Competition in the Pet Medications Industry

Competition in the Pet Medications Industry

Prescription Portability and Distribution Practices

FTC Sta Report

MAY 2015

Federal Trade Commission Staff Report May 2015

Edith Ramirez Julie Brill Maureen K. Ohlhausen Joshua D. Wright Terrell P. McSweeny

Chairwoman Commissioner Commissioner Commissioner Commissioner

This policy paper represents the views of the FTC staff and does not necessarily represent the views of the Commission or any individual Commissioner.

The Commission, however, has voted to authorize the staff to issue this policy paper.

Workshop Team and Report Contributors:

Andrew I. Gavil, Former Director, Office of Policy Planning* Tara Isa Koslov, Deputy Director, Office of Policy Planning Stephanie A. Wilkinson, Office of Policy Planning, Principal Author Christopher Bryan, Office of Policy Planning Christopher M. Grengs, Office of Policy Planning Daniel J. Gilman, Office of Policy Planning Elizabeth A. Jex, Office of Policy Planning Joel L. Schrag, Bureau of Economics Kelly Signs, Bureau of Competition

Please direct inquiries concerning this report to Stephanie A. Wilkinson at (202) 326-2084 or swilkinson@.

Cover design and layout by Carrie Gelula, Division of Consumer and Business Education, Bureau of Consumer Protection.

*At the time of the October 2012 Pet Medications Workshop and subsequent report drafting, Andrew I. Gavil was the Director of the Office of Policy Planning. Mr. Gavil departed from the Federal Trade Commission in December 2014.

This report is available online at: policy/reports/policy-reports/commission-and-staff-reports

The online version of this report contains live hyperlinks.

Contents

I. Introduction and Executive Summary .........................................................................................1 II. Overview of the U.S. Pet Medications Industry.......................................................................7

A. General Facts and Trends Regarding Pet Medications .................................................7 B. Retail Options Available to Consumers of Pet Medications ........................................ 11 C. Regulations Concerning Pet Medications: Federal, State and Industry

Self-Regulation........................................................................................................................ 14 D. Overview of Key Issues Analyzed in This Report .......................................................... 17

1. Prescription Portability: Overview.................................................................................. 18 2. Industry Distribution Practices: Overview...................................................................20 3. Interdependence of Prescription Portability and Distribution................................ 21 E. Competitive Dynamics of the Industry ............................................................................ 22 1. Current State of Competition for Pet Medications ................................................... 22 2. Effects of Non-Veterinary Retail Competition on Pet Medication

Prices .................................................................................................................................... 25 3. Comparison of Animal Drug Industry to Human Drug Industry ............................ 28 III. Prescription Portability............................................................................................................. 33 A. Current State of Prescription Portability.......................................................................... 34 1. State Laws and Veterinary Codes of Ethics ............................................................... 34 2. Veterinarian Attitudes Towards Prescription Release ............................................ 35 3. Consumer Awareness of Prescription Portability and Effectiveness

of "Upon Request" Regulations and Policies.............................................................. 41 B. Merits of Automatic Prescription Release ...................................................................... 43

1. Areas of Agreement Between Proponents and Opponents of Automatic Prescription Release .................................................................................... 44

2. Arguments in Favor of Automatic Prescription Release ......................................... 45 3. Arguments Opposing Automatic Prescription Release .......................................... 49 C. Impact of Automatic Prescription Release on Veterinary Income and

Service Fees ........................................................................................................................... 65 1. Importance of Pet Medication Revenues to Veterinary Practices ....................... 66 2. Veterinarian Claims Regarding Increased Service Fees to Offset Loss of

Prescription Drug Revenues .......................................................................................... 67 3. Professional and Ethical Issues Associated with Pet Medication Revenues .... 72

D. Analytical Framework for Evaluating Possible Limitations on Prescription Portability and Proposals to Eliminate Such Restrictions ............................................................................................................................. 74

IV. Distribution Practices in the Pet Medications Industry.................................................... 76 A. Exclusive Distribution and the Secondary Market........................................................ 76 1. Manufacturer Justifications for Exclusive Distribution Practices .......................... 76 2. Non-Veterinary Retailer Concerns About Exclusive Distribution .......................... 81 3. The Secondary Market for Pet Medications .............................................................. 85 4. Competitive Impact of Secondary Distribution .........................................................90 5. Product Pedigree and Safety Issues Associated with Secondary Distribution.......................................................................................................................... 93 B. Distribution Practices and Other Factors Affecting the Development of Generic Animal Drugs ..................................................................................................... 97 1. Limited Consumer Access to Generic Animal Drugs .............................................. 97 2. Exclusive Dealing Agreements May Have an Effect on Generic Entry .................................................................................................................................... 100 3. Restricted Distribution Practices May Have an Effect on Consumer Access to and Innovation for Generic Animal Drugs.............................................. 101 4. Prescription Portability May Have an Effect on Consumer Access to Generic Animal Drugs .................................................................................................... 103 5. Automatic Substitution Might Increase Consumer Access to Generic Animal Drugs .................................................................................................... 104

V. Concluding Remarks and Topics That Might Benefit From Additional Study .............................................................................................................................................. 106

A. Summary of Conclusions Regarding Prescription Portability, Industry Distribution Practices, and Generic Animal Drug Development............................. 106

B. Topics That Might Benefit From Additional Study.......................................................107 1. Pet Medications Pricing ..................................................................................................107 2. Pet Medications Dispensing Errors .............................................................................107 3. Automatic Prescription Release Requirements ...................................................... 108 4. Secondary Distribution System ................................................................................... 109

Appendix A: Public Comments Cited in the Report................................................................... 110

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