What: Shares of Organovo Holdings (NASDAQ:ONVO), a small-cap 3D-bioprinting company focused on the development of assays that can aid drug developers and researchers in their studies, surged 27% in June, according to data from S&P Global Market Intelligence. The reason behind Organovo's incredible run can be traced to excitement following its fourth-quarter earnings report and 2017 full-year guidance.
So what: For the fiscal fourth quarter, Organovo announced $0.5 million in revenue, a 105% increase from the prior-year period, and a 67% jump from the sequential third quarter. The boost came from research agreements (and payments) from L'Oreal USA and Merck. Net loss for the quarter grew modestly to $8.4 million from $7.8 million in the prior-year period, but having more shares outstanding resulted in a per-share loss of $0.09, compared with a net loss of $0.10 per share in Q4 2015.
The hoopla came when Organovo presented its full-year guidance for 2017. The company now expects between $4 million and $6 million in revenue for the year, up from $1.5 million in fiscal 2016, as well as net cash utilization of $34.5 million at the midpoint. It ended the fiscal year with $62.1 million, implying plenty of runway to get through the fiscal year.
Additionally, the company announced that in the third quarter of 2016 (i.e., sometime in the next couple of weeks or months) it would initiate commercial contracting for its bioprinted kidney tissue assay. This would add a second source of revenue to go along with its exVive3D Human Liver Tissue assay.
Now what: Things are finally beginning to look brighter for Organovo Holdings, which has spent a long time getting its ducks in a row for a commercial launch of its liver and kidney assays. More revenue should mean a lessening in losses and a slowdown in net cash utilization. It still appears that common stock offerings will remain Organovo's go-to method to raise capital, which isn't a good thing for existing shareholders, but the company should, presumably, be able to go longer in between capital raises.
Organovo also has a growing list of partnerships that could prove valuable. Its technology could wind up saving drug researchers and immense amount of money and time, allowing researchers the ability to test the toxicity of drugs on human tissues long before testing in human patients. Not to mention, Organovo's bioprinting technology could be used for organ transplantation in due time.
The big issue that I'd have with Organovo is that it could be a long time before the company is turning a profit and is cash flow positive. We could be looking at another four or five years before Organovo is anywhere close to profitability, which means nail-biting and potential stock offerings for shareholders.
My suggestion is to get Organovo on your watchlist and monitor it from a safe distance. Allow its bottom line to do the talking before you take the dive.
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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