmly stated.

Magee repeated the sentence several times in response to VIN News Service questions about whether Novartis directly supplies the online pharmacy with its products, especially Sentinel and Interceptor. His reticence to reply stems from the fact that Wal-Mart, Costco and PetMed Express are among those vying for a slice of the pet medications market — an industry forecasted to hit $8.6 billion in nationwide sales this year.

The mere mention of the Novartis shipments, however, offers a rare glimpse inside the business of pet product distribution from an online pharmacy's perspective. At the same time, the Federal Trade Commission (FTC) has its eye on distribution of animal health medications. The agency, spurred by a bill in Congress designed to force veterinarians to write prescriptions to ensure pet owners can price shop for drugs, wants to determine how consumers are impacted by a distribution system steeped in tradition, turf wars and efforts to protect the health of animals.

Regulators are hosting a day-long workshop on Tuesday in Washington, D.C. There, experts in veterinary medicine, drug manufacturing, retail and pharmacy will gather to explore how everything from flea and tick killers to prescription injectables end up in the hands of pet owners via veterinary practices, online pharmacies, warehouse clubs and retail chains.

Various drug company officials, antitrust lawyers, online pharmacy representatives, leaders with the American Veterinary Medical Association (AVMA), Animal Health Institute and International Academy of Compounding Pharmacists are named as workshop panelists. Among those invited to participate is Dr. Paul Pion, co-founder of the Veterinary Information Network (VIN), an online professional community and parent of the VIN News Service.

Given the competitive nature of the market, some are predicting a heated debate. A likely headliner will be the restrictions imposed by many drug manufacturers, which limit the sale of products, including over-the-counter pet parasiticides, to veterinary practices. Such policies, critics say, amount to price fixing and restraint of trade. Traditionally, veterinary practice owners have relied on sales of medications to augment practice revenues and offset the cost of medical care. At the same time, having veterinarians recommend a flea and tick killer, for example, can boost the brand’s repute and generate product loyalty among pet owners.

Veterinary-only sales policies, supporters say, foster compliance and communication between veterinarians and pet owners. It's the best way to ensure medications will be used appropriately, said Dr. Wendy Hauser, a practitioner in Colorado and member of the FTC panel.

"When dispensing medications to pet owners, it is important to provide detailed instructions on how to use the medication and what adverse effects may occur," Hauser said. "This is especially important when the person present isn't necessarily the one who is going to give the medication to the animal. Veterinarians are uniquely suited to counsel clients due to our training, expertise and relationship with them."

The AVMA agrees. In a nine-page letter to the FTC, released Thursday, the group said consumers are "at risk" when animal-health drugs are dispensed by non-veterinarians. In-house clinic pharmacies are typical in veterinary medicine. On the retail side, pharmacists purportedly have made unauthorized changes to prescriptions written for animal patients. Anecdotal reports from veterinarians involve cases where pharmacists, often untrained in the physiology and pharmacological nuances of various animal species, make drug substitutions or dosing errors that have harmed and, in some cases, killed pets.

"Veterinary medications dispensed in a veterinary clinic come from a qualified team who can answer the client's questions and assure clients they have the proper drug for the patient," reads the letter, signed by AVMA Chief Executive Officer Dr. Ron DeHaven. "Our primary goal is to ensure that our clients receive the best quality information about their pet's medication."

The AVMA also points out that most veterinarians stock the drugs they regularly prescribe — medications that might not be on the shelves of retail pharmacies geared toward human medicine. "... Treatment may be delayed to the detriment of the animal's health," DeHaven writes.

The opposite might be said for pharmacies that specialize in animal health products, which sometimes are stocked with drugs the vast majority of private practitioners can't access. Right now, Drs. Foster & Smith is one of very few places selling Novartis’s pet parasiticides, which have been in short supply since late last year when a key Novartis plant closed following manufacturing blunders identified by Food and Drug Administration inspectors.

Even veterinarians are struggling to get their hands on Novartis products.

Exactly how retailers and pharmacies acquire pet drugs isn't publicized given that they circumvent the veterinary-only sales policies of drug makers such as Pfizer, Merial and Novartis. Veterinary-only sales policies make sense because practitioners are best suited to advise owners about safety and efficacy, even when it comes to non-prescription products such as flea and tick preventatives, manufacturers say.
Magee, representing an online pharmacy founded by a trio of veterinarians, isn’t buying it.

“If we’re good enough to purchase human products from Novartis — and we do — why not veterinary drugs?” he asks, noting that in addition to the four veterinarians employed by Drs. Foster & Smith, the company also has 10 full-time pharmacists filling orders. “These sales policies don’t make a lot of sense. This is all about price support, if you ask me.”

FTC officials plan to explore that question. Dr. Race Foster, a workshop panelist and co-founder of Drs. Foster & Smith, is hoping to provide his perspective.

Foster doesn't believe veterinarians need to be mandated by the federal government to script out; they already do that, he said. The problem, he explained, is that medication supply lines are routinely choked by drug companies with policies to only sell to veterinary practices.

"Imagine if this occurred in human medicine; it would never happen,"
Foster said in an interview. "Right now, today, we take more prescriptions from pet owners than we can fill."

Dr. Jeromey Gillespie, a practitioner in Panama City, Fla., calls the arguments posed by leaders of Drs. Foster & Smith "ridiculous." In a discussion on VIN, he wrote with sarcasm, "It's funny to see a company owned by 'veterinarians' blasting their own kind."

He continued: "It's easy to see that they believe the profits vets make from prescriptions are bad unless they're the ones making those profits. ...These guys are the poster children for diversion." 

Diversion involves veterinarians buying pet medications in bulk from manufacturers and reselling them at a profit to wholesalers that, in turn, supply retailers such as the grocery store chain Kroger. The system is widely blamed for feeding the Wal-Marts and Costcos of the world with products such as Merial's top-selling flea killer Frontline or Pfizer's antiparasitic Revolution. According to the manufacturers' sales policies, both medications are supposed to be found only in veterinary practices.

Some suspect that drug manufacturers are quietly taking their products to the open market now that veterinarians have spent years marketing the brands in their practices. Others, however, believe the legality of veterinary-only sales policies is a bigger question. 

“As you learn about product diversion you should understand that it exists as a direct result of drug manufacturers’ restricted distribution of prescription and OTC pet medications, a distribution practice which, in its present form, we believe violates antitrust laws.”

The statement comes from John Powers, executive vice president of Drs. Foster & Smith, in a letter he’s written to FTC officials as a forerunner to Tuesday's workshop.

There are two kinds of diversion, Powers explained in the letter. “Aggregation diversion,” he wrote, often supplies retail and pet food stores. It involves a single entity, “often a veterinarian,” who becomes an unauthorized distributor for a drug company and creates a network of veterinarians that purchase an oversupply of product. Once that oversupply is aggregated, it’s sold directly to retailers.

“For example,” Powers wrote, “we have heard of one veterinarian aggregator who has a network comprised of over 60 veterinarians. There are many aggregators, and we guess there are hundreds or perhaps thousands of veterinarians involved.” 

The system allows veterinarians to profit and drug companies to increase their market share while “maintaining the façade” that they sell only through veterinarians, Powers explained.  

The other type of diversion occurs when a drug manufacturer employee unites with a veterinarian to privately approach a retailer and ask that they purchase large quantities of prescription or over-the-counter pet medications. The system is called “paper diversion,” Powers wrote, because a paper trail is created when the manufacturer bills the veterinarian for product that’s subsequently passed on to the retailer.

Sales increase for the drug company employee, yet it's still technically true that the drug company only sells its product to licensed, practicing veterinarians. The fact that the product isn’t being sold directly from the manufacturer also works to keep prices elevated so there isn’t the threat of “market erosion,” Powers explained.  

“Diversion, in my opinion, is a manufacturer-employee created process that injures consumers and pharmacies,” he wrote. “In other words, through product diversion consumers, pharmacies and retailers become victims of elevated prices, inconsistent supply and restricted consumer choice.”

Powers wants to end the charade, calling on drug manufacturers to openly supply pharmacies, retailers and veterinary practices. “This can be accomplished by selling directly or through distributors, thus eliminating diversion,” he wrote.

Powers went on to list eight drug companies that he believes “promote consumer choice,” including:

  • Novartis
  • Virbac
  • Farnam
  • Bayer
  • FidoPharm
  • Boehringer-Ingelheim
  • Cardinal Health
  • Anda

Asked to respond to Powers’ suggestion that Novartis might work with Drs. Foster & Smith, spokesman Joe Burkett did not provide a direct answer. By email, he said that the company “sells product only to licensed veterinarians engaged in the practice of veterinary medicine.”

“This policy has been in place in its current form for a number of years and has not recently changed,” he wrote. Pressed for details, Burkett went on to explain that in addition to veterinarians, Novartis does supply some distributors.

“These business relationships are primarily in the form of agency agreements (Novartis controls the product and fulfills orders),” he wrote. “There are some exceptions, such as when a distributor needs to hold stock for use in fulfilling home delivery programs; however, the quantity of product involved in those exceptions is very small.

“In all cases, distributor sales are reported through an electronic process back to Novartis,” he concluded.

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