Regardless of what industry you invest in, it's important to keep a close tab on the amount of cash the companies you purchase keep on hand. While most businesses deliver instantly justifiable profits or losses based on their products or services, health care stocks are often valued almost entirely on the potential of their product pipeline. If that pipeline doesn't work out as planned, the company could run out of cash.

One health care company that is likely drawing skeptics' attention because it's still in the product development stage is Organovo Holdings (NASDAQ:ONVO). It's not unreasonable for skeptics to question Organovo's cash situation.

To get a bead on whether Organovo's cash position is a genuine concern, let's look at the company's business model, the numerous ways it could generate additional cash, and the actual danger of its cash reserves running out.

Organovo's business focus
Before obtaining a good understanding of how much cash the company has in its coffers, we first have to understand how Organovo earns its keep.

Source: Wikimedia Commons.

While Organovo has been the subject of countless "what if" discussions that involve the potential for its technology to contribute to human organ replacement, the company's bread-and-butter development project is its 3D liver tissue system, which is expected to debut this year. The system will give drug developers, hospitals, and universities access to organically grown liver tissue that could dramatically speed up drug safety and efficacy research.

Earlier this year, Organovo sent out samples of its 3D liver assay to 400 key opinion leaders in order to get feedback on the product and hopefully raise awareness for its eventua launch. The initial feedback from these opinion leaders has been positive.

Organovo's shrinking cash position
Based on Organovo's second-quarter earnings results, the company had $44.9 million in cash and cash equivalents with a negligible amount of debt. That was down from $48.2 million in cash in the prior quarter, along with what can be construed as more than $56 million in cash and cash equivalents in August 2013 after the company netted $43.3 million from a common stock offering.

Source: Flickr user

How has the company burned through roughly $11 million in cash over the trailing four quarters? There aren't too many surprises here: Increased operating expenses and preparations for releasing its 3D liver tissue system have led to the modest increase in its cash usage in recent quarters.

Though Wall Street-based sales and profit estimates for Organovo are severely lacking since so few analysts follow the company (which could also be a reason why the company is so volatile), I'd project that the company's remaining $44.9 million could be depleted within three years if its 3D liver tissue system isn't welcomed with open arms, and if the company simply sat on its hands an didn't attempt to raise cash, which is an unlikely scenario.

Ways Organovo can generate additional cash
Thankfully for investors, there are ample ways for Organovo to raise additional funds. Investors would view some methods favorably, while another cash-raising strategies could put even more pressure on Organovo's stock.

The best scenario here would be if Organovo's 3D liver tissue system was an instant success. On one hand, I am concerned that Organovo's comparatively inexperienced sales staff and small market cap could leave it fighting tooth and nail to land new clients despite having a first-in-class product. Businesses may simply not jump at Organovo's product until it has some history under its belt. Yet I'm also very excited by this new technology that could reduce the amount of time it takes to bring liver-based drugs to pharmacy shelves, as well as deduce initial drug safety. With no other test like this available, Organovo could easily seize the day and establish profitability in short order. If that were the case, then there's little worry about its $44.9 million in cash.

Source: Flickr user TheTaxHaven.

Organovo can also increase its cash balance by licensing out its technology or forming collaborative pacts that could lead to up-front payments and possible milestone income. The good news is that partnerships are already being established, with Organovo and Johnson & Johnson (NYSE:JNJ) hooking up in July. The partnership will allow Organovo to showcase its bioprinting technology to aid Johnson & Johnson in the drug development process. Prior to J&J, Organovo had developed pacts with Pfizer and United Therapeutics.

Lastly, Organovo can do what it did in August 2013 and sell its common stock on the open market. This is the last thing existing shareholders want to see as it can dilute their existing share value and potentially push Organovo's stock even lower (and it's already been a wild year of ups and downs, so that's not exactly a pleasant though for shareholders).

With all that under our belt, let's return to the original question.

Could Organovo be running out of money?
While its cash balance of $44.9 million doesn't seem particularly high, I suspect a quick ramp-up in sales of its 3D liver assay should be enough to stave off a quick depletion of cash. In addition, investors demonstrated quite the appetite for Organovo's share offering last year, so I suspect if the company were in a cash bind it wouldn't have to look far to raise money.

Organovo will clearly have to overcome some challenges, but the majority of these challenges are internal since it will be the first-in-class health care company with bioprinted liver tissue. In plainer English, Organovo's fate is truly in its own hands. I wouldn't be too concerned about its shrinking cash position at the moment, and would instead focus on whether the company can meet or exceed its original launch date of December 2014, as well as whether sales of its 3D liver assay dramatically reduce its cash burn rate.