Shares in small-cap 3D-bioprinting company Organovo (ONVO) took a small hit on Tuesday following the release of “part II” of an attack on the company produced by the mysterious Simeon Research, declining just over 2.25 percent. Simeon, a company whose website features no contact information aside from an email and contains only the links to the two research reports giving Organovo a price target of $1.35 a share, is most likely the work of short-sellers trying to take down the stock, a position echoed by Organovo.
Following the release of Simeon’s first report on March 20, Organovo’s stock declined more than 19 percent over the next week, and today's decline would seem to indicate that the campaign, despite its extremely dubious source, could be moving the stock in the short term. However, a broader look would seem to indicate that, despite Simeon's claims, broader market trends are currently guiding Organovo's stock and Simeon Research's influence is negligible.
Simeon Research Appears to Cut Corners While Making the Bears’ Case
The initial report from March 20, entitled Organovo Holdings, Inc. (ONVO): Dissecting the Fairy Tale, asserts that Organovo’s bioprinting technology is “not pivotal to tissue engineering or organ fabrication” and that Organovo has mislead investors regarding its technology's capacity. The second part of the report, published today and entitled Bargaining with the Devil – How Organovo (ONVO) Used Fraudulent Brokers and Promoters to Sell its Shares and Story to Investors, highlights purported evidence that Organovo had engaged in a massive stock promotion scheme and that the company was spending three times as much pumping its stock as it was on research and development.
While the accusations made would be damning if accurate, the fact that Simeon Research is unwilling to identify itself or the authors should raise significant red flags. Both reports lack clear evidence, appearing to rely heavily on implication, accusation, and comments presented without context.
For example, one quote from Organovo’s scientific founder Dr. Gabor Forgacs cited in the report came from a March 2012 lecture in Charleston, SC:
“And something else magic happens and the cells find their physiologically correct positions. So printing this stuff, and this has to be emphasized, it’s nothing. It’s a stupid exercise. Once I have a good printer, once I have my bioink particles, you don’t need [a] brain, you only need practice. What happens afterwards is the magic. But there I don’t participate. [...] Now this is not a heart, this is not a lung, [...] and anybody who tells you that they can print a liver is lying. Or a kidney. I’m not even pretending I can do anything like that today.”
The quote in question came from a discussion involving vascular cells, not liver tissue, and is clearly forward looking, simply citing Dr. Forgac's belief that technology will ultimately improve his ability to print tissue. However, while long-term plans for Organovo include printing complete organs, the company’s current valuation rests on the ability to print pieces of liver tissue that can function long enough for use in clinical trials, something they have already achieved.
Nothing about the context of Dr. Forgacs' 2012 lecture would appear to directly indict the technology or process used by Organovo for creating temporarily function tissue. And, should one actually take the time to watch the entire video, Dr. Forgacs speaks at length regarding Organovo's technology and its potential to save the pharmaceutical billions of dollars by creating functional, synthetic tissues for use in clinical trials beginning at 1:03:38 in the linked video.
On the whole, it's abundantly clear that Simeon Research cherry-picked the single quote and presented it out of context to give the impression that Dr. Forgacs did not believe in the technology involved despite the fact that the lecture in question was unquestionably positve in regards to the potential for Organovo's technology to be an immensely successful and profitable endeavor.
More recently, Dr. Forgacs commented in an early-March article about bioprinting that appeared in The Economist that Organovo’s printer “[is] a wonderful technology to build three-dimensional biological structures.”
On Organovo website, the first question in its FAQ section regards the Simeon Research report, which Organovo flatly dismisses. It observes that the reports themselves include the following statements in their disclosures:
“You should assume that Simeon Research LLC and/or related parties stand to gain if the securities of the company on which this report focuses decline… No assurance can be made as to validity of the information contained herein with respect to accounting, legal, regulatory, and any and all other issues that may impact the factual accuracy of the statements made. Simeon Research LLC makes no representation, express or implied, as to the accuracy, timeliness, or completeness of the information presented in this report.”
Are Unscrupulous Short-Sellers Moving This Stock?
While the second portion of the research report that Simeon released today is quick to cite the decline in Organovo’s share price that followed the release of its first report, a quick look at the stock’s chart would make it clear that the downtrend actually began a day before on March 19 and went through its most significant drop on March 27, a full week after the publication of the report. This would seem to indicate that, despite Simeon’s claims, the decline in the stock price could be attributed to factors other than just the research report.
And a closer look at the technical factors surrounding Organovo’s stock should make it clear that there are plenty of other explanations for the stock’s drop. Today’s decline comes after the stock traded with a 14-day stochastic RSI over 0.80 for a fourth straight day, a classic sign that it is overbought. And Organovo also appears to be in a period of consolidation after reaching 52-week highs last November. Much of the pullback Simeon wants to take credit for appears to simply be a part of a longer correction, with converging support and resistance lines appearing to indicate that a breakout, either up or down, could be coming in the next few weeks or months.
Today’s trading did push shares below a key support level at $8 a share, but only by a few cents a share. Since crossing its 200-day SMA from above for the first time in almost a year, the stock appears to have recovered and is currently trading with that level acting as support.
With a period of consolidation appearing to be heading for a breakout, and given Organovo’s status as a battleground stock, it seems as though short-sellers are trying to nudge the stock enough to ensure the current triangle pattern results in a downward breakout.
Organovo’s short float currently sits at just below 20 percent, so there’s clearly plenty of bears out there. And just because Simeon’s research reports appear to be transparently manipulative doesn’t mean that there isn’t a solid case to be made by the stock’s detractors. However, it’s hard to view Simeon Research, a firm that would appear to exist for the sole function of tearing down Organovo’s stock, as anything other than a potentially fraudulent effort to pull down Organovo’s share price.
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