After Woodford takes a bath on NW Bio, British investor decides to towel off

Woodford's investment in the biotech has been decimated

Neil Woodford, who has seen his light dim in 2016 as a “star fund manager”, signalled in a brief update with The Times that he was to stop investing in the moribund biotech NW Bio after seeing his original investment decimated.

Last year, Woodford invested around $95 million in the company, but after the allegations of financial impropriety began to surface, Woodford attempted to run an investigation led by independent ex-FBI agent Elliott Leary. This was swiftly rejected by the biotech’s board in December, denting Woodford’s reputation.

Northwest did say however that it would launch an investigation into the allegations and appointed Charles Price, another former FBI special agent, to help carry out the investigation.

It said late last year however that it wanted Price to “establish whether the allegations are a deliberate attempt to manipulate its stock price,” rather than look deeply into its own financial history.

Then last week, the biotech warned that it would default on its debts unless it raised new funding, and also delisted from Nasdaq to join the OTC market. 

All of this has seen Woodford’s total investment dwindle to just $15 million, according to The Times.

In a statement to The Times, he said: “We initially invested in Northwest because we believed in the technology. What we underestimated was how governance issues would undermine the fundamental technology story.”

The biotech has been under mounting pressure for years now. In a Form 8-K sent to the SEC in the summer, Northwest Bio revealed that Nasdaq staff had sent the biotech an official letter on April 26 saying it didn’t like how some of its shares had been issued to Cognate BioServices, alleging it had not complied with its rules.

This was no surprise to a number of analysts and reporters who have for some time been very vocal about the connections between Hanover, MD-based Cognate and NW Bio.

Cognate, a cell-based specialist manufacturer, is the CMO for NW Bio’s lead cancer vaccine DCVax but is also a part of (and created by) the venture group Toucan Capital Fund III—an entity controlled by NW Bio’s CEO and president Linda Powers (she serves on the CMO’s board and is MD of Fund III) and her husband.

According to a report published last October by analysts at Phase Five Research (a company that held a short position on NW Bio), since 2004 around $310 million in cash, shares, warrants, options and other benefits had been transferred from Northwest to the Toucan Group.

Speaking to the WSJ last year, Les Goldman, who heads Northwest’s business development, said any payments to a company related to Powers “would have been made to a Toucan portfolio firm Cognate BioServices in return for further development and manufacture of the biotech’s cancer treatment for use in clinical trials involving hundreds of patients.”

But Phase Five also said in its report that it believed Powers “used $30 million of NWBO’s cash for the actual benefit of Cognate acquiring a huge production site in England, that according to our analysis of the evidence will most probably be used by Cognate rather than NWBO.” Powers has vehemently denied the report’s allegations.

Woodford added: “We’d hoped the shortcomings in governance, reporting and relationship between the company and its manufacturing business could have been addressed. But a complete response has not been forthcoming and we have not had any meaningful dialogue with the company.”

The biotech said it was still planning to complete its late-stage trials for it cancer vax, as well as continuing work on its midstage tests.