The Organovo (NYSEMKT:ONVO) Saga

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By David Scouts on October 24, 2014 Company

In this time and age we see new businesses, new companies emerging on a regular basis. People are more experimental with their ideas and even more willing to take risks. Then there are those who support these companies, financially. These are risky times for investors too as the target market is more knowledgeable and more up to date. They can’t be fooled in anyway. So when one thinks of starting a business all these aspects need to be considered.

Some businesses become successful immediately and some take their time. All this depends on your product or services, who your target audience is as well as the business strategy. In case of health care sector their success depends highly on what’s in the pipeline.

One name that has lately come under light is Organovo Holdings (NYSEMKT:ONVO). Investors are worried that the company maybe running out of cash reserves.

A brief look into Organovo (NYSEMKT:ONVO)’s business can help us determine whether it really is in trouble or not. Organovo (NYSEMKT:ONVO) was founded back in 2007 in California. The company is a developing medical laboratory and research company. The prime product of the company is the 3D liver tissue system, which is to be launched this year. Hospitals, drug developers and researchers are looking forward to this system as it could help them determine drug safety and efficiency a lot quicker than before. A sample of the system has already been distributed to selected 400 opinion leaders, which would not only give them a feel of the product, but will enable them to give Organovo (NYSEMKT:ONVO) their feedback.

The second quarter earnings of Organovo (NYSEMKT:ONVO) rounded up to $44.9 million in cash, which was a loss as compared to the $48.2 million earnings the previous quarter and from $56 million in August last year. The company managed to dispose off a large chunk of $11 million in just a year. It seems as the development process is getting into its last stages, the costs is shooting up and if the 3D liver tissue doesn’t get accepted by the market the remaining cash would soon diminish as well, but at this stage that seems unlikely.

Organovo (NYSEMKT:ONVO) does have other options to generate additional funds but at this stage let’s assume these funds come through immediate sales of the 3D liver. For this to happen the company needs experienced sales people to not only retain existing clients, but land new ones. Landing new clients might not be possible until the product creates a reputation for itself. With no other product in the market giving the clients what Organova has to offer, it just might not be that difficult. Researchers would be dying to get their hands on a product that could cut half their research time and bring liver based drugs into stores.

Another proposal could be to license out their product or receive up-front payments. Organovo (NYSEMKT:ONVO)’s recent partnership with Johnson & Johnson (NYSE:JNJ) might help generate future revenues.

Eventhough the cash situation seems like a problem at this stage, but once this Organovo (NYSEMKT:ONVO)’s product is launched on December 2014 and sells as well as expected then all these challenges will drift away on their own.