Billionaire Frost’s Opko to Buy Prolor in $480 Million Deal

Opko Health Inc. (OPK) agreed to buy Israeli drugmakerProlor Biotech Inc. (PBTH) for about $480 million to combine two companies that count U.S. pharmaceutical billionaire Phillip Frost as their largest shareholder. Opko, based in Miami, will pay about $7 a share in stock for each Prolor share, according to a statement from the companies today. The price is 20 percent above Prolor’s closing level of $5.83 in U.S. trading yesterday, a premium that left some investors dissatisfied.

“The company was sold at a very low valuation,” said Jose Canto, a Miami-based private investor, who said he and associates hold about a 2 percent stake in Prolor. “I think one of the major concerns is that this deal was announced before the company commenced its phase III, which would have started in the second quarter. If the company had its shareholder’s interest in mind they would have waited.”

The purchase will give Opko a product, Prolor’s long-acting version of human growth hormone, that’s entering the final stage of clinical trials before it’s submitted for regulatory approval. The acquisition will help Opko broaden its portfolio in specialty markets and provide it with a technology that can be applied to a variety of conditions, Frost said in the statement.

‘Some Opposition’

Holders will receive 0.9951 of an Opko share for each Prolor share. Frost, the chairman of Teva Pharmaceutical Industries Ltd. (TEVA), owns about 39 percent (OPK) of Opko and 20 percent (PBTH) of Prolor, which is based in Nes Ziona, Israel. Frost’s role as chairman of both Prolor and Opko may have lead to a conflict of interest and “raises some flags,” Canto said, adding the company is obligated to look for a better deal until June 2.

“There will be some opposition to this deal and there will be some class action lawsuits, but these will be hard to win given the history of such suits,” said Raghuram Selvaraju, an analyst at New York-based Aegis Capital Corp. who rates Prolor buy with a $12 price estimate. “At the end of the day, the company could have entered a partnership or it could have been sold to Opko, likely the only bidder for a takeover.”

The sale gives investors an opportunity to capture additional upside through Opko shares, Selvaraju said. Aegis has done business with companies associated with Frost, including a stock placement for Irvine, California-based ChromaDex Corp. last year.

Dosing Frequency

The hormone, known as hGH-CTP, has the potential to reduce the required dosing frequency of human growth hormone from the current standard of one injection per day to a single weekly injection. The treatment may help the company secure as much as 40 percent of the $2.5 billion to $3 billion market, according to Oppenheimer & Co.

Prolor’s U.S.-traded shares advanced 8.4 percent to $6.32 at 12:03 p.m. in New York. The stock rose as much as 10 percent, the biggest intraday gain since April 11. The Israel-traded shares jumped 8.8 percent to close at 22.96 shekels ($6.35) in Tel Aviv. Opko fell 3.5 percent to $6.81.

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. His other holdings include stakes in investment bank Ladenburg Thalmann Financial Services Inc., cigarette maker Vector Group Ltd. and Canadian potash company Passport Potash Inc.

‘Better Value’

“In the hands of Opko, Prolor will benefit from their ability to create value from our assets,” said Prolor President Shai Novik. “We believe the combination of one plus one will equal three in the sense that the merger will lead to better value for shareholders.”

A voice message left at Opko Headquarters was not immediately returned.

Prolor hired Jefferies Group Inc. to study strategic alternatives after drawing interest from large drugmakers, a person with knowledge of the decision said April 11.

Oppenheimer & Co. provided a fairness opinion and DLA Piper LLP acted as legal adviser to Prolor’s strategic alternatives committee. Barrington Research Associates Inc. acted as the financial adviser to Opko while Akerman Senterfitt provided legal advice. Greenberg Traurig P.A. acted as legal adviser to Prolor.

Prolor plans a conference call tomorrow at 8:30 a.m. New York time.


Reporting by Dave Wainer; Editing by Phil Serafino; Published by Bloomberg BusinessWeek.

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