Parallel trade currently costs the UK-based pharmaceutical industry some £1.5 billion a year, according to the accountancy firm. It also adversely affects the country's balance of trade in medicines - which makes a major contribution to Britain's foreign earnings.
"Parallel traders make their profits from simply hawking medicines around the European Community to exploit differences in prices that have been created by national governments' different healthcare policies," said Dr Trevor Jones.
"It is not just unfair to penalise pharmaceutical companies because of the policies of different European governments, it is positively dangerous if we are to maintain our investment in the medicines of the future. Hit our profits in this way and, as the accountancy firm has said, you hit at our ability to research new treatments."
The report, by accountancy firm KPMG, says that the industry's profitability and its future in Europe are under threat from the price erosion that comes with parallel trade.
"It is certainly true that Europe is falling further and further behind the USA as the preferred location for medicines research, and that parallel trade is a contributory factor to this process.
"If we want the UK and Europe to remain at the forefront of medicines development, it is essential - as this report has highlighted - that we are not faced with the debilitating consequences of a trade that benefits virtually no one except those taking part in it. This is a political problem that requires an urgent political solution."
For further information, please contact: ABPI Press Office 020 7747 1410