Opko Health: The Placebo Effect

| About: OPKO Health, (OPK)

On November 25, 2013, a blog called TheStreetSweeper published a bullish article on Opko Health (NYSEMKT:OPK) ("Opko"), which also appeared on Seeking Alpha, in direct response to a presentation that expressed a bearish view on Opko's stock given by Lakewood Capital's Managing Partner at the Robin Hood Foundation Investors Conference on November 21, 2013. To the best of our knowledge, TheStreetSweeper never heard any of the arguments voiced in Lakewood's presentation, and not a single point made by Lakewood was addressed in the November 25th article. While Lakewood has never published its research and analysis in a public forum, in this case, we feel compelled to do so as all investors deserve fair access to the research that underscores the cautious view that we have expressed. Below are Lakewood's comments on the TheStreetSweeper article and our complete analysis of Opko Health.

Lakewood's Comments on TheStreetSweeper Article

TheStreetSweeper is a blog with the following public oath:

"We aim to partner with the public in exposing corporate fraud and bringing its engineers to justice. To that end, we pledge to investigate credible allegations of misconduct and - if the evidence supports those accusations - report the truth about our findings. At the same time, we agree to disclose any conflicts that could potentially color our judgment. By embracing these core principles, we hope to protect ordinary Americans and deliver them news that they can trust."

On Monday, November 25, 2013, Senior Investigative Reporter Sonya Colberg with contributions from Senior Editor Melissa Davis unveiled a "report" describing their positive views on Opko in reaction to Lakewood's bearish presentation. This is the first bullish position that TheStreetSweeper has ever discussed publicly. The following are Lakewood's thoughts on nine separate statements made in this "report":

1. TheStreetSweeper: Lakewood Capital presented its short thesis on Friday during the Robin Hood Conference

This is incorrect. The presentation was given on Thursday. A quick Google search would make it clear to anyone that the presentation was on Thursday, not Friday.

2. TheStreetSweeper: Lakewood Capital is reported to suffer a 0.5 percent net loss partially attributable to its short portfolio

No source was provided for this "reported" figure nor was any time period cited over which this result was supposedly generated (last week, last month, year-to-date?). Lakewood was never contacted by TheStreetSweeper for comment. Apparently, the authors were in too much of a hurry to get the report out mid-day Monday after just learning of our presentation on the preceding Friday. And, it is unlikely they don't know how to reach us as we are on their distribution list and have been for years.

Rather than relying on an un-sourced "report," Lakewood can share the following facts:

  1. Lakewood Capital is an investment firm that manages over $2 billion on behalf of its clients;
  2. Lakewood has generated double-digit net returns year-to-date in 2013 while maintaining a low net exposure to the equity market;
  3. Lakewood has generated more than double the return of the S&P 500 Index since its inception in 2007 while maintaining a low net exposure to the equity market; and
  4. Lakewood's short positions have generated an annualized rate of return in excess of the S&P 500 since its inception, despite the market having appreciated over that period.

We also figured Melissa Davis, Senior Editor at TheStreetSweeper might be familiar with Lakewood since a bearish report that Lakewood shared in a private investment forum on a company called Swisher Hygiene (like Opko, Swisher is backed by a Florida billionaire) became the basis for one of her most successful TheStreetSweeper articles (Swisher is down 95% since our report).

3. TheStreetSweeper: Jim Cramer is a "fan" of Opko

Not only do we find it strange that an "investigative reporter" would be quoting Jim Cramer as a key tenet of a bull thesis on a stock, but this struck us as particularly odd in light of a negative TheStreetSweeper article on a company called TearLab in August 2013 that made the following statements:

Look at celebrity stock picker Jim Cramer, host of the popular "Mad Money" television show, just for starters. Perhaps unaware that he had previously touted an earlier version of the same company - with disastrous results for those who acted on his bullish call - Cramer recommended TearLab to a national audience earlier this summer, even though the stock had by then already doubled since the beginning of the year…

Of course, back when the company still operated as OccuLogix years ago, its stock posted similar gains on a Cramer endorsement only to go on and lose two-thirds of its value in a single day. While the company has long since reinvented itself with the help of a new name and a different business strategy, Cramer has effectively placed his faith in the same leadership team that failed him so miserably the last time that he banked on its imminent success. Back then, with OccuLogix tanking on a major setback that would almost destroy the entire company, critics rushed to not only blast Cramer for making "one of his worst calls" on record at the time but also warn others against piling into his future stock picks on down the road. "In his own book," one investor astutely reminded, "he mentions that people can't follow too many stocks at one time. You have to spend about an hour a week keeping up with each stock you own." Yet "Cramer makes snap-judgment calls on hundreds of stocks every month," that same investor grumbled. "He doesn't do his homework on every stock, (because) there's not enough time to be that informed."

4. TheStreetSweeper: Jake Dollarhide of Longbow Asset Management refers to Opko as a "healthcare juggernaut" and says "they are trying to pick their battles carefully"

It is unclear to us how Jake Dollarhide is an expert on Opko and why he would be chosen for a quote. His firm does not appear to be an Opko shareholder. With regards to Mr. Dollarhide's specific quotes, we suggest you read our report on Opko and then re-read his quotes at the end (with an emphasis on his assertion that "they are trying to pick their battles carefully"). TheStreetSweeper has frequently quoted Mr. Dollarhide in other articles on a wide variety of unrelated topics, presumably because he is located in close proximity to the TheStreetSweeper staff in Oklahoma.

5. TheStreetSweeper: Opko is the next Herbalife

We believe this is more likely to be the next Uni-Pixel (NASDAQ:UNXL) than the next Herbalife (NYSE:HLF). After Mr. Ackman's initial Herbalife presentation, the company fell to a market capitalization of just $4 billion despite generating over $700 million in EBITDA. Opko's market capitalization is roughly $5 billion and we believe it will likely never make a profit (please see our report for details), much like the hotly debated Uni-Pixel. Furthermore, Lakewood runs a highly diversified portfolio of short positions, so if TheStreetSweeper is hoping for another Herbalife drama, they are unlikely to find it here.

6. TheStreetSweeper: Dr. John Cannell, a physician and vitamin D expert, "stunned" Seeking Alpha followers by revealing he "invested all [his] available funds" in Opko's stock after hearing about the drug Rayaldy

We believe the fact that StreetSweeper has resorted to quoting comments made by retail investors on the Internet reveals how little first-hand research they have actually done. Not only would one be well advised to view with skepticism comments from anyone who invests all their "available funds" in a speculative biotech stock, but even the most casual Opko follower should quickly realize that many of the comments made by Dr. Cannell (who is a psychiatrist) are misguided and show just a cursory knowledge of Rayaldy and its targeted market. Please read our Opko report for our detailed thoughts on Rayaldy.

7. TheStreetSweeper: Opko has "stunning" candidates in Phase 3 and the CEO buys shares almost daily

Please see our Opko report for our thoughts on these topics.

8. TheStreetSweeper: George Soros and Mario Gabelli are "big believers" in Opko's stock

Soros Fund Management reported on its 9/30/13 13F filing that it owned 745,000 shares of Opko stock, which represented just 0.08% of their overall reported U.S. portfolio. TheStreetSweeper states Gabelli Funds reported ownership of 15,000 shares of Opko - this is incorrect, it is actually 105,000 shares… in any event, this represents just 0.005% of their reported overall portfolio. "Big believers?"

9. TheStreetSweeper: Entrepreneur and TV celebrity Lori Greiner pointed out on Friday's episode of ABC's Shark Tank that entrepreneurs must have multiple talents to succeed in business

The Shark Tank? We can only imagine TheStreetSweeper reporter, Ms. Colberg, huddled over her laptop typing away on her article on a Friday night while watching the "Queen of QVC" on an episode of the Shark Tank and saying to herself, "Ahhh, that is a good one, I need to use that."

And, now, we will do TheStreetSweeper's work for them. Enter, Opko Health.

Our full report can be found here.

Opko Health: The Placebo Effect

Executive Summary (Please See Full Report For Detailed Analysis)

We will show below why we believe Opko shareholders have unknowingly been fed a placebo and why we believe the shares are worth 75% to 100% less than where they are currently trading. Opko is a development stage pharmaceutical company that was formed in 2007 via a reverse merger engineered by the acclaimed Dr. Phillip Frost (Chairman of Teva Pharmaceuticals and investment bank Ladenburg Thalmann). We believe shares in Opko Health ("Opko" or the "Company") are grossly overvalued, and at a $5 billion fully-diluted market capitalization, the shares are as disconnected from reality as any company we have ever seen.

The Company's $5 billion fully-diluted market capitalization completely ignores:

  • the Company's history of failures, disappointments and overhyped opportunities;
  • the low likelihood of meaningful commercial success in any of the Company's products as well as the associated limitations and risks;
  • the Company's dismal financial performance;
  • unrealistically bullish and perennially incorrect analyst forecasts from related and biased parties;
  • concerning affiliations between the Company's management and what we believe are serial stock promoters; and
  • a cult-like following in the stock largely based on regular insider purchases that we believe are a red herring to drum up retail investor buying.

We make the following assertions:

  1. Opko has a history of overpromising and under-delivering: nearly every legacy opportunity Opko has pursued over its history has ended in delay or failure despite much initial hype. As shown below, since its formation until the end of 2012, we have found 30 products or investments that Opko has claimed to be working on and 25 of those appear to have ended in delay, disappointment or total failure. Only 5 relatively minor products appear to be on track. Opko has engaged in so many highly touted random deals and acquisitions that it must be nearly impossible for shareholders to even know what they own any more. Seemingly every year, the Company comes up with a brand new product or drug opportunity to capture investors' interest and keep the story going.

  2. The Company's Latin American drug distribution business is practically worthless to Opko shareholders. Opko acquired two Latin American generic drug distribution companies for $20 million ($0.04 per Opko share), forming the basis for this business.1 Although it has historically accounted for the majority of Opko's revenues, it is tiny and appears to be challenged, with an annualized gross profit of only around $10 million.2 After a reasonable allocation of SG&A, it is unlikely this business even makes a profit.

  3. The Company's Alzheimer's Test (licensed for no upfront payment in 2009), which was nearly the entire basis for the Company's value one year ago, isn't working as hoped and is highly unlikely to ever be commercialized. This test essentially was the source of all investor interest in Opko in 2012 with the analyst at Ladenburg Thalmann predicting a market opportunity that could "approach $3 billion annually."3 A license to the test was acquired for what appears to have been essentially no upfront consideration from the University of Texas-Southwestern in 2009. The basic idea was a blood test that could diagnose Alzheimer's (currently the only definitive diagnosis is autopsy). As it turns out, the Alzheimer's test has not proven to be as good as the initial study (which was based on just six Alzheimer's patients in advanced stages of the disease). Today, Opko appears to have moved on, downplaying the test's significance and making just a brief mention of it at the back of recent investor presentations. The Jefferies analyst had assigned $3 per share ($1 billion at the time) to this business just last year.4 Today, it has been removed from her net asset value calculations given the test's apparent failure.5

  4. Claros Diagnostics (acquired for $30 million in 2011), which was repeatedly hyped by the Company, makes one product and it doesn't work. The basic concept was to have a small blood test system that can be used to run tests in-house during a visit to the doctor without having to wait for results from a lab. There are considerable challenges to broad adoption for this system. Our research has indicated that a lot of doctors do not want to deal with the paperwork associated with in-house lab testing. Also, as one doctor told us, "the reimbursement needs to be more lucrative to spend 10 minutes on lab work vs. 10 minutes with another patient."6

    The timeline for commercialization has been repeatedly delayed from "end of year 2012" to "2013" to "2014" and now as late as "Q3 2015."7,8,9,10 According to our discussions with the Company and a physician closely tracking the progress of Claros, the product isn't working as it has a high failure rate.11 Even if they could fix the problems, one physician tracking Claros did not see a huge market opportunity, estimating the probability Claros ultimately gets to $20 million in sales at around 50% with "maybe a 5% chance they could get to $100 million in sales."12 He also thought that if it were "a big market opportunity, people would have jumped on this a long time ago." It is now rather clear to us how Opko acquired this technology for just $30 million in a competitive auction. Even if they managed to one day get the machine working, it is hard to see how it would have material value in the context of a $5 billion market capitalization company.

  5. Opko's 4Kscoreexploratory prostate cancer screening test (licensed for no upfront payment in 2012) has serious issues, has seen numerous delays and is unlikely to amount to much revenue. In January 2012, Opko acquired a license to an exploratory prostate cancer screening test called 4Kscore™ from a small group out of Finland called Arctic Partners for no upfront payment. The basis for excitement in this test was data presented in a journal by individuals associated with Arctic Partners showing the test's ability to reduce unnecessary biopsies. However, an accompanying editorial in the same issue raised serious questions around the value of such a test, pointing out that "…24% of all cancers and 14% of high-grade cancers would be missed." The test has been significantly delayed and after a 2012 launch in the U.K. and promises of a 2013 launch in the U.S., the test has not produced any material revenues. Furthermore, Opko is planning to launch the test out of a small lab it acquired in the U.S. with a tiny sales force and any patients using the test will likely have to pay out of pocket given insurance reimbursement issues.

  6. Rayaldy (aka CTAP101), the lead candidate of Cytochroma (acquired for $100 million in stock in 2013), faces serious obstacles and is unlikely to generate enough sales to result in material value for Opko shareholders. Rayaldy is targeting patients with secondary hyperparathyroidism (SHPT) in Stages 3 and 4 of chronic kidney disease (CKD). Patients are currently treated with over-the-counter vitamin D which can cost just $5 per bottle or vitamin D analogs like Hectorol and Zemplar that both go generic next year and will likely see their price plummet.

    We have spoken with numerous nephrologists who treat patients with SHPT and the tone was skeptical. For example, Dr. Jeffrey Giullian, a veteran nephrologist who has about 500 CKD patients in his clinic, had the following to say when we discussed Rayaldy (CTAP101) and its market potential with him:13

    "In Stage 3 and 4 chronic kidney disease, you don't really see the side effects of giving OTC vitamin D … there's the rub ... you can give OTC or calciferol without the side effects. It's later when the kidney is struggling that the nutritional vitamin D causes the side effects, but at that point we're switching over to the analogs [such as Zemplar or Hectorol]. So it's hard for me to see a niche for CTAP101 … in early stages of treatment you can use nutritional vitamin D and in later stages you want to use Zemplar or Hectorol… I would think they [Cytochroma] are overstating the market opportunity… I have probably 500 [CKD] patients in my clinic … maybe 4 or 5 of them could benefit from switching to CTAP101. The issue is this is a new drug that is just barely better than existing treatments that are over-the-counter and cheap. So would it justify a huge difference in cost, probably not."

    Even the bullish Jefferies analyst concluded after speaking with nephrologists there was not a "significant unmet need" in treating SHPT patients:

    "Nephrologists note that for vitamin D insufficiency, patients with SHPT can easily take OTC vitamin D supplements, along with generic vitamin D analog, rather than paying a premium for new vitamin D analogs." 14

    We believe Rayaldy is worth at most $500 million or just $1 per Opko share, and at this aggressive valuation, it would represent a value of five times what Opko paid to acquire Cytochroma just a few months ago.

  7. Prolor Biotech's (acquired in 2013 for $480 million in stock) lead drug candidate will likely be beaten to market by LG Life Sciences and its own financial advisors valued the company below Opko's purchase price.15 In April 2013, Opko announced the acquisition of a Frost-backed public company called Prolor Biotech ("Prolor") for $480 million in stock. Prolor's lead product is a Phase 3 long-acting human growth hormone. Unfortunately for Opko, Prolor has been beaten to the punch by LG Life Sciences, who will likely have a nearly identical drug on the market next year, before Prolor even hopes to complete its studies. A read of the merger proxy reveals that another company (likely Teva) passed on an acquisition of Prolor after conducting due diligence.16 Furthermore, the proxy shows that Prolor's own financial advisors valued the company at roughly half of Opko's purchase price and valued the lead Phase 3 drug at only $131 million to $174 million, or just 2.6% to 3.4% of Opko's current fully-diluted market capitalization.17

  8. Opko's CEO, Dr. Phillip Frost, has a history of close financial ties with what we believe are two serial stock promoters, who have both been the subject of several lawsuits, and the Company's former CFO curiously was the Treasurer of a Frost-backed penny stock (while he was CFO at Opko), which went on to merge with a Chinese company that turned out to be a fraud. While Dr. Frost has earned the admiration of the investment community after selling two companies (Key Pharmaceuticals and Ivax Corporation) for incredibly large gains, we think there is another side of his career that should be of great concern to anyone investing in Opko. Dr. Frost has a disturbingly large number of connections to what we believe are two serial stock promoters that have each been the subject of multiple lawsuits, Barry Honig and Michael Brauser (who together run an entity called Marlin Capital). We have counted 16 different penny stocks in which Frost, Honig and Brauser have invested together in recent years, including entities in which Opko is directly involved. In fact, the business address listed for Honig and Brauser, 4400 Biscayne Blvd., is owned by Dr. Frost and is also the offices of Opko Health, Ladenburg Thalmann (where Dr. Frost is Chairman) and numerous other companies in which Frost, Honig and/or Brauser are involved (including MusclePharm, BioZone, SafeStitch Medical, Non-Invasive Monitoring Systems and others). In fact, Barry Honig's office is listed as being in the exact same suite (Suite 850) of 4400 Biscayne Blvd. as Dr. Frost's Frost Gamma Investments Trust.18

    Dr. Frost has also been involved in plenty of other penny stocks beyond those with any apparent Honig or Brauser involvement. Perhaps the most remarkable situation is that of Protalix BioTherapeutics (NYSEMKT:PLX), which was merged with Orthodontix (traded on the pink sheets under OTIX) in August 2006. Simultaneously, Frost and Glenn Halpryn (who together owned a majority of Orthodontix) agreed to invest $15 million in Protalix. At that time, Frost and his trusted lieutenant, Dr. Jane Hsiao (who is the current Vice Chairman and Chief Technical Officer of Opko) joined the Protalix board. Interestingly, Eli Hurvitz was the Chairman of Protalix at the time and was also the Chairman of Teva at that point. Amazingly, on October 24, 2007, Protalix announced a 10 million share offering at $5 per share vs. the prior close of $36.06 per share, an astounding 86% discount. The next day, the stock fell 83%, "wiping away $2.07 billion in market value." Dr. Frost and Hsiao, who had joined the board on 12/31/06, quit the Protalix board after the company's implosion, with the press release citing "personal reasons."

    If all of this is not concerning enough, consider the following facts related to Opko's former CFO. On July 16, 2012, long-time Frost colleague Rao Uppaluri retired from his role as CFO of Opko and was replaced by Juan Rodriguez. We find it strange that Uppaluri was listed as Treasurer and Director of Ideation Acquisition Corp, a publicly-traded company, as recently as a 10-K filed on March 20, 2009 when at that same time, he was the CFO of Opko.19 But, Uppaluri's bio in the Opko 10-K filed around the same time only discloses that he was on the board of Ideation (not that he was Treasurer).20 Also, Dr. Frost served as the Chairman of the Board for Ideation at that time. Ideation ultimately merged with a company in China, changing its name to SearchMedia. SearchMedia was ultimately discovered to be a fraud, with its auditor KPMG resigning from the account.

  9. The only significant sell-side Opko research coverage comes from Ladenburg Thalmann (Dr. Frost's company) and Jefferies (the Company's lead underwriter and M&A advisor), both of which have repeatedly been way too aggressive. Ladenburg's initiation report in 2011 claimed the market opportunity for Opko's Alzheimer's test "could approach $3 billion annually."21 We now know this test appears to be a failure. The same analyst projected Opko will be cash flow positive in 2014 and may not need additional capital (of course, Opko losses have mounted since and the Company has already raised capital through convertible notes).

    The Jefferies analyst valued Claros at $1 billion in her price target calculation despite Opko having just bought Claros a month earlier for $30 million in a competitive auction.22 Even after acknowledging delays in key programs (including the Alzheimer's test which she said could generate more than $800 million in sales), she did not make any changes to her price target (upping the value of other projects to make up the difference). In subsequent reports, she pointed out delays in 4Kscore™ and Claros, yet she actually increased her price target.

  10. Opko's CEO regularly purchases shares in Opko (which is commonly stated as the predominant reason to buy the stock), but we believe this is a red herring. Dr. Frost has consistently purchased Opko shares in the open market and many investors seem to be buying the stock at any price based on this fact alone. The logic seems to go, "if Phil is buying, surely he must know something." Investors have been trained to follow insider buying, and we believe Dr. Frost has likely taken advantage of that fact to draw in unsuspecting retail buyers who don't fully understand what they own. We imagine Dr. Frost at this point realizes he is effectively "pot committed" in Opko, and if he stops buying shares in the open market, confidence would likely disappear and the stock could plummet (his stake is also worth an astonishing $1.9 billion, which is a lot for anyone to fight hard to hold on to… not to mention what must be a keen interest in maintaining the support and trust of his followers).23

    Consider this: Frost has engaged in insider purchases at Opko for years going back to 2007, and it is rather obvious now in hindsight that he didn't "know something" after all, since nearly everything the Company was working on throughout that period has been a failure or disappointment (the Company's main assets today were mostly acquired just in the past year). Perhaps even more importantly, shareholders might want to consider that for every share that Dr. Frost has purchased in the open market, the Company has issued nearly six more to finance acquisitions and raise capital over the years (fully-diluted shares have increased from 201 million in 2007 to 470 million today) - not the behavior we would expect from a company that believes its shares are a good value.

  11. After years of shareholder dilution, Opko's market capitalization has swelled to $5 billion despite all of the above issues. Opko's fully-diluted share count has expanded from 201 million fully-diluted shares immediately following the Company's formation in 2007 to 470 million fully-diluted shares (the calculation is provided later in this report). As Opko's share price has increased from around $4 per share two years ago to over $11 per share today, the Company's market capitalization has soared from under $1 billion to $5 billion in just two years.

We draw the following conclusions from the foregoing assertions:

  1. With a run-rate operating loss now exceeding $100 million annually (with Prolor Biotech losses included), we believe it is unlikely shareholders will ever see a profit out of Opko. For six straight years, Opko has lost money despite having worked on over twenty projects that were supposed to deliver financial results over that time frame. In recent years, the losses have increased sharply as the Company has continued to ratchet up its acquisition efforts. The realistic revenue opportunities of Opko (please see our individual discussions on each product) are unlikely to cover its ever-mounting losses.

  2. We believe the shares are worth 75% to 100% less than where they are currently trading. It is our belief that Opko will never report a profit, which would render an ultimate price for the stock of $0 per share. Even under an incredibly optimistic scenario whereby the 4Kscore™, Cytochroma and Prolor Biotech were each worth $500 million and all other assets generated enough money to cover operating losses (thereby netting to a value of zero), the stock would only be worth $3 per share, or nearly 75% below the current price.

  3. We believe Opko's stock has become little more than a day trading vehicle. Opko's stock has over 100 message board postings on Yahoo! Finance daily… that is five times more than Johnson & Johnson, Pfizer, Merck and Eli Lily combined. The stock is frequently cited on CNBC's Mad Money (which is widely watched by retail investors) and there have been 32 positive write-ups posted on Seeking Alpha in 2013 alone. No institution owns more than 3% of the stock and the largest institutional shareholders (Vanguard and BlackRock) appear to be index funds. Our experience with stocks possessing these characteristics indicates they are very fragile and quite frequently expose shareholders to large, sudden price declines.

  4. Opko's float has expanded considerably in recent months, making it less likely that the shares will be artificially inflated in the future. We estimate the free float of Opko has expanded from $650 million one year ago to $2.5 billion today due to (1) the all-stock acquisitions of Cytochroma, Prost-Data and Prolor Biotech, (2) the partial early conversion of convertible debt into equity and (3) the sharp rise in the share price. Furthermore, the stock has been added to the TASE 25 index (Tel Aviv) and saw its weighting in the Russell 2000 increase at the end of August, which in turn has increased the shares that are available for borrow (as index funds generally lend out their shares). As a result, Opko shares can now be borrowed by short sellers at a current annual rate of <10% whereas they were nearly impossible to borrow over the course of the past year. Historically, Opko's stock was fairly easy to impact with insider share purchases and retail investor influence given its tiny float. We believe Dr. Frost's buying combined with intense retail buying and unrealistically bullish analyst research had an outsized impact on Opko's stock price historically, but now with the current free float having more than tripled in value over the past year, we believe it is much more likely that Opko's shares will reflect reality in the future.

We believe Opko shares offer little in the way of substance and a great deal in the way of illusion. We believe Opko shareholders have unknowingly been fed a placebo, a mere sugar pill of insider share purchases, overhyped opportunities and bullish analyst forecasts. The problem, of course, with a placebo is generally one of confidence. As long as people believe in the efficacy of a placebo, it has remarkable powers, but once people realize this supposed wonder drug is just a simple sugar pill, its powers can suddenly disappear.

Please See Full Report For Detailed Analysis

1 Mexico operations acquired in February 2010 for $3.5mm ($1.5mm cash and $2mm stock); Chile operations acquired in October 2009 for $16mm cash (see pages 60-61 of 2010 10-K)

2 Estimated 2012 gross profit for "core" business of $10.4mm based on total Opko 2012 gross profit of $19.2mm less $3.4mm contribution from Farmadiet acquisition less $5.4mm contribution from FineTech acquisition (see pages 56 and 68 of 2012 10-K)

3 See Ladenburg Thalmann initiation report dated July 14, 2011 (page 2)

4 See Jefferies report dated August 10, 2012 (page 1)

5 Jefferies report dated August 10, 2012 assigned "~$3/sh for AD/cancers Dx" but next report on October 29, 2012 assigned no value for Alzheimer's test

6 Based on discussions with a neurologist on November 15, 2011

7 Per discussions with the Company at Lazard conference (November 15, 2011)

8 See page 7 of 2011 10-K

9 See page 7 of 2012 10-K

10See slide 26 of September 2013 investor presentation

11 Per discussions with the Company at Jefferies conference (June 4, 2013)

12 Per discussions on November 7, 2013

13 Per discussion on November 6, 2013

14 See Jefferies note from March 19, 2013 (page 3)

15 Oppenheimer valued Prolor at $3.32-4.23 per share (~40-53% discount to Opko's $7.00 per share purchase price); see page 69 of OPK/PBTH merger proxy for Oppenheimer valuation analysis

16 See OPK/PBTH merger proxy (page 49)

17 See OPK/PBTH merger proxy (page 69)

18 See Document Security Systems (NYSEMKT:DSS) filing (page 169)

19 See Ideation 10-K (page 41)

20 See Opko 10-K (page 21)

21 See Ladenburg Thalmann initiation report dated July 14, 2011 (page 2)

22 See Jefferies initiation report dated November 10, 2011 (page 1)

23Based on an estimated 172.8mm diluted shares beneficially owned by Frost, The Frost Group, LLC and Frost Gamma Investments Trust, pro forma for the Prolor acquisition and including all warrants, options and convertible debt based on the treasury method; based on latest 13D plus subsequent open market share purchases


The information and opinions expressed herein are based on publicly available information and reflect the view of Lakewood Capital Management, LP as of the date of this report. These views are subject to change without notice at any time subsequent to the date of this report. Lakewood has an economic interest in the price movement of the security discussed in this report and will profit if the trading price of the security declines. Although Lakewood believes the information contained in this report to be substantially accurate in all material respects and does not omit to state material facts necessary to make the statements therein not misleading, Lakewood makes no representation or warranty, expressed or implied, as to the accuracy or completeness of the presentation or any other written or oral communication it makes with respect to the security, and Lakewood expressly disclaims any liability relating to the report or such communications (or any inaccuracies or omissions therein). Investors should conduct their own independent investigation and analysis of the presentation and any specific companies mentioned therein.

Disclosure: I am short OPK. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.