* 'No generics' deals between multinational Bayer and pet medication distributors and retailers blocked pet owners from cheaper flea-and-tick treatments, a lawsuit claims. Bayer denies this.
* Unlike in human health care, generic medications for pets do not make up a large percentage of the market.
* With pet insurance having little influence on prices, the creators of pet medications can dominate markets.
This story is supported in part by The Fund for Investigative Journalism and co-published with USA TODAY.
Pet owners paying for Advantage II and K9 Advantix II topical flea-and-tick treatments could have saved hundreds of dollars by now had they switched to the generic versions that first hit the market six years ago.
But first, they would have had to find them.
Cheaper equivalents for the blockbuster brands, which both kill and repel pests, have quietly eluded consumers for years. Even today, they’re nowhere to be found at many of the biggest pet specialty stores, like PetSmart or Petco. And they’re absent from popular online pet pharmacies like Chewy.com or PetMed Express.
Their elusiveness is not by accident, according to a federal lawsuit by one of the generic’s makers, but a scheme by the brand-name products’ company to block competition.
Filed in the U.S. District Court in Northern California, the lawsuit by Tevra Brands offers a rare behind-the-scenes glimpse of the multibillion-dollar pet medication market, where a few major companies have a stranglehold on pricing. Tevra’s suit claims it lost tens of millions of dollars because Bayer Animal Health, a former subsidiary of the German pharmaceutical giant, conspired to maintain its monopoly over the treatment it created.
Tevra sells its generic topical treatments for cats and dogs on its website, on Amazon and elsewhere, but the company argues that Bayer prevented it from reaching pet owners where they’re most likely to shop and depriving them of a better deal.
Its line includes TevraPet Activate II for dogs and ActiSpot II for cats, as well as Vetality Avantect II for dogs and Advotect II for cats. Its ActiSpot II 6-dose treatment for large cats cost $30 on Amazon.com, as of May 15. The brand-name equivalent, Advantage II for cats, cost more than twice as much – $64 – on Chewy.com.
Unlike the human pharmaceutical industry which abounds in cheap alternatives once brand-name patent protection expires, the pet med market offers relatively few choices.
Just 14% of federally approved animal drugs have a generic version, according to the Generic Animal Drug Alliance. Meanwhile, generics in human health care last year accounted for 9 out of 10 filled prescriptions, according to the U.S. Food and Drug Administration.
Among the many reasons for the difference is that human health insurance requires generic drug substitution whenever possible, which has spurred the development and availability of low-cost alternatives. Pet insurance is nowhere near as widespread or influential.
That allows pioneer drug companies – those that own the brand-name or patented versions – to dominate much of the pet medication market. And industry insiders have long decried their outsize leverage through exclusivity agreements.
Such agreements block vendors – including pet stores, online pharmacies and wholesale distributors that supply retailers and veterinarians – from selling products that directly compete with their brand-name goods.
Tied to those deals are often lucrative financial incentives such as discounts and rebates that vendors can ill afford to turn down, especially if their rivals are taking advantage of them.
It’s ‘price-fixing in its purest form’
Exclusive dealing is a common and legal practice in many industries, according to the Federal Trade Commission, which enforces consumer protection laws. The practice can encourage distributors and retailers to specialize in specific products and offer consumers related services and amenities.
When big companies use them to choke rivals out of the market, the deals become unlawful and the FTC can intervene.
The agency has known about the dubious use of exclusivity deals in the pet medication market since at least 2012; industry stakeholders complained about it during a public workshop the FTC hosted that year “to examine competition and consumer protection issues in the pet medications industry.”
A representative of the Generic Animal Drug Alliance told the agency she knew of at least two large drug companies whose agreements banned national distributors from carrying the generic versions, or any similar versions, of their brand-name products.
The alliance’s then-chairperson, Jennifer S. Johansson, said in a statement sent to the FTC that such deals limit the availability of generic treatments and drive up consumer prices. She didn’t name any companies.
In an email to USA TODAY, a spokeswoman for the FTC declined to comment on whether the agency investigated any such complaints raised during or after the workshop. It appears the FTC took no action, deeming the evidence and effects of the agreements presented at the workshop contradictory, according to a staff summary report.
The report was published in 2015, just as Tevra Brands was being formed. Two years later, the Omaha, Nebraska-based startup says it learned for itself the effects of the agreements.
It’s “price-fixing in its purest form,” Tevra said in its complaint against Bayer, which it initially filed in 2019 and has amended twice. “The only losers in the deal were consumers who were forced to pay higher prices, generic manufacturers such as Tevra that were foreclosed from competition, and the rule of law as enshrined in the Sherman Act and the Clayton Act.”
The Sherman Act prohibits actual or attempted monopolization, as well as any contracts and conspiracies that result in the unreasonable restraint of trade. The Clayton Act bans certain discriminatory prices or services between merchants, as well as mergers and acquisitions that restrict competition.
Tevra claimed in its lawsuit that Bayer’s scheme cost it more than $76 million in net profits that it would have earned on the sale of those products from 2017 through 2021.
Bayer denied Tevra’s allegations in court filings. It said Tevra failed to make a case that Bayer intended to, or even succeeded in, blocking generics from the market. Bayer claimed that its agreements with distributors and retailers were legal and provided only “modest incentives” for exclusivity but did not require it.
Even if the deals blocked Tevra’s generics from the online and brick-and-mortar pet specialty stores – which Bayer denied – Bayer said Tevra could still sell elsewhere, including directly to consumers on websites like Amazon, or through veterinarians.
But Tevra said in its lawsuit that it does not market its over-the-counter generics to veterinarians, most of whom prefer private-label brands. And its lack of name recognition makes direct-to-consumer sales difficult. Without access to the biggest pet retailers, the lawsuit said, Tevra’s financial aspirations were dashed.
Bayer sold its entire animal health division in 2020 to Elanco, an animal health business spun off from pharmaceutical giant Eli Lilly and Co., for $7.6 billion. Although Elanco is not named as a party in the lawsuit, it is now responsible for defending the case. It said in its latest Securities and Exchange Commission report in March that it intends “to defend our position vigorously.”
USA TODAY asked Elanco if the company has maintained any exclusivity agreements in effect at the time of the acquisition, but a spokeswoman declined to comment, citing pending litigation. Elanco’s attorneys did not respond to requests for comments.
Bayer’s parent company, Bayer AG, is no longer a party in the case, nor is its Bayer Healthcare subsidiary, both of which initially were named as defendants, along with its former animal health division. Bayer AG spokesman Philipp Blank had no comment other than to note the company’s lack of involvement.
Tevra did not respond to multiple requests for comment. A spokeswoman for the Polsinelli Law Firm, which represents Tevra, said attorneys there are unable to discuss the lawsuit.
The case, which has survived several motions to dismiss, is still in the discovery and deposition stages. It could go to trial as early as July 2024.
‘If I lose Bayer, I’ll get fired’
Even before it won federal approval to sell its line of generics in May 2017, Tevra had hired a sales team to pitch it to major pet product distributors, retailers and e-pharmacies for pets.
Tevra had expected to sell nearly $10 million of the topicals the first year and projected steady annual sales revenues of nearly $30 million by 2019. Instead, it sold less than $600,000 worth in the first year as, one by one, distributors and retailers turned the company down, citing the “no generics” agreements with Bayer, its lawsuit claims.
That included at least two major national distributors: Veterinary Service and Animal Supply Company.
In March 2017, according to the lawsuit, a Veterinary Service representative told a Tevra salesperson they weren’t sure whether the “Bayer agreement” allowed them to purchase another product made with imidacloprid and would have to find out. Imidacloprid, an insecticide, is the key ingredient in both the brand name and generic versions of the flea and tick treatment.
Ultimately, the company chose not to purchase Tevra’s topicals.
Animal Supply Company “was even more explicit when its agent told a Tevra salesperson in March 2021 that they could not purchase ‘any products with Imidacloprid’ from Tevra because of an agreement with Bayer, and added ‘If I lose Bayer, I’ll get fired,’” according to the lawsuit.
Similar statements were made by representatives of PetMed Express, which owns 1-800-PetMeds; Drs. Foster & Smith, which is now Petco.com; and Chewy.com, the lawsuit said.
A representative of Chewy.com told Tevra if they bought its imidacloprid generics, they’d forfeit a huge rebate from Bayer.
Without the rebate, the lawsuit said, Chewy.com, “would lose $3 million dollars in net margin taking into account the reduced Bayer rebate vs. what they thought they would make” selling Tevra’s imidacloprid products.
At least one national pet retail chain that bought Tevra’s products still got discounts from Bayer by agreeing not to say the generics “compared to” the brand name versions in store displays or on websites and advertisements, the lawsuit said. The discount applied not just to the spot-on treatments, but an entire bundle of Bayer products, including the popular Seresto flea-and-tick collar.
“This restriction severely handicapped the sale of the generic Imidacloprid topical at Pet Supplies Plus,” Tevra said in its lawsuit.
In court filings, defendants dispute Tevra’s allegations that Bayer had a “no generics” agreement with retailers or that it used discounts to block generic competition.
Bayer’s marketing efforts “in no way point to the existence of an exclusive dealing arrangement, much less the who, what, where, and when of an extra-contractual conspiracy,” defendants said in a 2021 motion to dismiss the case. They described Bayer’s purchase agreements with retailers as being of “short duration and easy terminability.”
USA TODAY reached out to the vendors cited in the lawsuit for comment. Petco.com and Chewy.com did not respond; PetMed and Animal Supply declined to comment.
Loyal Burns, chief operating officer at Veterinary Service, said he doesn’t recall Tevra Brands pitching its products and denied that his company ever had a “no generics” agreement with Bayer.
Flea-and-tick products market grows as Americans spend more on pets
More Americans own pets than at any time in recent history, and more of them treat their fur babies like members of the family. Nothing’s too good for Fluffy and Fido and, last year alone, we collectively spent $137 billion on them – from pet food and supplies to boarding and veterinary care.
That’s more than double spending from a decade ago.
A sizable chunk went toward flea-and-tick treatments, according to the 2023-2024 American Pet Products Association’s National Pet Owners Survey. Roughly 6 in 10 dog owners use some form of flea-and-tick treatment, ranging from collars and shampoos to pills or spot-ons, for which they spent an average of $92 in the past year, the survey said.
Usage was less common among cat owners – about 4 in 10 collectively spent an average of $76 over the same timeframe.
Those numbers have climbed from the group’s previous survey. And there’s no slow down in sight, especially as veterinarians and public health officials push for more pets to use them.
“Preventing tick bites on people and pets is a critical issue,” said tick expert Thomas Mather, a professor of public health entomology at the University of Rhode Island. Mather added that protecting pets also protects humans from the many diseases these pests can carry.
But consumer surveys show that cost is the top reason people don’t protect their pets from fleas and ticks, Mather said. And cost can vary significantly depending on how the products are marketed and where they’re sold.
Companies typically develop different lines of the same product, each with a different price: a generic line that offers the best value; a brand-name line that’s modestly priced; and an exclusive veterinary line that’s more expensive, according to the lawsuit and industry experts.
Novartis said its generic topical was blocked, too
Veterinarians have long relied on product sales for a significant chunk of income, and for many years, they were often the sole supplier of such treatments. Vets used to be able to mark up prices by as much as 100%, said John Volk, a senior consultant for Brakke Consulting focusing on the animal health industry.
Online and retail competition has cut into that markup, though. The industry standard for flea-and tick-treatments today is about 65%, according to the American Animal Hospital Association.
Most people, Mather said, “want to buy the less expensive product they think is the same.”
But while generics offer the best bang for the buck, exclusivity deals have interfered with their widespread availability. Even big pharmaceutical firms have been thwarted in efforts to get their generics to the masses.
Novartis, itself a major drug company, couldn’t overcome the exclusivity deals it blamed for dooming one of its generic pet medications, its then-Animal Health Division Vice President Clinton Vranian said at the 2012 FTC workshop.
Vranian, who did not name the branded product or its generic equivalent, said the generic was more effective than the brand name version and well-received by veterinarians, but distributors wouldn’t touch it.
Novartis achieved just 1%-2% market penetration in the drug’s launch, Vranian said.
Eli Lilly and Co., the pharmaceutical giant that used to own Elanco, acquired Novartis in 2015.
Elanco’s spokeswoman at the time revealed the generic product as Parastar Plus, a flea-and-tick treatment that directly competed with the brand name version, Frontline, then owned by Merial, according to a story by VIN News Service, which serves the veterinary industry.
The spokeswoman, Christina Diane Gaines, told the news service that Elanco itself does not use blocking agreements.
“Elanco believes competition drives innovation in the industry, which results in greater customer benefit,” the article quotes Gaines as saying. “Our product strategy is focused on investing in innovation over restrictive contracts.”
Elanco’s current spokeswoman, Colleen Dekker, declined to answer a question from USA TODAY about whether the company still eschews such agreements.
“Because this is part of pending litigation,” Dekker said, “we don’t have any further comment beyond what’s in our legal documentation.”
Generics give consumers ‘lower prices and more choices’
Not all flea-and-tick treatments are the same.
Products like Frontline Plus, whose active ingredient is fipronil, are effective at killing fleas, ticks and lice only after they’ve bitten pets. Treatments made with imidacloprid, like K9 Advantix II, not only kill, but repel the parasites, making them more effective at preventing the spread of flea-and-tick-borne diseases.
By the time Tevra came along, the market for fipronil-based topical treatments was saturated. Frontline, first introduced in 1997, faced a host of generic competition starting in 2011 and, by 2018, had lost more than half its market share, according to Tevra’s lawsuit.
“The results of generic Fipronil topicals entering the separate market for Fipronil topicals have been more competition against Frontline, lower prices, and more choices for retailers and consumers in that market,” Tevra’s lawsuit said.
Tevra decided to introduce its own line of fipronil-based generic topical, which includes Vetality Firstect Plus and TevraPet FirstAct Plus, from which it anticipated modest revenues. But, according to the lawsuit, it believed its biggest moneymaker would be in the imidacloprid market, where, at the time of the company’s founding, only one line of treatments was available: Bayer’s.
Tevra hoped to capture a large chunk of the untapped market – with earnings potentials 10 times greater than that of its fipronil line – by being one of the first to roll out a generic equivalent.
When another company with the same plan, CAP IM Supply, introduced its generic line a few months before Tevra, in January 2017, Bayer sued for patent infringement. The parties settled two years later.
As part of that settlement, CAP IM Supply had to pay Bayer royalties on its generic products, which allowed Bayer to maintain a monopoly of the imidacloprid-based topical flea-and-tick market, Tevra’s lawsuit said, since it earned money from both its brand-name line and the generic equivalent.
Because Tevra’s formulation differs from the patented version, the lawsuit said, it does not infringe on Bayer’s patents.
How the Brown Shoe case factors into flea-and-tick treatments
The outcome of the case likely will hinge on which side’s definition of the “relevant market” prevails, said R. Mark McCareins, a clinical professor at Northwestern University’s Kellogg School of Management who spent three decades litigating antitrust cases for a global law firm.
Tevra’s lawsuit defined the relevant market as one that includes only topical, squeeze-on flea-and-tick treatments whose active ingredient is imidacloprid.
Several product lines fit that definition, most notably: Bayer’s brand-name Advantage and Advantix series, now owned by Elanco; the generic Advecta and PetLock series for which CAP IM Supply pays royalties; and Tevra’s Activate, ActiSpot, Avantect and Advotect products, which have struggled to gain a foothold.
Bayer made roughly 85% of all sales in that market in 2018 and earned patent license royalties for most of the other 15%, Tevra said in its lawsuit, arguing that Bayer effectively had monopolized the market.
Other generic imidacloprid topicals also are now on the market, but are equally absent from major pet specialty stores and online pharmacies. They include, PetArmor Max, Adventure Plus for Dogs and Amazon Basics Flea, Tick & Mosquito Topical.
But Bayer argued the market encompasses all flea-and-tick treatments regardless of insecticide or delivery method. That includes fipronil topicals like Frontline, as well as shampoos and collars, Bayer said.
In that case, Bayer said, the brand name Advantage and Advantix products represent a fraction of the market and its contractual agreements did nothing to block Tevra from fairly competing.
Courts determine a product’s relevant market based on which other products consumers would reasonably consider a substitute for it. And within that market may exist separate submarkets, which courts determine by considering things such as the product’s “peculiar characteristics and uses, unique production facilities, distinct customers, distinct prices, sensitivity to price changes, and specialized vendors,” according to the landmark antitrust case, Brown Shoe v. United States.
The Brown Shoe case, in which the government sought to block the merger of two of the nation’s then-biggest shoe manufacturers and retailers, set the standard for this process more than 60 years ago and is still used today.
Both sides cited Brown Shoe in various court filings.
“If Bayer is able to convince the court that its broader market definition conforms better to the legal requirements – set forth first before (the U.S. Supreme Court) in a case called Brown Shoe in 1962 – then Bayer is a likely winner in the case,” McCareins said. “Alternatively, through the same type of evidence, if the plaintiff prevails in its narrow market definition, then the odds shift in its favor.”
Citations & References:
Facts and Figures, Generic Animal Drug Alliance. Accessed May 16, 2023.
Office of Generic Drugs 2022 Annual Report, Food and Drug Administration.
TevraPet Actispot, Amazon. Accessed May 16, 2023.
Advantage II, Chewy.com. Accessed May 16, 2023.
Second Amended Complaint, Tevra Brands.
Motion to Dismiss Second Amended Complaint, Bayer/Elanco.
Take the generic drug, patients are told – unless insurers say no, ProPublica.
Competition in the Pet Medications Industry, Federal Trade Commission.
Pet Medications Workshop Event Notice, Federal Trade Commission.
Response from Bayer spokesman Phillip Blank, May 4, 2023.
Response from Elanco spokeswoman Colleen Dekker, May 5, 2023.
This Pet Stock Just Bought An Animal Health Business for $7.6 billion, Motley Fool.
Elanco 2022 Annual Report, Securities and Exchange Commission.
Interview with John Volk, May 17, 2022.
Interview with Thomas Mather, May 4, 2023.
2022 State of the Industry Report, American Pet Products Association.
Additional info from American Pet Product Association provided via email, May 9, 2023.
Veterinary generics squeezed by blocking agreements, VIN News Service.
Pricing Strategy for Veterinary Practices, American Veterinary Medical Association.
Lilly finalizes Novartis Animal Health Acquisition, Eli Lilly press release.
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