The ink is not yet dry on what has been billed the biggest exit in Israel's life sciences - the acquisition of Prolor Biotech Inc. (AMEX: PBTH; TASE: PBTH) by Opko Health Inc. (NYSE: OPK) for $480 million - and the closing of the deal is already in jeopardy. Prolor's share price is falling, after several lawyers approached Prolor shareholders with offers to file lawsuits against the sale, on the grounds that the company could have sought a higher price.
Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) chairman Dr. Philip Frost is both chairman of Opko and a major shareholder in Prolor. In effect the deal is a merger of two companies he controls.
Mergers, especially if they are parties at interest transaction, often attract lawyers with offers to sue the parties involved. The lawyers are usually seeking a settlement with the companies which want to close the deal. However, a lot of lawyers have turned up in the Prolor-Opko deal: at least six law firms within one day.
Prolor's share price rose 10% on the TASE and 8.4% on the American Stock Exchange yesterday, following the announcement of the deal, but it corrected downward today, apparently because of the uncertainty about the closing, which requires approval by the company's shareholders. Investors may also doubt that they will see any money in the all-share deal.
There are both opponents and supporters of the deal at both Prolor and Opko. Supporters at Prolor are pleased by the price of $7 per share, a share price not seen in three years, and because they will not have to survive a drought while the company completes the Phase III clinical trial of its longer-lasting version of the human growth hormone in 2014. The trial will cost tens of millions of dollars.
Prolor has some marketing risk: how much premium can it secure for a change that is mostly convenience for patients, but is not a cure? The supporters of deal say that, under these circumstances, the price of the deal is reasonable, and even high.
The opponents say that Prolor's technology has great potential. Although most of its products are still only in the early development stages, it offers an exciting dream at fairly low risk, precisely because it is developing longer-lasting versions of existing drugs, rather than fundamentally altering them. The opponents also doubt Opko's value of $2.3 billion and whether it reflects real potential and how long can it be maintained under the pressure of sellers.
The opponents at Opko believe that it has enough products, that there is no need for another gamble, the acquisition dilutes their holdings, and future investments will be substantial. The supporters of the deal say that Frost understands integrative pharmaceutical companies, and that if is acquiring Prolor with Opko shares, given his large holdings in both companies, he probably wants to get closer to Prolor, indicating its value.
The lawyers readying to sue Prolor cite a much higher price target for the company of $10-12 per share. Prolor's share price was $5.83 before the announcement, and analysts' consensus give it a target price of $8, compared with the buyout price of $7. The lawsuits could result in either a better offer or result in the cancellation of the deal.
Frost is currently in Israel. He told "Globes" today, "The Frost Group has been invested in Prolor for a long time, and as time passes, we have become more sure of it. During this period, we have also built Opko, and by chance found overlaps between it and Prolor."
He continued, "We have a Vitamin D-based drug for the treatment of renal disease, and we've built a sales team for it to market it to exactly the same doctors who will receive Prolor's leading product, and maybe other products as well. The idea has been in my mind for a longer time, and no major negotiations were needed, because we know each other very well."
Frost said, "Prolor has a great future independently, but it will now benefit from our success and from the synergy you get when integrating two products.
Prolor president Shai Novick said, "We lack commercialization and licensing capabilities. We showed that we are efficient and innovative, but we aren’t exactly suited to maximize the return on these products."
"Globes": Did you examine other options for selling Prolor?
Frost: "Prolor hired an investment bank to examine such options, but I am an investor in both companies, and I didn’t want to be involved, so I don’t know."
Prolor was in talks with Teva at a company value close to the price agreed on in the sale to Opko.
What are the chances that the investors in the two companies will approve the deal?
"I think they should be very pleased."
What is Opko's driving vision for its diverse range of products?
"To bring to market many products, with great potential and continuous growth. True, it is a decentralized company, but we're not afraid of decentralization. All the products are very important to the company's potential."
Prolor's offices in Ness Ziona will be become Opko's R&D center and could develop new ventures for the company.
Published by Globes [online], Israel business news - www.globes-online.com - on April 25, 2013
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