UPDATED: Star fund manager Woodford calls in ex-FBI agent to probe Northwest Bio allegations

Neil Woodford

Neil Woodford has invested $95 million in Northwest Biotherapeutics and its controversial therapeutic cancer vaccine over the past year. And now that he has bought up 28% of the company's stock, he's pushing hard for an independent investigation into allegations of financial impropriety that have been in circulation since before he took his first big stake in the biotech.

In a letter to Northwest ($NWBO) CEO Linda Powers and her executive crew, filed with the SEC, Woodford says that he pitched the idea of bringing in ex-FBI agent Elliott Leary as an independent director to run a probe into the company's financial dealings. Leary is a managing director at Freeh Group International Solutions, a risk management firm run by former FBI director Louis Freeh, which has now been "engaged" by Woodford's fund in relation to its investment.

"We believe the candidate's skills are especially suited to the current situation of the Company in relation to the various allegations of financial improprieties and regulatory failure that have been published by at least one anonymous source," Woodford noted in his letter. "We would like to note that we only became aware of certain of these allegations after the completion of our recent investment in the Company comprising US $30 million in new equity.

"We believe that best practices for companies addressing allegations of this nature require the Board to convene a special committee composed only of conflict-free non-executive directors and engaging external counsel who have not previously provided legal services to the Company."

Just days after that added $30 million buy-in, Bethesda, MD-based Northwest was hit by a report from Phase Five Research, which has been shorting the biotech's stock and stands to profit from the drumbeat of allegations that have helped drive down the company's stock. In part, the Phase Five report repeated some of the earlier work done by TheStreet's Adam Feuerstein, who has been dogging the company for the past two years over Northwest's financial ties to Cognate BioServices, a contract research company that was formed by Powers' Toucan Capital venture group.

According to Phase Five, Northwest has paid Cognate more than $300 million over the years, at least some of which is outlined in public regulatory filings. Phase Five also outlined financial ties between Northwest and Navid Malik, an analyst at Cenkos Securities who was suspended, with pay, a few days ago while the firm explored a claim that Malik had received $5 million in Northwest stock after putting out a "bullish" report on its prospects. Malik is now a nonexecutive director at Northwest.

Northwest's lead program is for DCVax, a therapeutic cancer vaccine designed to use a refined dendritic cell (DC) tech to fight cancer. Powers rarely misses the chance to tout DCVax's blockbuster fortunes, even highlighting individual cases of success in its late-stage work. DC vaccines, though, have had a rocky history in the clinic, and Northwest has attracted a considerable amount of attention from short sellers interested in betting against success.

Powers has consistently and vehemently denied that there has been any financial impropriety at the biotech. In an interview with the Wall Street Journal over the weekend, the CEO maintained that she had no idea where Phase Five got its figures for the Cognate relationship. In a release this morning, Powers said she welcomed Woodford's proposal but stopped short of accepting Leary's nomination.

"Most of those claims have been recycled over and over, and the Internet report was anonymous," she added about Phase Five. "However, the Company and the Board take such claims seriously, the Board has already been meeting to address the report, and the Board plans to meet again this week in regard to moving forward on an independent investigation such as Mr. Woodford has proposed."

Woodford will play a big role in what happens next. His rep was built in The City as the consummate insider, with close ties to top execs at GlaxoSmithKline ($GSK) and AstraZeneca ($AZN). In AstraZeneca's case, he helped fight off Pfizer's ($PFE) attempt to acquire the pharma giant. More recently, he reportedly has been urging GlaxoSmithKline to break up to help counter the company's moribund financial performance and its lackluster performance in R&D.

Woodford, though, has also been making some sizable investments in biotech companies, which are much higher risk. In the U.K., his backing has helped revive the fortunes of an industry beleaguered by a series of setbacks and pipeline blowups from a few years ago. Any major misstep by Woodford in biotech could well afflict the entire biotech sector in the U.K.

And there's no sign that the long-running Northwest Bio saga is anywhere close to being resolved.

- here's Woodford's letter to Northwest Bio