Organovo(ONVO) - 2024 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents Organovo's unaudited condensed consolidated financial statements, including balance sheets, statements of operations, equity, cash flows, and detailed notes for the three months ended June 30, 2023 Condensed Consolidated Balance Sheets This table summarizes Organovo's financial position, showing assets, liabilities, and equity changes between March 31, 2023, and June 30, 2023 | Metric | March 31, 2023 (in thousands) | June 30, 2023 (in thousands) | Change (in thousands) | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $15,301 | $10,754 | $(4,547) | | Investment in equity securities | $706 | $— | $(706) | | Total current assets | $17,048 | $11,695 | $(5,353) | | Total assets | $20,313 | $14,756 | $(5,557) | | Total current liabilities | $3,671 | $1,770 | $(1,901) | | Total liabilities | $4,984 | $2,980 | $(2,004) | | Total stockholders' equity | $15,329 | $11,776 | $(3,553) | Unaudited Condensed Consolidated Statements of Operations and Other Comprehensive Loss This table details Organovo's financial performance, including revenue, expenses, and net loss for the three months ended June 30, 2023, compared to the prior year | Metric | Three Months Ended June 30, 2023 (in thousands) | Three Months Ended June 30, 2022 (in thousands) | Change (in thousands) | YoY Change | | :--- | :--- | :--- | :--- | :--- | | Royalty revenue | $75 | $— | $75 | 100% | | Research and development expenses | $1,666 | $1,020 | $646 | 63% | | Selling, general and administrative expenses | $2,604 | $2,219 | $385 | 17% | | Loss from Operations | $(4,195) | $(3,239) | $(956) | 29.5% | | Total Other Income | $169 | $26 | $143 | 550% | | Net Loss | $(4,028) | $(3,215) | $(813) | 25.3% | | Net loss per common share—basic and diluted | $(0.46) | $(0.37) | $(0.09) | 24.3% | Unaudited Condensed Consolidated Statements of Stockholders' Equity This table outlines changes in Organovo's stockholders' equity, including additional paid-in capital and accumulated deficit, for the three months ended June 30, 2023 | Metric | March 31, 2023 (in thousands) | June 30, 2023 (in thousands) | Change (in thousands) | | :--- | :--- | :--- | :--- | | Additional Paid-in Capital | $340,317 | $340,792 | $475 | | Accumulated Deficit | $(324,998) | $(329,026) | $(4,028) | | Total Stockholders' Equity | $15,329 | $11,776 | $(3,553) | - Stock-based compensation expense for the three months ended June 30, 2023, was $475 thousand[15] Unaudited Condensed Consolidated Statements of Cash Flows This table presents Organovo's cash flow activities from operations, investing, and financing for the three months ended June 30, 2023, and 2022 | Metric | Three Months Ended June 30, 2023 (in thousands) | Three Months Ended June 30, 2022 (in thousands) | Change (in thousands) | | :--- | :--- | :--- | :--- | | Net cash used in operating activities | $(5,311) | $(2,414) | $(2,897) | | Net cash provided by (used in) investing activities | $764 | $(10,693) | $11,457 | | Net cash provided by financing activities | $— | $— | $— | | Net decrease in cash, cash equivalents, and restricted cash | $(4,547) | $(13,107) | $8,560 | | Cash, cash equivalents, and restricted cash at end of period | $10,897 | $15,711 | $(4,814) | - The increase in operating cash usage is primarily due to increased research and development activities, including a $2.0 million cash outflow for acquired in-process R&D of Metacrine's FXR drug compound[107] Notes to Unaudited Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the unaudited condensed consolidated financial statements Note 1. Description of Business This note describes Organovo's biotechnology focus on 3D tissues for drug discovery, particularly in IBD, and its acquisition of Metacrine's FXR program - Organovo is a biotechnology company building high-fidelity 3D tissues to recapitulate human disease for drug discovery, initially focusing on inflammatory bowel disease (IBD) like ulcerative colitis (UC) and Crohn's disease (CD)[21][24][90] - The company utilizes its proprietary NovoGen Bioprinters® and complementary 3D technologies to develop disease models and identify novel drug targets and therapeutics[23][92] - In March 2023, Organovo acquired Metacrine, Inc.'s farnesoid X receptor (FXR) program, which includes two clinically tested compounds and over 2,000 discovery/preclinical compounds for GI and liver diseases[25][94] Note 2. Summary of Significant Accounting Policies This note outlines Organovo's key accounting policies, including its going concern assessment and treatment of investments - The company's financial statements are prepared on a going concern basis, but management has concluded that substantial doubt exists about its ability to continue as a going concern for at least one year due to approximately $10.8 million in cash and cash equivalents, $329.0 million accumulated deficit, and $5.3 million negative cash flow from operations for the three months ended June 30, 2023[31][33][105] - The company will need substantial additional funding to support future operating activities and drug discovery/development, and cannot guarantee that additional financing will be available on favorable terms or at all[33][111][116] - Investments in debt securities (U.S. Treasury bills) are classified as available-for-sale and recorded at fair value, while investments in equity securities are remeasured at fair value with gains/losses recorded in net income[36][37] Note 3. Investments and fair value measurement This note details Organovo's investments in debt and equity securities, including fair value measurements and related income | Investment Type | March 31, 2023 (in thousands) | June 30, 2023 (in thousands) | Change (in thousands) | | :--- | :--- | :--- | :--- | | Investment in debt securities (Fair Value) | $4,945 | $4,993 | $48 | | Investment in equity securities (Fair Value) | $706 | $— | $(706) | - For the three months ended June 30, 2023, the company recorded $0.1 million in interest income from debt securities and a $0.012 million gain on equity securities[44][46] Note 4. Stockholders' Equity This note provides details on Organovo's common stock, shares reserved for issuance, and stock-based compensation expenses | Metric | March 31, 2023 | June 30, 2023 | | :--- | :--- | :--- | | Common stock shares issued and outstanding | 8,716,906 | 8,718,203 | | Total shares reserved for future issuance (all plans) | N/A | 2,708,506 | - Stock-based compensation expense for the three months ended June 30, 2023, was $475 thousand, with $107 thousand for R&D and $368 thousand for G&A[61] - The total unrecognized compensation cost related to unvested stock options was approximately $2.3 million, with a weighted average vesting period of 2.03 years[61] Note 5. Collaborative Research, Development, and License Agreements This note explains Organovo's royalty revenue from a license agreement and details related to other intellectual property arrangements | Revenue Source | Three Months Ended June 30, 2023 | | :--- | :--- | | Royalty revenue from License Agreement | $75,000 | - The royalty revenue is from a non-exclusive license granted to BICO Group AB for the use of Organovo's patents related to manufacturing and selling bioprinters and bioinks, as part of a settlement agreement[65][66] - No royalty expense was recorded to the University of Missouri or Clemson University for the quarter, primarily due to legal expense offsets exceeding royalties owed or a prior lump-sum payment[70][71][73] Note 6. Commitments and Contingencies This note discusses Organovo's legal claims and potential loss contingencies, emphasizing the inherent unpredictability of litigation - The company has not recorded any accrual for loss contingencies related to legal claims, as no unfavorable outcome is probable or reasonably possible, nor is the amount estimable[76] - Litigation is inherently unpredictable, and an unfavorable resolution could materially adversely affect the company's financial statements[75][76] Note 7. Leases This note details Organovo's operating lease assets, liabilities, and future payment obligations | Metric | June 30, 2023 (in thousands) | | :--- | :--- | | Operating lease right-of-use assets | $1,606 | | Total lease liabilities | $1,705 | | Weighted average remaining lease term | 3.58 years | | Weighted average discount rate | 6% | - Operating lease expense for the three months ended June 30, 2023, was approximately $126,000[80] | Fiscal Year Ending March 31 | Future Lease Payments (in thousands) | | :--- | :--- | | 2024 | $382 | | 2025 | $523 | | 2026 | $538 | | 2027 | $460 | | Total Future Lease Payments | $1,903 | Note 8. Concentrations This note identifies Organovo's credit risk concentrations in temporary cash investments and royalty revenue from a single licensee - The company's credit risk is concentrated in temporary cash investments and royalty revenue from a single licensee[82] Note 9. Related Parties This note describes Organovo's intercompany agreement and shared personnel with Viscient Biosciences, Inc., a related party - Organovo has an intercompany agreement with Viscient Biosciences, Inc., a related party, for services and shared facilities/equipment[85][198] - Organovo's Executive Chairman and Chief Scientific Officer also hold positions at Viscient Biosciences, Inc[84][196] | Service Provided | Three Months Ended June 30, 2023 (in thousands) | Three Months Ended June 30, 2022 (in thousands) | | :--- | :--- | :--- | | Histology services to Viscient | $10 | $11 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Organovo's financial condition and results for the three months ended June 30, 2023, highlighting increased losses and going concern doubt Basis of Presentation This section clarifies that the financial statements are prepared according to SEC Form 10-Q and GAAP, to be read with the annual report - The unaudited condensed consolidated financial statements are prepared in accordance with SEC Form 10-Q instructions and GAAP, and should be read in conjunction with the audited financial statements from the Annual Report on Form 10-K[89] Overview This section outlines Organovo's core business of 3D tissue models for drug discovery, its FXR program acquisition, and patent portfolio strategy - Organovo focuses on building high-fidelity 3D tissues to model human diseases, identify gene targets, and develop drug discovery programs, with a primary focus on inflammatory bowel disease (IBD) including UC and CD[90][93] - The company uses its NovoGen Bioprinters® and 3D technologies to create functional 3D human tissues that mimic native tissue, enabling complex disease models for drug development[91][92] - Organovo acquired Metacrine, Inc.'s FXR program in March 2023, which includes clinically tested compounds for GI and liver diseases, to broaden its therapeutic areas[94] - The company holds a large patent portfolio related to its bioprinting platform and is exploring opportunities to leverage it for business and revenue expansion[96] Critical Accounting Policies, Estimates, and Judgments This section states that no significant changes to critical accounting policies have occurred since March 31, 2023 - No significant changes to critical accounting policies have occurred since March 31, 2023[98] Results of Operations This section analyzes Organovo's revenue, research and development, selling, general and administrative expenses, and other income for the three months ended June 30, 2023 | Metric | Three Months Ended June 30, 2023 (in thousands) | Three Months Ended June 30, 2022 (in thousands) | Change (in thousands) | YoY Change | | :--- | :--- | :--- | :--- | :--- | | Revenues | $75 | $— | $75 | 100% | | Research and development | $1,666 | $1,020 | $646 | 63% | | Selling, general and administrative | $2,604 | $2,219 | $385 | 17% | | Other income | $169 | $26 | $143 | 550% | Revenues This section details Organovo's revenue, primarily from intellectual property licensing royalties, for the three months ended June 30, 2023 | Metric | Three Months Ended June 30, 2023 (in thousands) | Three Months Ended June 30, 2022 (in thousands) | Change (in thousands) | YoY Change | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $75 | $— | $75 | 100% | - The revenue increase is attributed to sales-based royalties from intellectual property licensing[100] Research and Development Expenses This section analyzes the increase in Organovo's R&D expenses, driven by headcount, personnel, lab, consulting, and facilities costs | Metric | Three Months Ended June 30, 2023 (in thousands) | Three Months Ended June 30, 2022 (in thousands) | Change (in thousands) | YoY Change | | :--- | :--- | :--- | :--- | :--- | | Research and development | $1,505 | $863 | $642 | 74% | | Non-cash stock-based compensation | $107 | $121 | $(14) | (12%) | | Depreciation and amortization | $54 | $36 | $18 | 50% | | Total research and development expenses | $1,666 | $1,020 | $646 | 63% | - The increase in R&D expenses is due to a rise in headcount (from 14 to 18 full-time R&D staff), a $0.3 million increase in personnel costs, a $0.2 million increase in lab expenses, a $0.1 million increase in consulting expenses, and a $0.1 million increase in facilities expenses[101] Selling, General and Administrative Expenses This section examines the increase in Organovo's SG&A expenses, mainly due to legal, corporate, and consulting costs | Metric | Three Months Ended June 30, 2023 (in thousands) | Three Months Ended June 30, 2022 (in thousands) | Change (in thousands) | YoY Change | | :--- | :--- | :--- | :--- | :--- | | Selling, general and administrative | $2,223 | $1,666 | $557 | 33% | | Non-cash stock-based compensation | $368 | $539 | $(171) | (32%) | | Depreciation and amortization | $13 | $14 | $(1) | (7%) | | Total selling, general and administrative expenses | $2,604 | $2,219 | $385 | 17% | - The increase in SG&A expenses is primarily due to a $0.4 million increase in legal and corporate expenses and a $0.1 million increase in consulting expenses, despite a $0.1 million decrease in personnel-related costs[102] Other Income This section details the significant increase in Organovo's other income for the three months ended June 30, 2023 | Metric | Three Months Ended June 30, 2023 (in thousands) | Three Months Ended June 30, 2022 (in thousands) | Change (in thousands) | YoY Change | | :--- | :--- | :--- | :--- | :--- | | Other income | $169 | $26 | $143 | 550% | Financial Condition, Liquidity and Capital Resources This section discusses Organovo's cash position, operating cash flow, and the substantial doubt about its ability to continue as a going concern - As of June 30, 2023, the company had $10.8 million in cash and cash equivalents, $0.1 million in restricted cash, and an accumulated deficit of $329.0 million[105] - The company had negative cash flow from operations of $5.3 million for the three months ended June 30, 2023[105] - Management has concluded that substantial doubt exists about the company's ability to continue as a going concern for at least one year, necessitating substantial additional funding[111][176] Operating activities This section details the net cash used in Organovo's operating activities, primarily due to increased R&D and the Metacrine acquisition | Metric | Three Months Ended June 30, 2023 (in thousands) | Three Months Ended June 30, 2022 (in thousands) | Change (in thousands) | | :--- | :--- | :--- | :--- | | Net cash used in operating activities | $(5,311) | $(2,414) | $(2,897) | - The increase in operating cash usage is primarily due to increased R&D activities, including a $2.0 million cash outflow for the acquisition of Metacrine's FXR drug compound, related research data, and IP[107] Investing activities This section outlines Organovo's investing activities, including purchases and maturities of investments and liquidation of equity securities | Metric | Three Months Ended June 30, 2023 (in thousands) | Three Months Ended June 30, 2022 (in thousands) | Change (in thousands) | | :--- | :--- | :--- | :--- | | Net cash provided by (used in) investing activities | $764 | $(10,693) | $11,457 | - Investing activities included $4.9 million in purchases of investments, $5.0 million in maturities of investments, and $0.7 million from liquidation of equity securities[108] Financing activities This section confirms that Organovo had no cash financing activities during the three months ended June 30, 2023, or 2022 - No cash financing activities occurred during the three months ended June 30, 2023, or June 30, 2022[109] Operations funding requirements This section addresses Organovo's future funding needs, expected operating expenses, and potential impacts of insufficient financing - Expected total operating expenses for fiscal year ending March 31, 2024, are between $12.0 million and $14.0 million[111] - The company has approximately $100.0 million available for future offerings under its 2021 Shelf registration statement and $28.3 million available through its ATM program as of June 30, 2023[115] - Failure to obtain adequate financing could materially adversely affect the business, operating results, financial condition, and ability to continue as a going concern, potentially leading to dilution or restrictive debt terms[116] Off-Balance Sheet Arrangements This section states that Organovo has no off-balance sheet arrangements - The company has no off-balance sheet arrangements[120] Item 3. Quantitative and Qualitative Disclosures About Market Risk This item is not required for smaller reporting companies under Item 305(e) of Regulation S-K - This disclosure is not required for smaller reporting companies[121] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2023, with no material changes in internal control over financial reporting - Management concluded that disclosure controls and procedures were designed and operating effectively as of June 30, 2023[123] - No material changes in internal control over financial reporting occurred during the quarter[124] Disclosure Controls and Procedures This section confirms the effectiveness of Organovo's disclosure controls and procedures as of June 30, 2023 - Disclosure controls and procedures are designed to ensure timely and accurate reporting of information required by the Exchange Act[122] - Management concluded that disclosure controls and procedures were effective as of June 30, 2023[123] Changes in Internal Control over Financial Reporting This section states that no material changes in internal control over financial reporting occurred during the fiscal quarter - No material changes in internal control over financial reporting occurred during the fiscal quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[124] Inherent Limitations on Effectiveness of Controls This section acknowledges that control systems provide only reasonable assurance due to inherent limitations like human error or management override - Control systems provide only reasonable assurance due to inherent limitations such as resource constraints, human error, collusion, or management override[125] PART II. OTHER INFORMATION Item 1. Legal Proceedings This section refers to Note 6 for a discussion of Organovo's legal proceedings and contingencies, indicating no material accruals - Refer to Note 6 of the Notes to the Unaudited Condensed Consolidated Financial Statements for a discussion of legal proceedings and contingencies[128] Item 1A. Risk Factors Investing in Organovo's common stock is highly speculative due to substantial risks, including ongoing operating losses, significant funding needs, and going concern doubt Risk Factor Summary This section summarizes key risks, including substantial operating losses, unproven drug discovery strategies, significant funding requirements, and going concern doubt - The company will incur substantial additional operating losses as research and development activities increase[132] - Using the platform technology to develop human tissues and disease models for drug discovery and development is new and unproven[132] - Substantial additional funding is required, which could cause dilution to existing stockholders or restrict operations[132] - Management has concluded that substantial doubt exists about the company's ability to continue as a going concern[132] Risks Related to our Business This section details risks associated with Organovo's unproven business strategy, intense competition, and dependence on cell supply and key personnel - The business strategy of using 3D bioprinting for drug discovery and development is unproven, and the company has not yet identified or developed any drug candidates using this model[133][135] - The company faces intense competition in drug discovery from major drug companies, specialized biotechnology firms, and academic institutions with significantly greater financial and technical resources[136] - Success depends on successfully developing human tissues and disease models, outsourcing development, entering into partnerships, obtaining regulatory approvals, and raising sufficient funds[134] - The company requires access to a constant, steady, reliable supply of human cells to support its 3D tissue development activities[141] - Inability to successfully attract, hire, and integrate key additional employees or contractors could adversely impact drug discovery plans[142] Risks Related to Government Regulation This section outlines risks from hazardous materials, inadequate reimbursement, and evolving healthcare legislation impacting drug commercialization - Past use of hazardous chemicals, biological materials, and infectious agents could lead to costly and time-consuming claims if improperly handled, stored, or disposed of[160][161] - Failure to obtain and sustain adequate reimbursement for potential products by third-party payors would materially adversely affect future sales and profitability[162][167] - Current and future legislation, such as the Inflation Reduction Act of 2022 and the PPACA, may increase the difficulty and cost of commercializing drug candidates and affect the prices obtained if approved[168][169][170][171] Risks Related to Our Capital Requirements, Finances and Operations This section addresses Organovo's going concern doubt, history of losses, funding needs, and risks from strategic investments and cybersecurity - Management has concluded that substantial doubt exists about the company's ability to continue as a going concern, which could materially adversely affect its share price and ability to raise new capital or enter into strategic alliances[176] - The company has a history of operating losses ($329.0 million accumulated deficit as of June 30, 2023) and expects to incur significant additional operating losses[178] - Additional funds may not be available on acceptable terms, potentially requiring the company to delay, limit, or eliminate business opportunities, leading to dilution for existing stockholders or restrictive debt covenants[177] - Quarterly operating results may vary due to factors such as R&D expenditures, strategic evaluations, and litigation, which could negatively affect the market price of common stock[181] - Future strategic investments could negatively affect the business if desired returns are not achieved, potentially leading to unforeseen losses, asset impairments, or a downgrade in stock[184][185][186] - The company's future success depends on retaining executive officers and other key personnel, and conflicts of interest may arise due to shared executives with Viscient Biosciences, Inc[188][199] - The company is subject to security breaches and cybersecurity incidents, as well as evolving global privacy and data security requirements (e.g., GDPR, CCPA), which could result in additional costs, liabilities, significant fines, and reputational harm[189][190][192][194] Risks Related to Our Common Stock and Liquidity Risks This section covers risks related to stock listing, price volatility, potential dilution from future issuances, and anti-takeover provisions - Failure to maintain the listing of common stock on the Nasdaq Capital Market could seriously harm stock liquidity, market price, and ability to raise capital or complete strategic transactions[200][201] - The price of common stock is likely to be highly volatile, which could lead to losses by investors and costly securities litigation[203] - Future issuance of additional shares of capital stock to raise funds will likely result in substantial dilution to existing stockholders' ownership interests[204][205] - The company does not intend to pay dividends for the foreseeable future, which could affect the market value of its stock[206] - Anti-takeover provisions in organizational documents and Delaware law may discourage or prevent a change of control, even if beneficial to stockholders[207][208] Risks Related to Our Intellectual Property This section discusses risks concerning inadequate IP protection, patent validity challenges, global enforcement, and reliance on license agreements - Inadequate protection of proprietary rights could allow competitors to use technologies and gain a competitive advantage, harming the business[209] - Patents covering products could be found invalid or unenforceable if challenged in court or before administrative bodies, potentially reducing their scope or allowing third parties to commercialize technology without payment[216] - The company may not be able to protect its intellectual property rights throughout the world due to prohibitive costs, varying legal systems, or public disclosures[213][214][215] - Involvement in lawsuits to protect or enforce patents can be expensive, time-consuming, and unsuccessful, potentially leading to loss of rights, injunctions, or substantial penalties[221][223] - Dependence on license agreements with the University of Missouri, Clemson University, and the Salk Institute means failure to comply with obligations could materially harm the business and prevent commercialization of product candidates[227] - Inability to adequately prevent disclosure of trade secrets and other proprietary information could adversely affect the competitive business position[229] - The company may be subject to claims that its employees, consultants, or independent contractors have wrongfully used or disclosed confidential information of third parties[230] General Risk Factors This section highlights the expenses and compliance challenges associated with federal securities laws and the Sarbanes-Oxley Act - Compliance with the reporting requirements of federal securities laws, including the Sarbanes-Oxley Act, can be expensive[231] - Failure to comply with Section 404 of the Sarbanes-Oxley Act related to accounting controls and procedures, or discovery of material weaknesses, could lead to sanctions, a decline in stock price, and significant additional resources to achieve compliance[232] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During the three months ended June 30, 2023, Organovo repurchased 28 shares of common stock at an average price of $1.85 per share to satisfy tax withholding obligations upon the vesting of restricted stock unit awards | Period | Total Number of Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | May 1, 2023 - May 31, 2023 | 28 | $1.85 | | Total | 28 | $1.85 | - Shares were repurchased to satisfy tax withholding obligations upon the vesting of restricted stock unit awards[233] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities - No defaults upon senior securities were reported[234] Item 4. Mine Safety Disclosure This item is not applicable to the company - This item is not applicable to the company[235] Item 5. Other Information The company reported no other information - No other information was reported[236] Item 6. Exhibits This section lists the exhibits filed with the report, including the Certificate of Incorporation, Bylaws, and various certifications (e.g., Section 302, Section 906 of Sarbanes-Oxley Act) and XBRL documents - The exhibits include organizational documents (Certificate of Incorporation, Bylaws), certifications (Section 302, Section 906 of Sarbanes-Oxley Act), and Inline XBRL documents[237]