It was a big week for Organovo Holdings (NASDAQ:ONVO). The 3D bioprinting company released its fiscal third-quarter results on Monday and held a virtual investor conference on Thursday. The latter event held greater importance for Organovo, because it focused primarily on the company's future. Here are five key takeaways from the investor conference.
1. Why last quarter was significant
To be brutally honest, Organovo's financial results from the third quarter don't mean much. It's good that the company generated more revenue than in the second quarter, but $328,000 still is a tiny amount.
The third quarter was very important for Organovo, though, for another reason. New data from tests of methotrexate exposure in the company's exVive3D bioprinted liver tissue could translate into higher sales in the coming months and years.
Results of those tests suggest bioprinted liver tissues are well-suited to assessing the mechanisms of drug-induced liver damage and provide a comprehensive means of examining the progression of tissue injury. In simpler terms, the study demonstrated that testing for drug toxicity on 3D printed organ cells can provide researchers with solid data without risking the health of human test subjects.
Organovo's CEO Keith Murphy noted that this data is proving to be influential in convincing customers that exVive3D offers distinct advantages. Murphy expects that the results will "drive more rapid adoption" because of the differentiation.
2. Future dilution is possible
Organovo ended 2015 with cash and cash equivalents totaling $70 million. A secondary stock offering in the middle of last year helped considerably, generating $46 million in cash. Considering that Organovo's net cash utilization last quarter was $6.8 million, you might think that shareholders are safe from another round of dilution for quite a while.
Keith Murphy agreed that Organovo's cash stockpile could allow the company to operate for the next 24 months. However, he took several minutes during the investor conference to stress that Organovo wasn't ruling out further dilutive stock offerings. Murphy did, however, say that the company is trying to limit share dilution by pursuing other types of funding such as federal grants and partnerships.
As much as shareholders hate the prospect of further dilution, that's a risk that comes with owning stock in an early-stage company. While partnerships such as the one struck with L'Oreal to develop 3D bioprinted skin tissues are great, they are unlikely to kick in enough cash to take future public offerings off the table.
3. Don't expect more detailed disclosures
Organovo has taken some heat for not sharing contract bookings on a quarterly basis. Murphy reiterated his stand that contract bookings just aren't a good indicator of the company's business trajectory -- at least right now.
A big part of Organovo's concern about allowing investors to focus their attention on contract bookings is the cycle time associated with its contracts. It typically takes the company four to six months to engage with a new customer and plan how things will unfold. Organovo usually doesn't recognize any revenue until at least eight months after the initial customer contact. Sometimes, revenue isn't recognized until 11 months after the initial contact.
Murphy also mentioned that Organovo can't reveal too much information about its customers, because most of them simply don't want any details to be disclosed. A notable exception to this is Merck (NYSE:MRK), whose partnership with Organovo was announced last April.
However, few details were revealed even with the Merck deal. The big pharmaceutical company gained access to the exVive3D liver tissue and is collaborating with Organovo "to develop multiple custom tissue models... for use in drug development." Neither Organovo nor Merck have said much more than that, though.
Some investors might want to know more about contract bookings and customers. They probably won't be getting all of the juicy details they'd like any time soon.
4. Learning as they go
3D bioprinting is still a new technology. Organovo is basically creating an entirely new market, and it's learning as it goes.
Organovo's sales team has to teach potential customers how 3D bioprinting works and what the advantages of using its tissues are. They have to educate scientists on new ways of identifying toxicity. The newness of the technology presents definite challenges. Murphy mentioned that prospects don't say "no," they say "come back when you can show me more."
The good news is that lessons learned from the launch of the first bioprinted human liver tissue should help Organovo when it rolls out other tissues, particularly its 3D kidney tissue, which is expected to launch in 2016. The company is gaining knowledge from experiences of the early adopters of exVive3D that will help pave the way for future products.
5. Lots of opportunity
From the beginning of Organovo's investor conference to the end, the underlying message focused on the tremendous potential for 3D bioprinting. The company sees plenty of long-term opportunities to profit from the $7 billion U.S. transplant market. Organovo's management continues to state that it could eventually generate revenue topping $100 million annually.
For now, at least, Organovo doesn't really have a competitor. Keith Murphy acknowledges that he doesn't expect his company to maintain its monopoly. However, Organovo has secured protection for its intellectual property through 25 patents worldwide and has more than 80 patent applications pending.
Organovo is also continually looking to improve its product and technology platform. Murphy stated that the company's goal is to focus on flexibility, throughput, and the ability to deposit more materials in more ways with its 3D bioprinters.
The company is also hoping to expand uses of its bioprinted tissues. One particular opportunity lies in potential use of exVive3D in developing treatments for non-alcoholic steatohepatitis (NASH).
There are still plenty of risks, of course. Murphy admitted that Organovo had to be careful not to try to do too much too quickly. He also acknowledged technical risks associated with developing new tissues. For investors with high risk tolerance, though, Organovo remains an up-and-coming stock to watch.
Keith Speights has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.