This week Organovo Holdings Inc (NYSEMKT:ONVO) announced that it had won a libel suit against little-known research firm Simeon Research. As part of that announcement, the company took a shot at our “editorial standards” in publishing the original Simeon report, mentioning ValueWalk specifically. We’ve put together a lengthy (although not complete) rebuttal statement in response, trying to set the facts straight.
Lakewood Capital, others shorted Organovo first
We have since removed the Simeon report from our website as per the court order, but the fact of the matter is that Simeon’s report isn’t all that different from other short ideas from other firms. It’s not all that uncommon for short-sellers (or the buy side either) to sort of steal from or “regurgitate” the views of others. Also there are some common indicators of trouble that run across the board and come from a company’s SEC filings and / or actions.
After all, there are usually reasons to view a company from both sides, and those reasons are usually similar across multiple firms. So when we saw Simeon’s short thesis on Organovo Holdings Inc (NYSEMKT:ONVO), we weren’t really surprised. There is a well-documented history of short ideas on the company that stretches back years—in spite of Organovo’s repeated efforts to stifle these ideas.
NOTE: We do not take a stance on Organovo either way. All we do is report what is said about the company. It’s always up to investors to decide the veracity of any long or short report on any company. Nearly every public company has both buy-side and sell-side reports on it, but do most feel it necessary to lash out at negative reports? Certainly not.
That said, reputable firms like Lakewood Capital had short reports out before Simeon’s report came out. So while Simeon was perhaps more inflammatory with its remarks—and certainly less well-known and far less established than these other firms—the short thesis on Organovo wasn’t new. So what’s one more report to add to the pile?
Also one of Organovo’s complaints was that Simeon was new and had never published any research before. But why does this matter? After all, Gotham City Research was barely known before the firm took down Let’s Gowex. Incidentally, Gotham recently lost a libel case versus a U.K.-based company, Quindell.
So is there anything wrong with our editorial standards in this case? Absolutely not—unless you would also prevent short ideas from Lakewood Capital and others firms from being published for investors to read, simply because these short ideas make the company angry. Also why does Organovo feel it necessary to take a jab at ValueWalk on the Frequently Asked Questions page under Investor Relations on its website?
The fact that ValueWalk has partnerships with major asset managers, media outlets, etc. and they want to be associated with the site speaks for itself, as does the fact that ValueWalk is read frequently by compliance officers, analysts, CEOs, investor relations at major hedge funds, research firms, banks, etc. Additionally, ValueWalk breaks news and moves securities, which means big investors (or computers) also trust our content.
And then there’s the mention of Seeking Alpha. ONVO began the same post by bashing that website too while also complimenting them for not publishing Simeon’s piece.
So let’s take a look at the history of the short view on Organovo Holdings Inc (NYSEMKT:ONVO). It’s very lengthy, and the opinions reported on here do not necessarily reflect the views of ValueWalk, its writers or management. These are also not the only investors or research firms with short views of Organovo, although they have been the most public about this.
Organovo short dates back to 2012
What appears to be the first short idea (or at least one of the earliest published) on Organovo dates from June 2012. GeoInvesting stated that the company was overvalued, noting that after an S1 filing around that time became effective, a lockup on some of the company’s shares would end, paving the way for insiders to start selling their shares. It’s not uncommon for investors to view a lockup expiration badly, no matter what company we’re talking about.
The report also indicated that it would be a long time before there would be any meaningful commercialization of the company’s technology. Also it said Organovo would require constant funding and noted a price to sales ratio of 400 times. No, that’s not a typo—400 times, according to data from ActivistShorts.com.
Seeking Alpha contributor on the attack
Also Richard Pearson, a self-described activist investor and contributor to Seeking Alpha, has been posting about his short thesis on Organovo for some time. On July 9, 2013, the company up-listed to the NYSEMKT. Then later that month, Pearson suggested that Organovo’s 100% spike after its up-listing wasn’t warranted and that shares would decline.
He also noted that Organovo Holdings Inc (NYSEMKT:ONVO) had filed a $100 million shelf registration around that time and observed that the up-listing would probably make the company more vulnerable to short-sellers.
Then on Aug. 1, 2013, Pearson reported on an undisclosed legal action filed against Organovo by its own investment banker, Spencer Trask Ventures. In the action, the banker demanded that the 3D printing company fork over $28 million in compensation for a stock and warrants placement it had completed.
Organovo seeks to stifle short ideas
Pearson also criticized Organovo’s stock promotion practices, including how it used the website Retailinvestorconferences.com. That same day, the company made another public offering that was later set at $46.6 million. A couple of weeks later, Organovo warned investors about what it called “‘short and distort’ articles.” The 3D printer issued a similar warning after Simeon’s report was released earlier this year. The 2013 warning said that some articles written about it included “significant factual errors.”
Writing on Seeking Alpha again, Pearson took a “very detailed look at Organovo” in November 2013. At that time, he didn’t think the company would ever see significant revenue and noted that there was a lot of private competition in the 3D bio-printing market. He also noted that Organovo didn’t spend much money on research and development, so it seemed unlikely that its intellectual property was worth anything. Once again, this is something from the company’s public filings. There’s nothing remarkable about doubting a company’s intellectual property value if it doesn’t spend much on research and development.
GeoInvesting reminds investors of Organovo short
Then that same day, GeoInvesting said it was still shorting Organovo, although it was unclear whether that short position was held continuously since June 2012. The firm also raised questions about the bio-printing company’s chance to earn any kind of revenue.
It also noted that even “foolishly optimistic” revenue assumptions warranted a $2.25 per share price target. At that time, Organovo Holdings Inc (NYSEMKT:ONVO) stock was trading at around $12 a share.
In late November of 2013, Organovo said it would sell up to 4 million more shares through JMP Securities. Pearson pointed to insider selling around that time which suggested that the bio-printer maker’s management was eager to sell at the stock price at that time. This year Organovo found it necessary to publicly defend insider selling among its executives.
Citron Research issues short thesis
In January of this year, Citron Research then revealed its short idea about Organovo,