What happened

Shares of Organogenesis (NASDAQ:ORGO) fell more than 23% today after the company announced the pricing of a public stock offering. The regenerative medicine company is offering up to 10.35 million shares priced at $5 apiece, which is expected to raise up to $51.75 million in gross proceeds.

The business ended September with $22.9 million in cash and reported cash outflow from operations of $27 million during the first nine months of 2019. However, Organogenesis also sharply improved operating losses in that span compared to the year-ago period thanks to a 66% increase in gross profit. The cash injection will help to further improve the company's operations and nudge it toward profitability.

As of 12:38 p.m. EST, the pharma stock had settled to a 22.4% loss.

A declining yellow stock chart.

Image source: Getty Images.

So what

Organogenesis develops wound-healing products for applications ranging from diabetic ulcers to second-degree burns. The lead product, PuraPly, is a bandage that provides a protective physical layer against bacterial infection, includes a broad-spectrum antimicrobial, and encourages faster healing with fewer scars thanks to its finely controlled fiber pattern. Other products, such as Affinity and Apligraf, include living cells to encourage faster healing of open wounds.

While the company is attempting to diversify revenue, PuraPly products have driven growth this year. During the first nine months of 2019, the brand grew revenue to $86.9 million, or 110% compared to the year-ago period. PuraPly products were responsible for roughly 46% of total revenue in the first three quarters of this year.

The proceeds from the stock offering will help Organogenesis to increase manufacturing capacity, hire more sales representatives, and develop new products. If the business can continue to keep growth humming along, then it could become profitable within the next two years.

Now what

Organogenesis appears to be on the right path, but the stock has been volatile since the beginning of the year. That likely has to do with the reverse merger -- usually a red flag for investors -- with Avista Healthcare at the end of 2018. If the company can execute on its growth plan and achieve sustainable profits from operations, then it may be worth a closer look. But investors are better off keeping this one on their watch lists for now.

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.