Organovo Holdings Revenue Is Growing at a Snail's Pace Compared With Prior Quarters

It's been a crazy year for Organovo Holdings (ONVO -0.11%) so far. The 3D bioprinting company's former CEO abruptly left in April. Organovo disappointed investors with its fourth-quarter and full-year results for the previous fiscal year, which ended March 31. The stock has lost nearly 40% of its value in 2017.

However, Organovo had a chance to renew investor confidence and perhaps breathe new life into its stock when the company announced its fiscal 2018 first-quarter results after the market closed on Wednesday. Here are the highlights from the update. 

Image source: Getty Images.

By the numbers

Data source: Organovo.

Organovo also reported cash and cash equivalents totaling $55.0 million at the end of June 2017. 

Behind the numbers

Organovo's revenue stems from three sources: (1) products and services, (2) collaborations and licenses, and (3) grants. The good news for the company in the recent quarter was that it's getting a lot more revenue from products and services than it has in the past -- $944 million in the quarter ended June 30. That's a 40% year-over-year increase. Organovo CEO Taylor Crouch said that nearly 70% of orders for tissue research services came from existing clients. 

On the other hand, Organovo's revenue from the other two sources dropped significantly. The company received no grant revenue during the last quarter, compared with $4,000 in the prior-year period. Organovo reported collaborations and licenses revenue of $46,000, down from $213,000 in the first quarter of fiscal 2017. As a result, total revenue growth was much slower than it's been in recent quarters. Still, the company managed to top the consensus analysts' revenue estimate.

The bottom line worsened for Organovo from the same quarter of the previous fiscal year despite higher revenue. That's because the company spent significantly more in all areas. Cost of revenue increased by 79% to $301,000 -- a much higher rate of growth than for revenue itself. Organovo's research and development expenses grew 13% year over year to just over $5 million. Selling, general, and administrative costs rose nearly 16% to $5.9 million.

Organovo spent more on R&D primarily because of validation studies for its bioprinted human tissues that are ongoing. Several potential customers requested further validation earlier in 2017 before placing orders, which led to a slashing of revenue guidance for the year. The higher selling, general, and administrative costs stemmed largely from higher non-cash stock-based compensation and employee-related expense. 

Looking ahead

There weren't any huge surprises with Organovo's latest results, so it makes sense that the company didn't change its previous guidance for fiscal 2018. Organovo still expects revenue for the year of between $6 million and $8.5 million. The midpoint of that range reflects a year-over-year revenue increase of 72%. The company also continues to project negative adjusted EBITDA of $29 million to $31 million.

The most important thing Organovo can do for its stock to make a serious rebound is to win over a lot more new customers. While it's great that the company is seeing a lot of repeat business from existing customers, that won't be enough. And the most important prerequisite for winning new customers is successfully completing those validation studies mentioned earlier.

Over the longer term, Organovo's major opportunity is in therapeutic bioprinted tissues. Taylor Crouch mentioned several positives on that front, including that Organovo's bioprinted liver tissues are now doing well 90 days after implantation in animal models. That's three times the duration of the company's earliest pre-clinical studies. Crouch also said Organovo continued to "observe strong synthetic function and meaningful improvement in liver health for treated animals."

One area that could concern investors is the prospect of dilution of existing shares. The company generated net proceeds of $3 million in its fiscal 2018 first quarter from issuing new shares. While that's a relatively small amount compared with Organovo's market cap, the company's cash stockpile isn't enough to fund operations beyond the next few quarters. That probably means another stock offering larger in magnitude could be on the way in the not-too-distant future.