From the time Pfizer patented Viagra in 1996 to the time it won FDA approval, the stock soared 500% in three years… When Generex was granted fast track approval for a flu vaccine, shares rallied 400%… And when the FDA just granted fast track approval for a pre-term birth treatment, the stock rallied more than 13% in a day…proving that positive endorsements from major health institutions have significant impact on stock movement.

So when the CDC recommended that HIV testing become routine for a every one aged 13 to 64, it was no surprise when stocks like OraSure Technologies (OSUR: NASDAQ) took off on the news, seeing that its OraQuick Rapid HIV-1/2 Antibody Test can detect HIV in only 20 minutes with 99% accuracy.

Right now, its estimated that some 250,000 Americans are infected with the virus, and don’t even know it. Most won’t know until they have symptoms, and by that time they could’ve been spreading the disease for about 10 years.

Fifty to 70% of HIV infections are transmitted by people that don’t even know they’re carriers. “When people find out they are HIV-positive, most change their behavior, greatly reducing the risk to others.” According to a MercuryNews.com report, “Diagnosis soon after infection can provide as much as 25 years of added life expectancy, says a recent Harvard study; even late diagnosis can add 14 years.”

If the recommendation is successfully implemented, we could see testing for hundreds of millions of Americans…a big positive for companies like OraSure, where infectious control testing devices accounted for close to 40% of its 2005 total revenue. And while infectious disease control sales have only risen about 8% this year, new CDC recommendations, the company’s 20-minute HIV test, and hopefully positive news on the health coverage front, 200 million Americans could help spike sales growth in a big way.

Another big plus for OSUR — standard HIV tests cost between $2.50 and $8 and the result is back in about two weeks. OSUR has a test that’s about $15 and the result is back in about 20 minutes.  But that’s a cost that should be picked up by insurance, if ordered by a doctor.

If you think diagnosing HIV infections will boost medical care costs near-term, you’re right. But by preventing future infections, it’ll eventually cut medical costs significantly.

But Will Every One Comply?

According to the CDC, “The recommendations aim to simplify the HIV testing process in health care settings and increase early HIV diagnosis among the estimated more than 250,000 HIV-positive Americans who are unaware of their infection. The recommendations also include new measures to improve diagnosis among pregnant women and further reduce mother-to-child HIV transmission.” Better yet, the CDC will “issue additional guidance for health care providers in early 2007, which will provide examples of model approaches and practical tools for implementation in various types of health care settings. CDC is also working with other federal government agencies to ensure that people diagnosed with HIV have access to care.”

The recommendation won’t be legally binding, but it’ll help influence doctors and health insurance program coverage. The news was also endorsed by the American Medical Association, which has urged reluctant physicians to comply with the recommendation.

Time to Buy?

I wouldn’t buy OraSure right now. It’s overbought at current levels, trading at 5.5 times revenues, and 80 times its forward P/E. It has a PEG of 4+ and overdue to pullback. Wait until it pulls back to at least $7 before buying.

A safer bet is Trinity Biotech, an Ireland-based company flying under the radar, trading at 1.2 times revenues and 14 times its forward P/E. This one’s undervalued with a 0.67 PEG. This company also has a federally approved rapid HIV test that can be used on blood samples. In its latest quarter, Q2 2006, revenues soared 20.3% to $27.3 million as profits shot up 95%.

You should be able to buy shares of Trinity Biotech on the dips.

Good investing,

Ian
September 26, 2006

Penny Sleuth Contributor

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