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Sian Capital Issues Open Letter to Stockholders of OPKO Health

Sian Capital, LLC
·10 min read

Highlights that Just Two Weeks after Sian Capital Sent Its 220 Demand Letter to OPKO, the Company has Agreed to Release A Subset of the Documents Requested, Which We Believe Will Validate our Valuation Assertions

Announces OPKO Has Agreed to Enact Important Governance Enhancements to Protect Stockholders, Including the Addition of a New, Independent Director and Further Stockholder-Friendly Governance Changes by January 2021

Sets the Record Straight Regarding the Apparent Falsehoods and Misrepresentations OPKO is Peddling to Stockholders, Including Management’s Assertion that Its Ownership of >40% Renders Stockholders Powerless

Urges the Board to Formally Announce and Initiate a Credible Strategic Review to Help Enact Change, Restore Stockholder Confidence and Identify Steps for Delivering the Value Long-Suffering Stockholders Deserve

NEW YORK, Nov. 12, 2020 (GLOBE NEWSWIRE) -- Sian Capital, LLC (together with its affiliates, “Sian” or “we”), a sizable stockholder with beneficial ownership of approximately 3% of OPKO Health, Inc.'s (NASDAQ: OPK) (“OPKO” or the “Company”) outstanding common stock, today issued the below letter to stockholders. Recently, Sian issued a presentation outlining paths to enhanced value creation at OPKO and posted other relevant materials at www.siancapital.com/resources.

November 12, 2020

Fellow Stockholders,

Sian Capital, LLC (together with its affiliates, “Sian” or “we”) has been overwhelmed by the positive investor response to our October 2020 presentation that outlines several viable paths to unlocking the tremendous value trapped within OPKO Health, Inc.'s (“OPKO” or the “Company”) underperforming stock. After receiving messages from more than 400 supportive stockholders over the past two weeks, one thing has become crystal clear to us: investors are fed up with leadership’s self-serving decisions and believe now is the time to pursue the many high-potential opportunities that exist across the industry.

We believe the public market does not fully appreciate OPKO’s prized assets because it has lost confidence in the Company’s management and Board of Directors (the “Board”). It appears these leaders are either unable or unwilling to address the array of governance, financial and strategic issues that continue to depress the Company’s stock price. Moreover, it has recently come to our attention that OPKO’s representatives are going so far as to attempt to dissuade stockholders from supporting change at the Company and making baseless claims regarding Sian and the Company’s governance. For this reason, we want to expose OPKO’s misinformation campaign and refute its recent effort to miscast Sian and our value-enhancing ideas.

FACT: OPKO’s Investor Relations Team is Waging a Misinformation Campaign Against Sian

Despite Sian frequently engaging with Chairman and CEO Dr. Phillip Frost, Executive Vice President and director Steven Rubin, OPKO’s investor relations team, as well as other members of OPKO senior management to discuss paths to unlock value for stockholders over the past six months, OPKO’s investor relations team is now falsely claiming to stockholders that they have “never heard of Sian” in an apparent attempt to discredit us and our research. The reality is OPKO proactively reached out to Sian within 24 hours of the release of our public presentation to continue our dialogue. In spite of the Company’s misinformation campaign, investors have been studying our materials, resulting in positive feedback and support from analysts who follow OPKO closely. Just today at the H.C. Wainwright 6th Annual Israel Virtual Conference, an analyst asked multiple questions regarding some of the very same strategic options we have urged OPKO to examine. The analyst specifically asked if OPKO would consider splitting its Pharma and Laboratory division since neither is getting the value it deserves, to which the Company responded that they are exploring this and “may in fact do that,” especially since the Pharma division will be self-funding once hGH and Rayaldee royalties begin shortly and is something they intend to look at going forward. The analyst further asked about rumors they independently heard of regarding acquiror interest, to which the Company responded, “we engage in strategic decisions [consistently] and at this time won’t comment.” Several savvy investors highlighted these comments to us today noting they signal the Company seems willing to take the steps Sian has outlined. We believe investors can now clearly see the direct path to unlock the value that long-suffering investors deserve.

FACT: The Delaware Court of Chancery and OPKO’s Board have Approved the Institution of Several Corporate Governance Changes by January 2021

Stockholders should know that within just two weeks of Sian sending its 220 Demand Letter to OPKO, and just one week after it was publicly disclosed on October 29th by press release and Sian Capital’s website,1 the OPKO Board and the Delaware Court of Chancery approved a settlement that requires OPKO to implement certain important governance enhancements no later than January 31, 2021. These include but are not limited to:

  • The Mandatory Appointment of a New Independent Director to the Board – OPKO is required to add a new, independent director, specifically required to have less than 5% stock ownership (to prevent further concentration of ownership) and no previous employment or ties with current management.

  • The Nominating Committee of the Board This committee may be the only Committee to recommend new Board members. The Chairman is also disallowed from participating on the Nominating Committee, preventing further hand-picked directors by the Chairman.

  • Stockholder Consultation Required for Director SelectionThe Nominating Committee is required to consider the input from significant stockholders, which must be done explicitly in good faith, including on issues of director independence, qualifications and selection.

  • Lead Independent Director – Mandatory checks have been put in place delivering greater power to the Lead Independent Director: (i) at each Board meeting there shall be a separately convened session of non-management Board directors, and (ii) the Lead Independent Director has sole approval over the schedule of all Board meetings, and is required to be consulted on the agenda of each Board meeting, as well as all information sent to the Board.

  • Independent Investment Committee – A new Independent Investment Committee (“IIC”) is required to consist of exclusively independent directors who shall be given sole authority, in its discretion, to hire its own independent advisors when making investment decisions on minority investments. Members of the IIC are required to recuse themselves if they or any family members have a material investment, or affiliation, with a potential transaction partner.2

The full list of corporate governance enhancements OPKO is required to undertake can be found on Sian’s website here.

____________________
1https://siancapital.com/wp-content/uploads/2020/10/2020-10-21-Ltr-OPKO-Health-Inc.-re-Del-220-Demand_5577783.pdf
2 In re Opko Health, C.A. No. 2018-0740-SG (2020).

OPKO has Agreed to Send Sian Requested Documents – In addition to these enhancements, the Company has agreed to send Sian a subset of the documents we requested in our 220 Demand Letter, which we believe will affirm our fundamental analysis. Predictably, OPKO has denied our request for certain other documents, which we find suspicious because this information would help verify various allegations we learned from in-depth interviews conducted during our extensive due diligence. We will continue to work to obtain these documents on behalf of all OPKO stockholders.

FACT: Dr. Frost and the Board Have a Fiduciary Duty to Act in the Best Interests of Stockholders

Dr. Frost’s aggressive stock purchases this year have caused Company insiders to exceed a 40% ownership position, which is a key threshold we have been eyeing for quite some time. The rise of insider control was a factor we were watching closely and conscious of well before deciding to publicize our view of the value opportunity at OPKO, as it not only verified our thesis that the Company’s fundamentals are set to inflect in over the next year, but also provided us with a path to help ensure improved governance changes would be made. As a result of Dr. Frost and the Board’s actions, we believe Dr. Frost is now considered a “Controlling Stockholder” and the OPKO Board is “Conflicted,” as both are specifically defined under Delaware law. As we describe in our Corporate Governance White Paper, the simultaneous presence of a “Controlling Stockholder” and “Conflicted Board” in the same public company actually has specific ramifications under Delaware law, precisely because of the enhanced potential for misuse of power. In fact, in these situations, Delaware law actually imposes stricter duties on the stockholder and the Board to protect minority stockholders in these situations from abuses of power.

FACT: Filings Show That OPKO Leaders Could be Personally Liable for Breaches of Their Fiduciary Duties, Leaving Them Highly Vulnerable and Exposed to Potential Litigation

Through our conversations with fellow stockholders, we found that it was largely unknown that the Company’s history of egregious violations has left its Board with the possibility that no insurance company will cover them, and if they do, it could be costly for inadequate and limited coverage, thereby leaving them potentially personally liable for any breach – a risk we cannot fathom any Board member would take. We also note that the Company’s insurance premiums nearly doubled over 2019, costing stockholders an astounding $25 million while they suffered incredible financial loses. We believe upon reading our Corporate Governance White Paper, investors will have a sharply different view of stockholders’ ability to effect change than the one espoused by the Company over the past several days.

FACT: There is a Clear Path to Unlock Value for OPKO Stockholders

Many stockholders agree with our view that OPKO is deeply undervalued, worth at least 3x its current stock price, and that the multiple paths we have outlined for maximizing that value are viable. Sian believes that our significant alignment with stockholders and strong track record helping companies optimize returns for investors will serve us in helping reverse the billions of dollars in destruction of value at OPKO. Given that OPKO’s stock continues to trade at a significant discount, we believe the Board should initiate a formal strategic review process to determine how the Company can realize the true potential of its assets. Recent feedback has shown that a critical mass of stockholders agree it is time for OPKO’s leaders to honor their fiduciary duties and quickly move to deliver the value that long-suffering investors deserve by announcing and initiating a credible review process. Further, we believe multiple potential suitors have come forward, unsolicited, to discuss partnerships, acquisitions, royalty agreements and other value-enhancing alternatives. We urge stockholders to ask OPKO themselves: has the Company received interest in its assets? We believe the answer will be telling.

We encourage investors to closely read the three White Papers we have posted to our website. These contain further details on the Company’s true fundamental value, which should be read in conjunction with Sian’s previous investor presentation, an examination on corporate governance under Delaware law, and examples of how we can continue to enact change. These papers also include short commentary on the election results and Pfizer’s tepid vaccine announcement last week, which we believe have only made the industry tailwinds more pronounced.

In the weeks ahead, we will continue to communicate frequently and transparently with you regarding the best path forward for OPKO. We encourage you to engage with us on a one-to-one basis in the meantime by e-mailing contact@siancapital.com.

Sincerely,

Anish Monga

Founder and Managing Partner
Sian Capital LLC

About Sian Capital

Founded by veteran portfolio manager Anish Monga, Sian Capital, LLC is a New York-based asset management firm that employs a focused, event-driven investment approach. Sian’s unique mix of cross-sector experience and activism expertise enables it to identify and invest in what are often overlooked or under-covered investment opportunities.

Contacts

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Greg Marose / Charlotte Kiaie
gmarose@profileadvisors.com / ckiaie@profileadvisors.com