British imports of cheap medicines dry up as pound falls

By Ben Hirschler

LONDON (Reuters) - The supply of cut-price branded prescription drugs into Britain is drying up as a sharp fall in sterling erodes profit margins for wholesalers engaged in the so-called parallel trade.

Drugs, like other goods, can be freely traded across Europe's single market and Britain, along with Germany, has long been a profitable destination market for parallel traders who buy supplies in countries where prices are lower, like Greece.

That import business is now being disrupted by the pound's big fall since Britons voted to leave the European Union in June, the head of the country's biggest drugmaker said on Wednesday.

"What we are seeing is a deceleration of parallel trade," Andrew Witty, chief executive of GlaxoSmithKline (GSK.L), told reporters in a post-results call. "If the pound remains suppressed or at these new lower levels, you would expect to see less import, more export."

Parallel imports from lower-cost European countries can result in savings for Britain's National Health Service, since the trade may account for 25 to 30 percent of supplies of some popular medicines.

There is a debate, however, as to how much of the price arbitrage benefit goes to the state-run health system in terms of lower costs and how much ends up being pocketed as profit by wholesalers.

In the long run Britain's intention to leave the EU could shut down this parallel trade altogether - something Witty said GSK was considering in its long-term supply chain planning.

"Depending on what happens in terms of the ultimate Brexit negotiations between the UK and the European Union, under various circumstances parallel trade may have to cease in entirety because parallel trade is a function of free movement of goods and services," he said.

"Therefore, we have to at least consider the possibility that, if within certain scenarios that didn't happen, parallel trade between the UK and the European Union presumably would no longer be legal."

(Editing by Greg Mahlich)