Why Tiny Organovo Is Giving Money to Huge Biotech Amgen
In the first half of 2017, Amgen (NASDAQ: AMGN) paid out 140 times more in dividends to its shareholders than Organovo Holdings (NASDAQ: ONVO) made in revenue -- during its entire history as a company. Of course, Amgen's market cap stands north of $120 billion, while Organovo's market cap is barely over $200 million. That kind of stark difference is to be expected.
But just a few days ago, Organovo announced that it was giving money to researchers at Amgen. Why is the tiny 3D bioprinting company handing over cash to a huge biotech that doesn't need the money?
More to the story
There are a few important details to note about Organovo giving money to Amgen. Organovo established the ExVive 3D Tissue Application Award to foster exploration of new applications of its 3D bioprinted liver and kidney tissues. The company had many applications for the award. Researchers at Amgen and at privately held biotech Medikine were the winners. Organovo stated that the Amgen and Medikine teams submitted "the two most creative and novel proposals with the aim of bridging preclinical and clinical research."
Taylor Crouch, Organovo's CEO, said the grant program allows his company to "work closely with partners to design 3D tissue solutions in vital areas of high-value drug profiling." Organovo will perform the proposed projects itself in collaboration with the two winners. According to Crouch, Organovo benefits by being able to support the increased demand for translational in vitro models that appeal to a broader customer base.
But Amgen and Medikine stand to win also. Cindy Afshari, Amgen's vice president of comparative biology and safety sciences, said that her company makes considerable efforts to develop better in vitro models that can predict potential safety issues during pre-clinical testing of an investigational drug. Afshari explained that "current in vitro models lack the sensitivity to detect drug-induced fatty liver, a common reason drugs fail in clinical development, due to a variety of technical limitations."
Medikine chief scientific officer Bill Dower expressed a particular interest in the potential for Organovo's 3D bioprinted kidney tissues. Dower thought that Organovo's Exvive kidney tissue was an "excellent tool to study progression and reversal of fibrosis because of its multicellular nature."
Interest appears to be high among biopharmaceutical companies for Organovo's technology. However, some potential customers also seem to be taking a "show me" stance.
Earlier this year, Organovo slashed its guidance for fiscal year 2017 as a result of requests for additional validation studies by several customers. Organovo has achieved some successes in the past with presentations and public data. However, those weren't enough for some customers.
The company is moving forward with the validation studies necessary to win more orders. Organovo's research and development spending in its latest quarter rose 13% year over year in large part because of those studies. That should be money well spent if the studies help demonstrate the effectiveness of its 3D tissues.
While not directly related to the validation studies requested by customers, the awarding of grants to Amgen and Medkine could eventually help Organovo in making its case for the value of its kidney and liver tissues. Once the company can convincingly show that its products help accelerate the drug discovery process, allowing drugs to be developed faster and more inexpensively, Organovo could have customers lining up to place orders.
A future Amgen?
It can be hard at times to remember that Amgen was once a small company struggling to make its way like Organovo is today. As profitable as the big biotech is now, Amgen started out losing a lot of money. It also worked hard to forge relationships with larger organizations -- just like Organovo is doing now.
Could Organovo eventually enjoy as much success as Amgen has? Maybe. The potential for the company's 3D bioprinted tissues is significant. That's especially true in the area of therapeutic tissues. One day, Organovo just might build tissues for use in surgical therapy and transplantation.
Admittedly, that day is still well in the future -- if it ever comes. Organovo remains a tiny company with a highly volatile stock. But collaborating with a big biotech like Amgen seems like a step in the right direction -- even if costs a little.
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Keith Speights has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.