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What a difference a year makes. In 2015, Organovo Holdings (NASDAQ:ONVO) lost nearly two-thirds of its market cap. This year, though, the 3D bioprinting leader's stock is up over 50% so far. Organovo just launched its second product, ExVive human kidney tissue. Shareholders are probably feeling more confident than they have in quite a while. But just how risky is Organovo right now?


When the cash begins to run out for a company that has yet to reach profitability, the primary options available are to either borrow or raise money through a secondary stock offering. If the company takes the latter route, existing shares are diluted in value and the stock price typically takes a beating.

Organovo reported $53.5 million in cash and cash equivalents on hand as of June 30. The company also posted a loss of just under $8.8 million in its last quarter. Simple math shows that Organovo can't keep on losing that amount of money for too long before more cash will be needed.

I expect Organovo's bottom line will improve, however, especially with its kidney tissue now on the market. That should allow the company to stretch out its cash. I don't think there's an immediate dilution risk for Organovo, but I wouldn't be surprised if the company issued more shares within the next year or so. 


If you asked Organovo CEO Keith Murphy what his company's biggest challenges are, it's quite likely that he'd include winning over customers who remain skeptical about 3D bioprinted tissues. Organovo faces something akin to the physics law of inertia. It can be difficult to get a customer to move to something new.

The risk for Organovo is that this customer inertia could potentially result in a much longer time frame required for the company to reach profitability. It could also prevent the company from achieving its long-range vision of making $100 million and more in annual revenue.

How significant is this inertia risk? I wouldn't underestimate the challenges that Organovo faces. The company's exVive3D human liver tissue has been commercially available since November 2014 and will probably generate less than $6 million in the company's current fiscal year.

On the other hand, Organovo is making headway. Merck (NYSE:MRK) became one of the first major drugmakers to join forces with Organovo. The two companies entered into a multiyear research collaboration in April 2015 to develop custom tissue models using Organovo's bioprinting platform. Merck also gained access to exVive3D human liver tissue for use in its drug development efforts.

Organovo is also trying to influence perception of 3D tissues through scientific publications. In July, researchers from Organovo and Roche (OTC:RHHBY) published an article in PLOS One that described advantages for using Organovo's 3D bioprinted human liver tissue in drug development.  


Keith Murphy has downplayed the threat from competition in the past. When asked about other 3D bioprinting companies, Murphy replied that Organovo's rivals only had small percentages of market share and were "not a major driver" in terms of competition.

My impression is that Organovo is doing a better job of marketing itself than others -- for now, at least. Collaborations with major pharmaceutical companies give credibility that smaller rivals won't have. 

I wouldn't be too dismissive of competitive risks, however. In some ways, Organovo's success in winning customers like Merck and Roche could help pave the way for those same companies to entertain 3D bioprinted products from other suppliers. Privately held n3D Biosciences is one smaller rival that is talking to some of the same prospects that Organovo is going after.

How risky?

Organovo's stock is without question risky. But so is every stock. The question investors must ask themselves is whether the level of risk is acceptable for the potential rewards owning the stock could bring. The answer to this question will vary by investor. 

While I suspect dilution will happen at some point, that's just a temporary negative for investors. It's still early in the game for 3D human tissues. I think recognition of the advantages in detecting drug toxicity will increase dramatically over the next two to three years, resulting in a decrease in the inertia risk.

If I'm right, Organovo should reap the rewards. Its rivals could also benefit, but I think Organovo will be the biggest winner. My take is that Organovo's stock isn't too risky, considering the possibilities for its technology.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.