Everything seemed to go right for Organovo Holdings (NASDAQ:ONVO) in 2016. Its stock jumped 40%, and at one point in the year, it had gained over 80%. The 3D bioprinting company launched its second product. Customers were jumping aboard.

But things took a turn for the worse after Organovo announced its fiscal third-quarter results. Shares dropped 20% in after-hours trading. Here's what happened.

By the numbers

Metric 

Fiscal Q3 2017 

Fiscal Q3 2016

Year-Over-Year Change

Sales

$1.2 million

$0.33 million

250.9%

Net loss from continuing operations

($9.6 million)

($10.5 million)

N/A

Net loss per share

($0.09)

($0.11)

N/A

Data Source: Organovo.

Beyond the numbers

The good news was that Organovo continue to grow sales by leaps and bounds in the quarter. Also, the consensus estimate among analysts was that the company would lose $0.10 per share. Organovo's actual loss was a little better, at $0.09 per share.

What was the bad news that caused the stock to tumble? First, Organovo reported sales that were below the $1.47 million expected by analysts. Second, the company slashed its fiscal 2017 guidance. Instead of expecting full-year revenue between $4.5 million and $6.2 million, Organovo now projects the range will be $3.7 million to $4.5 million.

It's always a negative sign when the low end of the old guidance is the top end of the new guidance. Organovo CEO Keith Murphy said that this downward revision was due to "a change in the timing of customer orders due to specific customer requests for additional validation studies related to certain use cases and for qualification of an additional cell source."

What's happening is that customers aren't moving ahead with placing orders like the company thought they would. And the reason why is that they're apparently not convinced Organovo's 3D human tissues provide all the benefits the company touts. That's concerning.

Organovo seemed to have made significant strides in winning over skeptical researchers. Major customers collaborated with the company in publishing in scientific journals. Some also presented at key conferences about the value of Organovo's 3D tissues. Now it appears that plenty of skepticism remains.

Keith Murphy said that Organovo expects to "successfully complete the additional scientific studies required to address these issues." He added that the company doesn't "anticipate these items will have a long-term impact on customer adoption." 

Looking ahead

My instinct is to agree with Murphy. He has said all along that more scientific studies will help the company. I expect they will. The key question in my view is: How long will the process take? 

Organovo is in good shape from a cash standpoint, so it can weather a delay in revenue. The company has cash and cash equivalents totaling $70 million. That's enough to carry Organovo for a couple of years or so at current spending levels.

However, spending will need to increase for the company to achieve several of its goals. Organovo wants to offer metabolism studies, a move that could double its annual revenue potential. That will require hiring additional staff and buying new equipment.

Organovo also plans to develop therapeutic tissues, beginning with 3-D bioprinted human liver tissue. The company is moving forward with safety and efficacy studies in animals with hopes to submit an investigational new drug (IND) application to the U.S. Food and Drug Administration (FDA) for approval of clinical testing in humans by 2020. This effort will also require higher spending.

Losing a big chunk of market cap isn't a good thing. However, customer adoption of a radically new technology like 3D bioprinting takes time -- and as Organovo's update shows, scientific evidence that shows clear benefits.

Keith Speights has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.