Here's Why Organovo Soared as Much as 14% Today

By Markets Fool.com

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What happened

Tissue-engineering company Organovo Holdings (NASDAQ: ONVO) climbed as much as 14% just before noon EDT today, after announcing that its ExVive Human Kidney Tissue was generating strong customer response following its recent launch in September.

So what

The ExVive product is designed to allow researchers to more effectively assess drug toxicity. The 3D structure of Organovo's tissue samples is a more accurate representation of the complexity of the human body than 2D modeling. While there's a long way to go in recreating that complexity, even the early days of tissue engineering mark significant improvements in several important quantitative metrics. That's because most drugs end up failing clinical trials -- even late-stage clinical trials -- due to toxicity. If the pharmaceutical industry could learn of drug-tissue relationships earlier in the development process, then it could slash billions from drug development expenses and devote more resources to more promising therapeutic candidates.

In other words, on paper the potential value promised to be delivered by tissue-engineering products is tremendous. There's just been a problem with the delivery part. Will this time be different?

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Perhaps. Since launching in September, the ExVive human kidney tissue launch is receiving a "strong customer response," according to Organovo. Investors are left to determine if that is synonymous with "demand" or whether the response will have a meaningful impact on the top line. That aside, investors applauded the update, especially the disclosure that Organovo has commercial orders from two top-25 pharmaceutical companies.

Now what

On one hand, any sign of market traction is a big deal for Organovo, which has struggled to achieve meaningful growth in the last several years. The innovative products in its portfolio have failed to find their footing or provide more than a trickle of quarterly revenue. The technology may have arrived too early to be appreciated.

On the other hand, this "newsworthy development" probably didn't deserve a press release. Investors have been here before with Organovo: Products are launched and minute details on market development are released, but they never seem to translate to growth for the top or bottom line. While the company managed to grow revenue 187% in the second quarter of 2016 compared to the year-ago period, it's still only generating a paltry $890,000 in quarterly sales. That's not going to reverse the tide of quarterly operating losses any time soon.

Investors will need to continue to have patience with Organovo. The potential is certainly there, but a lack of execution should not go unnoticed.

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Maxx Chatsko has no position in any stocks mentioned. Follow him on Twitterto keep up with developments in engineered biology and materials science.

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