Winston Pharmaceuticals, Inc. (WPHM)

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Miami investor's approach pays off

Billionaire Phillip Frost has been investing heavily in new companies for the past year -- and doing very well.

BY JOHN DORSCHNER [e-mail]

Posted on Sun, Apr. 29, 2007 http://www.miamiherald.com/103/story/89544.html

In the 15 months since he sold IVAX, physician-entrepreneur Phillip Frost has scored a remarkable success with his new investments.

Since he's become chairman of the investment bank Ladenburg Thalmann, its shares have tripled in value. He has purchased two shell companies with no operations and turned them into pharmaceutical firms that trade for more than 10 times the share price he originally paid.

And one of his minor investments -- a few million plunked into a tiny company in a North Bay Village -- has increased four-fold since December.

That's why InsiderScore.com ranked Frost No. 2 in the nation as the insider whose disclosed stock purchases have generated the highest rates of return, according to The Wall Street Journal.

As always, the 70-year-old billionaire Frost was modest about the reason for his achievements. ''Clean living,'' he responded last week with just a hint of a smile.

He left the praise to others. ''He's a bull elephant. He's got something new every day,'' says Bill Allen, the Miami banker who loaned Frost money in 1972 so he could meet payroll with his first major venture, Key Pharmaceuticals. ``He's a rapid-player, like a Gatling gun. . . . When he speaks, people listen.''

Still, other investors should be careful in trying to grab Frost's coattails. ''When there are big investors and institutional investors and amateurs, who do you think is going to win?'' says Harold Evensky, a veteran Miami wealth manager. ``It might have been great at a buck, and it might have been great at two bucks, but, hey, is it really worth $5?''

When Frost sold IVAX in January 2006 to Teva Pharmaceutical Industries for $7.4 billion, he took in $599 million in Teva stock and $517 million in cash.

Since then, he's been putting that cash to work. One strategy is to buy shell companies -- firms that are approved for public trading but no longer have their original business purposes. He has picked up controlling interest in four shells so far and has used two of them to take public small firms in the field he knows best -- healthcare.

In one, Frost and a small group purchased control of a shell, Orthodontix. Their original investment was about 17 cents a share. The group then put $15 million for 14 percent ownership of an Israeli biotech company, Protalix BioTherapeutics, which is developing a way to make proteins for pharmaceutical products in cultured carrot cells.

After a reverse 10-for-one split, Protalix used the shell to start trading on the American Stock Exchange. That stock is now at $26.10.

The dermatologist took over another shell, eXegenics, for about 40 cents a share, and is using it to create a ''first-class pharmaceutical company focusing on the eye.'' He has already folded in two developmental drug companies and his group has advanced them a $12 million line of credit.

Earlier this month, eXegenics announced the purchase of a Canadian company, Ophthalmic Technologies, for a down payment of $5 million for a third of the company, with the remainder to be determined by various factors related to eXegenics stock price in the future. EXegenics closed Friday at $4.70. Frost says the company is changing its name to Opko and hopes to begin trading soon on the American Stock Exchange.

BUILDING STAKE

Meanwhile, Frost has quietly been building up his stake in Non-Invasive Monitoring Systems, a North Bay Village firm that Frost describes as ''the alter-ego of Dr. Marvin Sackner,'' a long-time Miami Beach physician. ``We've known each other for over 35 years.''

The company has generated a bit of a buzz lately for developing Exer-Rest, a gurney that rocks patients in a headwards-footwards direction. Earlier this month, it received a European patent. While not yet approved for use in the United States, the company's website says it may improve circulation, joint mobility and increase levels of nitric oxide in circulation.

Nitric oxide is believed by Nobel-Prize winner Louis Ignarro and others to have widespread health benefits, and talk of the device has caused Non-Invasive's stock to rise. After trading as low as 43 cents a share in December, Non-Invasive soared to $1.93 on Friday.

Meanwhile, the physician-services company ContinuCare, in which Frost has been a major shareholder for years, has been struggling to make progress. In the last year, it's fluctuated between $2.29 and $3.69. It's now at $3.42.

Healthcare, however, is not the only field that Frost has been involved in. A longtime investor in Ladenburg Thalmann, the New York investment bank, he announced last July he was becoming chairman of the company and moving the headquarters to Miami.

The stock was trading at 86 cents a share. Since then, the company has announced the purchase of other investment bank groups and shares climbed to $3.74 earlier this year, before falling back to $2.78 on Friday.

Another big winner has been Dreams, a sports memorabilia firm in Plantation. Frost says he heard of the company through a ''good friend,'' Plantation dermatologist Richard Greene, whose son and son-in-law are leaders of the company.

Last November, Frost paid 6.5 cents a share for 30.8 million shares for the bulletin-board stock. In January, Dreams did a reverse six-for-one split and recently moved on to the American Stock Exchange, where most Frost companies trade. It closed Friday at $3.20.

But these numbers do not mean that other investors can get the same kind of deal Frost does. In the case of Dreams, his agreement on the lightly traded stock was for well below the market price. On the day his 6.5-cents-a-share transaction was announced, the stock shot up from 17 cents to 30 cents.

COMPLEX ANALYSES

And while Frost can make some of these deals sound like the products of casual chit-chats, he acknowledges he gets plenty of offers that he doesn't bite on. ''We do have the opportunity to study a lot of possible investments,'' he says with his usual cautiousness, but he doesn't want to explain the complex analyses behind his thinking.

He says his strategy is the same as many smart investors: Looking for ''situations that have significant long-term growth.'' When asked what advice he'd give young investors -- a question he's been asked before -- he dodged it once again.

``It's such a personal matter.''

Frost has done his research on companies like Dreams, but bulletin-board stocks in general frequently have suspect pasts and regular investors need to wary, Evensky says. ``You need to know if there's value there. You need to look at the books. Is it really worth $5, or whatever?''

Most of Frost's stocks are not followed by analysts because they have small valuations and there isn't much interest in them among large investors. An exception is ContinuCare, which is covered by Barrington Research (rating: Outperform) and by Ladenburg Thalmann (rating: a buy, with a note about Frost's connection with the two companies).

Clearly, however, Frost has plenty of fans on Internet bulletin boards who have been following his successes closely.

''I have explained how it seemed that anything Dr. Frost touches turns into gold,'' wrote H.S. Ayoub of BiohealthInvestor.com on the 24/7 Wall St. website.

Ayoub pointed out that Frost has purchased control of another shell, Getting Ready, apparently to launch yet another company. When Frost's ownership was announced, the stock was trading at 80 cents a share.

Getting Ready is a lightly traded bulletin board stock -- about 20,000 shares a day -- but speculators have been clamoring for it. The stock has gone has high as $3.15 since Frost entered the picture and was $3.15 on Friday -- even though the company has done absolutely nothing.

What's more, Frost has recently taken control of yet another shell -- Cellular Technical Services. It's closely held and lightly traded -- only 2,000 shares a day -- but it's been climbing in recent weeks from about $1.35 to $2, without doing anything except adding the Frost name.

Evensky, the wealth manager, warns this is dangerous territory. ``You might make a quick buck if you're lucky, but this is not investing. It's not based on any value. It's an emotional play. But it's hard to tell someone who won the lottery, hey, that was a stupid investment.''

And what does Frost plan to do with these shells? ''I have some ideas,'' he says, without elaborating.