Organovo(ONVO) - 2021 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements Organovo reported zero revenue and a $2.8 million net loss for Q2 2020, reflecting suspended operations and a strategic pivot towards a new drug discovery model Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2020 | March 31, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $24,787 | $27,356 | | Total current assets | $25,501 | $28,318 | | Total assets | $25,621 | $28,441 | | Total current liabilities | $835 | $1,810 | | Total stockholders' equity | $24,786 | $26,631 | Condensed Consolidated Statements of Operations (in thousands, except per share data) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | | :--- | :--- | :--- | | Total Revenues | $0 | $668 | | Total costs and expenses | $2,786 | $7,189 | | Loss from Operations | $(2,786) | $(6,521) | | Net Loss | $(2,769) | $(6,323) | | Net loss per common share | $(0.02) | $(0.05) | Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | $(2,570) | $(5,935) | | Net cash provided by investing activities | $2 | $1 | | Net cash provided by (used in) financing activities | $(1) | $4,944 | | Net decrease in cash | $(2,569) | $(990) | Notes to Unaudited Condensed Consolidated Financial Statements Notes detail the August 2019 program suspension, terminated Tarveda merger, and a July 2020 agreement proposing a new board and drug discovery focus, requiring future capital - In August 2019, the company suspended its lead liver therapeutic tissue program due to performance variability and extended timelines[22] - The proposed merger with Tarveda Therapeutics was terminated in April 2020 due to lack of stockholder approval[25] - On July 14, 2020, a Cooperation Agreement with Keith Murphy proposed a new board and a drug discovery business plan using 3D human tissues[26][28] - New board approval would trigger a Change of Control, requiring approximately $3.0 million for severance and $2.0 million for D&O tail insurance[39][101] - The company is cooperating with an SEC inquiry initiated in March 2020 concerning prior disclosures and operations[89] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes revenue and R&D declines to strategic halts, with cash decreasing by $2.6 million; additional capital is needed if the new drug discovery plan is approved Results of Operations Total revenues fell to zero and R&D expenses were eliminated due to strategic cessation of activities, while SG&A decreased by 16% due to restructuring Comparison of Results of Operations (in thousands) | Line Item | Q2 2020 | Q2 2019 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenues | $0 | $668 | $(668) | (100%) | | Research and development | $0 | $3,823 | $(3,823) | (100%) | | Selling, general and administrative | $2,786 | $3,315 | $(529) | (16%) | - The 100% decrease in R&D expenses resulted from eliminating all R&D activities, reducing personnel, lab supply, and facilities costs[125] Financial Condition, Liquidity and Capital Resources As of June 30, 2020, Organovo held $24.8 million in cash, with net cash used in operations at $2.6 million, but additional capital is needed for the new business plan - The company held approximately $24.8 million in cash and cash equivalents as of June 30, 2020[129] - Current cash is sufficient for the next 12 months, but additional capital will be required if the new drug discovery operations commence[136] - The company faces Nasdaq delisting for failing to maintain a $1.00 minimum bid price and plans a reverse stock split to regain compliance by September 4, 2020[139] Quantitative and Qualitative Disclosures About Market Risk Disclosure is not required for smaller reporting companies under Item 305(e) - Disclosure is not required for smaller reporting companies under Item 305(e)[143] Controls and Procedures Management concluded disclosure controls were effective as of June 30, 2020, with no material changes in internal control over financial reporting during the quarter - The CEO and CFO concluded that disclosure controls and procedures were effective as of the end of the quarterly period[145] - No material changes in internal control over financial reporting occurred during the fiscal quarter[146] PART II. OTHER INFORMATION Legal Proceedings The company is cooperating with an SEC inquiry from March 2020 and considers a January 2020 stockholder demand letter regarding S-4 disclosures moot and without merit - The company received an SEC inquiry letter on March 4, 2020, regarding prior disclosures and operations, and is cooperating with a subpoena[89] - A January 2020 stockholder demand letter regarding Form S-4 disclosures for the terminated Tarveda merger is considered moot and without merit[88] Risk Factors The company faces substantial risks from COVID-19, an unproven new business strategy requiring significant funding, historical program failures, operational challenges including potential dissolution, and intellectual property protection concerns Risks Related to COVID-19 The COVID-19 pandemic introduces significant uncertainty, potentially impacting strategic alternatives, R&D advancement, and partner operations, with ultimate effects highly uncertain - The COVID-19 pandemic could adversely impact operations, strategic alternatives, and R&D advancement[152] Risks Related to the Proposed Go Forward Business The proposed new business plan entails restarting as an early-stage company with an unproven drug discovery strategy, requiring substantial funding, key personnel, and new facilities amidst intense competition - Approval of the new business plan means recommencing as an early-stage company with an unproven strategy, potentially never achieving profitability[155][156] - Substantial additional funding is required for the proposed business plan, which would dilute existing stockholders[167] - The new business plan necessitates hiring key scientific personnel, securing lab facilities, and establishing a reliable human cell supply[164][165][166] Risks Related to our Historical Business Historical business risks include significant setbacks in developing bioprinted therapeutic tissues, particularly the liver candidate, due to performance variability, manufacturing issues, and technical challenges - Liver tissue candidate development was halted due to variability in biological performance and questions regarding durability and functionality[183] - Manufacturing issues, including technical and quality problems, contributed to the failure and cessation of the liver tissue candidate's development[184][187] Risks Related to Our Capital Requirements, Finances and Operations Significant financial and operational risks include potential dissolution if a new strategy fails, a history of $282.3 million in accumulated losses, and challenges in retaining key personnel amidst a potential change of control - If the Advisory Proposal is not approved, the board may pursue dissolution and liquidation, with no assurance of cash distribution to stockholders[206] - The company has a history of operating losses, with a cumulative net loss of $282.3 million as of June 30, 2020, and anticipates further losses[212] Risks Related to Our Common Stock and Liquidity Risks Common stock faces Nasdaq delisting due to minimum bid price failure, with a planned reverse split; concentrated shareholder influence and high stock price volatility are also key risks - The company risks Nasdaq delisting for failing to meet the $1 minimum bid price and plans a reverse stock split to regain compliance by September 4, 2020[216][217] - The two largest shareholders, ARK Investment Management and Nikko Asset Management, collectively own approximately 30% of outstanding stock, exerting significant influence[222] Risks Related to Our Intellectual Property Intellectual property risks include challenges in obtaining and enforcing patents, potential for insufficient patent breadth, and dependence on crucial license agreements with universities, non-compliance with which could harm the business - Success depends on obtaining and maintaining adequate patent protection, though validity, enforceability, or breadth are not guaranteed[232][235] - Crucial license agreements with the University of Missouri, Clemson, and UniQuest are vital, and their breach or termination could materially harm the business[245] Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds to report - None[246] Defaults Upon Senior Securities No defaults upon senior securities to report - None[247] Mine Safety Disclosure Mine safety disclosure is not applicable to the company's operations - Not applicable[248] Other Information No other information to report - None[249] Exhibits This section lists filed exhibits, including the terminated Tarveda Merger Agreement, the Cooperation Agreement with Keith Murphy, and officer/director certifications - Key exhibits include the terminated Merger Agreement with Tarveda Therapeutics, the Cooperation Agreement with Keith Murphy, and CEO/CFO certifications[251]