What's Next for Organovo Holdings Inc.?

By Keith Speights Markets Fool.com

After a great 2016 with shares gaining more than 40%, Organovo Holdings (NASDAQ: ONVO) has lost ground this year. So far in 2017, the stock is down around 10%.

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What's next for Organovo? Here's what the 3D bioprinting pioneer faces in the months ahead.

Image source: Getty Images.

More validation

There was one big reason behind Organovo's drop earlier this year. The company slashed its fiscal-year 2017 revenue guidance in February, from a range of $4.5 million to $6.2 million to a range of $3.7 million to $4.5 million. This reduction stemmed from a change in the timing of some customer orders, due to "requests for additional validation studies related to certain use cases and for qualification of an additional cell source."

Organovo CEO Keith Murphy stated that the company was working hard to address the issues with additional scientific studies. He didn't think there would be a long-term impact for Organovo. However, revenue that the company expected to be booked in fiscal year 2017 would be pushed back to fiscal year 2018 (which began on April 1).

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The request for additional validation wasn't just with one customer. When asked about how many contracts were affected, Organovo CFO Craig Kussman replied that the number was somewhere in the "mid-single-digit range."

A key question for Organovo is how big the delay of revenue will be. Keith Murphy wouldn't say how long the studies would take to complete. However, he stated that the company is highly confident that customers' needs will be met. Investors should anticipate a status update on this when Organovo announces its fiscal-year 2017 fourth-quarter and full-year results.

Forging ahead

While Organovo hit a speed bump with the requirement to perform additional studies, the company is moving ahead with two important initiatives. Murphy spoke in November about Organovo's plans to offer metabolism studies to its customers. He indicated that these additional services could double the company's annual revenue potential.

Organovo has already hired initial staff to support the metabolism studies. The company has also purchased the equipment needed to offer the new services. Although there will certainly be a ramp-up as Organovo begins marketing its metabolism studies, it shouldn't take too long to find out if estimates of a doubling of revenue are realistic.

However, it will take significantly more time to know whether Organovo's second big initiative will pay off. The company is advancing bioprinted human liver as the first candidate in its therapeutic-tissue portfolio.

Early preclinical results were promising. Organovo implanted its 3D bioprinted human liver tissue in mice. The tissues remained intact in the mice's livers and were well tolerated. More important, Organovo's researchers found evidence of stable production of key human liver proteins in the animals' bloodstreams.

Over the next several months, Organovo will finalize its tissue design. The company will then conduct disease-modeling studies in small animals. Both steps are prerequisites for partnering with contract research organizations and advisors to lay out the design and scope of clinical studies in humans.

Organovo hopes to submit its investigational new drug (IND) application in 2020. If the IND is approved, the company could then begin phase 1 testing. If all went well, more testing for safety and efficacy would follow. Organovo is at best looking at six years (and probably more) before seeing real fruit from its therapeutic-tissue program.

Making progress

For now, Organovo's bread and butter is its 3D bioprinted human liver tissue used in toxicity testing. Its bioprinted kidney tissue is also now generating revenue for the company.

In February, Organovo published data in Frontiers in Physiology about its bioprinted human kidney tissue. In March, several of the company's scientists, and researchers from a couple of major customers, presented at the Society of Toxicology's annual meeting. These efforts are more important than they might seem at first glance. The more scientific studies that are presented and published showing the value of its bioprinted tissues, the easier it will be for Organovo to attract new customers.

Organovo should continue to experience triple-digit revenue growth as adoption of bioprinted tissues increases. What happens in the remaining months of 2017, particularly with the additional validation studies and progress in the new metabolism-service offerings, could indicate how long it will take for the company to reach profitability.

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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.