Bayer (BAYRY)'s lawsuit alleging Eli Lilly (LLY) lied to veterinarians about how it sells medicines for cats and dogs lifts a veil on two of the pharmaceutical business's best-kept secrets: The underground trade in which vets divert prescription meds to retail pet stores in order to line their own pockets*; and the increasing importance of pet meds to companies that, until recently, focused almost entirely on humans.
Bayer claims Lilly's Elanco division sent an alarmist letter to vets claiming that Bayer's decision to sell medicines directly to stores would compete with a virtual monopoly vets once had on dispensing dog and cat drugs. The letter said:
Your business is at a crossroad. Will you stand by and watch while industry "leaders" redirect your patients outside your office for veterinary products? Will you endorse companies which disrespect your profession and redirect patients to other sources? Or will you support companies whose words are supported by action?As the Bayer complaint makes clear, vets have apparently abused their control of the pet medicine supply for years by reselling the meds they receive from Bayer and Lilly to web sites and retailers:
Although Bayer and Elanco did not sell their pet medicines to retail stores or Internet pharmacies during that period, a number of these products nevertheless could be purchased in retail stores or via the Internet because some veterinarians resold â€" or "diverted" â€" pet medicines to retail stores or Internet pharmacies in large quantities at a considerable profit.
Although veterinarians' diversion of pet medicines from the veterinary market to this non-veterinary market violated the terms of Bayer's and Elanco's sales policies, this practice was and is common in the sale of many pet medicines.An end-run around the vets
Bayer -- which isn't suing any vets, only Lilly -- got so annoyed at the money it was losing to vets that it decided to supply stores itself with its non-prescription flea and tick removal products Advantage and Advantix. The suit claims that Lilly falsely suggested in its letter to vets that Elanco alone was committed keeping pet meds in the vet channel, when in fact its Comfortis flea product is for sale all over the internet. The letter was successful, Bayer claims:
Bayer has lost over a thousand veterinary accounts during this period of unfair competition by Elanco. These lost accounts had provided over $16 million in sales in 2010.Given that both Bayer and Lilly are obviously selling flea medicine to anyone who wants to sell it, you might wonder why Bayer has bothered to take this issue to court. The reason is that animal drugs are increasingly important to both companies. Revenues at large companies supplying drugs for humans are going through a flat or no-growth period. But look at the 2010 revenues in Bayer and Lilly's animal health divisions:
The money to be made is so crucial to Bayer that it commissioned a special report to find out why some pet owners never take their best friends to the vet. Cats, it turns out, are holding back this billion-dollar business through their infamous dislike of being loaded into cat carriers. Fifty-eight percent of them "hate" going to the vet, the report says:
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