Organovo Holdings CEO Leaves: Should Investors Be Worried?

By Keith Speights Markets Fool.com

Anytime an executive of a company leaves, it raises questions. That's especially true when a CEO abruptly departs.

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This is the scenario for Organovo Holdings (NASDAQ: ONVO). On Tuesday after the market closed, the 3D bioprinting pioneer announced that longtime CEO Keith Murphy was leaving. Should investors be worried with this sudden change at the top?

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Just the facts

Here's what we know for sure. Organovo stated that Murphy was leaving to "pursue entrepreneurial opportunities." His departure won't take effect until April 21, however.But Murphy isn't leaving Organovo completely. He will continue to serve as chairman of the board of directors. Murphy will also be an advisor to the company to help with the transition to a new CEO.

There won't be any waiting necessary to find a new CEO. Organovo named Taylor Crouch as Murphy's replacement. Crouch was CEO ofinvestigative clinical research companyeStudySite from 2009 through June 2016. He also helped lead two sister companies of eStudySite, serving as executive chairman ofMeridien Researchand as a director of thetheNational Research Institute in recent years.

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Organovo's lead director, Kirk Malloy, stated that the board supported Murphy's "decision to step down and agree this is the opportune time to bring Taylor on to leadOrganovoin its next phase of commercial growth." He added that the company appreciated Murphy's willingness to stay in a board capacity and as an advisor.

Just opinions

Murphy's departure definitely comes as a shock. However, it looks like this wasn't as hastily done as outsiders might think.Organovo's board had to have time to interview Crouch for the CEO role.

Crouch appears to be a pretty good fit. His previous company, eStudySite, conducts the kinds of clinical trials that Organavo needs to advance adoption of its 3D bioprinted tissues. Crouch has also worked with several drugmakers, so he should have a solid feel for what customers want.

I wonder, though, about the real reasons behind this change. Murphy supposedly is pursuing "entrepreneurial opportunities." But we're talking about a man who co-founded Organovo, a company that's developing potentially game-changing technology. Organovo is growing revenue at an astoundingly fast pace and seems to be on the verge of truly hitting its stride. How much more entrepreneurial can you get?

And as solid as Crouch's background is, it's not like he holds a huge advantage over Murphy. Both men have chemical engineering degrees from prestigious universities. Both have worked with major drugmakers. (Murphy was with Amgen prior to helping found Organovo and Alkermes prior to that.)

Could the additional clinical studies requested by customers that caused Organovo to slash its fiscal year 2017 revenue outlook have been a factor in Murphy's departure? It seems possible. The news came as a total surprise to investors and appears to have caught Organovo off guard as well. Perhaps the company's board decided that new leadership was needed.

However, if Murphy was pushed out the door, his continuation as chairman of the board seems odd, to say the least. Maybe he decided himself that it was time for someone else to take the helm to get the company to where it needs to be. Organovo's press release quoted Murphy as saying that "the time is right to bring in a CEO with the relevant commercial experience to lead the company into its next stage."

Worry time?

Organovo's share price fell nearly 8% at one point in after-hours trading following the news of Murphy's exit. That's to be expected. But should investors worry that the stock could drop a lot more?

My view is to remain cautiously optimistic. I don't think that Murphy would still be chairman if there was a scandal that isn't being disclosed. As best as I can tell from reading between the lines, his departure might have been somewhat of a mutual decision between Murphy and Organovo's board.Of course, if additional news comes out that reveals something more negative, worrying could be in order.

There's still a long way for Organavo to go to reach its lofty goals. Keith Murphy was instrumental in getting the company to where it is today. Bringing Taylor Crouch on as CEO could be a positive thing for the company over the long run, though. Clinical studies will be increasingly important for Organovo's success, particularly as the company advances its therapeutic tissue program.If there was going to be a CEO change, now was a good time to do it.

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