One company that has been caught between the whirl of negative and positive analyst sentiments over the past few weeks is Organovo Holdings Inc. (ONVO). It witnessed a sharp rise when it reported revenue in the third quarter earnings and the suggestions of possible buyout. However, this rally didn't settle well with one too many analysts and they scrutinized the prospects of the company to the point that it fell to pre-rally price levels. In my last update on Organovo, I advised investors to take partial profits because the company had already seen a pretty impressive run. However, against my expectation Organovo has decided to issue more shares and dilute of investor holdings.
Most of the bearish writers believe that Organovo is overvalued and that the product, bio-printed human liver assays, may not hold much promise. Furthermore, there are also beliefs that the revenue estimates of hundreds of millions may just be over-optimism and the company is barely going to generate few millions. The detailed bearish article on Organovo that crashed the share prices on November 19th outlined that there is little or no blockbuster potential in the company's product and it's faced with tough competition. Furthermore, the author also pointed out that the company's product, expected to launch in December 2014, is far away and the market size is a few thousand units. Following, this article many other authors also turned bearish on the company and its technology which caused the shares prices to continue the downward trend.
Shares of the company also dipped following the announcement of its ATM program. Under this equity distribution agreement with JMP Securities LLC, the company may offer shares of up to 4 million from time to time. This is will help the company raise the required cash but is detrimental to the value of the stock. The company hasn't currently sold any shares and doesn't intend to do so except to cover the shares sold by employees to cover their tax withholdings. However, whenever the company makes use of its ATM facility the stocks are expected to dip.
However, since December started the 3-D printing industry has regained some of its momentum and shares of Organovo have also recovered some lost ground. This recovery has been driven by better understanding of the entire 3-D printing industry and some positive media coverage for 3-D printers. There has also been some buyout speculation around Organovo with some articles speculating that Hewlett Packard (HPQ) would acquire Organovo. This has sped up the recovery of the company shares and they continue to climb upward, closing at $10.10 on December 9. Furthermore, the details from the Piper Jaffray conference will also help the share prices to further rally.
The company as of late has been the subject of increased attention, from not only analysts but media as well. As opposed to other covered stocks, Organovo has a large retail stake which is one of the major reasons behind its erratic price movements.
The upcoming Oppenheimer Conference may help to shed light on the prospects of the company and is expected to help the shares to rally. Of course, price dips are expected in the future, not only because of bearish articles and negative sentiment, but also because of the ATM program and the subsequent shares offering, no matter how beneficial it may be for the future of the company.
Consistent with my previous assessment, I still believe that Organovo has the potential and is a good long term investment, and that 3-D printing is indeed the next big thing. The company indeed has a long way to go before it can turn to profitability, but the liver assays that it expects to launch in December 2014, is the company's eventual ticket to becoming profitable, if not right away. It has many benefits as outlined in my previous article, and will indeed help to revolutionize the way clinical trials are run and help bring down the colossal costs associated with testing. At this stage looking at profitability or sales is not the right metrics to judge Organovo. It is more comparable to development stage biotechnology companies which can take decades to turn profitable or eventually give a winning product.
Despite the negativity surrounding the company, I still believe Organovo has some winning technology on its hands. However, this is not a recommended investment for the impatient or the risk averse. If you got in below $6-$7 hold on, but considering the eventual dilution it is not advisable to buy at these valuations. Investors who do believe in this technology should wait for the dilution and buy on post-dilution price dips.