It doesn't take a genius to point out that all 3D printing companies are overvalued and Organovo is no exception to it. However, while shares of 3D Systems have appreciated because of hype and unrealistic expectations, Organovo has grown primarily due to increase in institutional ownership. Therefore, even though it is overpriced, I think investors should consider buying it as its value may not come down because of higher institutional ownership.
Moreover, since Organovo has embarked upon a completely different approach to 3D printing, it doesn't have to face stiff competition. By comparison, 3D Systems will have to compete against the likes of Stratasys (NASDAQ:SSYS), Voxeljet (NYSE:VJET), and ExOne (NASDAQ:XONE). In addition, since Organovo's technology is different and unique, its growth will not be restricted by the aforementioned problems.
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- ONVO 15-Year Financial Data
- The intrinsic value of ONVO
- Peter Lynch Chart of ONVO
Moving onto the growth prospects, Scientia Advisors has estimated that it sees a market opportunity worth more than $500 million for Organovo by 2018. As of now, the company has been successful in its attempt to develop functional liver tissues and it aims to broaden its portfolio to heart and kidney cells. For a company that presently has almost no revenue, this is a pretty big opportunity.
Furthermore, it is well known that drug companies risk losing billions of dollars when one of their drugs enters the market and then fails clinical trials, primarily because of liver toxicity. To solve this problem, Organovo is planning to make bio-printed liver assays available for purchase by December 2014. I recently read a bearish article claiming that these liver assays do not hold much promise because liver assays are already being sold, however this is not true.
Organovo's liver assays are nearly twice the thickness and can be printed with small lining of blood vessels, thereby making them a much better option for clinical testing than the presently available assays. In addition, Organovo has generated 3D printed livers which can last for almost 40 days (700% longer than its previous 3D printed liver).
Also, additional data shows that Organovo's 3D liver assays exhibit dose-dependent responses to acetaminophen, an identified liver toxicant, and that the poisonous effects can be assessed using both standard screening assays and histopathological assessment of the treated tissue. The data demonstrates that these liver assays can potentially have value in assessing toxicology problems in human liver over a lengthy period of time, including sub-acute and multiple dose effects.
Organovo has embarked upon a completely different approach to 3D printing, which will give it a competitive edge over other 3D printing industry players. Also, since the company doesn't have to compete against any kind of industrial manufacturing machines, time and money parameters are not an issue.
It is difficult to value Organovo at present since it is a developmental stage company. Its revenue over the trailing twelve months is just $1.14 million and so, conventional valuation metrics such as the P/E ratio or the PEG ratio won't be of much help.
A potential threat?
On the other hand, Organovo seems to be without any strong competitors. For instance, Yahoo! Finance lists no competitor. However, researchers at a Chinese university recently managed to successfully print human liver cells, with 90% of the cells coming out of the printer alive. But since it is not a big corporation, and given the fact that Organovo already has tie-ups with big pharma companies, it doesn't face much of a threat from the Chinese university at present.
Organovo is doing something pretty unique and it could prove to be a better buy for the long run. The market opportunity is huge for Organovo, as we saw above, and the stock looks set to yield good returns in the long run. If Organovo is able to achieve what it has set out to do, then it would probably turn out to be a great investment in the future.