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Opko Health: The Placebo Effect

Dec. 11, 2013 7:30 AM ETOPKO Health, Inc. (OPK)76 Comments

On November 25, 2013, a blog called TheStreetSweeper published a bullish article on Opko Health (NASDAQ: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

This article was written by

Lakewood Capital Management, LP is a value-oriented investment partnership dedicated to providing attractive long-term returns with a strict emphasis on capital preservation.

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Comments (76)

James Hanshaw profile picture
Three years on and the stock price is $ 4.58. My buy-in price $8.04. Frost still keeps buying. I do not. But do I sell?

Einstein’s definition of insanity was to keep doing the same thing expecting a different outcome. Is Frost in need of an insanity drug for keeping on buying and me too for continuing to hold?
Other than Rayaldee, what other homerun hitter is possibly on deck for Opko Health, Inc.?
Answer: Oxyntomodulin.

What makes Oxyntomodulin a potential heavy hitter?
Answer: Market Potential of $17B in 2018.

Please click on this link for for far greater detailed analysis of Oxyntomodulin, as well as more details of Rayldee, 4Kscore, EirGen's BioSimilar drugs recently approved in the US and other countries worldwide, etc. http://tinyurl.com/nv9... This link will be an ongoing analysis of Opko Health, Inc., by an OPK shareholder.

Force equals mass times velocity squared. So, a power hitter often chooses a lighter bat and swings faster and with more accuracy to hit the pitch with greater consistency, achieving greater distance which earns the designation "Heavy Hitter" plus multi-million dollar, multi-year contracts, plus packed stadiums and media focus. Knowledge is king then, whether a baseball player or a stock picker.
A quick Rayaldee primer.

We are investors and we want to know what the chances for success are, but many of us aren’t doctors. There was a sentence in the previous comment that has a clue. Like foot prints at a crime scene, investors look for clues.

The clue is: “parathyroid hormone levels.”

The sentence was or is, “These studies taken together also show that effective and long term correction of vitamin D insufficiency causes a gradual but progressive reduction in elevated parathyroid hormone levels with increasing numbers of patients achieving the ultimate outcome which is normal parathyroid hormone levels…”

A very, very quick Google search gives the answer(s). If you quickly scan the black typeface in this link, you will understand that Rayaldee will be prescribed for both kidney disease as well as osteoporosis…and all because of “parathyroid hormone levels.” At the bottom of the Google search results, another Google topic is suggested, in blue typeface, “parathyroid hormone levels and osteoporosis.” And another 3 minutes of reading only the black typeface in page one of this Google search result ties it all together for us, the non-medical professional investors.

parathyroid hormone levels:

parathyroid hormone levels and osteoporosis:

It is worth it to also read the first search result source in the parathyroid hormone levels and osteoporosis Google search result. You will learn that, “Osteoporosis has 3 causes: 1) excess parathyroid hormone, 2) advanced age, and 3) lack of estrogen in older females.” The title of the article is, “Osteoporosis and Parathyroid Disease (Hyperparathyroidism),” and the synopsis states,
“Osteoporosis occurs in virtually all patients with parathyroid disease (hyperparathyroidism), however, osteoporosis due to hyperparathyroidism is reversible. Learn why everybody with hyperparathyroidism will get bad osteoporosis and why "observing" your high calcium is a mistake. Removing the bad parathyroid gland typically increases bone density dramatically.”

Let me phrase the conclusion in question format. Is there any doubt about the large potential profitability of Rayaldee, once it receives FDA approval?

Market sentiment and direction and magnitude of daily S&P500 and DJIA movements are a distraction, because OPK has enormous upside share price profitability in the near future. If you can just hold on to your OPK shares for a year or two, then you will be really happy you did.

$12B potential new revenues for a company estimated to have $1.2B in 2016 revenues by Wall Street analysts is suggestive of massive upside OPK share price appreciation. The Market is presently in a mood of “show me the money” and so, the wise investor simply needs to know that the money will show up in OPK earnings releases in a year or two and decide to buy and hold OPK at bargain basement prices available today. Simple as that. We just want to know for sure and so we keep studying.

Of course OPK has other irons in the fire, too. Just more juice for future OPK revenues on to of Rayaldee (and 4Kscore, and Biosimilar Drugs already granted approval and documented in EirGen’s website: http://tinyurl.com/one... ). We are just focusing on Rayaldee, the Opko Health homerun hitter for 2016, but these other Opko products may seem like base-hitters that consistently will be crossing home plate to add to OPK revenue and EPS, as well, when standing next to Rayaldee, that is.

Believe it!
Venture Microcap profile picture
I think the real gem of this article is the exposing of street sweeper, which now has a permanent stain on it (at least from my view)
Isn't it amazing that within 2 weeks of your attempt at showing the world how bad Opko healthcare is as a company they go out and complete a transaction that basically contradicts one of you main arguments?
Desperate times call for desperate measures.
thanks for the cheap shares! Went long At 8.78.. Heavy!
CyrusBlack3 profile picture
I'm neither long nor short Opko but the response by Opko by releasing statements and going to The Street Sweeper smells of desperation. If you are a multi-billion dollar company with several multi-billion dollar business opportunities, you should just execute on the business and not worry about hedge funds.
Qniform profile picture
Not so. That is a recipe for a lot of unhappy shareholders and a new BOD.
To quote Lakewood, "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". Really? just what would you call dismissing Dr. Cannell as a psychiatrist, when in fact he is also an M.D. and the executive director of the vitamin D council for 11 years. Perhaps Mr. Bozza would like to forward his credentials in regard to vitamin D deficiencies

What do you call Lakewood, a firm that states in its own report that "these views are subject to change without notice at any time" "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" anything other than biased, and rather obviously so.
Michael Roat profile picture
Lakewood I hope you have done your full due diligence on Rayaldy and understand the following paragraph to a T. I personally have and do not but I also have no position in Opko.

About RayaldyTM

RayaldyTM is a first-in-class oral vitamin D prohormone treatment being developed for SHPT in stage 3 and 4 CKD patients with vitamin D insufficiency. It has a proprietary modified-release formulation designed to gradually and reliably raise serum total 25-hydroxyvitamin D (prohormone) concentrations to targeted levels (at least 30 ng/mL) while avoiding upregulation of CYP24, a cytochrome P-450 enzyme that reduces the PTH lowering potency of current vitamin D supplements. Activation of calcifediol, the active ingredient in RayaldyTM, by the kidney is tightly regulated, preventing excessive elevation of serum calcium and related side effects which encumber current vitamin D hormone therapies and promote vascular and renal calcification. Once approved, RayaldyTM is expected to address CKD stage 3 and 4 patients in the U.S. and elsewhere, with SHPT and vitamin D insufficiency.
Whitney Tilson profile picture
A couple folks have asked why Lakewood's 13F shows a long position in OPK if they're short the stock. This is a common misunderstanding. Allow me to explain what I'm quite certain is really going on (though I have no direct knowledge of this particular situation). With heavily shorted stocks like OPK, it can be very difficult to get the borrow, so if your broker finds you some borrow, it makes sense to take more than you need and then buy the stock to offset this.

So, for example, if you wanted to be short 100,000 shares of OPK, you'd get the borrow on 150,000 shares and short them -- and also buy 50,000 shares. Then, if you later want to increase the size of your short position, you don't need to get more borrow (which might be impossible to get at that time) -- you simply sell some of the 50,000 shares you own. Easy!

There's nothing illegal or even unusual about this.

The confusion arises because funds, in their 13F filings (which all funds with over $100 million in assets must file), are only required to disclose their LONG positions -- thus, Lakewood's filing shows a long position in OPK when in reality they're short it.
Mint828 profile picture
so let me understand, if you are short 100,000 shares. It was tough getting brokers to put up the stock against those shares but you finally got it done. so next time you want to short, your broker has an excess of stock. you want to short 50,000 but he has an additional 50,000, so you buy it for future short positions.
let say you short the 50,0000 shares at $10 and you buy the extra 50,0000 at $10.01 (spread) ok you put in a limit and get at $10 also... so you are now net long or short? hmmm... thats neutral right? every penny you lose on the long side you make on the short side... so what am I not understanding here? and theres a cost.... so you're not short but you could be later when you sell an additional 50,000 shares ... ahhhh so now your short 100,0000. got it. but why didnt you just short the 100,000 when it ws originally available and you thought the price was right?
Chris Hofmann profile picture
Mint, let me explain.

Lets say that you want to be short 100k shares when the stock is at $8, but you know you want to short an additional 100k if it goes to $10 (doubling down, so to say). There are currently 200k shares available to borrow, and you know that historically there have been times where it is very difficult to borrow. So, instead of just shorting 100k, you short 100k and go long 100k.

You are only net short 100k at $8, as desired, but you have gained flexibility. If the stock climbs to $10, and there isn't any short available to borrow, you normally wouldn't be able to short the additional 100k that you desire. But since you already did, you can just sell the 100k long that you have, and now you are 200k net short, as desired, without having to find any stock to borrow.

Does this make sense?

Essentially, you take up as much of the borrow as you can when it is available in order to have increased flexibility in the future when it might not be available. As you mentioned, there is a slight cost to do this, but there always is a cost for increased flexibility.
Alan Brochstein, CFA profile picture
Hey, Whitney. Nice to see you on Seeking Alpha. Thanks for explaining that!
Following up on burnaka's post, how is it that Nasdaq reports that Lakewood had a new position of 300,000 shares of Opko as of 9/30/2013.
Just 10 minutes of research revealed that LG Life Sciences hGH drugs are Valtropin and Eutropin, both of which require multiple injections per week. Prolor's hGH-CTP differentiates itself by requiring once-weekly injections. In addition, it's been granted orphan drug status by the EMA. In contrast Valtropin had it's marketing authorization revoked by the EMA on 05/10/12. Just because a competing drug is first doesn't make it the best.
I am not sure that they are referring to Eutropin but rather to Declage (http://bit.ly/1bYJFnx). It is a sustained release form of hGH (contained in a HA slow release mesh formulation). They are right on one point - LG claims that it requires weekly injection. However - I am not convinced that the concentration released from the HA mesh remains effective during the entire week. The data presented by the company reach a sub-effective level 72 hours after the injection.
The strength of CTP-hGH is not due to a sustained release delivery system but rather to the characteristics of the modified hGH molecule which prevents it from being removed from the blood stream and therefore keep its therapeutic effect for as long as it remains in it. There is nothing out there that compares to it. Not even close.
Thanks for your detailed and informative response - it's appreciated.
Qniform profile picture
That was right on point messika. Thanks.
uwa profile picture
11 Dec. 2013
Why did Lakewood's Bozza leave out of his article that he was also LONG OPK ?
According to Bozza's SEC 13F form dated Sept 30, 2013 he was LONG 302,000 shares of OPK. He paid $11.50 to purchase those shares. This was a New Position.
Source for the above information:


Perhaps he is no longer LONG ?

As to Dr Phillip Frost and other company officers. They presently own 51% of OPK.
Source Yahoo Finance.

You can draw your own conclusions on why he wrote this article.

To me it was a chance to pick up more shares cheap.

Please read Josh Ginsberg's Response Article also in SA

Yes I have held OPK since the mid 4's And added along the way. John k9uwa
ACP Investor profile picture
The analysis appears extensive but at a closer look lacks depth in relevant areas.
P.27: "The most important drug and main focus of Opko at this point is Rayaldy". I agree with this assertion and wonder why it is addressed as item number 6 in the executive summary. Item 1 through 5 are just hyperbole, not addressing the key value driver of the company, in my opinion.
The scientific analysis of Rayaldy is deeply flawed and lacks any relevant substance. This compound is a first-in-class oral vitamin D prohormone with Phase III reading out in early 2014. The author is citing anecdotal evidence as a basis for the valuation of the compound. Competition with OTC Vitamin D is not a relevant factor given the completely different efficacy profile of Rayaldy. The FDA would not have allowed this product to progress into Phase III if that was the case. The author is completely missing the off-label potential of the drug. Vitamin D testing has been one of the fastest areas of growth in diagnostics and there is a high unmet medical need for a drug with Rayaldy's profile. Assigning a valuation range between $0 and $500 million is not factually accurate looking at the trial data. There appear no issues around the IP of the compound which would justify a $0 valuation. I would be curious to understand the medical training or scientific background of the author. Lastly, a fund like Lakewood might want to invest in a evaluatepharma subscription.
whoisjohngaltmn profile picture
I just found out you own shares in OPK. How come this was not disclosed in the article? Why do you own shares if you feel this company is grossly overvalued?
Qniform profile picture
Lots of bullet points, but the most significant ones - the fundamental review of the products - are buried at the end with unsubstantiated evaluation and a quote from one doctor.

I'll be interested to read the report, but I'm guessing that anything substantial would have screamed in the first paragraph of this article. Instead we got complaints about he immaterial errors of another analyst. Just like the same address issues for Ladenburg Thalmann et al. Tell me something I didn't already know and/or something that actually has a valid conclusion other than obviously self-serving innuendo. I'm writing puts today.
Popps profile picture
11 Dec. 2013
We can count on Seeking Alpo to publish one of these blistering short rags every few months, providing wonderful dips (buying opportunities). Thanks for that, but I hate the damage done to those who panicked and bailed and/or those who had up to 15%-lower-stop orders who lost their stock and may not even know it yet.
vix1830 profile picture
SEC non anonymous complaint filed against all involved entities on this one. Dan Dorfman lost his job for far less and was investigated by the SEC. Hubris, manipulation, defamation, slander, material omissions of position and facts, that's my take on this "research".
Obe Calp II profile picture
The success rate for investigational drugs are depressingly low. So, Lakewood's ad hominem abusive logic that "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" is fallacious at best.

If buying stock is a "mistake" because the lack of FDA approvals, I consider it a success because investment increased in value.

On the other hand, a company like Rockwell Medical $RMTI doesn't respond to investor requests, has a manufacturing approval response from the FDA that was due over 2 months ago, was sued by their Medical Director for fraud, and was aligned with a convicted stock manipulator.

Barking up the wrong tree?
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