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May 28, 2018

The Pet Business in Florida

The gray market supply chain for pet medicine

Many vets resent online vendors for undercutting their prices for pet medications. Some vets, however, provide the online and discount vendors with their supplies.

Amy Keller | 7/2/2012
Like most pet medication manufacturers, Merial, the maker of the popular flea and tick remedy Frontline Plus, sells its products only to veterinarians. Nonetheless, millions of dollars worth of Frontline and other veterinary-exclusive products are sold each year by online vendors like 1-800-PetMeds and in retail stores.

pet suppliesPetMed Express acknowledges in its annual report that it relies on “third-party distributors” for its supplies. And some third-party distributors, says VIN News Service reporter Edie Lau, who has been investigating the practice since late 2008, purchase non-prescription products like Frontline Plus from veterinarians. Lau says that in the practice — called “diversion” — brokers solicit veterinarians to place large orders on their behalf in return for a commission. One broker, for instance, pays vets anywhere from 2% to 10% over the invoice. The wholesalers then resell the products to other vendors who sell them to the public.

The practice, while not illegal, angers other veterinarians, who resent online vendors for undercutting the prices they can charge in their vet offices.

Dr. Lisa Costello, an Illinois veterinarian, says she got involved in diversion in 2009 after she saw another practitioner diverting Frontline Plus to a Daytona Beach-based company called WTF Wholesale. “It was easy money. He’d get the boxes in, relabel them and ship them that day. He didn’t have to pay for shipping, and then he’d get a check,” says Costello, who says she was behind on her bills at the time and needed the extra income.

“We’re basically the middle man, and we make a few hundred dollars to a few thousand dollars depending on how much you’re ordering, just for basically diverting it out of veterinary clinics and into a retail channel,” Costello says.

Costello says she would place an order with Merial, forward the product to WTF and then receive a deposit into her checking account about four to six weeks later.

Her participation in the gray market worked well until August 2010, she says, when WTF didn’t pay her for a $25,832 order.

Costello says her contact at WTF, Kay Carpenter, at first told her that there had been a mix-up at the company — that WTF had overpaid some veterinarians and not paid others and that the problem was being straightened out. But as months went by and Costello’s calls were forwarded to a voicemail, the vet began to fear she’d never be paid.

At least 18 veterinarians from across the country, including Costello, have sued WTF and WTF principal Todd Stefaniak in Circuit Court in Volusia County, alleging that the company “lured” them into ordering flea and tick products and other products from Merial, Novartis and Bayer, among others, but never paid them for the products.

VIN reported that WTF closed last August — a fact confirmed by attorney Kelly Parsons Kwiatek, a partner at Cobb Cole in Daytona Beach, who is representing WTF and Stefaniak.

James Bullock, an Iowa veterinarian who says WTF owes him $44,494, notes in his complaint that while WTF supposedly went out of business in August, “the very next day a ‘new’ company opened by the name of True Lines Distributing in the very same building with the same employees.”

Bullock’s complaint accuses Stefaniak of using WTF’s proceeds for startup capital to set up True Lines Distributing.

Kwiatek responds that “WTF Wholesale Suppliers Corp. did close. Over the course of many years, WTF conducted tens of thousands of transactions amongst a network of thousands of veterinarians; a handful of veterinarians have made claims. WTF attempted to determine legitimacy of those claims, and reconcile with those individuals. Todd Stefaniak does not work for True Lines.”

Mike Mittelman, a private investigator who has been trying to help several veterinarians recoup their money from WTF, says he has been “flooded by phone calls from vets all over the U.S.” who say WTF didn’t reimburse them. “One of them was out $90,000,” says Mittelman. Many vets, he says, are reluctant to come forward because the veterinary community frowns on the diversion practice and they don’t want it known they were diverters.

Costello says she was “raked over the coals” by other veterinarians after she posted on a VIN message board about her experience with WTF. “I felt pretty bad. There was one woman, a vet, who said, ‘I’m sorry for what happened to you, but you stole from me’ — and I had never thought about it like that, and it’s true. I mean we’re not doing anything, just ordering product and shipping it, and this person’s clients are buying it instead of buying it from her.”

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