Angry investors will this month issue writs against British Biotech and some of its ex-directors, with legal actions against its former merchant bankers, Dresdner Kleinwort Wasserstein, expected to follow shortly.
The actions follow the spectacular collapse in the value of the biotechnology group when it was revealed that there were problems with the two blockbuster drugs it was developing, Zacutex and Marimastat.
The ensuing row cost the job of the chief executive, Ken McCullagh, and led to a board shake-up. British Biotech's shares collapsed from a high of 280p to just 18p on Friday.
The group has been investigated by the Securities & Exchanges Commission (SEC) in the US and the Stock Exchange, which found the company had issued misleading statements in its drug development programme.
The legal action for compensation from the company is being led by Dee Irani, an 83-year-old widow from Ludlow in Shropshire who lost £50,000 of her pension in British Biotech shares.
She is being backed by clients of NatWest Stockbrokers and other shareholders. Former investors in British Biotech are expected to join the action once it is launched. The writs will allege the company misled investors about the prospects for its drugs and so falsely persuaded them to invest in the company. It will claim compensation for shareholders' losses. They are expected to name Dr McCullagh, who advised the Prime Minister, Tony Blair, on biotechnology issues, and up to three other former directors.
Dr McCullagh received a payoff of £670,000 when he left British Biotech and he is now running a biotechnology investment business. A British Biotech spokesman said it was confident there could be no case against it.
Wynne Edwards, the solicitor advising Mrs Irani, said the action would search out those who "had the deepest pockets" He added: "We believe certain of the company's professional advisers will be added to this action."