What is the Chewy controversy
Chewy sues companies on allegations of misleading customers, diverting sales
Pet product retailer Chewy is accusing a software provider and a competing pharmacy company of conspiring to divert prescriptions placed with Chewy.
In May, attorneys for Chewy filed a lawsuit in New York state against Vetcove, which provides software for veterinary practices, and Covetrus, which provides pharmacy services for veterinary practices. The complaint filed in court also indicates that Chewy may later name other defendants in the lawsuit.
Vetcove and Covetrus intentionally interfere with the pet parents order of regulated pet products placed with Chewy, the complaint states. The complaint also alleges that the other companies actions have delayed delivery of needed medications and hurt Chewys relationship with its customers.
At press time in September, attorneys for Vetcove had not yet filed a response and had not responded to requests for comment from JAVMA News. In August, attorneys for Covetrus sought dismissal of the complaint against the company, stating in a filing with the court that Chewys complaint fails to allege any wrongdoing by Covetrus and countering that Chewy was trying to prevent veterinarians from communicating with their own clients when it comes to sales of prescription products.
According to Chewys complaint, veterinary clinics use Vetcoves prescription management software to handle requests from outside retailers such as Chewy to verify prescriptions for drugs or food when clients order from that retailer.
Chewys attorneys allege that, in multiple instances since late 2020, veterinarians authorized the requests, but the software responded by sending messages to the clients that appear to come from their veterinarian or veterinary clinic. Those messages, according to the complaint, suggested the clinic could offer additional discounts on the prescription products or that further action was needed to complete the order.
If clients followed links in the messages and placed new orders with Covetrus, the Vetcove software would send messages to the original retailers denying the requests for authorization, the complaint alleges.
A court filing from early September indicates that Vetcove would file a response to the complaint by Oct. 8.
Attorneys for Covetrus responded by seeking a dismissal of their client, indicating in part that the lawsuit focuses on accusations against Vetcove and participating veterinarians yet also seeks to hold Covetrus responsible for an undefined conspiracy. The attorneys also wrote that the lawsuit lacks any descriptions of actions by Covetrus under the jurisdiction of the New York state court.
Chewy among nine pet companies accused of selling unapproved medication
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Major pet product retailer Chewy and eight other companies have been accused of selling unapproved animal medications.
The Food and Drug Administration leveled the accusations in a letter to the nine companies on Thursday.
The agency alleges that the company violated federal law by selling unapproved medicines containing the antibiotics amoxicillin and penicillin.
The products, targeted at fish and birds, included Aqua-Mox, Aqua-Zithro, Doxycycline and Fishbiotic, the agency said.
FDA Veterinary Medicine Director Tracey Forfa said those antibiotics could fuel the evolution of drug-resistant super bugs - posing a risk to humans as well as animals.
Inappropriate use of medically important antimicrobials contributes to the development of antimicrobial resistance, which affects both human and animal health, Ms Forfa said in a statement.
The nine companies were ordered to present plans to address violations within 15 days, or else legal action will be escalated. The companies are: American Aquarium Products, Aquanest Biotic, Aquarium Pharmacy, California Veterinary Supply, Chewy Inc., Kraft Drug, Midland Veterinary Services, Silver Lease and Valley Veterinary Clinic.
Chewy among nine pet companies accused of selling unapproved medication
Major pet product retailer Chewy and eight other companies have been accused of selling unapproved animal medications.
The Food and Drug Administration leveled the accusations in a letter to the nine companies on Thursday.
The agency alleges that the company violated federal law by selling unapproved medicines containing the antibiotics amoxicillin and penicillin.
The products, targeted at fish and birds, included Aqua-Mox, Aqua-Zithro, Doxycycline and Fishbiotic, the agency said.
FDA Veterinary Medicine Director Tracey Forfa said those antibiotics could fuel the evolution of drug-resistant super bugs - posing a risk to humans as well as animals.
Inappropriate use of medically important antimicrobials contributes to the development of antimicrobial resistance, which affects both human and animal health, Ms Forfa said in a statement.
The nine companies were ordered to present plans to address violations within 15 days, or else legal action will be escalated. The companies are: American Aquarium Products, Aquanest Biotic, Aquarium Pharmacy, California Veterinary Supply, Chewy Inc., Kraft Drug, Midland Veterinary Services, Silver Lease and Valley Veterinary Clinic.
Pet food retailer Chewy (CHWY) - Get Free Reporthas put major work into branding itself as a company that cares about its customers' pets, sending everything from custom paintings of customer pets to encouraging people to donate food they no longer need (such as when a pet passes away) to their local shelters.
But a recent new claim from the FDA may make some feel uneasy about the retailer's squeaky-clean reputation. According to a press release from Dec. 14, Chewy is one of nine companies that received a warning letter for distributing "unapproved and misbranded antimicrobial animal drugs."
The release goes on to say that the agency is concerned because the products "contain antimicrobials that are important in human medicine and using them without medical oversight contributes to the development of antimicrobial resistance. Antimicrobial resistance happens when microorganisms like bacteria become resistant to the antimicrobials that are designed to kill them."
It also goes on to explain that the drugs in question have not been verified for safety or effectiveness via the FDA's animal drug review process.
The drugs in question are prescription-only and "contain antimicrobials that are important in human medicine, such as amoxicillin, penicillin, tetracycline, and erythromycin, and are being illegally marketed over the counter," the release also states.
In addition to Chewy, the other eight companies are American Aquarium Products , Aquanest Biotic, Aquarium Pharmacy LLC, California Veterinary Supply, Kraft Drug, Midland Veterinary Services LLC, Silver Lease LLC, and Valley Veterinary Clinic LTD.
The FDA says that all companies are requiredto dispose of the medications and to reply to the warning letters within 15 days to explain how they will address the violations. If the companies do not respond within the time frame, the FDA could seize the products from the retailers and distributors.
TheStreet has reached out to Chewy for comment.
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Chewy's push into pet telehealth runs into regulatory hurdles, skeptical veterinarians
The Chewy.com application is displayed in the on an Apple iPhone.
Andrew Harrer | Bloomberg | Getty Images
Chewy, the e-commerce pet-goods giant best known for its convenient auto-ship services and generous return policies, wants to grow its veterinary telehealth service as part of an overall push into health care.
While the telehealth service is a small part of the company's rapidly expanding health offerings, it is important to its strategy. Yet it also faces regulatory obstacles and skepticism from the veterinary community.Longtime veterinarians told CNBC the service can have some benefit for minor situations, or for people who don't have easy access to vet care. But it could create problems for pets, too, they said.
Chewy's service, called Connect With a Vet, has experienced significant growth, but it's been limited by a specific kind of regulation known as the veterinary client patient relationship, or VCPR, according to Chewy CEO Sumit Singh.
"If you look at our Connect With a Vet, it's the singular most scaled telehealth platform in the market today, only after two years, and yet, it doesn't form a meaningful portion of our business. Why? Because when you research pet health, you'll find that there's a specific term called VCPR," Singh said.
He also noted that barrier is "breaking down" in the wake of the Covid pandemic and multiple states "are already doing away with VCPR."
Chewy Connect with a Vet service.
Chewy.com
Most states forbid veterinarians from performing their primary duties diagnosing conditions and prescribing medication until they establish a VCPR by seeing an animal in-person and performing a physical exam.
"Trying to make an assessment over video without any prior relationship at all, that's the part that kind of concerns me," said Brett Levitzke, the chief medical officer and founder of Veterinary Emergency and Referral Group, an emergency animal hospital in New York City. "There is no substitute for a physical exam. Period."
Nonetheless, there is a growing movement to change VCPR regulations.The leader behind that push, the Veterinary Virtual Care Association, or VVCA, is an advocacy group co-founded by longtime lobbyist and political strategist Mark Cushing. It's funded by Chewy and several other pet businesses expanding into vet telehealth.
When asked about the company's position on VCPR, Chewy said it doesn't take a stance on the issue and declined to say whether its veterinarians would diagnose and prescribe medication if the laws are changed. Currently, Chewy's veterinarians do not diagnose conditions or prescribe medications.
The company suggested CNBC speak with Cushing, whom the company described as an industry expert on the matter, to learn more about VCPR. Cushing said he does not represent Chewy "in the telemedicine space," but the company is a primary sponsor of the VVCA.
It is not clear how much money Chewy has donated to the VVCA because, as a noncharitable nonprofit, it's not required to disclose donor information to the public. Cushing is also the CEO of the Animal Policy Group, a lobbying organization, which has advocated on behalf of Banfield Pet Hospital, a network of clinics that offer in-clinic services and veterinary telehealth, according to lobbying reports filed with the U.S. Senate. Banfield Pet Hospital is owned by Mars Veterinary Health, a subsidiary of pet food and candy conglomerate Mars.
The goal of the VVCA is to make veterinary telemedicine legal across the country so vets can diagnose conditions and prescribe medications virtually at their own discretion even if they've never laid hands on the animal.
"The hardest thing, though, the most expensive thing in telemedicine in the veterinary space, by far, is customer acquisition," said Cushing.
Prescribing medication and diagnosing conditions without ever performing a physical exam on an animal poses "massive risks" that could ultimately be harmful, or even fatal in some rare instances, Dr. Linda Isaacson, who has been a veterinarian since 2003 and runs three clinics in Brooklyn, told CNBC.
Sometimes, for instance, a pet owner may say their animal is constipated, but a physical exam will reveal a urinary blockage, Isaacson said.
"A urinary blockage is life threatening, you know, if they don't urinate, they'll die and you wouldn't be able to tell that from telemedicine," she said. "So, if you're going on telemedicine and they're just prescribing, you know, a laxative, that's not going to help that pet, right? They'll be dead."
Chewy pushes into health
Chewy was co-founded in 2011 by Ryan Cohen, an activist investor and the current chairman of GameStop. He left the company in 2018 and the following year, Chewy went public at a valuation of $8.8 billion. Chewy's market value currently sits around $18.5 billion.
Under Singh's leadership as CEO, Chewy's annual revenue soared from $3.53 billion in fiscal 2018 to $8.9 billion in fiscal 2021, but the company has been stymied by repeated annual net losses and slim margins.
During a sitdown interview with CNBC earlier this month, the former Amazon executive said expanding pet health and wellness, which are higher-margin categories than pet food, will be essential to getting the company on a path to profitability.
Chewy CEO Sumit Singh is interviewed on CNBC during the Chewy IPO at the New York Stock Exchange, June 14, 2019.
Andrew Kelly | Reuters
It's a strategy that Chewy's main competitor outside of big-box retailers, Petco, has undertaken as well. It rebranded as a health and wellness company in 2020. Petco has veterinarians on its payroll working inside of full service hospitals and clinics built inside stores. When asked, Petco said telehealth isn't off the table, but for now, its focus is "hands on pets," which is what they say pet parents want.
Chewy's expansion into health including insurance, prescription food and medication came as the pandemic-fueled pet boom saw 23 million American households welcome a new animal into their homes, turning the overall pet industry into a $123.6 billion market in 2021, according to data from the ASPCA and the American Pet Products Association.
Chewy aims to make health care about 30% of its overall business in the coming years, according to Singh. The company wouldn't say how much pet health care accounts for in its current revenue stream, but less than 5% of Chewy's customer base buys their health products from the company.
"If you notice, there has been little to no innovation in pet health over the last decade, and yet in the last three years, there's been more innovation in pet health than in the last decade or 20 years," Singh said.
The tricky nature of pet telehealth
The sudden surge of new animal owners during the pandemic made it difficult to book vet appointments, and it put a strain on an already understaffed and burnt out veterinary community. The rules around establishing a VCPR virtually without a physical exam were relaxed in some states out of emergency need.
Outside of an emergency like a global pandemic, the American Veterinary Medical Association, the nation's leading advocacy group for veterinarians, maintains that a VCPRcan only be established after an in-person exam. The group's ethical standards allow vets to diagnose, prescribe medication or treat animals virtually but only after a VCPR has been established in-person.
"Without a VCPR, any advice provided through electronic means should be general and not specific to a patient, diagnosis or treatment," theAVMA advisesin its guidelines on telemedicine.
Despite the AMVA's stance, at least five states Michigan, Oklahoma, Indiana, Virginia and New Jersey have made the lighter rules permanent, according to the VVCA.
Chewy said it considers Connect With a Vet a tele-triage platform, not a replacement for in-clinic care, where customers can be connected with a licensed doctor or technician and ask them about their pet's health concerns, diet, behavior and products that can increase "lifelong wellbeing."
A dog hi-fives it's owner in front of the New York Stock Exchange (NYSE) during Chewy Inc.'s initial public offering (IPO) in New York, U.S., on Friday, June 14, 2019.
Michael Nagle | Getty Images
Chewy said the program was created to make vet care more affordable and accessible to everyone. The service is designed to help clients access some form of care when they can't book an immediate appointment, can't afford one or don't live close to an in-person clinic, the company said.
Connect With a Vet is also intended to help pet parents figure out if an issue their pet is having is an emergency that requires immediate care or something they could handle down the line during an in-person veterinarian appointment. The company warns customers to go to the closest veterinary clinic if their animals are experiencing a life-threatening situation. Other companies offer similar services.
Chewy has also started a B2B offering called Practice Hub,which creates a marketplace for veterinary clinics to sell their products to clients within Chewy.com.The service is currently free for veterinarians, and they get a portion of the revenue when their clients place orders on Chewy for products offered by the clinic. In return, Chewy gets access to their clients. This month, the platform will have 1,500 clinics, Chewy said.
Veterinarians weigh in
Isaacson, the Brooklyn vet, used telehealth during the height of the pandemic. She said about 50% of clients needed to bring their pet to the clinic after virtual sessions.
"It's very hard to hold the pet still. I can't really even see anything usually over the video. I think it works better for human medicine, but for animals, you know, it wasn't ideal," Isaacson said. "It's not like a person that can tell you how they're feeling or sit still or show you something."
Isaacson no longer offers the virtual service. And she is concerned new pet parents might consider Chewy's service and others like it a replacement for traditional, industry standard veterinary care.
"You think if it's allowed, then it's safe, right?" said Isaacson. "It's not, it's substandard care."
On the web page for Chewy's Connect With a Vet service, the company advertises a sample conversation between a Chewy doctor and a client whose animal had started limping. It's a condition that could be serious and can only be managed after a physical exam if there's no prior relationship with the pet, according to Levitzke, of Veterinary Emergency and Referral Group.
"Are they limping because they have an overall sense of weakness? Are they limping because their knee hurts? Are they limping because they can't feel their leg at all? Those are all three drastically different scenarios that are all possible," said Levitzke.
Chewy offered to make one of the veterinarians using its Practice Hub service available to CNBC for an interview. The company suggested Audrey Wystrach, who is the co-CEO of Petfolk and a co-founder of the VVCA, the nonprofit Chewy funds.
Wystrach has been a veterinarian for 28 years and practices telehealth. She also practices full-on telemedicine, where she can prescribe and diagnose virtually, but only with clients she has an existing relationship with.
She believes veterinarians should have more discretion to practice the medicine they're licensed forand should be able to establish a VCPR virtually, if they determine it's safe.
"You know, it is not a good idea to work on a pet that can't breathe in a virtual space, that's a pretty big no brainer," said Wystrach. "But is it okay for me to, you know, be able to look at a pet's mouth and see if they have a fractured tooth or talk to somebody about behavior or nutrition? Or even skin?"
She said the demand for veterinarians outpaces the supply, and veterinary telehealth and medicine is crucial to ensure pet parents can get access to care.
"I've always had the mantra that says, virtual care is better than no care," she said. "I think we got to get to where we've got a realistic outlook on how we're going to manage the sheer volume of pets that are under the care of people in today's day and age."
Clarification: This story was updated to clarify the functions of Chewy's Practice Hub.
