During a recent earnings update, Organovo Holdings Inc (NASDAQ:$ONVO) announced a loss of -$39.78 million. Although this was expected from the company, some investors are starting to show concern as the company begins to burn more money than it is making. This factor will likely mean that the business will need funding in the near future, and this could lead to the dilution of current share values.
The company is currently chipping away its $54.97 million, with a negative operating cash flow of -$31.30 million. Analysts point out that constantly burning cash can quickly destroy a fledgling business. The high-growth biotech industry, in particular, is rife with unprofitable companies that operate in a highly competitive environment and are forced to continually spend money to keep up with rapid innovation.
Organovo’s opex (excluding one-offs) continues to grow at an alarming rate of 22.18% over the past year, meaning that continued at the current rate, the company will need funding in 2.1 years.
As a potential investor, these numbers can be a bit concerning. However, as with many companies, there is always some inherent risk, and this space ups the ante. But it’s critical to understand how the high opex could lead to further constraints down the line. On the other hand, you may find a better deal on share price when the company looks for funding in the coming years.
As a shareholder, you can better understand the risk by looking at these numbers. Holding onto the stock may be a dicey proposition in the coming years, as the company keeps searching for funding. As with any stock you have shares in, it’s important to dig deep and keep tabs on the company to best understand what you can expect from your investment.
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