Opko Health CEO Phillip Frost is a self-made billionaire and biotech
guru with a far flung investment portfolio including a drone company, a
cigarette maker, and lots of microcap stocks.
By Bill Meagher
Dr.
Phillip Frost is the CEO of Opko Health Inc. (OPK), a $5.2 billion diversified
healthcare company, chairman of investment bank Ladenburg Thalmann Financial
Services Inc. (LTS) and ranked No. 134 on the Forbes 400 list of richest people
in the world with a fortune of $3.8 billion. He’s also a microcap investor.
Through
four investment vehicles he controls, Frost has invested $212.8 million in 72
different private-investment-in-public-equity transactions since 2005,
according to PrivateRaise, The Deal’s data base that tracks PIPEs.
The
latest PIPE transaction found Frost Gamma Investments Trust investing an
undisclosed amount in Drone Aviation Holding Corp. in August. The Jacksonville,
Fla.-based company is developing tethered drones for domestic law enforcement
use and international military agencies. The company trades on OTCQX market
tier as DRNE. It was recently trading around $2.86 with a market cap of about
$21 million. According to S&P Global Market Intelligence, Frost holds 8.9%
of the company.
Frost
Gamma was also an investor in a reverse merger that closed Oct. 24 involving
Tiger X Medical Inc. and BioCardia Inc. BioCardia registered an initial public
offering last year and earlier this year proposed to price a $50 million
offering. But in April, the San Carlos, Calif.-based company pulled the plug.
In May, Frost Gamma paid $11.5 million for more than 114 million shares of
common stock and held a 65% stake in Tiger X, according to securities filings.
A
merger filing showed that Frost now owns 32.7% of BioCardia, a clinical-stage
company focused on developing treatments for cardiovascular diseases. It is
traded on the OTCPK platform under the ticker BCDA, and closed Thursday, Nov.
3, at about 16 cents.
The
80-year-old Frost calls Star Island in Miami Beach home, on property that was
formerly owned by the businesswoman Leona Helmsley. He made his fortune in
biotechnology beginning with purchasing Key Pharmaceuticals Inc. along with
Michael Jaharis in an all-stock deal in 1972. They sold the company 14 years
later for $800 million to Schering-Plough. Frost’s take was $100 million.
Next,
he was at the helm of Ivax Corp. for almost two decades, exploiting overseas
markets with sales of generic drugs. He sold the company to Israel-based Teva
Pharmaceutical Industries Ltd. (TEVA) for $7.4 billion, walking away with $1.1
billion. He remained in charge of the company’s board from 2010 until he
stepped down in 2015.
Frost
founded Opko as Cytocional Pharmaceutics Inc. in 1991 and has operated the
company on a roll-up basis, growing via acquisitions. The company consists of
EirGen Pharma Ltd., Bio-Reference Laboratories Inc., OURILabs, Molecular
Diagnostics, OPKO CURNA and OPKO affiliates in Chile, Mexico and Europe.
Additionally, the company has units covering finance technology, diagnostics,
biologics, and renal drug research and commercialization.
Bio-Reference
Laboratories is the third largest clinical lab in the country, has a genetic
testing business and a 400-person sales force. It has its own standalone
products for testing for prostate cancer as well an in-office immunoassay
platform. The pharmaceutical division includes products for treating chronic
kidney disease and chemotherapy-induced nausea. The biologics business has a partnership
with Pfizer Inc. (PFE) to develop a weekly growth hormone injection in Phase 3
trials.
Frost’s
resume–a medical degree from the Albert Einstein School of Medicine in New
York, a chairmanship of the dermatology department at Mt. Sinai Medical Center
in Miami and two years as a lieutenant commander in the U.S. Public Health
Service at the National Cancer Institute–make it natural that he would invest
in health and life science companies like BioCardia.
But
Frost also sits on the board of directors of alcohol company Castle Brands Inc.
(ROX), analytics company Cogint Inc. (COGT) and over-the-counter stocks Sevion
Therapeutics Inc. and Cocrystal Pharma Inc.
Putting
a billionaire together with stocks that trade over the counter is unusual.
Opko’s executive vice president Steve Rubin acknowledged that Frost’s interest
in stocks that were trading for less than $1 was a curiosity.
“Some
of the companies that he has invested in are early-stage companies and he
believes they have big upsides,” he said. Rubin was asked by Frost to
pinch hit in answering some questions while Frost was out of the country.
Frost
also takes an interest in far flung companies like satellite tracking company
Orbital Tracking Corp. (TRKK), used cell phone buyer uSell.com (USEL) and
tobacco company Vector Group Ltd. (VGR).
“Many
of the stocks he invests in have something of a story behind them,” Rubin
explained. Frost is partial to investing in companies where he has friends who
have started the firm or are involved in other ways.
Such
is the case with Frost’s investment in Castle Brands. Chairman Mark Andrews
founded the company and sat on the board of energy company American Exploration
Co. with Frost. Richard Lampen, Castle Brands’ CEO, was the executive vice
president at Vector Group as well as an executive with two of Vector’s
affiliates. He also sits on the board of Ladenburg Thalmann with Frost.
Frost’s
portfolio includes 14.8 million shares (11.4%) of Vector Group. He also has a
26.8% stake in Castle.
How
did Frost end up invested in a drone company? Simple, according to Rubin. Frost
served on the board of Northrop Grumman Corp. (NOC) and became interested in
the company though a fellow director. Jay Nussbaum, CEO of Drone Aviation, was
on Northrop’s board.
Frost
has also dabbled in penny stocks, the dark sector of the microcap world
sometimes inhabited by stock promoters looking to prey on unsophisticated
retail investors. In 2015, Frost invested $250,000 in Vapor Corp., a Dania
Beach, Fla., company that sells e-cigarettes and accessories. Vapor shares
currently trade on the OTCPK market tier for a fraction of a penny.
He
invested $900,000 in Orbital Tracking, a company that has enjoyed as many lives
as a cat. In the past, it has been known as Advanced 3-D Ultrasound Services
Inc., Eclips Energy Technologies Inc., Eclips Media Technologies Inc., Great
West Resources Inc., Silver Horn Mining Ltd., Swifty Carwash & Quick Lube
Inc., World Energy Solutions Inc. and YSEEK Inc. Securities and Exchange
Commission records show that Frost Gamma was an investor when the company was
known as Eclips Media as well as Silver Horn.
Frost
was a repeat investor in mining company Pershing Gold Corp. (PGLC), amassing
more than 3 million shares and investing $5.6 million. According to SEC
filings, Frost exited that position in May. Pershing shares were recently at
$4.22, but the company’s market cap was barely above $110 million.
Frost
also invested more than $3 million in MusclePharm Corp., a sports supplement
company where Frost sat on the company’s scientific advisory board. It is
unclear if he is still invested in the company.
MusclePharm
ran afoul of the SEC in September 2015 when the agency charged the company had
a series of accounting and disclosure violations tied to management
compensation and perks. The company paid a fine of $700,000 and some executives
paid a collective $210,000. CEO Brad Pyatt resigned in March 2016. Shares were
trading on the OTCQB market tier as MSLP at $1.76 Thursday.
But
none of Frost’s investment activities compare to his constant buying of Opko
shares. SEC records show the CEO often loads up on some stock. In the first
three days of November, Frost bought 32,800 shares at prices between $9 and
$10. In October, Frost bought shares on 18 different days.
Rubin
said that Frost never sells Opko stock and won’t until “everybody has an
exit. He doesn’t have hobbies; it is Opko, Opko and Opko.”
Frost’s
stake in his company sat at almost 33% recently, according to FactSet.
The
stock has drawn the attention of short sellers, however.
“We
have had some fairly consistent short interest, that is true,” Rubin said.
Frost “isn’t buying large enough numbers of shares to effect any of that,
but at some point [shorts sellers] are going to have to pay for their
shares.”
As of
Nov. 3, FactSet said that short investors held 22% of the company’s float, a
total of 74.3 million shares.
In
2013, Lakewood Capital Management LP issued a short report called the
“Placebo Effect” claiming that Opko was grossly overvalued and that
the company was living off its patriarch’s investment reputation. Short
investors point to the fact that institutional holdings in Opko sit at a shade
under 22%, an example that the company is not necessarily well regarded by
traditional players.
Besides
Frost, insiders that include chief technology officer Jane Hsiao and Rubin hold
5.6% and 1% respectively giving them about 40% ownership in the company.
Rubin
acknowledged that while some of the companies that Frost has invested in may
seem unusual, his history points to a belief in small public companies,
“That’s how Opko got started,” he said.