Financial figures didn't cause anyone to perform cartwheels after Organovo Holdings (NASDAQ:ONVO) reported its 2016 fourth-quarter results on June 9. A quarterly loss of $8.4 million with revenue of only $0.5 million isn't awfully exciting. The real news for the 3D bioprinting company, though, came in the earnings conference call. Here are five highlights from what Organovo's management team said during the call. (All quotes from S&P Global Market Intelligence.)
1. Financial performance will probably be choppy
Organovo still hasn't replaced former CFO Barry Michaels, who left the company in April. As a result, CEO Keith Murphy discussed the details of Organovo's financial results himself. While revenue is growing at a solid pace, Murphy made sure to drive the point home that the company could have "choppy quarterly results" going forward.
The primary issue causing this "choppiness" is that customers make decisions on their own schedules. Murphy gave the example of a hypothetical customer with which Organovo has a multi-stage contract. Even when the first phase goes well, the customer could be slow to proceed to the next phase.
It's possible that he was alluding to L'Oreal in this example. Organovo completed the first phase of its agreement with the cosmetics company to develop 3D skin tissue ahead of schedule. The initial part of this collaboration was to develop a model. Next will be validation of that model. When asked about next steps, Murphy replied that Organovo needed "to work on the next phase agreements" to move forward. He added that Organovo was encouraged by the progress thus far.
What Organovo's management hopes investors focus on is the company's longer-term revenue outlook. Organovo projects fiscal 2017 revenue will be between $4 million and $6 million. That's a big jump from the $1.5 million in total revenue reported for 2016. The outlook range is pretty wide, though. Murphy chalked up the broad guidance to difficulty in predicting "when you're still starting and in the early days."
2. Adoption by Big Pharma is growing
Organovo can now count five of the top 25 largest drugmakers as customers, with the recent addition of a new customer. Murphy noted that Organovo has "maintained a cadence of repeat agreements" with its Big Pharma customers.
Of particular note is Organovo's relationship with Merck (NYSE:MRK). Organovo is working with the big drugmaker on toxicology and custom tissue disease modeling. Some revenue has already been recognized from this collaboration, but the larger part of the contract revenue remains in the future.
Merck and Organovo signed a multi-year collaboration agreement in 2015, with financial details not disclosed. The deal gave Merck access to Organovo's exVive3D bioprinted human liver tissue and included developing other tissue models using Organovo's NovoGen bioprinting platform.
Murphy said that Merck and its other customers, including smaller ones, have provided "very good feedback on the data that they're getting, the correlation they see with their expectations, and the in-vivo expectations they have." That's certainly good news, since 3D bioprinted tissues are still new and face hurdles in adoption.
3. Sales momentum is picking up
Paul Gallant, Organovo's general manager, gave an update on the company's progress in developing its sales organization. Gallant noted that when he joined the company last August, Organovo had only one dedicated sales executive. Now the company has a vice president of sales and four dedicated sales directors in the U.S., Europe, and Asia, with four support staff.
Organovo's joint presentation with Bristol-Myers Squibb (NYSE:BMY) at the Society of Toxicology's annual meeting in March proved to be something of a turning point for its sales efforts, according to Gallant. He said sales momentum increased following the standing-room-only presentation.
Gallant stated that Bristol's presentation showed how it was "able to identify multiple mechanisms of a known toxic compound using [Organovo's] 3D liver model" -- mechanisms that wouldn't have been captured using traditional 2D models. This type of scientific corroboration of the benefits of 3D bioprinted tissues helps Organovo tremendously in making its case to prospective customers.
4. The competition can be beaten
Organovo's chief competition for now continues to come from animal models and 2D cell cultures. The company's main challenge is to persuade pharmaceutical companies that 3D bioprinted tissues are superior to both alternatives.
Results like those Bristol presented help in the effort. Murphy said more scientific publications are also on the way. He added that Organovo must produce more data that demonstrate that its bioprinted 3D tissues outperform animal models and 2D tissues in predictive capabilities.
What about other players in the 3D bioprinting world? Murphy acknowledged that some customers have used products and services from rival companies. However, he didn't seem too concerned about the competition, stating that the competitors had only "low-single-digit percentages of the market" and didn't present significant challenges to Organovo.
5. Big opportunities lie ahead
The one common thread throughout most of Organovo's conference call was the big opportunities that lie ahead for the company and 3D bioprinting in general. For example, the company expects its sales of the ExVive3D human liver tissue to more than triple this year.
That's just the beginning, though. Murphy confirmed that efforts to launch a 3D kidney tissue in the third quarter of 2016 are on track. He anticipates that "the level of the wow factor with the kidney [tissue] might even be higher" than for the company's liver tissue. Murphy also noted that Organovo's skin model is hitting key milestones.
When asked about the potential for developing human therapeutics, Murphy agreed that it presented "a huge opportunity." Organovo sees a market of over $1 billion in the area of human therapeutics.
How will the company finance the necessary research on its various projects? Organovo had $62.1 million in cash and cash equivalents at the end of the quarter. That's enough to fund operations for maybe two years. Murphy hinted at perhaps finding a strategic partner to help with financing. He also speculated that taking on debt could be an option if revenue growth hits the levels the company expects.
Keith Speights has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.