3 Good Reasons to Sell Organovo Holdings Inc?

Owning shares of Organovo Holdings Inc (NYSEMKT: ONVO  ) is nothing if not a roller-coaster ride. Back in August, I let investors know that I'd be buying shares of this 3-D bioprinting company for my real-life Roth IRA. Since then, the stock has had a few absolutely crazy swings—both up and down. But now, it sits 50% higher than when I originally bought in.

Could that mean it's time to sell this highflier?

Source: Organovo

Every year when the snow starts to melt and the sun sticks around a little longer, I review all of my stock holdings. Specifically, I look to see if anything I currently own still belongs in my family's stock portfolio.

I find that checking in once per year is enough to keep me "in the know" on our holdings, without being so frequent as to lose sight of the bigger picture. I heartily encourage you figure out a schedule that works for you to review your own stock holdings.

So today, I'm looking at the three best reasons for selling Organovo, and my take on them.

This is an unproven technology
Organovo's goal is to create human tissue that acts the same way in the lab as it does in the human body. The company sees this technology as being crucial to helping drug companies save billions in detecting toxicities that can't be discovered using traditional 2-D cells.

The problem -- from a bearish standpoint -- is that this is a brand-new, and unproven, technology. If Organovo's tissues -- especially its liver tissue for sale on the market by the end of this year -- fail to behave as native ones do, the company doesn't really have that much to offer.

I'm more than willing to accept this risk.
This year is going to be a big one for Organovo. At the start of 2014, management said it hoped to release its first product to the pharmaceutical market—liver tissues—by the end of December. But that timeline has already sped up.

At the end of January, Organovo announced its first delivery of liver tissues to a key opinion leader—a top research scientist. This was more than a month early, and I highly doubt this move would have been made if the liver tissues showed any signs of trouble during in-house functional validation testing.

The company has an awful income statement
There's no getting around this fact. Since Organovo was founded in 2007, it has only brought in a grand total of $3.3 million. That's ridiculously low, and almost all of that money came from collaborations with other companies and grants from public institutions. Since inception, Organovo has lost over $85 million, and has required continued rounds of financing or public offerings to stay afloat.

That's very normal for a start-up company like Organovo.
When you're developing a technological breakthrough like the 3-D printing of human tissues, you want to make sure you get the product right before going to market. That means spending gobs of money up front in the hopes of recouping those costs -- and more -- at a later date.

When I bought shares of Organovo, I was well aware of the fact that the company barely brought any money in. By this time next year, Organovo will have released its first product on the market, and for the first time as a company, will have a meaningful revenue stream via product offerings.

I believe that further development of other tissues -- like eye, skin, and even cancerous varieties -- could also provide more than enough revenue to offset past loss.

The valuation is ridiculous
As I said, Organovo has only brought in $3.3 million since it was founded seven years ago. No profit or positive free cash flow exists as of yet. And yet, Organovo is currently valued at over $650 million. It would be tough to find any other successful investment with such a sky-high valuation.

Fair enough, and here's how I'm protecting myself.
There are really two points to take into consideration before selling based on valuation. The first is the issue of an investment time horizon. If I was only looking to hold shares of Organovo for a few months, valuation would indeed be a good reason to sell.

But I'm looking to hold for years or -- if things go well -- decades. I see a company that has a number of different tissues in the pipeline, and could fundamentally shift how the drug industry conducts its research.

The second issue has to do with allocation. As of this writing, Organovo accounts for less than 1% of my family's overall holdings. I realize that this is a risky stock and that, should technology fail or competitors come out with an equal product, I'd lose most -- if not all -- of my money. That's why I have such a low allocation.

That being said, I think a starter position is a great way to follow such an interesting company, and I hope future successes will only encourage me to add more shares of Organovo as time goes on.

Less risky ways to profit from 3-D printing
If there's one thing that's going to make tomorrow's world look a lot different than today's, its a single, revolutionary technology: 3D printing.

Although this sounds like something out of a science fiction novel, the success of 3D printing is already a foregone conclusion to many manufacturers around the world. The trick now is to identify the companies -- and thereby the stocks -- that will prevail in the battle for market share. To see the three companies that are currently positioned to do so, simply download our invaluable free report on the topic by clicking here now.


Read/Post Comments (11) | Recommend This Article (14)

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 March 15, 2014, at 11:04 AM, Iamfool4mo wrote:

    Right on, Brian

  • Report this Comment On March 15, 2014, at 2:41 PM, tradingumbrella wrote:

    think you are right. organovo is the like apple 10 years ago.

  • Report this Comment On March 15, 2014, at 2:41 PM, tradingumbrella wrote:

    greez from germany :-)

  • Report this Comment On March 15, 2014, at 8:11 PM, badeconomy wrote:

    You should buy onvo on any weakness . This year is the turning point for a technology that will change healthcare in the ways that we could not imagine six month ago.

  • Report this Comment On March 17, 2014, at 4:35 PM, stoxstax wrote:

    I like this review. The question mark in the title should be x10. I think it depends on what type of investor you are. ONVO could have a potentially huge payoff but most likely isn't a good idea for the conservative investor. Also, your 1% (or so) idea is a great idea.

  • Report this Comment On March 18, 2014, at 8:59 AM, Biffou wrote:

    Those of us who have invested in numerous start-ups and early stage companies understand the business model of ONVO and find it a very good long term investment. I don't sell my shares of ONVO--I constantly buy more and overall, am up more than on almost any other investment. Yeah,they have their ups and downs but they are the only player in the 3D printing of body tissues and if you don't think that is an important application of 3D printing then you won't understand the long term opportunity afforded by ONVO. A little over a year ago the stock was in the $4-5 range. Now it is near $9. That is over a 100% return in a year. How many other investments do that well?

  • Report this Comment On March 20, 2014, at 4:05 AM, Sophocles wrote:

    Are you sure you review your portfolio once a year? The fact that you have posted already twice on the Motley Fool about this stock in 3 months and just for a only 1% holding makes you NOT credible to say the least. Do you try to pump all your holdings with this "once a year" statement?

  • Report this Comment On March 20, 2014, at 9:40 AM, TMFCheesehead wrote:

    @Sophocles-

    Some of the stocks I buy I continue to cover as the year goes bye, some I do not. ONVO is a stock I am better at staying on top of, so the review is easier and, yes, there are more articles written about it.

    Brian Stoffel

  • Report this Comment On March 20, 2014, at 10:51 AM, ScottAtlanta wrote:

    I think it's sick that they grind up perfectly good human hands of lab techs to produce their 3D chopped liver.

    --- The photo above showing where and how the hands are inserted and "pinched" off. Sickening.

    But hey...you can live without your hands...you can can't live without your liver. And you can live especially well with some unknown lab tech going thru life without hands...while you get a fresh liver now and then.

  • Report this Comment On April 21, 2014, at 11:41 AM, HarryONY1 wrote:

    I am reading Brians slant a month after his post. I have been heavy into ONVO and believe if someone were to visit and verify its authenticity of intention it is a hidden gem x's 100 plus. Everything I have found leads to yes, but no hands on. Recently on the pull back I shed some to retain some profit but held a good portion. Reward to risk? Risk to reward? Come November when the positive results of the public liver are announced, or delayed and/or not announced, will be judgment day!!

    And, FYI, I had an X B-I-L engineer scientist who went bankrupt developing an idea like Zillow on lazar disc 30 years ago because they were so into the development and didn't know how to raise investor interest. Staying afloat means everything before judgment day!!!!

    till then

    Fool On

  • Report this Comment On April 21, 2014, at 11:48 AM, HarryONY1 wrote:

    Meant to add that engineers and scientist haven't a clue about money management. However, don't even try to understand what they tend to bore you with. :D

    Foolish me

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