Shares in 3D bioprinting company Organovo (ONVO) gained ground on Wednesday, popping 9.16 percent on above-average volume. The company has recently been in decline, falling over 45 percent year-to-date, as momentum from late in 2013 starts to flag and concerns over the company’s valuation have started to surface.
Today’s gain may be a result of the markets collectively waking up after yesterday’s across-the-board sell-off among 3D printing stocks following an earnings miss by 3D Systems Corporation (DDD) . This sell-off, which hit Organovo’s shares to the tune of a 4.12 percent decline, appeared to be a sign that 3D printing stocks continue to trade as a monolith, with bad news for one company often viewed as bad news for the entire industry.
Organovo NOT Just Another 3-D Printing Play
However, Organovo clearly exists outside of the norm for 3D printing stocks. The company is focused on 3D bioprinting, generating human tissues that can sustain function for long enough to be useful in clinical tests. There’s a very large market there considering just how much money pharma companies could save by identifying treatments that aren’t viable well before they engage in costly, time-consuming patient trials.
After demonstrating that it could create human liver tissue capable of sustaining function for up to 40 days in November of last year, the stock became a hot momentum play. And the news on Monday appeared to indicate that the company is cruising forward with its plans to a 2014 launch of its products as the company reported that major pharmaceutical firms were expressing a clear interest in what Organovo had to offer.
“Organovo has received interest in advance of our planned launch from top 15 pharma company customers, small to midsize pharma companies, biotechnology companies, and private venture capital backed pharmaceutical development firms,” said CEO Keith Murphy on Tuesday. “The compelling data already generated on the performance of the 3D Human Liver Tissue has driven this interest, we believe, and I’m pleased that our team was able in a short time to accomplish all of the hard work that allowed us to begin signing contracts. We’ll be able to deliver results for proprietary compounds and other needs, while completing the work for fuller product and service launch on our original timeline.”
Monday also brought the announcement that Ogranovo would be pre-releasing its 3D human liver tissue to certain select clients in advance of its full release scheduled for later this year. So, unlike most biotechs and many 3D printing stocks, Organovo can claim a working technology with a clear path to sales and revenue in the near future.
Beware of Momentum Selling and Short Interests
At the moment, it seems imminently possible that most of the action surrounding Organovo’s stock since November is mostly just noise. The company’s huge spike followed by its lengthy decline has every indication it’s being driven largely by technical factors and momentum selling rather than the sort of solid, fundamental-based research put into Equities.com’s Small-Cap Stars. What’s more, the company has been relatively light on any actual news items that could be driving the gains and losses.
Organovo’s critics abound, as the company’s short float in excess of 20 percent would indicate. In fact, much of the most-recent bout of selling appears to have been at least partially motivated by research reports produced by Simeon Research, a firm that appears to have been created entirely to issue negative reports about Organovo.
However, the shorts appear to be getting desperate. Much of the criticism in Simeon’s reports focused on how printing full human organs appeared not to be viable based on current technology. But, while Organovo isn’t shy about pursuing the 3D printing of fully functional human organs in the long term, the company’s immediate plans are entirely focused on the execution of the 3D bioprinting of tissue samples for clinical toxicity tests, a technology it has already proven to be effective and is preparing to commercialize and market this year.
In fact, Simeon Research’s failure to attribute its reports to an author combined with some rather unscrupulous cherry-picking of quotes from a video of one of the company’s founders, Dr. Gabor Foracs, should be clear indicators that the report is not a reliable source of information.
Technical Data, Broad 3-D Printing Sell-Off Seems to be Driving Price Shifts
Without a clear motivation beyond bogus research reports and lumping Organovo in with other 3D printing stocks, the decline of Organovo in 2014 may not be rooted in anything beyond simple momentum selling. And, looking at Wednesday’s jump, it looks as though technical factors may be the primary factor driving the pop as the stock appeared to be dipping strongly into oversold territory in the days prior.
On April 25, Organovo’s stock dipped below 30.0 in its 14-day RSI and dipped below its bottom Bollinger Band, both key technical signs that the stock is oversold. And while the market reaction took a few days to kick in, the bounce on Wednesday seems a clear reaction to these factors.
What’s more, a longer look at Organovo’s stock chart for 2014 so far would seem to indicate it is technical factors driving most of the stock’s trading action. Dating back to its November spike, the stock has approached or crossed that 30.0 14-day RSI boundary while simultaneously touching or falling below its bottom Bollinger Band five times thus far this year, and on each and every occasion the stock responded with a brief rebound over the next few days.
This, combined with the company’s short float, would seem to indicate that stock’s currently beset by momentum and technical traders who are driving the price up and down. The stock has a lot of eyeballs on it, and traders looking for big intraday swings appear to be having an undue influence on the current share price.
It’s also notable that 3D printing stocks as a whole are down sharply in 2014, with 3D Systems, Voxeljet (VJET) , and ExOne (XONE) all showing steep declines since the start of the year. As such, much of this momentum selling could be motivated by what’s perceived as an industry trend, with initially hot 3D printing stocks suffering through a correction. If this is the case, Organovo’s inclusion in this group would be hard to defend. Aside from using a somewhat similar technology, Organovo’s projected market for its product would appear to be totally distinct from these other 3D printing companies.
Company’s Success Will be Defined by Success or Failure of its Product, Not Technicals
A lot of this appears to rely on Organovo’s continued lack of revenues, something that is most likely going to change this year. As Organovo actually starts rolling out their product and generating sales, much of these question marks should start to fade away. The sort of momentum-driven whipsaws that have characterized Organovo’s stock over the last few months are precisely the sort of thing that tends to get totally obliterated by a few good earnings reports. This is doubly true if some of this selling is being driven by a market perception that 3D printing stocks are a monolith. Even if it’s true that the rest of the industry is, Organovo specifically should easily differentiate itself from these other companies as the markets become more familiar with these companies.
If one is ready to believe that Organovo’s price movements over the last six months were driven largely by technical traders and short interests, that could make Organovo’s current valuation a real buying opportunity. It’s inclusion in the Small-Cap Stars is a sign that its fundamentals indicate a company with a relatively high probability for future success.
And with the launch of its 3D Printed Liver Tissue to the broader health care industry, Organovo has the potential to tap into a huge market. The global pharmaceutical industry currently spends $65 billion a year developing new treatments, a number that Organovo’s technology has the potential to drastically reduce should it prove successful once reaching the market.
Obviously, should Organovo come back with sales numbers lower than expected in the coming months, it would demonstrate that there was more to the current short interests than just overenthusiasm for the current trend. But likewise, if they exceed expectation, the shorts currently banking on Organovo failing will be in serious trouble.