Bayer shares fell further yesterday as it emerged that the families of people that had died after taking the cholesterol drug Lipobay/ Baycol were taking legal action against the German company's US subsidiary.

The news, less than a week after Bayer withdrew the drug because of potentially fatal side effects, raised the possibility of costly class-action litigation.

Bayer shares, which have fallen 20 per cent since it withdrew Lipobay, closed down 3 per cent at Euros 35.20.

Analysts said fears of limitless liabilities were overplayed. Andreas Theisen at WestLB Panmure said lawyers were using the press to put pressure on Bayer. "The risk is overstated," he said. "We do not really know if Baycol was the cause of these deaths."

Bayer said it expected to face a growing number of lawsuits over the drug, but believed it was in a strong position to defend itself. The company was not planning to make any provisions to cover the litigation.

Uncertainty over the outcome of litigation could have negative implications for Bayer's planned purchase of Aventis CropScience, expected to cost about Euros 7.5bn (Dollars 6.7bn), including Euros 2bn of debt. Spreads on Bayer's dollar bonds have widened on average by 10 basis points over the last four days, hinting at possible problems raising debt to pay for the Aventis unit.

"There are also worries about earnings and whether Bayer is a going concern or not - there are plenty of issues with this company," one bond trader said.

In the US, lawsuits and class-action litigation are common whenever drugs are withdrawn. The suits very rarely have a material affect on a company's financial performance.

American Home Products, which has taken charges of Dollars 12.25bn to cover litigation related to diet drugs, is the notable exception. The drugs - known as Fen-Phen - were taken by 5.8m people in the US. About 250,000, or 4.5 per cent, of these were involved in litigation once the drugs were linked to heart valve problems.

Lipobay, which was launched in 1997, has been linked with 52 deaths from a rare toxic muscle wasting syndrome known as rhabdomyolysis, although the number is likely to increase as doctors re-examine records of patients who died while taking the drug.

Patients who took the drug have indicated they might sue also, but will have to demonstrate that they suffered lasting injury.

The withdrawal has hit Bayer hard at a difficult time.

The polymers operations have been hit by the economic downturn, forcing the group to announce 5,000 job cuts as part of a Euros 1.5bn cost cutting program.