Organovo Holdings, Inc. (ONVO)

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http://seekingalpha.com/article/2994266-is-there-still-room-for-shorting-organovo?page=2

Akshansh Gandhi
Long/short equity, growth at reasonable price, tech, biotech
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Is There Still Room For Shorting Organovo?
Mar. 12, 2015 3:19 AM ET | 27 comments | About: Organovo Holdings, Inc. (ONVO)

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)
Summary

Organovo's liver tissue may not be able to live up to the hype.
The company is trying to distract investors along new business lines to hide its failures.
The dilution fiasco will not stop any time soon.
There's still room for investors to short Organovo.

About three months ago, I wrote an article on Organovo (NYSEMKT:ONVO) titled "These Headwinds Make Organovo A Short Candidate" recommending investors to short the stock. Since then, the stock has lost almost 25% of its value. The speculative 3D printing company was expected to move higher when it launched its first product called exVive3D Human Liver Tissues in November. However, the company has continued to disappoint investors. There are several reasons why I think Organovo is still a short candidate. Let's take a look at those reasons one by one.
Liver assays may be a flop

Organovo's exVive3D Human Liver Tissues were developed to save big pharmaceutical companies a lot of cash. Big pharmaceutical companies spend billions of dollars in bringing a new medicine into the market that eventually fail due to undetected liver toxicity. Organovo states that its liver tissues identify these toxicities sooner, saving the pharmaceutical companies a lot of cash.

While this sounds nice, in a recent letter to the shareholders Organovo's CEO Keith Murphy didn't mention the financial impact the liver assays will have on the company. Instead, he outlined the benefits of an expanded strategic focus in order to drive long-term value creation. The liver assays have been out for over four months now, and the fact that Organovo's CEO didn't mention its financial impact and is instead trying to distract investors along new business lines indicates that the liver assays may be a flop. Note that exVive3D Human Liver Tissues is the company's only product, and prior to its launch, it was expected to rake in millions of dollars in revenue. Hence, its absence from the letter is suspicious, and I doubt that it can produce substantial revenue.
Distracting investors and diluting

In my previous article, I highlighted the fact that Organovo may soon run out of money and dilute shares. Since then, Organovo has offered two secondary offerings in order to raise money for future business initiatives. As I mentioned above, I think the company is trying to distract investors from the fact that the liver assays may not bring in any substantial revenue. The company has consistently diluted shares by making fake promises and has failed to deliver. Thus, I don't think the company's new business initiatives will reap any benefits. Going forward, I believe Organovo will continue burning cash and diluting shares, which is why I think there's still room to short the stock.
High short interest and insider selling

As it turns out, I'm not the only one who thinks Organovo is a great short as the short interest in Organovo has been high for a very long time. As of February 27th, there was short interest totaling 16,499,254 shares. This means that nearly 23% of Organovo's shares are sold short. Such lofty short interest levels will limit Organovo's upside and also points to the fact that many investors don't believe in the company's fake promises.

In addition to the high short interest, investors should also be cautious about the insider selling. Organovo executives Barry D. Michaels and Eric David have sold over $100,000 worth of shares in the past few months. Given that the company's liver assays were expected to bring in millions of dollars in revenue, I find the insider selling suspicious. Since Organovo is a speculative stock, the success of its liver assays would have sky-rocketed the stock higher. However, the insider selling points to the fact that the liver assays will not live up to the hype.
Conclusion

The hype surrounding Organovo's liver assays was huge and if it fails to deliver, the stock will crash. Due to the reasons cited above, I believe that the liver assays will not bring in any substantial revenue. Moreover, despite the 25% drop, Organovo's P/S ratio is above 900. The stock is wildly overvalued, and the company is yet to report a profit or positive cash flow. Therefore, I think there's still room for investors to short Organovo.