In a confidence-boosting move, Opko Health (NYSE: OPK) chairman and CEO Philip Frost bought 317,000 more shares in his company during November. Those buys came on the heels of Opko's meteoric rise during the first 9 months of 2013, and into the teeth of a bearish presentation by Lakewood Capital's Anthony Bozza at the widely attended Robin Hood conference in New York last month.
Running too fast, too far
Bozza's comments threw cold water on Opko's amazing 2013 run, during which the company more than doubled. Ahead of Bozza's comments at the Robin Hood conference, shares retreated more than 20%, testing even the most aggressive investor's resolve. But Bozza hasn't seemed to dent Frost's enthusiasm for his company.
Frost spent $340 million buying shares of Opko this year, despite the company's rapid rise and fears over the company's sky high valuation. It's a big bet, but not uncharacteristic for this health-care entrepreneur.
Leading from the top
This isn't the first company Frost has led. For years, he commanded Teva Pharmaceuticals (NYSE:TEVA), where he remains the chairman. Previously, he had held the top position at IVAX, a company he started in 1987 and sold to Teva for $7 billion in 2006.
In some ways, Opko most closely resembles Ivax. Similar to the early days of Ivax, Opko is cobbling together a range of small businesses with promising products and ideas, in a bid to build a sum-is-greater-than-the-parts global medical company.
This year alone, Frost bought Cytochroma in Q1, a company with ongoing midstage trials of a promising vitamin D prohormone designed to help patients with chronic kidney disease. That prohormone dovetails nicely with Opko's vitamin D test, which is currently being developed.
And Opko also acquired another of Frost's companies, PROLOR Biotech, for $480 million worth of stock in August. The deal adds a promising growth hormone -- dosed weekly, rather than daily -- to Opko's pipeline. Importantly, it gives Opko control of PROLOR's technology for extending how long drug compounds can remain active in patients. Opko expects it can leverage that technology across a variety of drugs and indications.
Keeping it in the family
Frost's connections and penchant for investing in early stage companies has led to a complex intertwining of small companies throughout the medical industry.
That matrix includes Arno Therapeutics, a tiny company looking to advance its treatment for endometrial cancer beyond midstage trials. Arno not only counts Frost as an investor, but also billionaire investing legend George Soros and Opko itself. As part of Opko's investment, Opko gets a chance to negotiate an outright purchase or licensing pact with Arno.
Another Frost-funded company is Cocrystal, which Frost helped get started with $10 million back in 2010. Cocrystal is targeting the lucrative Hepatitis C market; Frost successfully convinced Teva's board to invest $7.5 million in Cocrystal back in 2011. It's probably not surprising to learn that Opko has a 16% stake in Cocrystal, too.
Frost has also put more than $5 million in the past year into microcap company MusclePharm, a maker of sports supplements. MusclePharm's products are sold in sports and vitamin stores nationally, and are expected to generate $100 million in gross sales this year.
And both Opko and MusclePharm have made deals with Biozone for its QuSome technology, which helps products get more easily and safely absorbed through the skin. Biozone, another Frost-backed micro cap play, is run by Frost's former employee Roberto Prego-Novo. Frost's investment group owns about 16% of Biozone, while Opko owns a 12% stake.
What's ahead in 2014
Opko has a few different catalysts coming up quickly that could impact revenue.
One of them is results for phase 3 trials for Rolapitant, a long lasting anti-nausea and -vomiting drug that Tesaro (NASDAQ:TSRO) licensed from Opko in 2010. Tesaro, founded by health-care entrepreneur Lonnie Moulder, expects to report Phase 3 data before year's end, and if the data is strong enough, Tesaro plans to submit it for FDA approval by the middle of next year. That means Opko, which owns a 10% stake in Tesaro, could start earning its double-digit-percentage royalties from sales as soon as the end of next year, or in early 2015.
Opko also plans to launch its new prostate antigen test, the 4kscore, next year. That test, which can be done right in the doctor's office, could help reduce unnecessary biopsies tied to false positive PSA tests.
And Opko has fully enrolled its Phase 3 trial for Rayaldy, the vitamin D drug it got when it acquired Cytochroma, which means we'll likely see data at some point next year, too.
Foolish final thoughts
But before you get too excited, Opko generated just $20 million in sales during the third quarter, which makes it a pricey by virtually any measure. Opko is also burning through cash, losing $98 million in the first 9 months of this year, versus a $30 million loss in the comparable period during 2012.
Plenty of investors think that means the company's valuation has gotten too far ahead of itself. As a result, investors have sold 20% of the company's float short. That suggests Opko remains a very highly speculative company, suited only to the most aggressive investors. But for those investors, that big short position could be squeezed if Frost can successfully bring these and future products to market.
Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may or may not have positions in the companies mentioned. Todd also owns Gundalow Advisor's, LLC. Gundalow's clients do not own positions in the companies mentioned. The Motley Fool recommends Teva Pharmaceutical Industries. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.