Northwest Bio Keeps Going South

It may be time for the usually passive investor to get more aggressive.

The already bizarre saga of Northwest Biotherapeutics, British fund manager Neil Woodford, and an anonymous 68-page PDF from a short seller calling Northwest a house of cards on the verge of collapse just got even more complicated.

Woodford, the founder/CEO of Woodford Investment Management, has built a 28 percent stake in Northwest, while trying to prod its cancer vaccines to market. The company's shares are down 66 percent from a July peak, and 12 percent since the anonymous report came out in October, just days after Woodford had invested more money in the firm. 

Bumpy Ride

Neil Woodford's bet on Northwest worked, at first.

In a letter filed with the SEC in late November, Woodford asked Northwest to add ex-FBI agent Elliot Leary -- a managing director of the Freeh Group, a private firm specializing in financial and other investigations -- to its board as an independent director. He also suggested Leary help lead a special committee to look at the allegations against the company and its CEO of serious governance failures and suspicious payments to other companies.  

In an exquisitely polite press release, Northwest declined on both counts on Wednesday, calling Leary a bad fit and questioning the Freeh Group's independence. It plans to appoint a different independent director (yet to be named), and set up its own investigation of the allegations and what it says are efforts to manipulate its stock. The company said its investigation will take at least 90 days.

That's quite a snub to an investor who owns more than a quarter of the firm, which was in a somewhat precarious financial position before Woodford came along. He is known as a passive investor, not prone to such public interventions.

Woodford has called Northwest's troubles "bumps in the road." His firm says it's pleased the company at least agreed to add an independent director and conduct an investigation. But rejecting his request for more aggressive measures should only increase investor anxiety.  It may be time for Woodford to think about cutting bait, or pushing harder.

Though they're anonymous and should be viewed with a skeptical eye, the allegations against Northwest are lurid and detailed, particularly regarding payments made to outside entities affiliated with CEO Linda Powers. She has called the allegations "baloney" in an interview with the Wall Street Journal. 

But this isn't Northwest's only problem. The company's drug candidate faces uncertain prospects, despite how long it has taken to develop. It's a dendritic cancer vaccine, which turns a patient's immune cells into special cells that help the body fight cancer -- an approach the rest of the pharmaceutical industry has mostly abandoned. The Phase III trial for the company's brain-cancer vaccine, the last study before the drug is sold to consumers, doesn't have enough patients to get finished, and efforts to find more are currently suspended due to regulatory issues. 

Dendreon has the only approved cancer vaccine of this type on the market, for prostate cancer. It was approved in 2010 to great fanfare and a multi-billion-dollar surge in that firm's market cap. But doctors were loath to prescribe it on concerns about its price and efficacy. When Dendreon eventually disclosed the extent of its difficulties in selling the drug, the share price plunged dramatically, prompting a lawsuit from angry shareholders. Sales never picked up, and the company filed for bankruptcy. Northwest's approach could apply to a wider variety of cancers than Dendreon's, but this is not exactly a promising precedent. 

Dendreon's assets ended up being bought by none other than Valeant -- the prime example of a pharma firm brought low by a short-seller's report.

All sizzle...

Dendreon's shares soared when its expensive cancer drug Provenge was approved, but few used it.

Woodford may need to turn up the heat on his experiment in activism.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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    Max Nisen in New York at

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