Antitrust Rules and Heartworm Medications: Why a French Company is Acquiring the Sentinel Product Line

Eli Lilly & Co. is acquiring Novartis Animal Health from Novartis AG for $5.4 billion.  The Federal Trade Commission, in a complaint filed on December 19, 2014, argued that this acquisition will violate the Clayton Antitrust Act for the following reason:

“The market for canine heartworm parasiticides in the United States is highly concentrated. Eli Lilly is the market leader with a market share in excess of 35% [with the Trifexis line]. Merial Limited, which sells Heartgard and Heartgard Plus, is the second-leading supplier, with a share of 30%. Heartgard and Heartgard Plus are oral products but do not treat fleas. Novartis’s Sentinel product line has an 8% market share. The only other significant supplier is Zoetis Inc., which supplies Revolution and ProHeart 6. Revolution is a combination product that requires topical application. ProHeart 6 is an injectable product that does not impact fleas. Thus, the Acquisition would consolidate the two closest competitors, would substantially increase concentration, and would produce a single firm controlling more than 43% of the relevant market."

Eli Lily will add dog care products with the acquisition, including Deramaxx, an anti-inflammatory drug used for arthritis.  The FTC describes the relevant market as follows:

“Canine heartworm parasiticides are used to treat heartworm in dogs, and are available in a variety of formulations, in combination with other medications to treat other conditions, and in topical, oral, and injectable form. Eli Lilly’s Trifexis and Novartis’s Sentinel products are particularly close competitors because they both use the same active ingredient to treat heartworm [milbemycin], they both are combination products that treat fleas as well as heartworm, and they both are oral products.”

Product Line	Manufacturer/ Parent	Market Share	Active Ingredients/ Application	Combinations
Trifexis	Eli Lilly	35%	milbemycin oxime/ chewable tablet	spinosad (flea control)
Heartgard, Heartgard Plus	Merial Ltd.	30%	ivermectin, pyrantel pamoate/ chewable tablet	No flea treatment
Sentinel	Novartis Animal Health/Novartis AG	8%	milbemycin oxime	lufenuron (flea control)
ProHeart 6	Zoetis Inc./ Pfizer	24% (in 2004, per FDA)	moxidectin/ injectible	No flea treatment
Revolution	Id.	No recent figures obtained	salamectin/ topical	Also effective against fleas and ticks

The table lists data on the products described by the FTC.  The flowchart below describes the life cycle of the canine heartworm (Dirofilaria immitis). The final image below, provided by the American Heartworm Society, shows an infected heart.  

As to how the acquisition could reduce competition and lead to higher prices for consumers, the FTC elaborates in the Federal Register (79 Fed. Reg. 78872, December 31, 2014):

Life Cycle of Dirofilaria immitis. Cu Faoil and Anka Friedrich, Wikipedia

“Eli Lilly’s acquisition of Novartis Animal Health will adversely affect competition in the market for canine heartworm parasiticides by eliminating close head-to-head competition between Trifexis and the Sentinel products. Trifexis and the Sentinel products are each other’s closest competitors because, among other reasons, they are the only oral heartworm products that impact fleas [though Trifexis uses spinosad and Sentinel uses lufeneron]. Flea prevention combined with heartworm prevention in one oral treatment is particularly important as it combines the convenience of a single oral treatment while avoiding the mess and smell of topical products. In addition, Trifexis and the Sentinel products are the only oral combination products that treat whipworm. These attributes provide a scope of treatment and ease of use not available with other canine heartworm parasiticides. Absent a remedy, the Proposed Acquisition would likely result in higher prices for consumers due to the ability of Eli Lilly to effect a unilateral price increase.”

The price levels of anti-heartworm drugs are a main reason why many people do not or cannot give such preventative medications to their dogs, so a significant price increase could affect canine health nationally. Although new parasiticides for heartworm may be in development from other pharmaceutical companies, the FTC notes that bringing a product to market can take considerable time given “lengthy development timeframes, FDA and other agency approval requirements, and difficulty of establishing a brand name and convincing veterinarians to prescribe new products.” 

The solution to the FTC’s problem with Eli Lilly’s acquisition of Novartis AG is for Eli Lilly to sell the Sentinel line of products to Virbac, a French pharmaceutical company, which had $934 million in global revenues in 2013.  Virbac is currently the sixth largest veterinary product company in the companion animal business and has a U.S. subsidiary with 350 employees and $130 million in revenue in 2013. According to the FTC:

“Although Virbac currently sells canine heartworm products, their sales are relatively small and, because they do not contain an active ingredient to treat fleas, their competitive interaction with the Sentinel products is limited.”

Dog Heart Infected with Heartworm (courtesy American Heartworm Society)

The price of the sale of Sentinel is not disclosed in the unredacted portions of FTC documents, though the Veterinary Practice News reports that “U.S. sales of Sentinel Flavor Tabs and Sentinel Spectrum, which protect dogs from heartworms  and fleas, are expected to reach up to $100 million in 2014.” 

The FTC wants to give Virbac as good a chance to succeed in the U.S. heartworm market as possible by requiring that Eli Lilly also divest supply chain assets related to the Sentinel products as well as to provide  the product to Virbac during an interim period, something that an FTC-appointed Interim Monitor will assure is performed fairly.  The FTC knows that the sale might not have the desired result:

“If the Commission determines that Virbac is not an acceptable acquirer of the divested rights and assets, or that the manner of the divestitures is not acceptable, the parties must unwind the sale of rights and assets to Virbac and divest them to a Commission-approved acquirer within six months of the date the Order becomes final.”

Stumbling is indeed possible here.  Edie Lau, a reporter with the Veterinary Information Network News Service, notes that Virbac “recalled its heartworm preventive medication Iverhart in 2009 and again in 2013, both times because some lots had insufficient amounts of the active ingredient.”  Lau quotes one veterinarian who had to call over 100 clients that had purchased the product and explain “the doses they were giving may have been ineffective.”  The veterinarian said he lost clients over the incident. 

The FTC’s action shows that pet-related pharmaceuticals can be a significant factor in the prediction of anti-competitive results from a merger or acquisition. Anyone wishing to comment on the FTC’s actions in this pharmaceutical company acquisition, or the product divestiture, can do so at the regulations.gov website.  The comment period is particularly short, however, as comments must be received by January 21, 2015.

Thanks to Sue O'Brien of the American Heartworm Society for providing the image of the infected heart.  Thanks to L.E. Papet and Kingsbury Parker for suggestions and corrections.