(By Rich Bieglmeier) A 'game changer,' that's what Douglas A. Michels, C.E.O of
OraSure Technologies Inc. (
OSUR), calls the FDA's decision to approve the only oral, in-home HIV test. Based on the results of our weekly accumulation figures, it looks as if institutions are hoping the game is still in the early innings.
Investors gobbled up nearly $5.5 million, or nearly 1% of the company's market-cap in last week's holiday shortened and volume challenged week.
The medical equipment maker's test has been available to doctors and clinics for the last 10 years and sells for $17.50. Last week, the regulatory body approved the test for home use. Unlike OraSure's test, which can be administered with a blood sample or orally, competitors are blood only. For years to come, OraSure could be without competition, as a result.
Following the approval news, OSUR announced a public offering of its common stock in an amount of up to $75.0 million; so, that it could hold the stock price in place for a short time. iStock expects the secondary offering's proceeds to be used for promotional purposes to "get the word out." We think it will add about 6 million shares to the outstanding total.
Let's look at some of the numbers. The test, which looks similar to an in-home pregnancy test, will be available in 30,000 stores and online in early October. According to Michels, the device will sell between the professional price of $17.50 to $60, with the midrange as the target.
OraSure will make the final price available in early October with the over-the-counter launch, but iStock will use $30 for our calculations. AIDS.gov reports that 1.2 million US adults were living with HIV as of 2008, and at least 20% are unaware and untested. The number is clearly higher today as it estimated a new infection occurs every 9.5 minutes, with approximately 50,000 Americans - worldwide, the number of infected are more than 32 million.
The untested group accounts for 50-70% of new infections. Additionally, people who are diagnosed early will enjoy a longer and better life with the available drugs on the market versus those who are unaware.
Michels estimates the company's revenue potential with the new authorization of up to $500 million a year in the US alone. For 2012, analysts expect OraSure Tech's sales to reach $95 million. To reach the $500 million mark, 13.4 million units would have to be sold per year at $30, which doesn't account for growth within the professional market globally.
iStock estimates the untested population to be in the neighborhood of 300,000. To reach $400 million, 100% of the unaware would have to purchase 44 tests per year. We aren't buying the $500 million number. Instead, we believe once a month is more likely with a maximum 50% penetration rate, 150,000 X $30 = $4.5 million a month X 12 months = $54 million per year. Adding $54 million to Wall Street's projection of $116 million for 2013 and we come up with revenues of $170 million, nearly 100% growth year over year.
The average company in the industry trades at 2.11 times sales. If our calculations are close, OSUR would trade for 3.11 times 2013 sales. A premium to the peer group is not unexpected or unwarranted considering OraSure's considerably higher than average growth rate.
In fact, we can see OraSure Technologies Inc. (OSUR) trading at 5 times sales at the end of 2013, which puts a $16 price target on the stock. While we do see the approval as a net positive for the company, we don't see it as a "game changer" until it goes global.