Parallel imports, where middlemen exploit huge national price differences to make swift killings, have mushroomed in recent years. These imports cost pharmaceutical companies hundreds of millions of pounds in lost revenue. So GSK has acted to quell them by limiting on a country-by-country basis the amount of drugs it will supply to European wholesalers to the roughly the same levels as in 2001.

On the face of it, this runs counter to EU rules on restrictions to trade. So, to avoid the ire of the EU it has advised the European Commission of its move in advance. GSK is hoping that the openness with which it has announced the scheme will stop the EU from fining it. Hilto Meyer, the lawyer who represents GIRP, the European association of pharmaceutical wholesalers, says that this is the tip of the iceberg and that other drugs companies have also notified the EC of simillar plans.

GSK is certain to face a backlash. Meyer says it means wholesalers will not be able to compete for marketshare. 'In Germany GSK is limiting supplies to individual warehouses to the levels of the past year. This means we won't be able to always meet our customers needs.' He adds: 'GSK is trying to boost its direct sales. It has told us that it will deliver new, more expensive drugs directly to pharmacists, if wholesalers donÕt have them in stock.'

The GSK move is likely to prompt a volcanic reaction from the European Commission, say sources. Often the Commission takes a couple of years to respond when suppliers change their terms of trade, but insiders say that it is likely to rule with surprising speed in this case.

Attempts to abolish parallel imports to the UK will also cause pain and resentment among UK pharmacists. As they frequently purchase parallel imports, the government has imposed a clawback on their sales which produces around £390m a year for the public purse. Pharmacists will now find themselves paying the clawback without benefiting from cheaper drugs.

Our Analysis:

1. At one level, one's sympathies do go out to pharmaceutical companies. Meyer says that the huge price discrepancies between different European countries have been created by national governments, each of which effectively sets its own pricing regime. Slap EU law on top, which bans restrictions on trade, and you have created a charter for massive parallel importing which has a huge impact on drug companies profits. But many reckon that GSK has bitten off more than it can chew.

2. A number of other drug companies are likely to follow the example set by GSK and adopt the ploy of informing the European Commission in advance of their intentions. Said one: "It may not stop all risk of a fine but it should make it hard for the Commission to impose mega penalties so companies know they can experiment with new forms of distribution and still limit the risk.

3. GSK could be sabre rattling in order to scare distributors into agreeing to fulfillment contracts simillar to those it that it has in the UK.