This has been a year Organovo Holdings Inc. (NASDAQ: ONVO) investors would like to forget. Revenue growth has come to a halt, inciting the market to lop off roughly half of the company's market cap in 2017.
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While it seems the market for printed human tissue should be enormous, Organovo's losing more money now than at any point in the company's history. Is there a turnaround in the cards, or will the losses widen further over the next five years?
Shelving new drug candidates because of liver toxicity issues unveiled in the laboratory is a lot less expensive than ending big clinical trial programs after they enlist armies of healthcare professionals, statisticians, and patients. With this in mind, the market had big expectations for Organovo's exVive3D Human Liver Tissue when it launched three years ago.
Despite some early interest, the bioprinted tissue hasn't been able to compete against cheaper, simpler options. In the first half of the year, the company reported a disturbing reduction in contracts for its liver toxicology services.
However, total product and service revenue grew 12% because of some surprising new sources of sales. Organovo set up the Samsara subsidiary to ensure a constant supply of the primary human cells used in its own tissue printers but has also been selling primary cells to clients at a profit.
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Organovo's printed liver tissue might be too expensive for simple toxicity screening, but they can also be used to model a specific problem drug developers are trying to fix, such as non-alcoholic steatohepatitis, high cholesterol, or cancer. In the first half of fiscal 2018, approximately 65% of Organovo's orders represented disease-modeling projects.
Disease models and individual primary cells may not be the growth drivers we expected years ago, but it's encouraging to see that the company's new CEO, Taylor Crouch, has some near-term opportunities to focus on. Keep your eyes open for a lot more service revenue from these two contributors in the year ahead.
From models to therapies
As disease modeling services gain steam, Organovo will also take steps toward launching the world's first printed therapeutic liver tissue for the treatment of rare diseases. The company thinks the therapeutic liver tissue market is worth more than $3 billion annually, but this operating segment won't be contributing to the company's top line for quite a while. In fact, management doesn't expect to begin testing its printable human liver tissue in humans until late 2020.
Earlier this year, Organovo released results that showed its bioprinted liver tissue was capable of engraftment, retention, and functionality through 125 days, plus it reduced biomarkers associated with disease activity. However, these results come from animal models, because the biological product isn't yet cleared for human studies yet.
Management doesn't expect to have an application for human testing ready until late in 2020, which means the first therapeutic liver tissue will either be in clinical trials or the scrap pile five years from now. While early pre-clinical data is encouraging, we really can't gauge the tissue's chance of eventually earning an approval before we see data from a human proof-of-concept study. Roughly 1% of new drugs in pre-clinical development eventually enter the FDA's review process, and even fewer cross the finish line. Tissues printed with human cells aren't conventional drugs, but the odds of an eventual approval at this point are still too slim to consider.
Another offering ahead
While the outlook for eventual therapeutic tissue sales is extremely fuzzy, but there are a couple of predictions I can make with nearly absolute confidence. Organovo's operating expenses are about to soar, and the company will need to raise capital just to keep operations running.
Revenue of just $2.3 million during the six-month period ended this September was stretched awfully thin over operating expenses that are about to get a lot bigger. Organovo lost $19.6 million during the six month period, which suggests the $50.7 million cash balance on the company's balance sheet will need replenishing in 2018.
With its lead product in decline, and the outlook for its therapeutic business still undefined expect the company to choose a dilutive share offering over issuing debt. At recent prices, a secondary offering that doubles the company's outstanding share count would only raise about $164 million before banks extract their fees.
That would only keep the lights on for a few years at the company's present cash burn rate, but it's about to get a lot faster. Without surprising sales growth in the quarters ahead, Organovo therapeutic ambitions will be extremely difficult to sustain.
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