Is Organovo Just Hype?

| About: Organovo Holdings, (ONVO)
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The technological advancements in the healthcare sector has considerably altered the quality of life for us over the years, and it may get even better if Organovo (NASDAQ:ONVO) is successful in doing what it is trying to do - print vital organs - despite the technological advancement, people still have to wait a long time in order to receive a transplant for an organ. Organ transplants have been around for over half a century now - some transplants are very common - but the main problem is the mismatch between the number of worthy recipients and the donors. As a result, some recipients have to wait in the long lines and some unfortunately lose their lives waiting for the donors. Would it not be great if we could just print the organs in 3D printers? This is what Organovo is trying to achieve.

Is it Achievable, or Just Hype?

With such a revolutionary concept, the viability of the idea will always be doubted. 3D printing has made massive strides over the past two-three years and the technology is becoming hugely popular with the consumers as well as manufacturers. The companies like 3D systems (NYSE:DDD), Stratasys (NASDAQ:SSYS), ExOne (NASDAQ:XONE) and Voxeljet (NYSE:VJET) have benefited massively from this boom in the industry over the past few years. However, printing plastic moulds, small industrial parts or action figures is one thing and printing completely functioning organs is a totally different matter.

Till now, the company has been able to print human tissues for the research and surgical purposes, on demand from its partners. These 3D printed human-tissues help physicians and researchers in the fields of cardiovascular medicine, transplant medicine and medical research. The company uses bio-ink (human cells) to produce tissues for its customers. Basically, scientists harvest stem cells from various tissues. The cells then form binding particles, which are inserted as a cartridge into the company's Bio-printer, in order to print human tissues. While we are still a long-way from seeing the company create a fully functioning organ, the ability of the company to create human tissues will go a long way in altering the drug testing procedure.

During the drug testing and approval process, a large amount of money is wasted due to the inefficiency of the drug tests. It is estimated that 20-50% drug candidates never make it to the human testing phase due to the ineffective nature of animal testing in the preclinical trials. Animal testing is not capable of effectively determining the affects of the drug on human beings. As a result, the demand for Organovo's products will be high as these companies will try to eliminate the heave expenses on the ineffective process in the preclinical trials. Its partnership with Pfizer (NYSE:PFE) was the first major success for the company as the partnership allowed Organovo to keep intellectual property and Pfizer paid for the research. What Organovo is trying to do is certainly achievable but we are still a long-way from seeing it happen. At the moment, the most realistic is the production of human tissues for the medical testing purposes.

Trend in the Stock Price: Past, Present, and the Future

Organovo falls in the category of the companies which are a trader's dream. A company with such a revolutionary technology is bound to attract a lot of excitement, which will certainly cause the stock price to go through the roof. However, before the viability of the technology the stock price cannot sustain its elevated levels. The same has been happening with Organovo's stock price. The following chart shows the trend in the price.

It is clear from the chart how the stock price has been behaving due to the hot and cold behavior of the investors since the company went public. The company issued its shares at $1.65 per share in its IPO at the start of 2012, and in less than six months, the stock had gone up six folds. The reason was the excitement surrounding the technology of the company and the future prospects if the company is able to successfully create fully functioning organs. However, as the investors realized that the revenue generation capabilities of the company are limited in the near future (no product to sell), the stock price came crashing down. After the first rise in the stock price, the trend in price remained favorable for the stock, and we have seen fluctuating but upwards trend in the stock price since the first fall.

At the moment, the stock is trading close to $9.70 per share. In my opinion, the future movement in the stock price will be upwards. The main reason is that the pharmaceutical companies will try to eliminate the billions wasted in the failed preclinical trials, and we might see further partnerships with Organovo. The companies will be willing to spend money on research with Organovo if it helps them eliminate a massive expense. As a result, the grants revenue as well as the product sales revenue has the potential to grow in the short-medium term. If the human tissues provided by the company give the desired result, then we will see a major shift in the drug testing process and Organovo will benefit hugely. In that case, Organovo's stock price will go up substantially and the rise in price will not be temporary, in my opinion - the stock will hold its position. In the short-medium term, I believe we should only focus on the revenues from partnerships and the sales of human tissues for medical testing purposes.


Organovo has been a speculative play and the traders have benefited from the volatility in the stock price. However, I believe the company is now slowly entering a phase where its technology is becoming viable and we will start to see revenues from the product sales. As a result, the stock will become a solid investment from a speculative play. I am a firm believer of the company's long-term potential; however, the short-term volatility in the stock price will still remain. Let's hope for the sake of every one of us that Organovo is successful in what it is trying to do as we are not getting any younger. The ability of the company to create a fully functioning organ will completely change the quality of life.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.