Northwest Bio controversy intensifies scrutiny of Woodford's biotech investment chops

Neil Woodford spent last week framing the controversy around Northwest Biotherapeutics ($NWBO) as one of the "bumps in the road" that are inevitable when investing in biotechs. But with concerns about Northwest Bio being in the public domain prior to Woodford making his investment, the case has prompted the fund's backers to question what other "bumps" he may have failed to foresee. 

Neil Woodford

Woodford started pushing for an ex-FBI agent to head up a probe into the finances of Northwest Bio, a U.S. cancer vaccine developer that has attracted scrutiny for its links to a service provider, after a recent report by Phase Five Research put the relationship and questions about whether it is in the best interest of investors into the spotlight. Such doubts have circulated since before Woodford first signed over a check to Northwest Bio, resulting in the eyebrows of observers being raised higher and higher as the renowned fund manager has got deeper and deeper into the stock. 

Now, questioning of the wisdom of the investment has spread to the investors who have funneled billions of pounds into Woodford's funds since they set up operations last year. "There are questions about the level of due diligence he did [into Northwest Bio]," Darius McDermott, managing director of Chelsea Financial Services, told the Financial Times. For McDermott, the questions fall short of being an issue that will affect his investment plan. "[I will] not be selling out of Mr Woodford on the back of this news," he said.

If Northwest Bio does prove to be a poor investment, the questioning will turn to whether Woodford simply failed to personally dig into the stock, perhaps because of the time pressures of setting up the funds, or whether the decision is indicative of shortcomings in spotting biotech winners and losers. Woodford has moved deeper into biotech throughout his career, but the success that made him a big name capable of pulling in £800 million ($1.2 billion) for the Patient Capital Trust was built largely on the performance of blue-chip companies. 

"Neil has an outstanding long-term track record, but it is important not to lose sight of the fact that this has been built principally around investing in large and midsized companies that chuck out dependable dividends--such as tobacco stocks," Jason Hollands, managing director of U.K. investment adviser Tilney Bestinvest, said. The nature of drug development--and the concept of the Patient Capital Trust--means it will be years before it becomes clear whether Woodford can perform consistently as well in the very different world of biotechs and other small, unlisted companies.

Northwest Bio will have a relatively minor say in the outcome of this process. While Woodford's 28% stake in Northwest Bio means he is of vital importance to the biotech, his fund won't live or die on the performance of the investment. Having funnelled $95 million into Northwest Bio, the company accounted for 2.3% of the Woodford Patient Capital Trust as of the end of November, making it the twelfth largest position in the portfolio. Prothena ($PRTA), Oxford Nanopore and Immunocore occupied the top three spots.

- read the FT's article

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