Supplies of cheaper prescription medicines that save the NHS more than £80m a year are threatened by a legal battle between a German-based multinational drug company and the European commission, the Consumers' Association (CA) warns today.

Victory for Bayer would end the whole practice of parallel trade in drugs in the EU.

Manufacturers sell products at different prices to different EU countries. But some "parallel" distributors buy drugs from wholesalers in countries with relatively low prices and re-sell them in countries at a level that undercuts the higher prices of the same products supplied directly by the manufacturers.

The row over the trade that helps the NHS control its annual £5.5bn drugs budget comes as companies are also under heavy fire from aid agencies for charging too much in developing countries.

Bayer has so far successfully fought through the courts a £1.9m fine levied by the commission in 1996 for trying to prevent the parallel trade of the heart drug Adalat into Britain. The commission and a German group of parallel traders have now taken the case to the European court of justice.

Douglas Macarthur, of the European Association of Euro Pharmaceutical Companies, said, in CA's consumer policy review, that parallel trade posed no danger to safety since the drugs had the same active ingredients as the branded drugs and they were administered in the same way, as well as being made by the same manufacturers.

"Parallel trade means increased competition which can also generate substantial savings," he said.

Clare Mackay, editor of the review, said the trade acted as an informal price control and a brake on monopolistic practices by multinationals.

"The EU, and member countries, support parallel trading in this field," she said. "It means that discounted pharmaceutical products can enter the market, reducing overall drugs budgets for member states. Diversion of sales from one EU country to another has not led to the industry cutting back on research and development, nor has it meant that a market for counterfeit or substandard products has been created."

• All NHS patients should pay the first £60 of their annual prescription bill, with better off people paying up to £120 a year, said Ian Senior, an analyst for the Adam Smith Institute thinktank. This would help to provide an extra £2.2bn for the annual medicines budget and bring an end to the postcode lottery approach to rationing expensive new treatments, he added.