Britain's consumer affairs watchdog warnedthat deals such as Pfizer Inc's exclusive distribution agreement with Alliance Boots could cost the state-funded health service hundreds of millions of pounds.

The Office of Fair Trading (OFT) urged the government to make changes to its drug pricing agreement with pharmaceutical companies to ensure that medicine costs for the National Health Service did not rise as a result of changes in distribution.

It also suggested the government could demand minimum service standards from drug manufacturers to ensure services to pharmacies and patients were not adversely affected.

"The changes to the distribution of medicines in the UK are among the most significant for many years and have given rise to real concerns," OFT Chief Executive John Fingleton said in a statement.

"Further action is needed to prevent increases in NHS (National Health Service) medicines costs and to ensure service standards of pharmacies to patients are of a satisfactory standard."

John Young, managing director of Pfizer's UK business, said the company's prime concern was ensuring a secure supply chain and its new scheme had not resulted in increased costs.

Pfizer led the way by introducing its direct-to-pharmacy scheme with Alliance Boots unit UniChem in March this year.

Other manufacturers, including AstraZeneca Plc, are planning to introduce similar deals or to reduce the number of distributors they use.