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Miami billionaire fined in pump-and-dump stock scheme looks to cash in on COVID-19 testing

Phillip Frost before OPKO logo
Miami investor, philanthropist and OPKO Health CEO Phillip Frost

By Francisco Alvarado, FloridaBulldog.org

Billionaire philanthropist and Opko Health CEO Phillip Frost is betting his Miami-based company can capitalize on the burgeoning market demand for coronavirus testing. By doing so, Opko Health aims to put the brakes on a downward slide that began when Frost was accused of participating in a pump-and-dump stock scheme that made more than $27 million for him and nine other individuals.

Last month, shares of Opko Health briefly soared to more than $2.80 a share, the highest in a two-year span, after company subsidiary BioReference Laboratories announced it was getting into coronavirus testing. But a stock market watchdog warned the news was a marketing ploy to drive up Opko Health’s sagging stock price at a time the company is experiencing dire financial woes.

On March 9, Hindenburg Research, a firm that investigates investment stock scams and publishes its findings online, used its Twitter account to blast BioReference’s announcement as “an obvious coronavirus pump.”

In addition to highlighting that Opko Health had burned through $172 million in operating cash flow last year, Hindenburg noted the company and Frost settled with the Securities and Exchange Commission in January 2019 for his role in the $27 million pump-and-dump scheme,  involving stock price manipulation of three penny stock companies in which the pharmaceuticals executive and nine others had bought large quantities of shares. The scheme ran from 2013 to 2018.

Without admitting or denying the SEC’s allegations, Frost agreed to pay a $5.5-million fine and was permanently barred from participating in offerings of penny stocks, with some exceptions. Opko Health agreed to pay a $100,000 penalty.

“Its CEO Phil Frost has been accused by the SEC of engaging in pump and dump schemes in the past and the company’s stock has spiked only on the back of a nonsense coronavirus PR last week,” Hindenburg tweeted. “We believe $OPK stock is heading back to $1.50 or lower very quickly.”

Miami billionaire fights back

Hindenburg founder Nate Anderson, an investor who announced on Twitter the same day that he’s shorted Opko stock, did not respond to multiple Florida Bulldog requests for comment via email and twitter direct messages, but his firm’s price prediction was spot on. Opko Health’s stock, which trades on NASDAQ, plummeted to $1.27 as of the close of trading April 7.

In a recent telephone interview with Florida Bulldog, Frost dismissed Hindenburg’s warnings as an attempt to help investors like Hindenburg who are shorting Opko Health’s stock, the practice in which borrowed shares are sold to buyers with the seller anticipating the stock can be repurchased later at a deep discounted price.

Hindenburg founder Nathan Anderson

“There is a big short position involving over 90,000,000 shares,” Frost said. “The shorters are trying to make good on their bets. They will do whatever they can to make the price go down. That is what that is all about.”

Frost, who is also Opko Health’s chairman, has been very active in trades involving his company’s stock since late January, spending about $2.7 million to acquire roughly 2 million shares. His biggest purchase occurred on April 1 when he bought 643,549 shares at an average price of $1.17 a share. “I’ve been buying back stock in my company since it went public,” Frost said. “It is nothing new for me.”

Since a March 4 disclosure it was getting into the coronavirus testing business, BioReference has signed a flurry of agreements with private hospitals and local and state governments to provide and process tests for COVID-19, the disease caused by the virus that has rapidly infected more than 14,000 Floridians and more than 1.4 million people globally. In mid-March, the company entered into a deal with the New York State of Health Department to offer up 5,000 tests a day at a drive-through facility in the city of New Rochelle and other satellite locations. BioReference also has an agreement with Detroit to conduct drive-thru testing sites and provide at least 6,000 tests.

On March 24, BioReference signed agreements with Miami to provide tests for city residents and that the company would also test specimens collected from testing sites in South Miami, Hialeah and Hollywood manned by Larkin Community Hospital. Recently, Gov. Ron DeSantis requested the state attorney general investigate Larkin for charging $150 a person at its Hialeah testing site.

Bid requirements suspended

Through a spokesperson, Miami City Manager Art Noriega said the city entered into no-bid contracts with BioReference and three other firms, including lab giants Quest Labs and LabCorp, through emergency procurement powers. Governments in Miami-Dade and Broward temporarily suspended normal bid requirements when they invoked emergency power.

Miami City Manager Art Noriega

Noriega said BioReference provided more kits at nearly half the cost of other national providers. According to its contract, BioReference has to supply and process up to 20,000 tests at $50 each, or a total of $1 million.

“BioReference Laboratories was chosen because of the cost and availability of their testing kits,” Noriega said. “They provided test kits when Quest and LabCorp could not. Their ability to deliver test results in a reasonable amount of time was also considered.”

As of April 3, the city had hundreds of specimens from Miami’s mobile testing center and a site at Charles Hadley Park in Liberty City to BioReference for testing, according to an email from Miami’s emergency manager and assistant fire chief Robert Hevia. Of those, 119 were positive, 879 were negative and results are pending on 743 specimens.

Jon R. Cohen, BioReference’s executive chairman, said the company quickly scaled up its coronavirus testing because, among other reasons, he has a deep bench of technicians trained in the handling of infectious specimens. “We were able to quickly pivot those critical employees to support COVID-19 testing,” Cohen said. “As a result, no time was spent skilling up employees on how to handle infectious specimens.”

Currently, BioReference is focused on increasing testing capacity for COVID-19; expanding access for patients who suspect they are infected to get tested, and keeping turnaround times to 48 to 72 hours or less, Cohen said.

BioReference Laboratories Executive Chairman Jon R. Cohen

Cornering a sizable market share of the coronavirus testing business would be a major boost for BioReference’s parent company. Opko Health, which acquired BioReference for $1.47 billion in 2015, relies on its subsidiary for most of its revenue, according to financial statements filed with the SEC. For instance, in third quarter 2019, lab unit revenue accounted for $181.1 million of Opko’s overall revenue of $228.8 million.

Todd Campbell, an investment portfolio manager and founder of investment research firm E.B. Capital Partners, wrote recently in The Motley Fool that the growing need for coronavirus testing kits could further increase lab revenue for Opko, which has been hamstrung by ongoing operating losses.

“There’s no question that OPKO Health is burning through cash,” Campbell wrote. “In 2019, the healthcare company reported a $315 million net loss on revenue of $224 million. As a result, OPKO’s cash balance slipped to $85.5 million from $96.5 million exiting 2018, despite raising $81.3 million via an underwritten public stock offering in Q4.”

Campbell opines BioReference could generate significant COVID-19 test volume by leveraging its relationships with healthcare providers in key markets such as New York, California and Florida. “Currently, estimates are that testing capacity is a little shy of 8,000 per day,” Campbell wrote. “Arguably, that’s insufficient, suggesting there’s room for BioReference Labs to win patient share.”

Frost said BioReference’s dive into coronavirus testing “will certainly help our reputation.”

“Our users have been very pleased at our turnaround time,” he said. “And they have been disappointed with other labs that are taking much longer to get test results.”

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Latest comments

  • I found your article to be quite negative towards the doctor. Do you also work with Hindenburg or did you just not do your homework

  • wish I had never heard of this company ,they have zero regard for their shareholders

  • Dr. Frost is an honest genius.

  • Why contract with these shady characters who have proven nothing other than their willingness to circumvent the law and common decency?
    Labcorp has proven track record and professional methods.

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