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Organovo’s Money Is on Measured Advances

Organovo’s technology sounds straight out of science fiction movies: 3-D printed tissues that emulate human organs. But, this story is shifting.

With the San Diego company’s stock slumping, Organovo narrowed its focus to two areas. Its tissues increasingly are used as models for evaluating drug performance in liver disease, a short-term revenue driver.

Organovo CEO Taylor Crouch at the company’s office. “We’re a biotech company. So this will be more of a long-term biotech value inflection story,” he said.

In the long term, Organovo’s tissue transplants — which aim to be a bridge solution for, say, a patient awaiting a liver transplant — could catapult the company to success. The technology recently won orphan drug status, smoothing its regulatory path.

Unlocking Value

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Combined, Organovo believes the short- and long-term moves will unlock value of its unique technology.

The company in February reported $1.2 million in third quarter revenue, flat year-over-year. But the results projected between $4.5 and $5.2 million in fiscal year 2018 revenue, higher than the $4.2 million in 2017 revenue. The company expects further revenue growth in 2019.

“There’s a huge range of clients that need to answer several questions, all of which could be enabled by our tissues,” said CEO Taylor Crouch, who joined the company a year ago and led the pivot away from a broader emphasis in toxicology.

Organovo, now almost 11 years old, came to prominence as a contract research organization, in which pharmaceuticals drew on its technology for testing drug toxicity. The company positioned itself as an alternative in clinical development, which is often reliant on cell cultures or costly mice and rat models that can fail to mimic effectively human diseases.

‘Patient on a Plate’

“There had been a hope that our earlier application could be in toxicology, which tends to be a higher throughput, much more conservative business, which already has a lot of good platform solutions in place,” said Crouch.

Organovo’s bioprinting platform pivoted to high-value disease models, the source of most third quarter revenue. Its 3-D printed tissues, in particular, lend themselves to liver disease research.

The company bills its bioprinted liver tissue as a “patient on a plate,” with the ability to observe various stages of disease progression.

This is key in identifying potential drug targets. Among its customers: San Diego-based Cirius Therapeutics, which recently reported early data on its drug reducing liver disease progression in an Organovo tissue.

Organovo’s tissues function up to four weeks, a comparatively long length showing effects that animal testing might not. In addition, rodent livers are much different than human counterparts.

“I use the simple example of one reason why rats have a bad reputation is they can eat just about anything and it didn’t doesn’t seem to kill them. So, their livers are not a very good model for human livers,” Crouch said.

NASH

Liver disease research is a hot area. Consider nonalcoholic fatty liver disease, linked to obesity and affecting about one in five U.S. adults, for which there are no approved treatments. The overall market for the disease’s progression to nonalcoholic steatohepatitis, or NASH, is expected to skyrocket, from $618 million in 2016 to $25.3 billion in 2026, according to research firm GlobalData.

Organovo is unique in offering 3-D printed tissues for disease modeling, an advantage over traditional methods. So said Brandon Couillard, an analyst with investment banking firm Jefferies.

Inflection Point?

He said investors will have to wait until the next quarter for signs of a company inflection point.

“Just waiting for better evidence of what sounds like good commercial interest in custom disease models to actually pull through in the form of revenue,” Couillard said.

In the long term, Organovo’s big play is in dollar-sized therapeutic tissues that can be implanted in humans. These tissues would treat inborn errors of metabolism, rare diseases that can lead to liver failure. There are few, if any, treatments.

In December, the U.S. Food and Drug Administration granted the technology orphan drug status, bringing development tax breaks and other benefits. Organovo is on track to begin human clinical trials in two years.

As revenue trends up, Organovo is still burning cash, though moving in the right direction. Crouch noted the company projects negative adjusted EBITDA, or Earnings Before Interest, Taxes, Depreciation and Amortization, of $25 million to $26 million in fiscal year 2018. The figure was $29.8 million in 2017.

The company ended the third quarter with $47.3 million in cash and cash equivalents.

Expects to Burn Significantly Less Cash

“We’ll exit this year burning significantly less, and I expect that trend to continue. So this is through focus, prudent cost management and growing revenues,” Crouch said.

Many biotechs burn cash for years before hitting it big, a parallel Crouch invoked.

“We’re a biotech company. So this will be more of a long-term biotech value inflection story.”

Three-D printing entire replacement human organs represents a tantalizing future. Organovo’s tissues may be a big step in that direction, though Crouch said this futuristic vision remains a ways away. Besides, the company doesn’t want to look too far in the distance.

“Meaningful, pragmatic and incremental steps — that’s how we’re leading the company,” he said.

This article has been updated to reflect that Organovo’s therapeutics tissues will begin clinical human trials in two years. An earlier version incorrectly stated Organovo hopes for FDA approval in two years.

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