Opko’s Frost Inks Levon Deal with Israel’s SciVac, a Hint for the Next Merger?

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Frost

On September 11 last year, a little-known Israeli financial magazine called Globes came out with a report that Dr. Phillip Frost, Chairman and CEO of Opko Health (NYSE:OPK), and then Chairman of Teva Pharmaceuticals (NYSE:TEVA), was interested in moving a private Israeli biotech called SciVac, 45% owned by Opko, into a corporate shell and making it public.

Today, Frost accomplished his goal, as SciVac has been officially acquired by Levon Resources (OTCMKTS:LVNVF), with 68.4% of the new company going to the former private SciVac shareholders and 31.6% going to former Levon shareholders. Since Opko already has a 45% stake in SciVac, that brings its total take in SciVac to 30.8%.

The deal still has to be voted on by current Levon shareholders in April, but is expected to pass.

Opko has had some success taking stakes in biotech companies so far this year. Its recent 8% stake in Cocrystal Pharma (OTCBB:COCP) has jumped 100% since February. Cocrystal is its second largest investment behind private Russian biotech Pharmsynthez.

SciVac’s Hepatitis B Vaccine

SciVac is the developer of a third generation hepatitis B vaccine (HBV) called Sci-B-Vac . It is approved in several countries including SciVac’s home country of Israel, where it is administered to hundreds of thousands of newborns each year. While first generation HBV vaccines are mostly effective, their effectiveness is still only 90%. In a clinical trial of over 5,000 people, Sci-B-Vac was shown to have an effectiveness of greater than 98% with higher immunogenicity, or immune response in terms of antibodies produced.

The difference between Sci-B-Vac and the current standard-of-care HBV vaccine is that Sci-B-Vac is derived from mammalian cells instead of yeast cells, and carries on it the three main HBV surface antigens instead of just one. It is believed that the 10% of people who do not respond to first generation HBV vaccines are infected with mutant versions of HBV that escape the single antigen vaccine. It is much harder for HBV to mutate all three surface antigens simultaneously to escape Sci-B-Vac.

Despite vaccines available, HBV is still a huge pandemic. According to the World Health Organization, one third of the world’s population is infected with HBV, with up to 400M people suffering chronic infections leading to chronic liver disease. 250M of those people are in the Asia-Pacific region alone.

SciVac’s next regulatory goal is approval in the United States, where 12M people are infected every year despite the current first generation vaccine available. What regulatory hurdles have to be overcome remains to be seen, given that Sci-B-Vac is already clinically tested and approved in several countries. SciVac will be aiming at the immunocompromised as well as end stage renal disease and HIV patients, as these are patient populations who have special difficulties responding to current HBV vaccines.

Context of Frost’s Latest Move Hints at Possible Future Moves

Dr. Frost’s latest move comes in the context of several other interesting stock movements that may tip off future deals in the making. In October last year, only one month after Globes reported Frost’s interest in taking SciVac public, Levon acquired 35M shares, or 10% of Pershing Gold Corporation (OTCMKTS:PGLC) another one of Frost’s pet projects of which he has a 15% stake translating to 53.7M shares. Those 35M shares of PGLC will be moving to new entity Spinco, so speculators looking out for the next Frost-related deal should keep an eye on a possible merger between Spinco and Pershing. A similar deal was inked bewteen Pershing and Continental Resources Group in February 2013 where the latter was acquired by Pershing. Continental had a substantial stake in Pershing at the time.

Cocrystal, which is fairly similar to SciVac in that it is focusing on molecularly tailored vaccines, primarily hepatitis C. Cocrystal is also 22% owned by Frost through his investment trust as well as an 8% stake through Opko. Cocrystal has skyrocketed over 100% since February but lacking any obvious catalyst for doing so. Another possible move to watch then is for a deal between Levon, now SciVac, and Cocrystal, which itself was once BioZone, also an Opko investment that was merged into Cocrystal.

With Frost’s myriad of moves and deals over the last few years things can get admittedly confusing and make your head spin. The structure of these mergers, however, repeatedly seems to start with Opko at the base and then moves out from there. Opko itself has been on a nearly 100% tear since December. As for Cocrystal’s recent 100% move, it may have investors scratching their heads but connecting the dots here could point to the beginning stages of a Frost deal at some point between Cocrystal and SciVac as both specialize in hepatitis vaccines, as well as one between Spinco and Pershing.

Call it equity consolidation with synergies in mind, it certainly is a fascinating chess game.

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