The Serious Fraud Office (SFO) suffered a major blow today after a judge threw out a price-fixing case against five drug companies, leaving an eight-year investigation that cost an estimated £25 million in tatters.

The criminal prosecution against Goldshield and four other drug companies over allegations they conspired to overcharge the NHS for generic medicines was part of the largest case ever launched by the agency.

The prosecution suffered a setback in March after the House of Lords issued its judgment in another case involving Ian Norris, a British businessman facing extradition to the US on price-fixing charges.

In that case, the law lords ruled that the price-fixing did not necessarily amount to conspiracy to defraud, the allegation on which the SFO’s case against the drug companies hinged, because price-fixing did not become a specific criminal offence in the UK until 2003.

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The ruling means another battering for the SFO, putting it yet again in the firing line

Frances Gibb

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Although the SFO amended its case in light of the landmark Norris decision, that was today dismissed by Judge Pitchford, sitting at Southwark Crown Court. The defendants had previously lost other attempts to have the charges thrown out.

Judge Pitchford made an order banning the reporting of his reasons for rejecting the SFO's case.

However, the ruling is likely to further damage the agency's reputation. It comes after a damning report by a former US prosecutor in June criticised the agency as slow and lacking focus, with a poor conviction rate compared to its American counterparts.

Last year, the SFO came under fire for abandoning a corruption investigation into BAE Systems, the defence contractor, after it had spent three years probing an arms deal with Saudi Arabia.

The investigation into the drug companies, codenamed Operation Holbein, was even bigger. Hundreds of staff were required to sift through more than six million documents. Some reports put the cost of the investigation as high as £40 million, though £25 million was believed to be more realistic.

It began in 2000 leading to dawn raids on more than 30 homes and offices in 2002. Criminal charges were subsequently brought against Goldshield, Ranbaxy, the Indian generic drug giant, and three private businesses: Norton Healthcare, Kent Pharmaceuticals and Generics UK. Nine executives were also indicted.

The companies were accused of conspiring to defraud the NHS on the supply of a blood-thinning drug, Warfarin, and Penicillin-based antibiotics. Last June, Goldshield paid £4 million to settle a civil claim with the NHS, although it did not admit liability.

The NHS has already recovered £34 million through an ongoing civil lawsuit against the five drug companies.

Keith Hellawell, chairman of Goldshield said: "We are all absolutely delighted by the decision. We believe that it marks the end of a difficult and prolonged period of over six years for the company.

"We feel strongly the case should never have been brought. It has been an appalling waste of money for the taxpayer."

Mr Hellawell estimated that Goldshield's legal costs amounted to £6 million.

Neil Blundell, head of financial crime at Eversheds, said: "The SFOs days may well be numbered after this latest failure." Several fraud lawyers echoed this view with many predicting the SFO would be merged into the Serious and Organised Crime Agency.

Judge Pitchford denied the SFO permission to appeal against his decision.

A spokesman for the SFO confirmed it would appeal directly to the Court of Appeal, but declined to comment further.

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