Nanalyze

Is Organovo the real deal?

Organovo_Logo

During the nanotechnology boom in 2004, many “nano pretenders” started sprouting up on the OTC stock exchanges. Some of these companies actually had legitimate proprietary technologies yet today they are nowhere to be seen. Take Biophan for example which now trades for .0006 a share from the 3 dollars a share it traded at in 2006. The company had patents and what seemed to be legitimate leadership. Other OTC examples included JMAR and Applied Nanotech holdings. Perhaps the most ludicrous example was US Global Nanospace. Lesson learned here is that OTC companies demands more due diligence than normal.

Organovo is a 3D printing company with a 326 million dollar market cap that just announced plans to move their OTC listing onto the New York Stock Exchange (NYSE: ONVO). Shares spiked 26% as a result of this announcement. Given that most serious institutional investors won’t invest in OTC stocks, the NYSE listing announcement merits a deeper look into Organovo.

Bioprinting

Organovo came about only in 2011 when they converted the shell company “Real Estate Restoration and Rental, Inc” into the corporate entity we see today. This “reverse merger” method is often used because it is much easier than an IPO.

The SEC warns against investing in companies that conduct a reverse merger in this bulletin. This is due to the fact that some companies cannot become public through a traditional IPO. A simple due diligence from the investment banks during the IPO process would show their operations to be fraudulent and/or highly questionable. Using the reverse merger technique requires no scrutiny from any outside parties to become public and then the company can later sell shares through secondaries. Companies that fall under this category require extreme levels of due diligence.

The company’s value proposition is the development NovoGen MMX Bioprinter which is stated by the company to ” produce highly specialized functional human tissues“. The company has provided this bioprinter to Harvard Medical School, Wake Forest University, and the Sanford Consortium for Regenerative Medicine (“SCRM”) for research purposes. In 2010 the company entered into a collaborative research agreement with Pfizer to develop tissue based drug discovery assays.  The company holds exclusive licenses to four U.S. patents, three U.S. patent applications and multiple corresponding international patent applications. They have also filed seven U.S. patent applications.

Financially the company is not bringing in any product revenues. The year ending 2012 saw 1.1 million in revenue from collaborations and 160K from grants.

Organovo_Revenue

In 2012 the company realized a net loss of over 40 million dollars. As of the 2012 10-K filing, the company had about 14 million in cash. Operating expenses for 2012 were around 9 million. If all else stays the same, the company will be able to run for another year and then have to raise capital again further diluting existing shareholders.

Looking at the leadership team, the CEO and co-founder Keith Murphy has prior experience at both Amgen and Alkermes. In 2007 he left his role at Amgen as Director of Process Development to found Organovo. He currently owns just over 10% of the company’s shares and received an annual compensation at Organovo of 331K in 2012. Various other senior leaders at the company seem to have good pedigrees with profiles available on the company website. In total, Organovo has 29 full time employees.

The NYSE listing is certainly a positive event. The question is does  the company merits a 326 million dollar market cap based on the speculation that it’s current product will drive the revenues the company needs to survive?

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  • Pelion

    Your article would benefit from a bit of clarification:

    1) ONVO got uplisted to the NYSE MKT not the NYSE itself. The NYSE MKT is the renamed AMEX exchange – the company would have preferred the Nasdaq but settled for what it could get.

    2) In December 2010, Organovo entered into a $600,000 collaborative research agreement with Pfizer – would have been good to include the paltry financial terms.

    • Nanalyze Editors

      Thank you for the clarifications Pelion. As mentioned in the Wall Street Daily, “…Pfizer dishes out an upfront licensing fee and funds the research. And Organovo gets to maintain intellectual property rights to new tissue constructions that develop through the partnership…”. I assume that revenue was recognized under the 2012 “Collaborations” line?

    • Nanalyze Editors

      The S-3 registration statement on July 17th for their listing did not mention Pfizer but the deal is discussed in their last annual report which can be seen below:

      In December 2010, we entered into a Collaborative Research Agreement with Pfizer, Inc. (“Pfizer”) to develop tissue based drug discovery assays in two therapeutic areas utilizing our NovoGen MMX Bioprinter™ technology. We disclosed in 2012 that we had delivered constructs to Pfizer for internal evaluation as partial completion of the collaboration agreement; we additionally have delivered a study report to complete the scope of work in the original collaboration agreement. Constructs delivered by Organovo are currently being evaluated in the collaborator’s laboratory, and we anticipate that an additional agreement or agreements will be arrived at to utilize Organovo tissues in its future research efforts, although we can give no assurance that future agreements will be secured.