Phillip Frost is among the top insider buyers in the U.S. as the pharmaceutical billionaire props up the shares of two of his companies following an acquisition agreement that has been contested by some investors.
Opko Health Inc., based in Miami, and Israeli drugmaker Prolor Biotech Inc. ranked among the top 30 companies in the U.S. by insider buying activity for the week ended May 10, according to data compiled by Bloomberg. Frost, who is the biggest shareholder in both, has been buying as Opko agreed to buy Prolor for about $480 million on April 24.
Keeping the share prices from falling may help Frost win approval for the deal from Prolor shareholders, said Raghuram Selvaraju, managing director and head of health-care equity at Aegis Capital in New York. The purchase will give Opko a long-acting version of human growth hormone that’s entering the final stage of clinical trials and secures a technology that can be applied to a variety of conditions, Frost said in April.
“When he is buying shares actively it signals to the investor community that there’s a deep-pocketed insider who believes in the company,” Selvaraju said. “It’s hard to bet against him because he has a proven track record. Since there is no collar on the deal, if Opko shares were to fall dramatically, investors would get screwed.”
Collar agreements, an arrangement in a takeover that protects shareholders in the target company from a significant decline in the share price of the acquirer, are used when deals are financed with stock rather than cash. Opko agreed in April to pay Prolor holders 0.9951 of its shares for each Prolor share.
“I’m buying stock in Opko because I have been buying the stock almost every day for several years,” Frost said by telephone from Miami. “I think Opko’s shares offer good value. As for Prolor shares, I am buying them quite simply because it’s like buying Opko shares at a discount.”
The agreement valued Prolor at about $7 a share when it was announced. A slump in Opko’s stock to a closing low of $6.41 on May 1 reduced the value to Prolor holders to $6.38 a share. Opko shares have since risen 10 percent, lifting the value back to above to $7 per Prolor share.
Prolor rose 1.6 percent to $6.44 at 10:22 a.m. in New York. Opko rose 0.7 percent to $7.06.
The deal has come under criticism from shareholders including Miami-based private investor Jose Canto, who said Prolor could have attracted higher bids if it waited for drug development to advance into later stages.
Oppenheimer & Co., a New York-based investment bank, advised Prolor’s independent directors that the stock-swap offer was fair. At least five law firms announced they were seeking investors to file a class-action lawsuit on grounds that Frost’s involvement in both companies posed a conflict of interest.
“I was very, very careful not to participate in any of the discussions or negotiations,” Frost said. “Prolor has some very good products under development and we can make available to them a whole medical team in Opko which can readily assist in the design of the trials.”
Short sellers, who sell borrowed shares and hope to profit by buying them back at lower prices, have increased their bets against Opko. The short-interest ratio, the number of shares sold short divided by daily volume, climbed from 6.1 at the end of January to 19.2 at the end of April, according data compiled by Bloomberg. The interest is still below a August 2012 high of 43.
From April 24 through May 14, Frost bought about $4 million of Opko shares, according to the Washington Service. He purchased about $630,000 of Prolor shares from April 30 through May 14
Frost, the chairman of Teva Pharmaceutical Industries Ltd., owns about 37 percent of Opko and 20 percent of Prolor, which is based in Nes Ziona, Israel. After selling Ivax Corp. to Teva for $7.4 billion in 2006, Frost and his associates began assembling Opko, a health-care holding company for diagnostic equipment and medical products. Opko shares have gained 46 percent this year.
“This deal is essential for Phil,” said Aegis Capital’s Selvaraju. “He sees Prolor as the potential jewel in Opko’s crown. It paves the way for what might eventually be the sale of Opko to a larger pharmaceutical company.”