Why Organovo Stock Continues to Drop
We’ve been writing about disruptive technologies like 3D bioprinting for the past seven years now. The promise of bioprinted human tissues is something that wall street analysts have been patiently waiting for a while now, at least when it comes to Organovo Holdings (ONVO). The company’s stock has been steadily plummeting over the years while the company tries to commercialized their medical research into bioprinted tissue. In order to understand why Organovo Holdings stock continues to drop, we need to start from the beginning.
The Origins of Organovo
The story begins in 2010 when Organovo entered into a collaborative research agreement with Pfizer to develop tissue-based drug discovery assays. The company had their initial public offering in 2012 when they did the old reverse merger trick and used a shell company called “Real Estate Restoration and Rental, Inc” to list on the over-the-counter market. By July 2013, they had a $326 million dollar market cap and plans to move onto the New York Stock Exchange. At that time people were very excited about 3D printing, and even more excited about 3D bioprinting. Thoughts of organs being printed on demand made investors eager to get in on the only 3D bioprinting stock in town at the time. (At least one other has popped up since then and there are also plenty of private companies making great progress.)
When Organovo announced their intention to list on a major stock exchange, their shares jumped +26%, and they up-listed under the ticker ONVO. (In 2016, ONVO stock was moved from the NYSE to the NASDAQ Stock Market.) Everyone was excited about the future of the company and expecting to start seeing progress in the form of revenues.
Organovo’s First Revenues
In June 2015, the Company received some vindication with the first product revenues from their exVive3D Human Liver Tissue product being announced along with their yearly financial statements. The financials stated:
From April 1, 2014 through the date of this release, the Company has recorded total contract bookings for its commercial liver tissue product of approximately $1.94 million, which includes $0.29 million in revenue recognized as of March 31, 2015.
That news was welcomed by investors who expected to see revenues grow significantly on the path to profitability, something that was much needed given that ONVO lost over $30 million the year prior. The Company went on to say:
The Company has had multiple customers sign a second contract, representing repeat business for its liver tissue product. The Company has signed liver service contracts with customers in the United States, Europe and Asia.
It was great to hear that multiple customers were placing second orders. The alternative of not having any repeat customers would truly be a disaster given the following quote from Organovo:
We continue to expect this tissue to grow into the tens of millions in annual revenue, and that it has $100M+ revenue potential.
These are some big numbers to hit, and investors expect to see slow but steady progress. So far, that’s yet to happen.
While revenues in 2018 came close to breaching the $5 million mark, this is far from the “tens of millions” talked about five years ago. The trend isn’t promising either. It’s great to see that costs are finally being reigned in, but it seems too little too late.
ONVO Shares Outstanding
Around the same time as the revenues began trickling in, Organovo seemed exceptionally critical of their critics, something we noted in a piece titled “An Organovo Article With a Negative Spin.” (They’ve since changed their FAQ, but our article details what transpired.) It’s understandable why the company is sensitive to the price of their shares. If the share price is at a premium, then they can raise more funds without having to dilute shareholders excessively. On the first day of 2012, Organovo had 22.4 million shares outstanding, and by 2015, that number had risen to 81.5 million. Today, shares outstanding sit at just over 130 million. Shares are being issued to provide cash so the company can keep incurring losses. While the losses appear to be decreasing, how much more will shareholders need to be diluted before the promised revenues show up? Then, late last year, Organovo announced a proposed merger with a company called Tarveda Therapeutics.
The Tarveda Therapeutics Merger
Keith Murphy, founder and former Chief Executive Officer of Organovo Holdings, left the company in 2017 to pursue “entrepreneurial opportunities.” In a company press release announcing his departure, he stated “the time is right to bring in a CEO with the relevant commercial experience to lead the company into its next stage.” Fast forward to last month when a wire came out stating “Organovo Founder Issues Letter to Stockholders Regarding Major Missteps and Misjudgment of the Company’s Board of Directors.” When the ex-founder of Organovo says things like “time and again, the current mix of directors have demonstrated that the best course for stockholders is to avoid trusting the Board,” dirty laundry is being aired that hints at some real underlying problems. Regarding the proposed merger with Tarveda, he calls it “a company with uninspiring science and few other financial options.” He must have been on to something because Organovo stockholders chose not to approve the merger agreement (twice as many shareholders voted “against” than “for“), and Organovo subsequently terminated the transaction just days ago. The impetus for that merger was a lack of company direction.
Organovo’s Strategy, or Lack Thereof
In August of last year, Organovo suspended their lead liver therapeutic tissue program in a press release titled “Organovo to Explore Strategic Alternatives and Implement Restructuring Plan.” When a company says they need to hire a financial adviser to help “generate value from our technology platform and intellectual property, our commercial and development capabilities, and our financial assets,” you know they’re floundering.
A few months later, Keith Murphy proposed a merger of Organovo with his current startup – Viscient Biosciences – which Organovo acknowledged receipt of. (Viscient is focused on using 3D bioprinting technology to displace the use of animal models in pharma research and provide more accurate models of human disease. Sound familiar?) “We value Organovo at a premium to current trading because of the synergies on the technology,” he told Xconomy. Could it be that Mr. Murphy was just upset that Tarveda Therapeutics was chosen over his own company?
You can read Mr. Murphy’s letter to shareholders and draw your own conclusions, but the contents are irrelevant. Do you really want to invest in a company whose founder went off to do – what appears to be similar work – somewhere else, and now believes the present leadership is incapable of adding any value to shareholders? What’s the point of speculating on a company that hasn’t been able to deliver on the “tens of millions” in revenues we continue to wait for? In the words of Keith Murphy, “the absence of a multi-product pipeline for Organovo in 2019 is evidence of a near total lack of innovative, entrepreneurial, and strategic thinking.” With the failed merger, they appear to be back to square one – in more than one way.
Soon, Organovo may not even trade on the Nasdaq exchange. They have until June 22, 2020, to regain compliance with the minimum $1.00 bid price per share requirement of the Nasdaq listing rules. That doesn’t bode well for any institutional money that may no longer be able to invest in Organovo shares when they go back to where they came from – the dreadful OTC market.
Notice how we’ve spent the majority of this article talking about Organovo the company, and not once have we even mentioned their technology. That’s usually what we like to focus on – the prospects of a technology for any given company. In the case of Organovo, it’s hard to spell out their technology prospects when the CEO says they need to hire Roth Capital Partners to figure that out. Over the past seven years, we’ve watched the company go nowhere fast, and we’re now firmly taking them off our radar to focus on bigger and better things.
We’ve written a handful of articles on Organovo over the years which chronicled the company’s activities, and those articles were consolidated to tell the story you’ve read today. Seven years ago we questioned the company’s lack of revenues and $326 million dollar market cap. Today, that market cap sits at around $40 million – a drop of -87% – and we’re still wondering where the revenues are. The inability to grow revenues implies that they cannot successfully monetize their 3D bioprinting technology, and until they do, the stock price will continue to drop. With no apparent strategy and a failed merger, it’s hard to see how this ship can be turned around.
We don’t have any skin in the game here, but we do know that plenty of investors do. According to Google, Organovo stock is a popular topic among investors, something which may have to do with the number of bag holders that been created over the years. Any investor who chooses to ignore the company’s poor track record, the issuance of shares left and right, and the current internal squabbling, shouldn’t be surprised to see the stock continue on its current trajectory.
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