First Approved In-Home HIV Test: OraSure's - Expectations have been falling as the newly launched product just didn't take off as quickly as hoped

First Approved In-Home HIV Test: OraSure's Fall From Grace Offers Opportunity

By Jake King

As investors packed up in search of more exciting prospects, shares of OraSure Technologies (OSUR) have been slashed in half since their highs in mid-2012, in fact, setting a new 52-week low this month. OraSure received approval for the first in-home HIV diagnostic last June (called OraQuick In-Home HIV), a product that Magic Johnson called a game-changer

and one that biotech enthusiasts, in the preceding months, latched on to with fervor. But OraSure, with the approval and commercial launch in the rear-view, has quickly become an execution-centric "show me" story without regulatory or clinical catalysts to keep speculative biotech investors intrigued. OSUR now trades at 3.36x estimated 2013 revenues, and even if the business shows no growth this year -- unlikely given that OraQuick In-Home HIV launched just six months ago -- the stock is undervalued. Expectations have been falling as the newly launched product just didn't take off as quickly as hoped. Now, management has guided for 1Q13 revenues to fall sequentially from 4Q12 by 10%, to ~$20M, which, if the company has guided low enough, may be setting OSUR up for an earnings beat in the first quarter.

The stock has become interesting now that its value has fallen by half. Analysts expect that the demand for an in-home HIV test is there, and the market for infectious disease testing as a whole should grow based on recommendations from key medical organizations. OSUR has been an abysmal performer since last July, however, we believe the stock is now attractively priced for a nibble, and downside from here is limited. If analysts are right about growth of the company's OraQuick In-Home HIV test, as well as OSUR's OraQuick HCV test (for hepatitis C), the stock could get back to the double digit range in time; the 12-month average price target from Wall Street is $11.07 according to Yahoo! Finance.

OraSure's full product line is a backdrop to its OTC HIV test, the first of its kind.