During quarterly conference calls, CEOs go to great lengths to talk about their company’s prospects. But if they really want to attract investors’ interest, they can back up their bullish words by pulling out their checkbooks.

Stock purchases by insiders are still the clearest way to say “our shares are cheap.” That’s why it pays to track these insiders every few months to see which companies are undervalued — at least in the view of the folks who know their companies best. I’ve been looking at a dozen companies with heavy insider buying since the year began, and two in particular look set to make plenty of money on these purchases.

Human Genome Sciences (Nasdaq: HGSI)
It’s nail-biting for this early pioneer in the field of DNA analysis. The company has been around for almost two decades but has had few commercial successes: Sales didn’t even crack the $100 million mark until 2008. But that may be about to change.

When founded, Human Genome promised to identify flaws in the genetic code and then develop tailor-made drugs with few side-effects. Since then, a clear lack of blockbuster drugs has tarnished its reputation and many have grumbled that the company has spent more than $1 billion in vain. But a decision by the Food & Drug Administration (FDA) on March 10 could start to validate the company’s unique approach.

Human Genome’s Lupus drug, Benlysta, could get approval from regulators even though it has proven only moderately effective in treating Lupus. Chances of approval would be slimmer if a number of Lupus-fighting drugs were on the market, but previous attempts made by other drug makers have fallen short of the mark. CEO Thomas Watkins has a hunch that FDA approval will come through: On Jan. 5, spent $1.4 million of his own money on shares at an average price of $24.

Opinions about Benlysta’s potential success vary. Some think the drug will only see modest sales. Yet some, such as Gleacher Securities, spot a $3.6 billion blockbuster and figure that shares will move up to $30 soon after the FDA acts. Analysts at RBC are even more bullish, predicting Benlysta can ultimately generate $5 billion in annual sales, and they see shares rising 50% to around $38. Then again, in the unexpected chance the FDA rejects Benlysta, CEO Watson likely just lost all of that $1.4 million investment. 

Opko Health (AMEX: OPK)
Dr. Phil Frost is considered to be one of the savviest biotech investors around. Since he sold his large stake in generic drug maker Ivax to Teva Pharmaceuticals (Nasdaq: TEVA) in 2005 for $7.4 billion, he started up an investment firm and then took control of Opko Health in 2007, which is pursuing a range of diagnostic technologies, mostly in the field of ophthalmology, but also in infectious diseases and Alzheimer’s Disease.

Frost took control of Opko in 2007 and thinks he’s caught a winner, spending increasing sums of his personal fortune to buy yet more shares on the open market. He bought more than $1 million of stock in 2010 in more than forty separate transactions. Most notably, he kept on buying even as shares pushed past the $2 mark and then the $3 mark. He’s at it again in early 2011, buying nearly $5 million in stock, even as the stock has powered past the $4 mark.

 
His steady buying has helped propel shares higher, but so has a recent deal with Bristol-Myers Squibb (NYSE: BMY) to see if Opko’s blood test for Alzheimer’s disease proves effective in the real world. An effective early stage test may eventually pave the way for a treatment of Alzheimer’s, which is expected to see higher levels of incidence in the future as baby boomers age.

Shares of Opko Health took a 10% hit Thursday after the company announced plans to sell up to $115 million in new stock to fund the company’s development. That will result in about 10% dilution to existing shareholders. It’s best to buy a stock after these types of announcements, thanks to the haircut they usually induce, and the decrease in operational risk thanks to the stronger balance sheet.

So what’s Opko likely worth? That’s hard to say as the company is likely several years away — at least — from a meaningful ramp in sales and profits. The stock is virtually ignored by Wall Street analysts, so it’s hard to find anyone out there with any sort of target price. But Opko is clearly facing some fairly significant opportunities, and it’s worth noting that Dr. Frost has had considerable successes in the field in the past. He’s a horse worth betting on, even if you’re riding blind.

Action to Take –> Large insider transactions are a clear reflection of insider bullishness. These buys are simply too large to simply be window-dressing for investors. Both Human Genome and Opko could soon pay off for these millionaires.

P.S. — I’m not sure if you’ve seen this or not, but government officials are warning that when a U.S.-Russian nuclear warhead pact known as “HEU-LEU” expires in 2013, at least 31 million Americans could suffer. Amazingly, no lives will be lost and a handful of energy stocks could rise hundreds of percent. Get the full story here…