Ideally drug supply should be a simple and transparent chain that connects the manufacturer and patient in as few steps as possible. However, in practice it can be a highly circuitous one that includes several intermediaries before reaching a pharmacy. Notwithstanding the possibility that drug integrity can be compromised in transit, complex supply chains risk counterfeit drug entry.

Driven in great part by the lost revenues such arbitrage brings, manufacturers have implemented several strategies to tighten their grip on the drug supply chain, with direct to pharmacy distribution schemes implemented in the UK being one of the most recent. However, the legitimacy of such action is often unclear, and a recent European Commission recommendation spells bad news for manufacturers seeking greater supply chain control, according to a new report.

Europe’s free trade policy, combined with the often large price differentials across member states, has driven parallel drug trade, a practice in which distributors absorb most of the profits at the expense of manufacturers. Aside from the lost revenues, manufacturers contend that parallel trade can lead to drug shortages in the export markets and increase the risk of counterfeit drug entry; a claim that now has some weight behind it following developments in the UK.

As a result of revenue lost to parallel trade, manufacturers have long sought ways to gain greater supply chain control and have used several tactics to do this, often bringing them into conflict with distributors. The resolution of one such dispute, between Greek wholesalers and GlaxoSmithKline (GSK), looks to be an unwelcome one for the manufacturing industry as a whole, with ramifications for its stock management powers.

The ruling may well influence the outcome of other cases relating to pharmaceutical supply restriction, such as dual pricing and direct distribution. Three manufacturers – GSK, Pfizer and Novartis – have, or intend to introduce, dual pricing in Spain, another popular export country due to the low cost of drugs here.

Under dual pricing, drugs intended for export are sold at a premium compared to those destined for domestic use. While the manufacturers claim the scheme cannot be classed as true dual pricing because it is only one price – the export price – that they set, the European wholesaler association holds that these actions are anticompetitive, and awaits a decision from the ECJ.