In this edition of The Motley Fool's "Ask a Fool" series, Motley Fool analysts Jason Moser and Brendan Mathews take a question from a reader who asks:
I bought Organovo (NASDAQ:ONVO) at the end of April after they announced demand for their product had increased. Shares have gone up considerably since then. Can you discuss if this is sustainable or just a bubble?
Organovo is a very interesting company in that it provides 3-D bioprinting technology that allows customers to print human tissue for use in drug testing. It’s a fascinating concept, and one with potentially major implications, as it could make the drug approval process potentially much better because it would give companies a better idea whether to pursue an idea, or move on to the next one without wasting additional funds.
Investors need to note that this is a development stage company, meaning it relies heavily on grants, partnerships, and public markets for funding, and there are no guarantees it will succeed. They made mention of the fact that they have interest from a number of different parties, including big pharma and biotech players.
However, Organovo isn’t the only game in town, so it remains to be seen if what they provide is enough of a differentiator. Earnings results out today have sent shares lower, due, in part, to lower sales and higher costs. Jason notes that this isn’t a company that he would be interested in. For those who are, he recommends that it should only be a small allocation in the context of a well-diversified portfolio.