Shares of Organovo Holdings (ONVO) have traded all over the map during the month of October, surging from just below the two dollar mark to well over three on strong volume when the company and its sector received high-profile coverage from reputable media outlets at the mid-month mark. The volatility has subsided, however, and shares have simmered down again as the day, swing and momentum traders moved on with profits following the run. Remaining investors - and potential new ones - will be investigating for themselves whether or not Organovo has what it takes to become a winner again, whether it be over the speculative short or the validated long term. The key - as is usually the case with still-developmental companies - lies with the technology, and it's the technology that may have this company riding the wave of the future in medical research and development.
Organovo has developed the NovoGen MMX Bioprinter, a technology that uses live human cell samples to generate 3D "bioprints" of human tissue. Once generated, these 3D prints can then be used as disease models that enable therapeutic drug discovery and development. With the ability to print living tissue in desired shapes and functions, Organovo could potentially put this technology to use in generating organs for patients awaiting transplants, further on down the road.
What has offered this company and its stock a boost since becoming public through a reverse merger at the beginning of 2012 is that the NovoGen technology straddles two very high-profile, and potentially very lucrative, sectors - the 3D printing and regenerative medicine sectors. That fact alone - without even looking at the potential impact and/or implications of the NovoGen technology - has provided the basis for the recent flux of investor interest and high profile media coverage. Aside from the above-linked CNBC mention in October, Organovo also received coverage from the Wall Street Journal in September and, even as far back as 2010, from The Economist, which highlighted the potential of Organovo to eventually "print" human organs.
With interest rapidly growing in these next-generation sectors, there is little doubt that the potential is there for Organovo to capitalize on the growing trends of medicine and technology and position itself to play a large role in the future of medical research and development. In the meantime, the company will look to build validation of its technology and investor base from the ground up. For still-developing companies, such validation can be achieved by attracting analyst attention as well as attracting the collaborative interest of high-profile partners.
Currently, Organovo is on track with both.
Earlier this year Zacks.com initiated coverage of the company with a rating of 'Outperform' and a price target of $3.25. The price target materialized fairly quickly, with ONVO reaching nearly $3.40 at one point last month before retreating back towards two. Two high-profile partnerships have already been landed - signed before the company was public - and lay the groundwork for future collaborative efforts.
These partnerships - with Pfizer (PFE) and United Therapeutics (UTHR) - have already generated over a million dollars in cash, combined, and both deals have the potential to turn into something bigger. The Pfizer relationship, in particular, is worth watching right now as the current agreement is set to expire at the end of this year. Should the two entities look to continue their partnership, based on the results of completed research, it would provide a potential near-term catalyst for ONVO. Investors should take note of this potential catalyst, as a continued relationship with Pfizer would provide another layer of validation for the NovoGen technology and potentially provide Organovo with more lucrative monetary terms moving forward.
The United Therapeutics relationship holds intrigue in itself. Like the Pfizer deal, it also has the potential to turn into something more. UTHR currently retains the option to acquire a license from Organovo in relation to the results of the ongoing collaborative effort and such a license - if the option is enacted - would provide Organovo with up-front cash money and a future revenue stream from royalties paid. Both would be considered vital components of the company's financial plans of the future and also very considerable signs of validation for the still-proving-itself technology.
Organovo will also, of course, look to bolster its own financial position through additional partnerships. Through the Zacks model, such deals could come with up-front money at around a million bucks/per - an increase over the up-front money associated with the Pfizer and United deals - with more significant milestone payments possible and a modest royalty stream on the back end. Such deals could be the mark the beginning of a movement for Organovo, given that the overall market growth of regenerative medicine over the coming years. It is expected that the market for regenerative medicine, including 3D bioprints, could reach heights in the billions of dollars as the technology expands. Should Organovo reach the 'holy grail' of its technology - which would be generating organs for transplants - then the worldwide implications could certainly support an overall market cap well into the billions.
For the time being, however, investors will look for the accomplishment of smaller steps while keeping in mind that potential for the future. According to the Zacks report, the most significant upwards momentum is not expected until 2015. That said, speculative investors like to be in while a stock and a company is still speculative - which is usually before the upwards momentum begins. That's why those with an eye towards the future may take a look at ONVO on the dips as a potential accumulation play.
As of the most recently announced financials, Organovo is sitting on about eight and a half million in cash, leaving the company on track to fund its way through the better part of 2013, assuming the current burn rate continues. While dilutive financing events are always a threat for still-developing companies, investors will also be watching for any announcements of new collaborative efforts that would land immediate, up-front money. Such events would not only provide additional validation of the technology through the partnership itself, but they would also win over investors who are always looking for reasons to validate (or not) a company's management team.
With a potential next-generation technology and a fair amount of new investor interest rolling in as the result of some mainstream media reporting, Organovo is one to keep an eye on right now. The company looks to be positioning itself to capitalize on growing trends in both the regenerative medicine and 3D printing sectors while also attracting the interest and confidence of big players in the healthcare industry.
Disclosure: No position.
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