Is Organovo the real deal?
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.
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.
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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