Organovo (NASDAQ:ONVO) might be one of the most misunderstood 3D printing plays on the market. Many think the company is trying to strike gold by devising a way to print internal organs for transplant patients. Although that's certainly a possibility many years down the road, it's nowhere on the company's radar right now.
Instead, it has focused on bioprinting 3D liver assays -- with different organ tissues to follow -- to provide material for preclinical testing for pharmaceutical companies. The thinking is that if drugs tried out on the assays demonstrate liver toxicity before clinical trials, then drugs can be killed or altered much sooner in the development process, potentially saving drug companies billions of dollars.
Organovo only launched its liver assays a few months ago, and we still don't know how well the market has received the product. CEO Keith Murphy has said initial revenue from the assays will not show up on the company's income statement until the second quarter of this year.
However, that hasn't stopped Murphy from declaring the liver assays -- and the company's bioprinting platform in general -- a huge success. In fact, Organovo is doubling down on its technology.
Three new initiatives
In a letter to shareholders, Murphy lauded the company's initial foray into the medical market:
Having now crossed over to commercializing our first tissue, and having seen additional positive results in the other tissues we're working with, we feel like we've now crossed a threshold of validation. We are ready to do more, and it makes sense for us to raise our bet that our 3D Bioprinting technology can unlock tremendous long-term shareholder value.
Specifically, Murphy identified three new initiatives the company plans to act on:
- Organovo will move to grow revenue from commercial tissues faster. Management has already said kidney tissues would be available next, with lung, bone, skin, and heart to follow. My guess is the company will aim to sell the existing assays -- liver, then kidneys -- with more of a sales force, rather than speeding up development of other tissues.
- The company plans to own or develop some of its own drug candidates. This is a huge move on Organovo's part, essentially making it a quasi-pharmaceutical company in the making. While Organovo will continue to test drugs for other companies, it believes "[it] can invest in identifying [its] own drug candidates and retain more of their value."
- It will focus on becoming a leader in bioprinting technology. I assume this means management will focus on ways to improve its NovoGen MMX Bioprinter, and possibly sell it on the open market.
What this means for investors
These are all huge moves. Right now, Organovo is essentially a healthcare service company -- Big Pharma can send its drugs to Organovo for in-house testing.
If Organovo can follow through on all of these initiatives, it would become a mini healthcare conglomerate, offering services, physical products through its bioprinters, and drug treatments. For a company that only brought in $155,000 last quarter, that's a tall order.
Murphy made clear that funding such initiatives would require Organovo to further dilute current shareholders through secondary offerings.
In the end, there are two ways to read this. On one hand, short-term investors who were looking for a quick profit from the liver assays' release will largely be disappointed. The company's plan will likely create a significant drag on any hopes of profitability for the forseeable future.
On the other hand, I don't think management would take such drastic steps if it didn't see enormous potential with its technology and a very favorable reception by the market. We'll find out more in the coming year about how the liver assays are being received. Until then, we can only read management's actions as indicative of success.
Either way, one thing is clear: Organovo will remain a highly speculative and volatile stock. Investors need to understand this before putting their hard-earned money behind this management team, and make sure they have a fully diversified portfolio.