Headquarters of thalidomide maker Grunenthal in Germany. The Age has obtained excerpts of never-before-published files from the archives of pharmaceutical giant Grunenthal which detail explicit warnings the company received about its drug's potential to harm foetuses well before it was withdrawn from sale in late 1961. An estimated 10,000 babies worldwide - including hundreds in Australia - were born in the late 1950s and 1960s with severe physical deformities because their mothers had taken thalidomide drugs, which were marketed as a safe sedative and remedy for morning sickness. The Grunenthal files expose a 50-year global cover-up and demolish the company's long-held position that the scandal was unforeseeable tragedy and that its ''actions were consistent with the state of scientific knowledge and prevailing standards of the 1950s''. The files reveal that for at least two years before the drug was banned in late 1961, German medical professionals had told Grunenthal staff of concerns that children's deformities were caused by women taking thalidomide during pregnancy.

Between 1959 and 1961 - while the drug was still being marketed as safe - Grunenthal employees and their families began having deformed babies. In one company file, it is noted that ''eight families, which, as dependants of the Chemie Grunenthal Company, during the years between 1959 until 1961, had had deformed children''. Rather than act on the internal warnings, Grunenthal simply told concerned doctors there was no information to suggest the drug was unsafe. The Grunenthal documents have come to light after they were lodged in the Victorian Supreme Court by Slater & Gordon lawyer Michael Magazanik in support of a compensation claim by Melbourne thalidomide victim Lynette Rowe. Ms Rowe, in a case led by prominent plaintiff lawyer Peter Gordon, last week secured a multimillion-dollar payout from UK company Diageo, which bought thalidomide distributor Distillers in 1997.

Diageo is considering settlements with up to 130 other thalidomide victims in Australia and New Zealand. But Grunenthal continues to deny any culpability and is aggressively defending lawsuits. The Grunenthal files include a statement by German pharmacist Friedrich Koch revealing that he wrote to the firm in late 1960, having spoken to a mother who took Contergan - a brand name for thalidomide - during pregnancy and whose child was born with internal injuries. ''After my discussions with (a patient), I felt compelled to write a letter to the company Grunenthal on 24 November 1960. In this letter … I inquired whether a child could develop injuries if the mother had taken Contergan regularly during pregnancy. ''The thought that medication might possibly affect a foetus … did not seem absurd to me, but rather worth investigating,'' Mr Koch wrote. Grunenthal wrote back to Mr Koch enthusiastically giving the drug the all clear. ''Based on the contents of the letter, I was then able to tell the parents that according to the company, their babies injuries were not caused by the mother taking Contergan during pregnancy,'' Mr Koch's statement says.

''Naturally I presumed that the scientists in Stolberg [Germany] had already looked into the problem of their Contergan breaking through the foetus or that they would at least look into it after receiving my letter.'' A year before Grunenthal assured Mr Koch the drug was safe, the firm was contacted by a German medical practitioner, Dr K, with similar concerns. Dr K's statement reads: ''I can recall with certainty that I made a possible connection between Contergan and my son's deformities as early as 1959. ''In the same year, my wife and I had discussed this problem with [Grunenthal employee] Dr Mannheim at various times … He always explained that he just could not imagine thalidomide causing these types of injuries … I established at least a further two malformations during 1959 which I also connected to Contergan.'' Several files reveal Grunenthal was receiving an increasing number of queries about the drug's potential to harm babies at the same time it was telling the public it was safe.

An internal document dated February 1961 - almost a year before thalidomide was banned - poses a question about its potential to effect the foetus. Another document includes a reference to Grunenthal being told that thalidomide was ''known as an abortive drug''. A March 1961 document says animal testing might shed light on the effect of thalidomide on a foetus while also acknowledging that the company had no idea what this impact could be. ''[We have] no experiences ourselves regarding [thalidomide] and pregnancy,'' the March 1961 memo states. Around this time, Grunenthal sales representatives wrote confidential memos to the firm about what doctors had told them about possible impacts of the drug. A February 1961 letter from a doctor working in sales for Grunenthal states that his ''main objective'' in responding to such concerns was ''once again … to generate general interest and cause confusion''. An April 1961 memo from another Grunenthal sales representative deals with the drug's potential to cause nerve injury, finding that in one medical ward there were ''20 clear Contergan [thalidomide] allergies and 2 cases of polyneuritis''.

''On the psychiatric wards with huge use of 271 [thalidomide] no side effects at all (maybe the idiots are happy when they are tingling!),'' the sales representative noted. Another file reveals that in the months before July 1961, a German doctor quizzed Grunenthal about the potentially harmful effects of the drug during his wife's second pregnancy, given she had previously miscarried after taking Contergan. The doctor's wife gave birth to a severely deformed child in July 1961 and he immediately suspected ''the potentially harmful effect of Contergan on the child''. In mid-1961, a Grunenthal doctor told a fellow employee ''that in regard to Contergan, significantly more severe injuries than those already known were to be anticipated in his opinion''. Yet another company doctor also confidentially flagged concerns, telling a Grunenthal meeting that the firm ''needed to investigate the diaplacental transfer of [thalidomide] by way of animal test to determine the possibility of damage to the foetus."

According to one of Mr Magazanik's affidavits, ''by May 1961, Grunenthal knew that its own medically trained staff had 'a very real fear of [thalidomide] side effects' and were refusing to use thalidomide drugs within their own families.'' By late 1961, when United States regulators had refused to licence thalidomide due to safety concerns, Grunenthal's internal files reveal a growing acknowledgment inside the company that there may be a serious problem with its drug. In September 1961, the company wrote to a medical expert querying if it could draw on his expertise on the ''effects of medication on the foetus''. But no tests were done in the last six months of 1961, despite further concern expressed to Grunenthal that their drug might be harming or killing babies. It wasn't until November 1961 that the company finally moved to ban the drug after getting now well-known reports by Dr Widikund Lenz and Australian obstetrician William McBride about the links between the epidemic of birth defects and thalidomide.

Loading The company at this time began formulating its position that it was not to blame. But privately, Grunenthal's own lawyers had their doubts about aspects of the company's behaviour, including its response to hundreds of reports of nerve damage caused by thalidomide which prompted them to warn it was facing ''a dangerous and uncomfortable situation so injurious to the reputation of the organisation''.