Phosphagenics has accused its former chief executive, Esra Ogru, and another ex-staff member of being involved in the theft of $5.7 million from the company.
In what one analyst called the "worst scandal" in the biotech sector for years, Phosphagenics said an investigation by accountants Deloitte claimed funds totalling $5.7 million had been misappropriated between 2005 and this year. It involved the company "paying funds in respect of false invoices".
"Dr Esra Ogru has been dismissed by the board as an employee of Phosphagenics. The company alleges that she is implicated in and has benefited from the misappropriated funds," Phosphagenics said.
Dr Ogru did not respond to Fairfax Media's requests for comment.
Simon Marais, from the company's biggest shareholder, Orbis, which holds a 13 per cent stake, described the announcement as "very unfortunate".
Dr Ogru was suspended by Phosphagenics on July 1 after the company noticed irregularities in its accounting records. Phosphagenics said six people were involved in the alleged theft and it was confident it would receive "substantial restitution and compensation from the various parties responsible for the misappropriations".
An unnamed legal firm is working on Phosphagenics' behalf to retrieve funds. The Australian Securities and Investments Commission declined to comment and Victoria Police did not respond by deadline.
Phosphagenics, which is valued at $117.4 million, is developing a portfolio of cosmetics for the global beauty industry. It has $14 million in cash and 37 staff.
The company founder, joint chief executive and second-largest shareholder, Harry Rosen, flew back from New York on Monday to take control of its operations, a move welcomed by Mr Marais.
"He knows how to run the company and has money in the business," Mr Marais said.
Life sciences analyst Stuart Roberts said this was "probably the worst scandal" he had seen in years of covering the sector.
Former Phosphagenics chief financial officer Ashley Arnott said there was no sign of trouble when he left the company in January.
Dr Ogru, a molecular biologist with a PhD, had been joint chief executive since 2010. She has been a regular on home shopping channels to promote Phosphagenics' treatments.
Property records show that Phosphagenics last week slapped caveats over four properties owned by Dr Ogru, together worth more than $2.3 million. Dr Ogru also has more than $680,000 worth of Phosphagenics shares.
Phosphagenics shares edged up 4.55 per cent to close at 11.5¢.