How Quickly Can Organovo Holdings Generate Revenue?

The potential to biomanufacture organs, create toxicology assays for the pharmaceutical industry, and produce living cancerous tissue for testing drug combinations are just some of the applications of tissue engineering platforms. While Organovo Holdings (NASDAQ: ONVO  ) is pursuing all three health-care opportunities mentioned above, it is doing so with varying time horizons. It's also worth noting that the company has yet to commercialize a product or generate meaningful revenue outside of research and development collaborations and grants.

With investors debating the long-term potential of the company, it would behoove investors to ask the following question: How quickly can Organovo Holdings generate revenue?

Development timeline for first product
The company's first product, 3-D liver assays for toxicology, will certainly mark an improvement to the 2-D cell culture standard used by the pharmaceutical industry. As CEO Keith Murphy wrote in the company's 2013 annual report published in July:

More than 150 drugs were either withdrawn from the market or failed in phase 3 clinical trials between 1990 and 2010, and about 25% of those withdrawals or failures were due to liver toxicity that was not predicted during preclinical testing. Such late stage or post-market failures endanger lives and cost billions of dollars to pharmaceutical companies. There is a clear need for more predictive preclinical toxicology models that can enable safer drugs to come to market faster and at lower cost.

Good news. At the end of October, Organovo reported that its 3-D liver tissues demonstrated the "retention of key liver functions for up to 40 days" against know liver toxicants such as acetaminophen -- the active ingredient in Tylenol and NyQuil. The study showed that the company's tissues do in fact have potential in assessing toxic effects of drugs. Meanwhile, the ability to remain active for more than one month allows the company to test multiple doses of drugs on the same tissue -- something that isn't possible with 2-D cultures. Where do you go from there?

In December, Organovo will begin the functional validation phase of its 3-D liver tissues. At this stage in development, data will be collected using known drugs that will allow the company to compare the metabolism of its biomanufactured tissues against known responses from native tissue. If you can't demonstrate the flexibility of assessing known liver toxicants with comparable effectiveness to native tissue, how the heck can you confidently use your product to test newly discovered drugs in the pharmaceutical industry's pipeline? It's all part of the development process.

Organovo is then planning to deliver the product to key opinion leaders in academia and industry for alpha and beta testing in April 2014. Assuming all goes well during functional validation and pre-market testing, the company hopes to launch 3-D liver tissue assays for toxicology in December 2014. Let's repeat that: In a best-case scenario, the company is more than ,one year away from launching its first commercial product. That means Organovo won't have revenue streams from products until 2015 at the earliest.

Why does this matter?
The company is also planning to develop and launch 3-D kidney and 3-D heart tissue assays for toxicology in the next several years, while other products are even further out. Nonetheless, investors should temper their expectations for any explosions in revenue in the near future. Toxicology assays developed at Organovo may be novel and may add value to the pharmaceutical industry, but even then, the company would have to sell an incredible amount of them to crack $100 million in sales. That watermark will also take years to reach.

It seems a bit premature to value Organovo Holdings anywhere near $1 billion given its underwhelming potential for revenue in the next few years. It is also a risky stock for individual investors to own with less than 10% institutional ownership and fewer than 80 million shares available. Regardless of stock price, I'm steering my investing boat clear of the company. I want to see progress in development materialize into real sales potential before I consider buying.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 29, 2013, at 8:24 AM, Rdavis2035 wrote:

    This sounds like you miss buying ONVO at $2.00 per share. So, now you want the share price to come down, so that you buy-in at prices lower than what they're at now. Because, the info. that's in your issue is at least a month old and doesn't add anything new....

  • Report this Comment On November 29, 2013, at 9:17 AM, uyutnaya wrote:

    Obvious bearish intent to bring PPS down so your hedge bosses will pay your minuscule salary. Very shallow thinking of yours as always.

  • Report this Comment On November 29, 2013, at 12:54 PM, omskpicker wrote:

    Bying right here

  • Report this Comment On November 30, 2013, at 12:23 PM, Skepticofdogma wrote:

    Before investing in ONVO, it is worth reading an article on Seeking Alpha from 5/2013:

    Despite the title, it is a well-researched article delving into the history of this company, focusing in particular on its reverse merger shenanigans.

    Caveat emptor. ONVO has its place in speculators' portfolios (as demonstrated by the comments above), but serious investors should approach this company with caution.

  • Report this Comment On December 01, 2013, at 1:25 AM, shlitz wrote:

    What about cosmetics? There is no limit to Onvo and all the other 3D co.'s. I think all of them are good plays. You never know when they will pull out that billion dollar rabbit. Be Kool Doc!

  • Report this Comment On December 04, 2013, at 7:11 AM, jpokergman wrote:

    With new technologies, it is difficult to "Predict" future revenues. As far as the "WHEN", they will come rolling in.

    The questions that investors need to ask is this:

    1. Does the Technology offer enough disruption to actually make an impact on an entire Industry?

    2. Can you trust the Party's involved, with your cash?

    3. Do you the investor, believe that the Company Sufficiently protected its "Intellectual Property", to the point where your money will not end up in Courts/and or settlement shakedowns.....I.E. TIVO....?

    4. Do you the Investor have deep enough pockets to handle short-term volatility, due to agenda driven B.S. such as the kind often promulgated in media outlets due to lack of editorial standards, and other such foolishness, due to the fact the many sites refuse to "Gin-up" for serious Finance reporters?

  • Report this Comment On December 06, 2013, at 10:03 PM, Rivertour wrote:

    This technology will change our world in profound ways, most too early to predict.

    Risk what you can afford to lose in companies you believe to be at the forefront of of a new era. Most will end up being losers sure, but if indeed you are correct on the technology itself, you have insight that few are willing to risk their capital.

    Time and time again this happens. Either you are in or you are out and wishing you had been in early.

    For me, I'll take the small percentage of my portfolio and invest in the industry itself. Sure I've got a couple losers there, but I only need one this early to make a difference in my future.

    ONVO is that type of investment. I'm long on this stock, and will look for others with this kind of potential along the way.

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9/29/2016 2:54 PM
ONVO $3.79 Down -0.07 -1.81%
Organovo Holdings CAPS Rating: ***