Better Buy: Organovo Holdings, Inc. vs. United Therapeutics Corporation

By Keith Speights Markets Fool.com

Pitting Organovo Holdings (NASDAQ: ONVO) against United Therapeutics (NASDAQ: UTHR) might seem a bit strange. Organovo is much smaller than United Therapeutics. Their products have little in common.

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However, both of these healthcare stocks have increased by similar levels over the past 12 months. One or both of them could reward investors even more in 2017. Which stock is the better buy now? Here's how Organovo and United Therapeutics stack up against each other.

Image source: Getty Images.

Organovo: Game-changing technology

If you are intrigued by the potential for what could be a game-changing technology, Organovo might be a stock to seriously consider. The company is a leader in the development of 3D bioprinted human tissues.

Organovo's management believes its two current products, ExVive human liver tissue and human kidney tissue, could generate annual sales topping $100 million each in the future. The company isn't profitable yet, but its revenue is rapidly growing.

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Eleven of the top 25 global biopharmaceutical companies already use Organovo's 3D bioprinted tissues. These tissue models offer several advantages for drug developers, including the ability to detect toxicity much sooner than other alternatives.

Organovo did run into a speed bump recently, though. The company cut its revenue outlook for fiscal year 2017 due to some customers requesting additional validation studies before using its 3D tissues.

Also, despite the promise of its technology, Organovo's revenue remains quite small. The company expects to make no more than $4.5 million for the current fiscal year.

However, Wall Street analysts expect Organovo's stock to perform well over the next 12 months. The consensus estimate calls for an increase of more than 50% above the current share price.

United Therapeutics: Great past, but looming patent decision

United Therapeutics currently claims five products on the market with a special focus on treatments for pulmonary arterial hypertension (PAH). Remodulin and Tyvaso are the company's biggest moneymakers, followed by Adcirca and Orenitram. United Therapeutics also markets Unituxin, a second-line treatment forhigh-risk neuroblastoma.

The drugmaker has achieved impressive average annual earnings growth of 33% over the past five years. During that period, United Therapeutics stock soared over 250%.

However, the company faces some key challenges in the future. Generic rivals to Remodulin should reach the market in mid-2018. United Therapeutics is also involved in litigation related to the validity of a key patent for the active ingredient of Remodulin, Tyvaso, and Orenitram.

The outcome of that litigation is critical for the company. Although United Therapeutics expects to receive regulatory approval for six products over the next three years, half of the products build upon the company's current drugs.

Investors who have confidence that United Therapeutics will prevail in its legal battles will probably like the stock's valuation. Shares currently trade at less than 12 times forward earnings.

Analysts, however, don't appear to be very confident about the stock. The average estimate is for United Therapeutics' earnings to drop by more than 2% annually over the next five years.

Better buy

Both of these companies have enjoyed success in recent years. However, both must also overcome significant obstacles to win in the future.

I think I'd rather have Organovo's set of problems than United Therapeutics'. For the most part, Organovo's fate rests in its own hands. The company must show that its 3D tissues offer the benefits that customers expect. Past studies indicate that Organovo will be able to accomplish this goal.

United Therapeutics, on the other hand, must defend a key patent for which the U.S. Patent and Trademark Office has already sided on a preliminary basis with the company's rival. The company's prospects of ultimately prevailing are up in the air.

As farmers might say, Organovo has a long row to hoe. However, the company's 3D bioprinted tissues appear to hold significant promise for drugmakers. I think the stock will bounce back from its recent drop.

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Keith Speights has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.