As part of a massive continuing inquiry into drug fraud investigators believe the companies conspired to raise the price of the antibiotic amoxycillin by up to 260 per cent.

They are also planning legal action against the companies for allegedly defrauding the NHS of a further £170 million relating to the prices of 30 other prescription drugs.

At the same time the Serious Fraud Office is investigating the directors and senior managers of the firms involved and has raided their premises in search of incriminating evidence.

The legal action is also politically embarrassing. Isaac Kaye was until June chairman of Norton Healthcare, one of the companies being sued, and has given more than £100,000 to the Labour Party.

Gerry Malone, the former Tory health minister, is the chairman of Regent-GM, a company named in a similar legal action, involving warfarin. All those being sued are leaders in the supply of generic drugs, copycats that can be manufactured by any company once the original patents have run out.

In a Claim Form issued in the High Court, the NHS Counter Fraud and Security Management Service alleges that between 1997 and 1998 the drugs companies conspired to inflate artificially the price of several types of penicillin, by reducing supply and refusing to sell below a price agreed by the companies.

Every year the NHS spends £39 million on amoxycillin, a type of penicillin, and financial experts believe the alleged fraud cost the taxpayer more than £30 million.

In documents lodged with the High Court, the NHS fraud service provides evidence that senior representative from the seven firms met at a hotel near Heathrow and agreed to join together to raise the price of the drugs artificially. At that meeting, it is alleged, the firms agreed to act together to ensure that the NHS could only buy the drugs at a common price agreed by the companies.

The Claim Form states: “In 1997 and early 1998 a number of defendants, acting in some cases individually and in some cases in concert, considered the possibility of arrangements designed to reduce competition in the UK.”

It continues: “A series of meeting followed at which the defendants negotiated a sophisticated scheme by means of which the prices and supply of penicillins in the UK market could be controlled and manipulated.”

Further on it states: “Each drug was to be the subject of a system of price-fixing, setting agreed values for wholesale list prices and minimum retail selling prices.”

This is the second multimillion-pound claim against the companies. Last year the NHS brought action against three drugs companies for £28 million in damages alleging that they conspired to restrict the supply of the blood-thinning drug warfarin and agreed to fix its price.

Sources within the industry said the investigation was far from over and they expected further claims of £150 million to be lodged in the High Court within the next few months. These will cover drugs such as atenolol, which is routinely prescribed for high blood pressure, and the diuretic frusemide, the price of which went up more than 700 per cent in a single year.

The companies named in the action are Norton Healthcare Ltf, Norton Pharmaceuticals Ltd, Regent-GM Laboratories Ltd, Kent Pharmaceuticals Ltd, Generics UK Ltd, Ranbaxy UK Ltd, and DDSA Pharmaceuticals Ltd.

Jim Gee, chief executive of the fraud service, said he believed the NHS had been seriously defrauded. “The NHS lost millions of pounds as a result of the unlawful behaviour of a number of generic drug manufacturers,” he said.

“My organisation’s investigations regarding the anti-competitive supply of over 30 other generic drugs continue.

“Nobody should be in any doubt about the NHS’s determination to defend itself against unlawful behaviour and to ensure that its resources are protected and spent on the best possible patient care.” He added that the Serious Fraud Office investigation would continue.

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