The Serious Fraud Office will be reeling from the humiliating blow inflicted on it today when a judge threw out its price-fixing prosecution of five drugs companies.

Barring a successful reprieve at the Court of Appeal, the ruling is the end of the line for an eight-year investigation which has run up a costs estimated at more than £15 million in pursuit of five companies and nine directors - its largest such investigation to date.

The judge's decision was not entirely unexpected. In the wake of the ruling in March by the House of Lords in the extradition appeal brought by former Morgan Crucible chief executive Ian Norris, the SFO could see that the writing was on the wall.

The law lords ruled that price-fixing alone did not amount to conspiracy to defraud - and from that moment the SFO case was in doubt. It insisted, however, that it would continue and tried to amend its indictment to take account of the law lords' ruling. Yesterday the judge in the case, Judge Pitchford, refused it permission to do so.

If upheld, his ruling means another battering for the SFO, putting it yet again in the firing line over an investigation that has failed to bring a result. Huge resources have been deployed - and subsequently found to have been wasted.

The SFO raided 30 homes and offices, using 300 police officers including many from the National Crime Squad and the entire Metropolitan Police Fraud Squad. Some six million documents were seized and a special database built to sift them.

And the timing could not be worse. The SFO is currently in the House of Lords, appealing a damning ruling that in dropping its corruption investigation into the BAE arms deal with Saudi Arabia, it acted unlawfully and in response to "blatant threats" from the Saudis.

Both these cases fall into the lap of the new director, Richard Alderman, who took over the post in April. Three weeks earlier, the Government had also published a damning report on the SFO by the former American prosecutor, Jessica de Grazia.

She found that the SFOs management had had "a number of years to prove whether it can deliver change and has failed to do so". The office, she said, was slow and lacked focus, with a poor conviction rate when compared with its American counterparts.

This was why Operation Holbein was so important. Once dubbed the Serious Farce Office, the SFO in recent years had started to restore its reputation - to be taken more seriously. Now, this latest ruling appears to confirm all the misgivings of its critics.

Edward de la Billiere, head of financial investigations and criminal fraud at HIll Dickinson, the national law firm, said today that Mr Alderman could take some comfort from the fact that both this and BAE cases were brought under the old regime.

But the SFO is still at risk, he says, from proposals for a change to its identity or structure; and working methods. In particular, it will come under pressure to shift towards an American-style model of plea-bargains, which it should resist, he says. "A high conviction rate does not necessarily equal justice."

Yet if it is not to be accused of being a powerless ally in the fight on global economic crime, the SFO will have to do something to prove its worth. As Alderman himself recently admitted: if the judge in Operation Holbein ruled against them, there would have to be a "major review" - as the case had consumed so much in the way of resources. That review will clearly have to go beyond this case to the SFO itself.

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