Opko Health Inc. (OPK): New Test Can Boost Revenues Tenfold, One Insider is Buying

Consider the following logic: estimates vary, but on average, Forbes estimates that though 2009, “about 30 million men received a PSA Test each year – at a cost of about $3 billion annually.” Now, there are other PSA products on the marketplace, but many empirical studies, including that of Rinaa Punglia of Harvard Medical School (via the New England Journal of Medicine) indicate that the current testing format missed more than 65% of tumors in men over 60, and 82% of tumors in younger men.

In clinical tests of over 10,000 patients, Opko’s 4Kscore sports far superior accuracy. Results vary, and were conducted by seven different screening studies in Europe and the U.S. (found on Opko’s website), but on average, the percentage miss was three to four times lower. Particularly accurate results were found in high-risk patients.

With this in mind, it’s not out a stretch to consider the possibility that Opko’s test could capture a modest 10-15% of the PSA test market in its first year, which equates to roughly 3 million-4.5 million unit sales in the U.S. alone. With a simple back-of-the-envelope calculation of $146 per test, we can obtain our $440 million-$650 million revenue forecast.

Considering the fact that Opko made just $9.6 million in revenue last quarter, a successful 4Kscore launch could boost revenues significantly, giving much more insight into why the markets are valuing the stock at a lofty 38.2 times sales. With our expected revenue boost mentioned above, this sales multiple drops to 3.8, below peers like Waters Corporation (NYSE:WAT) at 4.3x, and Edwards Lifesciences (NYSE:EW) at 6.0X.

As most trading veterans are likely aware, the markets tend to appreciate rosy forward-looking growth prospects, which is a psychological factor that a successful 4Kscore launch will undoubtedly give Opko. This time next year, we could be looking back at Opko as one of the best investments of 2013, calling it “the company that boosted revenue tenfold.” That’d be one of the best monikers any stock could have, and is something Dr. Phillip Frost would certainly take a liking to.

Here’s a full look at the stock’s profile page on Insider Monkey; billionaires Israel Englander and Cliff Asness also hold positions in Opko (check out Cliff Asness’ other key picks here), so there’s some support from the smart money as well.