Attached files

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EX-32.1 - EX-32.1 - ORGANOVO HOLDINGS, INC.onvo-ex321_7.htm
EX-31.2 - EX-31.2 - ORGANOVO HOLDINGS, INC.onvo-ex312_6.htm
EX-31.1 - EX-31.1 - ORGANOVO HOLDINGS, INC.onvo-ex311_9.htm
EX-23.1 - EX-23.1 - ORGANOVO HOLDINGS, INC.onvo-ex231_10.htm
EX-21.1 - EX-21.1 - ORGANOVO HOLDINGS, INC.onvo-ex211_8.htm
EX-4.1 - EX-4.1 - ORGANOVO HOLDINGS, INC.onvo-ex41_53.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K

 

(Mark One)

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended March 31, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from           to           

Commission File No. 001-35996

 

ORGANOVO HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

27-1488943

(State or other jurisdiction of incorporation or organization)

 

(IRS Employer Identification No.)

 

 

 

440 Stevens Ave, Suite 200

Solana Beach, CA

 

92075

(Address of principal executive offices)

 

(Zip code)

Registrant’s telephone number, including area code: 858-224-1000

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, par value $0.001 per share

ONVO

The Nasdaq Capital Market

 

Securities registered pursuant to section 12(g) of the Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes   No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes   No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes   No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “accelerated filer”, “large accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   No

The aggregate market value of the voting and non-voting common equity held by non-affiliates based on the closing stock price as reported on the Nasdaq Global Market on September 30, 2019, the last trading day of the registrant’s second fiscal quarter, was $29,234,151. For purposes of this computation only, shares of common stock held by each executive officer, director, and 10% or greater stockholders have been excluded in that such persons may be deemed affiliates.

The number of outstanding shares of the registrant’s common stock, as of May 1, 2020 was 130,558,098.

DOCUMENTS INCORPORATED BY REFERENCE

Certain information required for Part III of this report is incorporated herein by reference to the definitive proxy statement for the 2020 annual meeting of the registrant’s stockholders, expected to be filed within 120 days of the end of the registrant’s fiscal year.

 

 

 


 

Organovo Holdings, Inc.

Annual Report on Form 10-K

For the Year Ended March 31, 2020

Table of Contents

 

 

 

 

 

Page

Important Information Regarding Forward-Looking Statements

 

1

 

 

 

 

 

PART I

 

 

 

 

 

 

 

 

 

Item 1.

 

Business

 

2

Item 1A.

 

Risk Factors

 

6

Item 1B.

 

Unresolved Staff Comments

 

20

Item 2.

 

Properties

 

20

Item 3.

 

Legal Proceedings

 

20

Item 4.

 

Mine Safety Disclosures

 

20

 

 

 

 

 

PART II

 

 

 

 

 

 

 

 

 

Item 5.

 

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

21

Item 6.

 

Selected Financial Data

 

23

Item 7.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

24

Item 7A.

 

Quantitative and Qualitative Disclosures About Market Risk

 

32

Item 8.

 

Consolidated Financial Statements

 

F-1

Item 9.

 

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

33

Item 9A.

 

Controls and Procedures

 

33

Item 9B.

 

Other Information

 

33

 

 

 

 

 

PART III

 

 

 

 

 

 

 

 

 

Item 10.

 

Directors, Executive Officers and Corporate Governance

 

34

Item 11.

 

Executive Compensation

 

34

Item 12.

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

34

Item 13.

 

Certain Relationships and Related Transactions, and Director Independence

 

34

Item 14.

 

Principal Accountant Fees and Services

 

34

 

 

 

 

 

PART IV

 

 

 

 

 

 

 

 

 

Item 15.

 

Exhibits and Financial Statement Schedules

 

35

 

 

 

 


 

Important Information Regarding Forward-Looking Statements

Portions of this Annual Report on Form 10-K (including information incorporated by reference) (“Annual Report”) include “forward-looking statements” within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995, based on our current beliefs, expectations and projections regarding any strategic transaction process; negative effects on our business due to COVID-19; the ability to advance, if we elect to do so, our research and development activities and pursue development of any of our pipeline products; our technology: our product and service development opportunities and timelines: our business strategies: customer acceptance and the market potential of our technology: products and services: our future capital requirements: our future financial performance: and other matters. This includes, in particular, Item 1. “Business” and Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Annual Report, as well as other portions of this Annual Report. The words “believe,” “expect,” “anticipate,” “project,” “could,” “would,” and similar expressions, among others, generally identify “forward-looking statements,” which speak only as of the date the statements were made. The matters discussed in these forward-looking statements are subject to risks, uncertainties and other factors that could cause our actual results to differ materially from those projected, anticipated or implied in the forward-looking statements. As a result, you should not place undue reliance on any forward-looking statements. The most significant of these risks, uncertainties and other factors are described in Item 1A. “Risk Factors” of this Annual Report. Except to the limited extent required by applicable law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

1


 

PART I

Item 1. Business.

Overview

Organovo Holdings, Inc. (“Organovo Holdings,” “we,” “us,” “our,” “the Company” and “our Company”) is an early-stage biotechnology company that has historically focused on pioneering the development of bioprinted human tissues that emulate key aspects of human biology and disease. We have focused on developing our in vivo liver tissues to treat end-stage liver disease and a select group of life-threatening, orphan diseases, for which there are limited treatment options other than organ transplantation. We have also explored the development of other potential pipeline in vivo tissue constructs in-house and through collaborations with academic and government researchers. Our current limited operations comprise of managing certain collaborations with research institutions and universities with respect to our NovoGen Bioprinters® for research purposes. Our NovoGen Bioprinters® are automated devices that enable the fabrication of 3D living tissues comprised of mammalian cells. We believe that the use of our bioprinting platform by major research institutions may help to advance the capabilities of the platform and generate new applications for bioprinted tissues. In some instances, an academic institution or other third party has provided funding to support the academic collaborator’s access to our technology platform. This funding is typically reflected as collaboration revenues in our financial statements. However, we are not currently generating any revenues from these collaborations. Our research collaborations typically involve both us and the academic partner contributing resources directly to projects, but also involves sponsored research agreements where we fund specific research programs. We also continue to retain certain key management, employees and consultants, our core intellectual property and licenses, and proprietary equipment.

 

Strategic Alternatives Process

In August 2018, following a pre-pre-Investigational New Drug (“IND”) application meeting with the Food and Drug Administration (the “FDA”) regarding our lead liver therapeutic candidate, we announced that we were concentrating our financial resources around supporting our healthy liver therapeutic tissue development, and that we would continue to opportunistically generate revenue to support our therapeutics program by leveraging our cell and in vitro tissue platform including providing funded access to our developmental in vitro liver tissue platform to clients for their own R&D programs.

In August 2019, after a rigorous assessment of our liver therapeutic tissue program, we concluded that the variability of biological performance and related duration of potential benefits no longer supported an attractive opportunity due to redevelopment challenges and lengthening timelines to compile sufficient data to support an IND filing. As a result, we suspended development of our lead program and all other related in-house pipeline development activities. Our board of directors also engaged a financial advisory firm to explore our available strategic alternatives, including evaluating a range of ways to generate value from our technology platform and intellectual property, our commercial and development capabilities, our listing on The Nasdaq Capital Market, and our remaining financial assets. These strategic alternatives included possible mergers and business combinations, sales of part or all of our assets, and licensing and partnering arrangements. We implemented various restructuring steps to manage our resources and extend our cash runway, including reducing commercial activities related to our liver tissues, except for sales of primary human cells out of inventory, negotiating an exit from our long-term facility lease, selling various assets, and reducing our workforce. Additionally, in November 2019, we sold certain inventory and equipment and related proprietary information held by our wholly-owned subsidiary, Samsara Sciences, Inc. (“Samsara”), and as a result of such sale, Samsara ceased its operations.

After conducting a diligent and extensive process of evaluating strategic alternatives and identifying and reviewing potential candidates for a strategic acquisition or other transaction, which included the receipt of more than 27 non-binding indications of interest from interested parties and careful evaluation and consideration of those proposals, and following extensive negotiation with Tarveda Therapeutics, Inc. (“Tarveda”), on December 13, 2019, we entered into a merger agreement with Tarveda (the “Merger Agreement”). Pursuant to the Merger Agreement, and subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, our wholly-owned merger subsidiary would merge (the “Merger”) into Tarveda, with Tarveda surviving the Merger. The Merger Agreement included various conditions to the consummation of the Merger, including approval by our stockholders at a special meeting of stockholders (the “Special Meeting”).

On April 7, 2020 at the Special Meeting, the Merger was not approved by our stockholders. As a result, we are currently reconsidering our strategic alternatives and may pursue one of the following courses of action, which include but are not limited to the following actions:

 

Pursue another strategic transaction similar to the Merger. We may resume our process of evaluating other candidate companies interested in pursuing a strategic transaction and, if a candidate is identified, focus our attention on negotiating and completing such strategic transaction with such candidate.

2


 

 

Continue to operate and expand our business. We could elect to continue to operate and expand our business and pursue licensing or partnering transactions or utilize our intellectual property and platform technology to pursue the redevelopment of our liver tissues or the development of therapeutic tissues currently being studied by our collaborators. Due to the early development stage of our, and our collaborators’, potential therapeutic tissues, any such redevelopment or development efforts would require a significant amount of time and financial resources, and would be subject to all the risk and uncertainties involved in the development of novel, early stage therapeutic products, research tools, and drug screening technologies. There is no assurance that we could raise sufficient capital to support these efforts, that our development efforts would be successful commercially in the case of research applications or that we could successfully obtain any required regulatory approvals required to market any therapeutic product we pursue. We would also need to increase qualified scientific, sales and marketing, and administrative staffing, lease a suitable facility and make other expenditures necessary to support these efforts.

 

Dissolve and liquidate our assets. If we are unable, or do not believe that we will be able, to find a suitable candidate for another strategic transaction or continue to operate our business, we may dissolve and liquidate our assets, subject to approval by our stockholders. In that event, we would be required to pay all of our debts and contractual obligations and to set aside certain reserves for potential future claims. If we dissolve and liquidate our assets, there can be no assurance as to the amount or timing of available cash that will remain for distribution to our stockholders after paying our debts and other obligations and setting aside funds for our contingent liabilities.

Our Platform Technology

Our 3D human tissue platform is enabled by our proprietary NovoGen Bioprinters® and related technologies for preparing bio-inks and bioprinting multicellular tissues with complex architecture. Our foundational proprietary technology, grounded in over a decade of peer-reviewed scientific publications, derives from research led by Dr. Gabor Forgacs, one of our founders and a former George H. Vineyard Professor of Biological Physics at the University of Missouri-Columbia (“MU”). We have a broad portfolio of intellectual property rights covering the principles, enabling instrumentation, applications, and methods of cell-based printing, including exclusive licenses to certain patented and patent pending technologies from MU and Clemson University. We own more than 100 patents and pending applications worldwide covering specific tissue designs, uses, and methods of manufacture.

The NovoGen Bioprinter® Platform

Our NovoGen Bioprinters® are automated devices that enable the fabrication of 3D living tissues comprised of mammalian cells. A custom graphic user interface GUI facilitates the 3D design and execution of scripts that direct precision movement of multiple dispensing heads to deposit defined cellular building blocks called bio-ink. Bio-ink can be formulated as a 100% cellular composition or as a mixture of cells and other matter (hydrogels, particles). Our NovoGen Bioprinters® can also dispense pure hydrogel formulations, provided the physical properties of the hydrogel are compatible with the dispensing parameters. Most typically, hydrogels are deployed to create void spaces within specific locations in a 3D tissue or to aid in the deposition of specific cell types. We are able to employ a wide variety of proprietary cell- and hydrogel-based bio-inks in the fabrication of tissues. Our NovoGen Bioprinters® also serve as important components of our tissue prototyping and manufacturing platform, as they are able to rapidly and precisely fabricate intricate small-scale tissue models for in vitro use as well as larger-scale tissues suitable for in vivo use.

Generation of bio-ink comprising human cells is the first step in our standard bioprinting. A wide variety of cells and cell-laden hydrogels can be formulated into bio-ink and bioprinted tissues, including cell lines, primary cells, and stem/progenitor cells. The majority of tissue designs employ two or more distinct varieties of bio-ink, usually comprised of cells that represent distinct compartments within a target tissue. For example, a 3D liver tissue might consist of two to three distinct bio-inks that are each made from a single cell type, a combination of cell types, and/or a combination of primary cells and one or more bio-inert hydrogels that serve as physical supports for the bioprinted tissue during its maturation period, or to transiently occupy negative spaces in a tissue design.

Research Collaborations

We continue to collaborate with several academic institutions by providing them with access to our NovoGen Bioprinters® for research purposes, including: Yale School of Medicine, University of California, San Francisco, Knight Cancer Institute at Oregon Health & Science University, and the University of Virginia. We believe that the use of our bioprinting platform by major research institutions may help to advance the capabilities of the platform and generate new applications for bioprinted tissues. In some instances, an academic institution or other third party has provided funding to support the academic collaborator’s access to our technology platform. This funding is typically reflected as collaboration revenues in our financial statements. Our research collaborations typically involve both us and the academic partner contributing resources directly to projects, but also involves sponsored research agreements where we fund specific research programs. We are not currently generating any revenues from these collaborations.

3


 

Intellectual Property

We rely on a combination of patents, trademarks, trade secrets, confidential know-how, copyrights and a variety of contractual mechanisms such as confidentiality, material transfer, licenses, research collaboration, limited technology access, and invention assignment agreements, to protect our intellectual property. Our intellectual property portfolio for our core technology was initially built through licenses from MU and the Medical University of South Carolina. We subsequently expanded our intellectual property portfolio by filing patent and trademark applications worldwide and negotiating additional licenses and purchases.

 

We solely own or hold exclusive licenses to 22 issued U.S. patents and more than 45 issued international patents in foreign jurisdictions including Australia, Canada, China, France, Great Britain, Germany, Hong Kong, Israel, Japan, South Korea, the Netherlands, Russia, Singapore and Switzerland. We solely or jointly own or hold exclusive licenses to 19 pending U.S. patent applications and more than 80 pending international applications in foreign jurisdictions including Australia, Canada, China, the European Patent Office, Hong Kong, India, Japan, South Korea and New Zealand. These patent families relate to our bioprinting technology and our engineered tissue products and services, including our various uses in areas of tissue creation, in vitro testing, utilization in drug discovery, and in vivo therapeutics.

In-Licensed Intellectual Property

In 2009 and 2010, we obtained world-wide exclusive licenses to intellectual property owned by MU and the Medical University of South Carolina, which now includes 6 issued U.S. patents, 2 pending U.S. applications, 16 issued international patents and 1 pending international application. Dr. Gabor Forgacs, one of our founders and a former George H. Vineyard Professor of Biophysics at MU, was one of the co-inventors of all of these works (collectively, the “Forgacs Intellectual Property”). The Forgacs Intellectual Property provides us with intellectual property rights relating to cellular aggregates, the use of cellular aggregates to create engineered tissues, and the use of cellular aggregates to create engineered tissue with no scaffold present. The intellectual property rights derived from the Forgacs Intellectual Property also enables us to utilize our NovoGen Bioprinter® to create engineered tissues. 

In 2011, we obtained an exclusive license to a U.S. patent (U.S. Pat. No. 7,051,654) owned by the Clemson University Research Foundation that provides us with intellectual property rights relating to methods of using ink-jet printer technology to dispense cells and relating to the creation of matrices of bioprinted cells on gel materials.

In 2015, we obtained world-wide exclusive licenses to intellectual property owned by The University of Queensland (collectively, “UniQuest Intellectual Property”) relating to technologies for producing kidney cells and kidney organoids from induced pluripotent stem cells (“iPSCs”). At the time, Professor Melissa Little and her team at The University of Queensland developed a method of growing kidney tissue from iPSCs for potential use in drug screening, disease modeling and cell therapy. Professor Little’s research was eventually published in 2015 in the prestigious scientific journal Nature. Currently, the UniQuest Intellectual Property includes 2 pending U.S. patent applications, 2 issued international patents and 15 pending international patent applications.

The patent rights we obtained through these exclusive licenses are not only foundational within the field of 3D bioprinting but provide us with favorable priority dates. We are required to make ongoing royalty payments under these exclusive licenses based on net sales of products and services that rely on the intellectual property we in-licensed. For additional information regarding our royalty obligations see “Note 4. Licensing Agreements and Research Contracts” in the Notes to Consolidated Financial Statements included in this Annual Report.

Company Owned Intellectual Property

In addition to the intellectual property we have in-licensed, we have historically innovated and grown our intellectual property portfolio.

With respect to our bioprinting platform, we have 7 issued U.S. patents and 13 issued foreign patents directed to our NovoGen  Bioprinter® and methods of bioprinting: U.S. Patent Nos. 8,931,880; 9,149,952; 9,227,339; 9,315,043; 9,499,779; 9,855,369; and 10,174,276; Australia Patent Nos. 2011318437, 2015202836, 2016253591, and 2013249569; China Patent Nos. ZL201180050831.4 and ZL201480054148.1; European Patent No. 2838985; Hong Kong Patent No. HK1187024; Israel Patent No. 225392; Japan Patent Nos. 6333231 and 6566426; Russia Patent No. 2,560,393; Singapore Patent No. 11201600770R. We have additional U.S. continuation applications pending in these families as well foreign counterpart applications in multiple countries.

4


 

Our ExVive™ Human Liver Tissue is protected by U.S. Patent Nos. 9,222,932, 9,442,105 and 10,400,219; Singapore Patent No. 11201507202Y; Israel Patent No. 241055; Australia Patent Nos. 2014236780 and 2017200691; Canada Patent No. 2,903,844; Russia Patent No. 2625016; and China Patent No. 201480028365.3. Our ExVive™ Human Kidney Tissue is protected by U.S. Patent Nos. 9,481,868 and 10,094,821; and European Patent No. 3204488. We have additional U.S. patent applications pending in these families, as well as foreign counterpart applications in multiple countries. We currently have pending numerous patent applications in the U.S. and globally that are directed to additional tissue types, their methods of fabrication, and specific applications.

Additionally, in 2013, we purchased the exclusive rights to “Perfusion Bioreactors for Culturing Cells” (U.S. Patent No. 7,767,446, Japan Patent No. 4,914,835, and Australia Patent No. 2,005,287,162) from Becton Dickinson and Company. This patent represents the acquisition of bioreactor technology for the support of our 3D tissues for use in drug discovery and development.

COVID-19

In December 2019 a respiratory illness caused by a novel strain of coronavirus, SARS-CoV-2, causing the Coronavirus Disease 2019, also known as COVID-19 or coronavirus emerged. While initially the outbreak was largely concentrated in China it has spread globally. Global health concerns relating to the COVID-19 pandemic have been weighing on the macroeconomic environment, and the pandemic has significantly increased economic volatility and uncertainty. The pandemic has resulted in government authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter-in-place or stay-at-home orders, and business shutdowns.

The extent to which COVID-19 impacts our operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak and travel bans and restrictions, quarantines, shelter-in-place or stay-at-home orders, and business shutdowns. In particular, the continued COVID-19 pandemic could adversely impact our operations, including among others, the timing and ability to pursue strategic alternatives, given the impact it may have on the manufacturing and supply chain, sales and marketing and clinical trial operations of potential strategic partners, and the ability, if we elect to do so, to advance our research and development activities and pursue development of any of our pipeline products, each of which could have an adverse impact on our business and our financial results. However, our employees and consultants have been working remotely prior to the COVID-19 pandemic and we currently believe our operations have not otherwise been negatively impacted by the pandemic.

Employees

As of May 1, 2020, we had 6 employees, all of which were full-time. We have also retained 10 of our former employees as consultants.

Corporate Information

We are operating the business of our subsidiaries, including Organovo, Inc., our wholly-owned subsidiary, which we acquired in February 2012. Organovo, Inc. was incorporated in Delaware in April 2007. Our common stock has traded on The Nasdaq Stock Market under the symbol “ONVO” since August 8, 2016 and we currently trade on The Nasdaq Capital Market. Prior to that time, it traded on the NYSE MKT under the symbol “ONVO” and prior to that was quoted on the OTC Market.

Our principal executive offices are located at 440 Stevens Ave, Suite 200, Solana Beach, CA 92075 and our phone number is (858) 224-1000. Our Internet website can be found at http://www.organovo.com. The information found on our Internet website is not part of this Annual Report.

Available Information

Our investor relations website is located at http://ir.organovo.com. We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Reports filed with the Securities and Exchange Commission (the “SEC”) pursuant to the Exchange Act, including annual and quarterly reports, and other reports we file, are available free of charge, through our website. The content of our website is not intended to be incorporated by reference into this report or in any other report or document that we file. We make them available on our website as soon as reasonably possible after we file them with the SEC. The reports we file with the SEC are also available on the SEC’s website (http://www.sec.gov).

 

 

5


 

Item 1A. Risk Factors.

Investment in our common stock involves a substantial degree of risk and should be regarded as speculative. As a result, the purchase of our common stock should be considered only by persons who can reasonably afford to lose their entire investment. Before you elect to purchase our common stock, you should carefully consider the risk and uncertainties described below in addition to the other information incorporated herein by reference. Additional risks and uncertainties of which we are unaware or which we currently believe are immaterial could also materially adversely affect our business, financial condition or results of operations. If any of the risks or uncertainties discussed in this Annual Report occur, our business, prospects, liquidity, financial condition and results of operations could be materially and adversely affected, in which case the trading price of our common stock could decline, and you could lose all or part of your investment.

Risks Related to COVID-19

We face risks related to health epidemics, including the recent COVID-19 pandemic, which could have a material adverse effect on our business and results of operations.

In December 2019 a respiratory illness caused by a novel strain of coronavirus, SARS-CoV-2, causing the Coronavirus Disease 2019, also known as COVID-19 or coronavirus emerged. While initially the outbreak was largely concentrated in China it has spread globally. Global health concerns relating to the COVID-19 pandemic have been weighing on the macroeconomic environment, and the pandemic has significantly increased economic volatility and uncertainty. The pandemic has resulted in government authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter-in-place or stay-at-home orders, and business shutdowns. The extent to which the coronavirus impacts our operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak and travel bans and restrictions, quarantines, shelter-in-place or stay-at-home orders, and business shutdowns. The continued COVID-19 pandemic could adversely impact our operations, including among others, the timing and ability to pursue strategic alternatives, given the impact it may have on the manufacturing and supply chain, sales and marketing and clinical trial operations of potential strategic partners, and the ability, if we elect to do so, to advance our research and development activities and pursue development of any of our pipeline products, each of which could have an adverse impact on our business and our financial results.

In addition, the stock market has been unusually volatile during the COVID-19 pandemic and such volatility may continue. Our stock price has also experienced volatility during this time, including occasional significant increases and decreases, and such increases and decreases may repeat or continue for the foreseeable future.

There are no comparable recent events which may provide guidance as to the effect of the COVID-19 pandemic, and, as a result, the ultimate impact of the pandemic, or any similar health epidemic that may occur in the future, is highly uncertain and subject to change. We do not yet know the full extent of COVID-19’s impact on our business, our operations, or the global economy as a whole. However, the effects may have a material adverse impact on our future results of operations.

Risks Related to a Strategic Transaction Process

We may be unsuccessful in completing an alternative strategic transaction on terms that are favorable, or at all, and we may be unable to establish a viable operating business.

On April 7, 2020 our stockholders voted against the proposed Merger with Tarveda. As a result, we may be subject to a number of material risks, and our business and stock price could be adversely affected, as follows:

 

We have incurred significant expenses related to the proposed Merger with Tarveda, and expect to continue to incur additional significant expenses in order to potentially execute a transaction with an alternative strategic partner; and

 

Our common stock could be delisted from The Nasdaq Capital Market, which could have an adverse effect on the value of our common stock and any future ability to raise capital.

To date, we currently have limited business operations and our assets currently consist primarily of cash, cash equivalents and marketable securities, our intellectual property portfolio, license and collaboration agreements and our listing on The Nasdaq Capital Market. Given the failure to obtain stockholder approval to consummate the Merger with Tarveda, our board of directors may elect to pursue an alternative strategic transaction similar to the proposed Merger with Tarveda. We have incurred significant expenses related to the proposed Merger with Tarveda and attempting to complete an alternative transaction will require significant costs and be time consuming. If our board of directors determines to pursue an alternative transaction, the terms of any such alternative transaction may not be favorable to us and our stockholders, and we can make no assurances that such an alternative transaction would occur at all. Given the level of investment and time that would be required to redesign our liver tissue product or pursue the development of products and services pursuant to our collaboration agreements, it is unlikely that we would be able to obtain the funding required to recommence our product development activities on terms favorable to our stockholders, or at all.

6


 

Risks Related to our Business

The development of new biopharmaceutical products involves a lengthy and complex process.

We previously focused the majority of our resources on the development of our liver tissue candidate. In addition to our liver tissue candidate, we conducted initial research and development activities on several other tissue candidates. Each of our therapeutic tissue candidates were in the early stages of research and development and would have required substantial financial resources, development, preclinical testing, clinical trials, manufacturing scale-up and regulatory approval prior to being ready for sale. If we decide to renew our focus on developing our liver tissue candidate and expend funds for such development, this process could take many years of effort without any assurance of ultimate success. Product development efforts with respect to a tissue candidate could fail for many reasons, including:

 

 

the failure of the tissue candidate in preclinical or clinical studies, including failing to demonstrate sufficient durability and functionality to support further development activities;

 

 

the inability to satisfy the regulatory requirements to successfully submit an IND with the FDA;

 

 

adverse patient reactions to the tissue candidate or indications of other safety concerns;

 

 

insufficient clinical trial data to support the effectiveness or superiority of the tissue candidate;

 

 

inability to manufacture sufficient quantities of the tissue candidate for development, clinical, or commercialization activities in a timely and cost-efficient manner;

 

 

failure to obtain, or delays in obtaining, the required regulatory approvals for the tissue candidate, the facilities or the process used to manufacture the tissue candidate;

 

 

changes in the regulatory environment, including pricing and reimbursement, that make development of a new product or of an existing product for a new indication no longer attractive;

 

 

the failure to obtain or maintain satisfactory drug reimbursement rates by governmental or third-party payers; and

 

 

the development of a competitive product or therapy.

The 3D bioprinted tissue candidates that we were developing represent new therapeutic approaches that could be subject to heightened regulatory scrutiny, delays in clinical development and/or delays in achieving the regulatory approvals required for commercialization.

Our liver tissue candidate represented a new approach to treating liver disease, inborn errors of metabolism, and other diseases. Similarly, our other early stage therapeutic tissue candidates represented new therapeutic approaches in their respective disease areas. However, we were unable to achieve satisfactory results with the liver tissue candidate which we were developing. As a result, the development of these therapeutic tissue candidates would be subject to a number of challenges, including:

 

 

obtaining regulatory approval from the FDA and other regulatory authorities, which have limited experience with regulating the development and commercialization of 3D bioprinted human tissues developing and deploying consistent and reliable processes for manufacturing 3D bioprinted tissues for implantation into patients;

 

utilizing these tissue candidates in combination with other therapies, which may increase the risk of adverse side effects;

 

developing processes for the safe administration of these tissues, including long-term follow-up for all patients who receive these tissue candidates;

 

sourcing clinical and, if approved, commercial supplies for the materials used to manufacture and process these tissue candidates that are free from viruses and other pathogens that may increase the risk of adverse side effects;

 

developing a manufacturing process and distribution network that can provide a stable supply with a cost of goods that allows for an attractive return on investment;

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qualifying, engaging, and training clinical trial investigators and institutions who will be able to implement the institutionally-approved protocols, recruit and treat patients, and generate data in accordance with targeted goals and timelines; and

 

establishing sales and marketing capabilities after obtaining any regulatory approval to gain market acceptance, and obtaining adequate coverage, reimbursement and pricing by third-party payors and government authorities.

The regulatory approval process for novel tissue candidates, such as our therapeutic tissue candidates, can be more expensive and take longer than for other, better known or extensively studied product candidates.

Further, the manufacturing processes we would be required to use in connection with our therapeutic tissue candidates may not yield a sufficient supply of satisfactory products that are safe, effective, scalable, or profitable.

Moreover, actual or perceived safety issues, including adoption of new therapeutics or novel approaches to treatment, may adversely influence the willingness of subjects to participate in clinical trials, or if approved, of physicians to subscribe to the novel treatment options.

Physicians, hospitals and third-party payors often are slow to adopt new products, technologies and treatment practices that require additional upfront costs and training. Physicians may not be willing to undergo training to adopt novel therapies, may decide the therapy is too complex to adopt without appropriate training and may choose not to administer the therapy. Based on these and other factors, hospitals and payors may decide that the benefits of a new therapy do not or will not outweigh its costs.

We have not yet tested any bioprinted therapeutic tissue candidates in clinical trials. Results in early preclinical studies may not be indicative of results obtained in later preclinical studies. Similarly, results from early clinical trials may not be indicative of results obtained in later clinical trials.

Our tissue candidates involve novel technologies and have never been evaluated in clinical trials. It is unknown how translatable the preclinical animal models used in our preclinical studies are to humans. If we elect to resume the development of our therapeutic tissues, we would be required to demonstrate through adequate and well-controlled clinical trials that our tissue candidates are safe and effective, with a favorable risk-benefit profile, for use in their target indications before we could have sought regulatory approvals for their commercial sale. Initial positive results we have observed for our tissue candidates in preclinical animal models may not be predictive of results from our later preclinical trial results, nor of results from future clinical trials in humans. For example, in May 2019, we announced that data generated from a larger group of animal studies differed from our earlier pilot studies and put into question the durability and functionality of our liver tissue candidate. In August 2019, we announced our decision to stop pursuing the development of our liver tissue candidate following our completion of additional studies that did not resolve the durability and functionality issues we had identified. We also announced that as a result of these adverse study results, our board of directors determined that it is in the best interests of our stockholders to explore our available strategic alternatives, rather than to continue to pursue our therapeutic liver tissue and other early stage development projects.

 

 

Our experience manufacturing therapeutic tissues is limited. We believe that manufacturing issues, including technical or quality issues or issues, contributed to the viability and functionality issues with our liver tissue candidate, and our ultimate decision to stop the development of this tissue. There is no assurance that we can solve these and any future manufacturing issues.

Before initiating a clinical trial or commercializing any of our tissue candidates, we would have been required to demonstrate to the FDA that the chemistry, manufacturing and controls for our tissue products meet applicable requirements. Because no bioprinted tissue product has been approved in the United States, there is no manufacturing facility that has demonstrated the ability to comply with FDA requirements, and therefore the timeframe and requirements for demonstrating compliance to the FDA’s satisfaction is uncertain.

Bioprinted tissue manufacturing is an emerging industry. To our knowledge, there are no contract manufacturing organizations with experience in manufacturing bioprinted tissue products under GMP conditions. We have conducted all of our manufacturing internally.

We conducted all of our research in research facilities and we were in the process of implementing applicable FDA manufacturing requirements. However, we have limited experience as a company in developing a manufacturing facility that meets all applicable GMP requirements, and we may never have been successful in developing our own manufacturing facility.

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Manufacturing our therapeutic tissue candidates is complicated and presents novel technical challenges. We believe that manufacturing issues, including technical or quality issues, contributed to the viability and functionality issues with our liver tissue candidate, and our ultimate decision to stop the development of this tissue. If we elect to resume the development of our therapeutic tissues, we may encounter problems achieving adequate quantities and quality of clinical-grade materials to conduct our clinical trials, or to meet FDA, European Medicines Agency or other applicable standards or specifications with consistent and acceptable production yields and costs.

We have not scaled up the manufacturing process for our therapeutic liver tissue beyond the scale used for research and nonclinical studies. The time and efforts required for us to develop and validate our manufacturing process to support clinical use would potentially delay our ability to develop this program in accordance with our expected timelines.

In order to manufacture and supply any of our tissue candidates on a commercial scale in the future, we would be required to bolster our quality control and quality assurance capabilities, including by augmenting our manufacturing processes and adding personnel. We may encounter problems hiring and retaining the experienced specialist scientific and manufacturing personnel needed to operate our manufacturing process, which could result in additional delays in our production or difficulties in maintaining compliance with applicable regulatory requirements. Further, if we engage in scale-up manufacturing of any approved product, we may encounter unexpected issues relating to the manufacturing processes, donor variability, or the quality, purity or stability of the product, and we may be required to refine or alter our manufacturing processes to address these issues. Resolving these issues could result in significant additional delays and result in significantly increased costs.

Further, any unresolved problems in our manufacturing process could make us a less attractive collaborator for potential partners, including larger pharmaceutical companies and academic research institutions, which could limit our ability to successfully enter into a strategic partnership or collaboration related to, or otherwise license or sell the assets or intellectual property associated with, our in vivo therapeutic tissues and manufacturing technologies on favorable terms, or at all.

We obtained our clinical grade livers from a single source, and if we elect to resume the development of our therapeutic liver tissue, we will need to reestablish a commercial source for our clinical grade livers or isolated cells to support our clinical trials and/or commercialization.

Our liver tissue candidate was manufactured using human primary liver cells from non-transplantable livers we receive from the International Institute for the Advancement of Medicine. We relied upon this single source to obtain the clinical grade non-transplantable livers that served as the starting materials for manufacturing the liver cells we used in our therapeutic liver tissue. The availability and quality of clinical grade livers may be sporadic and unpredictable. As a result, if we elect to renew our focus on development of our therapeutics tissues, we will need to reestablish a commercial source for our clinical grade livers or isolated cells to supply our clinical program or meet commercial demand, and our development plans may be delayed or stalled, which would significantly harm our business. In addition, in order to preserve resources, we discontinued our ability to isolate liver cells from donated organs by restructuring our operations and dissolving our Samsara subsidiary. In order to recommence isolating liver cells from donated organs, we would need to reestablish the access to cell isolation capabilities either through an external collaboration or internally, which could require significant time and financial resources.

Our liver tissue candidate included primary cells from two donors. If the FDA did not authorize us to include cells from more than one donor, our development timeline would be delayed.

Our NovoTissues Liver product was manufactured using cells from a liver donor and cells from an umbilical cord donor. Under 21 CFR §1271, cells from more than one donor cannot be combined in the manufacturing process absent a waiver from the FDA. We applied to the FDA for a waiver authorizing us to include cells from two donors in manufacturing our therapeutic liver tissue for clinical trials. As a result, even if we elected to resume the development of our therapeutic liver tissues, we would be required to redesign our therapeutic liver tissue unless we received a waiver from the FDA. This decision by the FDA could result in additional development costs and a delay in our development timeline, in which case our business would be materially harmed.

If we elect to resume the development of our therapeutic tissues, we may not enjoy the market exclusivity benefits of any orphan drug designation.

Under the Orphan Drug Act, the first product with an orphan drug designation receives market exclusivity, which prohibits the FDA from approving the “same” drug for the same indication. The FDA has stated that drugs can be the “same” even when they are not identical, but has not provided guidance with respect to how it will determine “sameness” in the context of 3D bioprinted tissues. If we elected to continue to pursue the development of our therapeutic tissues, it could be possible that another bioprinted therapeutic tissue product could be approved for the treatment of a disease one of our orphan products is intended to treat before our product is approved, which means that we would not obtain orphan drug exclusivity and could also potentially be blocked from approval until

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the first product’s orphan drug exclusivity for a product expires or until we demonstrated, if we could, that our product is superior. Further, if we obtained orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different drugs can be approved for the same condition. Even after an orphan drug is approved and granted orphan drug exclusivity, the FDA can subsequently approve the same drug for the same condition if the FDA concludes that the later drug is safer, more effective or makes a major contribution to patient care.

If we elect to resume the development of our therapeutic tissues, a competitor may achieve regulatory approval before we do or develop therapies that are more advanced or effective than ours, which would harm our business and financial condition, and our ability to successfully market or commercialize any tissue candidates.

The biotechnology and pharmaceutical industries, including the fields of gene therapies, cellular therapies, and engineered tissue products, are characterized by rapid technological progress, competition, and a strong emphasis on intellectual property. We are aware of several companies focused on developing gene therapies and cellular therapies for use in treating end stage liver disease and/or inborn errors of metabolism. If we elect to resume the development of our therapeutic tissues, we may face competition from large or specialty pharmaceutical and biotechnology companies, academic research institutions, government agencies, and public and private research institutions.

Some of our potential competitors, alone or with their strategic partners, have greater financial, technical and other resources than we do, such as larger research and development, clinical, marketing and manufacturing organizations. Mergers and acquisitions in these industries may result in even greater concentration of resources among a smaller number of competitors. If we elect to resume the development of our therapeutic tissues, these competitors may obtain FDA or other regulatory approval for their products more rapidly than us, which could result in our competitors establishing a strong market position before we would be able to enter the market, if ever. Further, new or advanced technologies may render our tissue candidates uneconomical or obsolete. Our competitors could also develop products that are safer, more effective, have fewer or less side effects, or are more convenient or less expensive than any tissue candidates that we elected to develop.

 

If we elect to resume the development of our in vitro tissues business, such business would depend on new and unproven technology and approaches, and we may be unable to establish it as a profitable, standalone business.

Our in vitro products and services involve new and unproven models and approaches. We began offering our first commercial product (and related research services), our ExVive™ Human Liver Tissue, on a limited basis in April 2014 and more broadly in November 2014. We began offering our second product (and related research services), our ExVive™ Human Kidney Tissue, for predictive preclinical testing of drug compounds in September 2016. In May 2019, we announced plans to conduct additional preclinical studies necessary to optimize our manufacturing processes and complete additional preclinical studies that would generate consistent scientific data regarding the prolonged functionality and therapeutic benefits of our in vivo liver tissues. After a rigorous assessment of our liver therapeutic tissue program following completion of these additional studies, we concluded that the variability of biological performance and related duration of potential benefits presented development challenges and lengthy timelines that no longer supported an attractive opportunity. As a result, we suspended development of our lead program. We also suspended development of all other related pipeline development activity.

Our commercial products reflected a novel approach to preclinical testing of drug compounds and disease modeling, and even if we elect to resume the development of our products there is no assurance that they would perform as expected or as would be required by our customers. The commercial acceptance of, and the results of our efforts to increase customer awareness and demand for, our drug discovery and biological research tools, products and services, did not result in our development of a profitable, standalone business. In addition, we experienced that some of our customers continued to require unique features, cell sourcing, validation data, or greater degrees of reproducibility than we were able to achieve to date, in order to utilize our commercial products in their drug discovery, biological research or development programs. Even if we or our customers are successful in our respective efforts, we or our customers may not be able to discover or develop commercially viable therapeutics or other products therefrom. Based on these and other risks, there is no assurance that, if we elect to resume the development of our in vitro tissues business, that we would be successful in our efforts to advance the programs and commercialize our products.

The successful commercialization of our in vitro products and services is subject to a variety of risks.

If we elect to pursue the commercialization of our in vitro products and services, any such efforts would be subject to risks and uncertainties, including:

 

failing to develop products or services that are effective, reproducible, and competitive;

 

failing to demonstrate the commercial and technical viability of any products or services that we successfully develop, failing to meet customer expectations or requirements or otherwise failing to achieve market acceptance of such products or services;

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failing to be cost effective and timely;

 

being unable to implement features or functionality required by customers;

 

being difficult or impossible to manufacture on a large scale;

 

being unable to establish and maintain supply and manufacturing relationships with reliable third parties;

 

being unable to obtain a sufficient supply of human cells for our products, services and research and development activities on a timely basis and at acceptable quality levels and costs;

 

failing to develop our products and services before the successful marketing of similar products and services by competitors;

 

being unable to hire and retain qualified personnel; and

 

infringing the proprietary rights of third parties or competing with superior products marketed by third parties.

If we elect to resume the development and commercialization of our in vitro products, any of these or any other risks and uncertainties could occur, our efforts to commercialize our in vitro products and services may be unsuccessful, which would harm our business and results of operations. Further, these risks may prevent us from successfully entering into a strategic partnership or collaboration related to, or otherwise license or sell the assets or intellectual property associated with, our in vivo therapeutic liver tissue on favorable terms, or at all. If we fail to do so, any strategic transaction we consummate may offer limited value for our business and proprietary technology and may not enhance stockholder value.

 

If we elect to resume the development and commercialization of our in vitro products, we would face intense competition which could result in reduced acceptance and demand for our in vitro products and services.

The biotechnology industry is subject to intense competition and rapid and significant technological change. There are many potential competitors for our in vitro products and services, including major drug companies, specialized biotechnology firms, academic institutions, government agencies and private and public research institutions. Many of these competitors have significantly greater financial and technical resources, experience and expertise in the following areas than we have, including:

 

research and technology development;

 

product identification and development;

 

regulatory processes and approvals;

 

production and manufacturing;

 

securing government contracts and grants to support their research and development efforts;

 

sales and marketing of products, services and technologies; and

 

identifying and entering into agreements with potential collaborators.

Principal competitive factors in our industry include: the quality, scientific and technical support, price and breadth of technology and services; management and the execution of product development and commercialization strategies; skill and experience of employees, including the ability to recruit and retain skilled, experienced employees; intellectual property portfolio; range of capabilities, including product identification, development, regulatory approval, manufacturing and marketing; and the availability of substantial capital resources to fund these activities.

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In order to effectively compete, we would need to make substantial investments in our research and technology development, product identification and development, testing and regulatory approval, manufacturing, customer awareness activities, publications of our technology and results in scientific publications and sales and marketing activities. If we elected to do so, there is no assurance that we would be successful in commercializing and gaining significant market share for any products or services we offer in part through use of our technology. Our technologies, products and services also may be rendered obsolete or noncompetitive as a result of products and services introduced by competitors. Any of these risks may prevent us from successfully building a successful in vitro business or entering into a strategic partnership or collaboration related to, or otherwise license or sell the assets or intellectual property associated with, our in vitro business on favorable terms, or at all. If we fail to do so, any strategic transaction we consummate may offer limited value for our business and proprietary technology and may not enhance stockholder value.

If we elect to resume the development and commercialization of our in vitro products, we would require access to a constant, steady, reliable supply of human cells to successfully develop and commercialize our in vitro products and services.

If we elect to resume the development and commercialization of our in vitro products, we would require a reliable supply of qualified human cells for our commercial products and services and for our research and product development activities. We typically purchased certain qualified human cells from selected third-party suppliers based on quality assurance, cost effectiveness, and regulatory requirements. We formed our wholly-owned subsidiary, Samsara, to eventually serve as a key source of the primary human cells we utilized in our business and we recently dissolved Samsara in connection with pursuing the proposed Merger with Tarveda, which was not successful. We have relied on a combination of third-party suppliers and Samsara to meet our demand for human cells for our in vitro business. We worked closely with Samsara and our third-party suppliers to assure adequate supply while maintaining high quality and reliability. Following any resumption of the development and commercialization of our in vitro products and services, if demand for our products and services were to grow significantly, we would most likely need to identify additional sources of qualified human cells and there can be no guarantee that we would be able to access the quantity and quality of raw materials needed at a cost-effective price. In this event, any failure to obtain a reliable supply of sufficient human cells or a supply at cost effective prices would harm our business and our results of operations and could cause us to be unable to comply with the associated contractual obligations we would owe to our customers and collaboration partners.

Risks Related to Government Regulation

Violation of government regulations or quality programs could harm demand for our products or services, and the evolving nature of government regulations could have an adverse impact on our business.

To the extent that our products are used in the manufacturing or testing processes for customers drug and medical device products, such end-products or services may be regulated by the FDA under Quality System Regulations (“QSR”) or the Centers for Medicare & Medicaid Services  under Clinical Laboratory Improvement Amendments of 1988 (“CLIA’88”) regulations. The customer is ultimately responsible for QSR, CLIA’88 and other compliance requirements for their products. Failure to comply with these requirements could result in lost sales of our products and regulatory delays or objections and potential product liability claims. In addition, customers may require that services be conducted pursuant to the requirements of Good Laboratory Practice (“GLP”) in order to provide suitable data for their INDs and other regulatory filings. No regulatory review of data from our platform technology has yet been conducted and there is no guarantee that our technology will be acceptable under GLP, or that compliance with GLP requirements could be achieved on the timetable required by customers. As a result, the violation of government regulations or failure to comply with quality requirements could harm demand for these products or services, and the evolving nature of government regulations could have an adverse impact on our ability to commercialize our products or services or sell the assets or intellectual property associated with these products and services on favorable terms, or at all. If we fail to do so, any strategic transaction we consummate may offer limited value for our existing business and proprietary technology and may not enhance stockholder value.

In the past, we have used hazardous chemicals, biological materials and infectious agents in our business. Any claims relating to improper handling, storage or disposal of these materials could be time consuming and costly.

Our product manufacturing, research and development, and testing activities have involved the controlled use of hazardous materials, including chemicals, biological materials and infectious disease agents. We cannot eliminate the risks of accidental contamination or the accidental spread or discharge of these materials, or any resulting injury from such an event. We may be sued for any injury or contamination that results from our use or the use by third parties of these materials, and our liability may exceed our insurance coverage and our total assets. Federal, state and local laws and regulations govern the use, manufacture, storage, handling and disposal of these hazardous materials and specified waste products, as well as the discharge of pollutants into the environment and human health and safety matters. We were also subject to various laws and regulations relating to safe working conditions, laboratory and manufacturing practices, and the experimental use of animals. Our operations may have required that environmental permits and approvals be issued by applicable government agencies. If we failed to comply with these requirements, we could incur substantial costs, including civil or criminal fines and penalties, clean-up costs or capital expenditures for control equipment or operational changes necessary to achieve and maintain compliance.

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Risks Related to Our Capital Requirements, Finances and Operations

Our board of directors may decide to pursue a dissolution and liquidation of the Company. In such an event, the amount of cash available for distribution to our stockholders will depend heavily on the timing of such liquidation as well as the amount of cash that will need to be reserved for commitments and contingent liabilities.

Given our inability to obtain stockholder approval for the proposed Merger with Tarveda, our board of directors may decide to pursue a dissolution and liquidation of the Company, which would also require stockholder approval. In such an event, the amount of cash available for distribution to our stockholders will depend heavily on the timing of such decision, as with the passage of time the amount of cash available for distribution will be reduced as we continue to fund our operations, and the costs that would be incurred to effect such liquidation or dissolution. In addition, if our board of directors were to approve and recommend, and our stockholders were to approve, a dissolution and liquidation of the Company, we would be required under Delaware corporate law to pay our outstanding obligations, as well as to make reasonable provisions for contingent and unknown obligations, prior to making any distributions in liquidation to our stockholders. As a result of this requirement, a portion of our remaining cash assets may need to be reserved pending the resolution of such obligations. In addition, we may be subject to litigation or other claims related to a dissolution and liquidation of the Company. If a dissolution and liquidation were pursued, our board of directors, in consultation with its advisors, would need to evaluate these matters and make a determination about a reasonable amount to reserve. Accordingly, holders of our common stock could lose all or a significant portion of their investment in the event of our liquidation, dissolution or winding up.

We may be unable to continue as a going concern in the future.

We have had recurring losses from operations since inception and will likely not generate meaningful revenue for the foreseeable future. We believe that our existing cash, cash equivalents and marketable securities and interest thereon will be sufficient to fund our projected operating requirements under our current operating plan. However, if our operating plans change and our projected operating requirements increase, we may be unable to continue as a going concern. In this event, the perception that we may not be able to continue as a going concern may have an adverse impact on our business due to concerns about our ability to meet our future contractual obligations or pursue additional strategic transactions. Further, if we are unable to continue as a going concern, we may have to liquidate our assets, and the values we receive for our assets in liquidation and dissolution could be significantly lower than the values reflected in our financial statements and an investor could lose all or part of its investment in our equity.

If we were to resume our research and development activities and pursue development of any of our pipeline products, we would require substantial additional funding. Raising additional capital would cause dilution to our existing stockholders and may restrict our operations or require us to relinquish rights to our technologies or to a product candidate.

We currently do not have any committed external source of funds and do not expect to generate any meaningful revenue in the foreseeable future. We believe that our existing cash, cash equivalents and marketable securities and interest thereon will be sufficient to fund our projected operating requirements under our current operating plan. We have based our estimates on assumptions that may prove to be wrong, and we may use our available capital resources sooner than we currently expect if our operating plans change. If our current operating plans change and we decide to pursue further research and development activities, we will require substantial additional funding to operate our business, including to expand our facilities and hire additional qualified personnel, and would expect to finance these cash needs through a combination of equity offerings, debt financings, government or other third-party funding and licensing or collaboration arrangements.

To the extent that we raise additional capital through the sale of equity or convertible debt, the ownership interests of our stockholders will be diluted. In addition, the terms of any equity or convertible debt we agree to issue may include liquidation or other preferences that adversely affect the rights of our stockholders. Convertible debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, and declaring dividends, and may impose limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business.

Additional funds may not be available when we need them on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timely basis, we may be required to curtail or cease our operations.

Given our failure to obtain stockholder approval for the proposed Merger with Tarveda, raising additional funding through debt or equity financing will be difficult or not successful at all, would be dilutive and may cause the market price of our common stock to decline further. Raising additional funding through debt or equity financing is likely to be difficult or unavailable altogether given the early stage of our therapeutic candidates. Furthermore, the issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price of our common stock to decline further and existing stockholders may not agree with our financing plans or the terms of such financings.

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We have a history of operating losses and expect to incur significant additional operating losses.

We have generated operating losses each year since we began operations, including $21.5 million and $27.3 million for the years ended March 31, 2020 and 2019, respectively. As of March 31, 2020, we had incurred cumulative operating losses of $229.9 million and cumulative net losses totaling $279.5 million. We expect to incur substantial additional operating losses over the next several years. To achieve profitability, we must either generate sufficient revenue through our in vitro tissues business to offset the costs of operating our business, or we must successfully develop and obtain regulatory approval for one or more of our therapeutic candidates and effectively market and sell any products we develop. Even if we are successful in commercializing a therapeutic product that receives regulatory approval, we may not be able to realize revenues at a level that would allow us to achieve or sustain profitability. We may never generate significant revenue, and even if we do generate significant revenue, we may never achieve profitability.

Our quarterly operating results may vary, which could negatively affect the market price of our common stock.

Our results of operations in any quarter may vary from quarter to quarter and are influenced by such factors as expenses related to:

 

evaluating and implementing strategic alternatives, technology licensing opportunities, potential collaborations, and other strategic transactions;

 

responding to the SEC inquiry;

 

responding to shareholder demand letters; and

 

changes in costs related to the COVID-19 pandemic or the general global economy.

We believe that operating results for any particular quarter are not necessarily a meaningful indication of future results. Nonetheless, fluctuations in our quarterly operating results could negatively affect the market price of our common stock.

Our business will be adversely impacted if we are unable to retain our executive officers and other key personnel.

Our future success will depend to a significant degree upon the continued contributions of our key personnel, especially our executive officers. We do not currently have long-term employment agreements with our executive officers or our other key personnel, and there is no guarantee that our executive officers or key personnel will remain employed with us. Moreover, we have not obtained key man life insurance that would provide us with proceeds in the event of the death, disability or incapacity of any of our executive officers or other key personnel. Further, the process of attracting and retaining suitable replacements for any executive officers and other key personnel we lose in the future would result in transition costs and would divert the attention of other members of our senior management from our existing operations. Additionally, such a loss could be negatively perceived in the capital markets.

We may be subject to security breaches or other cybersecurity incidents that could compromise our information and expose us to liability.

We routinely collect and store sensitive data (such as intellectual property, proprietary business information and personally identifiable information) for the Company, its employees and its suppliers and customers. We make significant efforts to maintain the security and integrity of our computer systems and networks and to protect this information. However, like other companies in our industry, our networks and infrastructure may be vulnerable to cyber-attacks or intrusions, including by computer hackers, foreign governments, foreign companies or competitors, or may be breached by employee error, malfeasance or other disruption. Any such breach could result in unauthorized access to (or disclosure of) sensitive, proprietary or confidential information of ours, our employees or our suppliers or customers, and/or loss or damage to our data. Any such unauthorized access, disclosure, or loss of information could cause competitive harm, result in legal claims or proceedings, liability under laws that protect the privacy of personal information, and/or cause reputational harm.

Risks Related to Our Common Stock and Liquidity Risks

We could fail to maintain the listing of our common stock on The Nasdaq Capital Market, which could seriously harm the liquidity of our stock and our ability to raise capital or complete a strategic transaction.

The Nasdaq Stock Market LLC (“Nasdaq”) has established continued listing requirements, including a requirement to maintain a minimum closing bid price of at least $1 per share. If a company trades for 30 consecutive business days below such minimum closing bid price, it will receive a deficiency notice from Nasdaq. Assuming it is in compliance with the other continued listing requirements, Nasdaq would provide such company a period of 180 calendar days in which to regain compliance by maintaining a closing bid price at least $1 per share for a minimum of ten consecutive business days.

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On June 25, 2019, we received a notice letter from the Listing Qualifications Staff of  Nasdaq indicating that, based upon the closing bid price of our common stock for the last 30 consecutive business days, we no longer met the requirement to maintain a minimum closing bid price of $1 per share, as set forth in Nasdaq Listing Rule 5450(a)(1). On December 26, 2019, we obtained an additional compliance period of 180 calendar days by electing to transfer to The Nasdaq Capital Market to take advantage of the additional compliance period offered on that market. To qualify, we would be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for The Nasdaq Capital Market. On March 26, 2020, we obtained shareholder approval to effect a reverse stock split in a range from 20:1 to 40:1, which is subject to the approval of our board of directors (such final ratio, as determined by our board of directors, the “Reverse Stock Split Ratio” such reverse stock split, the “Reverse Stock Split”). On April 17, 2020 we received an additional notice letter from Nasdaq indicating that based on extraordinary market conditions, Nasdaq has determined to toll the compliance periods for bid price and market value of publicly held shares requirements (collectively, the “Price-based Requirements”) through June 30, 2020. Accordingly, since we had 66 calendar days remaining in, the compliance period as of April 16, 2020, we will, upon reinstatement of the Price-based Requirements, still have 66 calendar days from July 1, 2020, or until September 4, 2020, to regain compliance. We can regain compliance, either during the suspension or during the compliance period resuming after the suspension, by evidencing compliance with the Price-based Requirements for a minimum of 10 consecutive trading days. We intend to comply with the Price-based Requirements by effecting the Reverse Stock Split. However, there can be no assurance that we will be able to regain compliance with the minimum bid price requirement or maintain compliance with the other listing requirements necessary for us to maintain the listing of our common stock on The Nasdaq Capital Market. If we are unable to cure the deficiency or regain compliance, our common stock will be delisted from The Nasdaq Capital Market and begin trading on the OTC bulletin board.

A delisting from The Nasdaq Capital Market and commencement of trading on the OTC bulletin board would likely result in a reduction in some or all of the following, each of which could have a material adverse effect on stockholders:

 

the liquidity of our common stock;

 

the market price of our common stock (and the accompanying valuation of our Company);

 

our ability to obtain financing or complete a strategic transaction;

 

the number of institutional and other investors that will consider investing in shares of our common stock;

 

the number of market markers or broker-dealers for our common stock; and

 

the availability of information concerning the trading prices and volume of shares of our common stock.

The Reverse Stock Split that we intend to effect may not increase our stock price over the long-term.

The principal purpose of the Reverse Stock Split is to increase the per share market price of our common stock. It cannot be assured, however, that the Reverse Stock Split will accomplish the objective of increasing the per share market price of our common stock for any meaningful period of time. While it is expected that the reduction in the number of outstanding shares of our common stock will proportionally increase the market price of our common stock, it cannot be assured that the Reverse Stock Split will increase the market price of our common stock by a multiple of the Reverse Stock Split Ratio, as determined by our board of directors, or result in any permanent or sustained increase in the market price of our common stock, which is dependent upon many factors, including our business and financial performance, general market conditions and prospects for future success. Therefore, while price of our common stock might meet the continued listing requirements for The Nasdaq Capital Market initially, it cannot be assured that it will continue to do so.

The Reverse Stock Split may decrease the liquidity of our common stock.

Although our board of directors believes that the anticipated increase in the market price of our common stock could encourage interest in our common stock and possibly promote greater liquidity for our stockholders, such liquidity could also be adversely affected by the reduced number of shares outstanding after the Reverse Stock Split. The reduction in the number of outstanding shares may lead to reduced trading and a smaller number of market makers for our common stock.

15


 

The Reverse Stock Split may lead to a decrease in our overall market capitalization.

Should the market price of our common stock decline after the Reverse Stock Split, the percentage decline may be greater, due to the smaller number of shares outstanding, than it would have been prior to the Reverse Stock Split. A reverse stock split may be viewed negatively by the market and, consequently, can lead to a decrease in our market capitalization. If the per share market price does not increase in proportion to the Reverse Stock Split ratio, then the value of our Company, as measured by its stock capitalization, will be reduced. In some cases, the per share stock price of companies that have effected reverse stock splits subsequently declined back to pre-reverse split levels, and accordingly, it cannot be assured that the total market value of our common stock will remain the same after the Reverse Stock Split is effected, or that the Reverse Stock Split will not have an adverse effect on the stock price of our common stock due to the reduced number of shares outstanding after the Reverse Stock Split.

Our two largest shareholders have significant influence over key decision making as a result of their concentrated ownership of the voting power of our outstanding capital stock.

Our two largest shareholders, ARK Investment Management LLC (“ARK”) and Nikko Asset Management Americas, Inc. (“Nikko”), collectively own approximately 30% of our outstanding stock and, as demonstrated by the unsuccessful proposed Merger with Tarveda, are able to exercise sufficient voting rights to control the outcome of matters submitted to our stockholders for approval, including the election of directors and any merger, consolidation, sale of all or substantially all of our assets, or liquidation or dissolution. This concentrated position could delay, defer, or prevent a change of control, merger, consolidation, or sale of all or substantially all of our assets, or liquidation or dissolution that a substantial portion of our other stockholders support, or conversely this significant influence could potentially result in the consummation of such a transaction or liquidation that a substantial portion of our other stockholders do not support. This significant influence could also discourage a potential investor from acquiring our common stock or a potential counterparty from entering into negotiations about a potential strategic transaction and might harm the trading price of our common stock. As stockholders, even with significant influence, ARK and Nikko are entitled to vote their shares in their own interests, which may not always be in the interests of our stockholders generally.

We have a limited trading history and there is no assurance that an active market in our common stock will continue at present levels or increase in the future.

There is limited trading history in our common stock, and although our common stock is now traded on The Nasdaq Capital Market, there is no assurance that an active market in our common stock will continue at present levels or increase in the future. As a result, an investor may find it difficult to dispose of our common stock on the timeline and at the volumes they desire. This factor limits the liquidity of our common stock and may have a material adverse effect on the market price of our common stock and on our ability to raise additional capital.

Compliance with the reporting requirements of federal securities laws can be expensive.

We are a public reporting company in the United States, and accordingly, subject to the information and reporting requirements of the Exchange Act and other federal securities laws, including the compliance obligations of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”). The costs of complying with the reporting requirements of the federal securities laws, including preparing and filing annual and quarterly reports and other information with the SEC and furnishing audited reports to stockholders, can be substantial.

If we fail to comply with the rules of Section 404 of the Sarbanes-Oxley Act related to accounting controls and procedures, or, if we discover material weaknesses and deficiencies in our internal control and accounting procedures, we may be subject to sanctions by regulatory authorities and our stock price could decline.

Section 404 of the Sarbanes-Oxley Act (the “Section 404”) requires that we evaluate and determine the effectiveness of our internal control over financial reporting. We believe our system and process evaluation and testing comply with the management certification requirements of Section 404. We cannot be certain, however, that we will be able to satisfy the requirements in Section 404 in all future periods. If we are not able to continue to meet the requirements of Section 404 in a timely manner or with adequate compliance, we may be subject to sanctions or investigation by regulatory authorities, such as the SEC or Nasdaq. Any such action could adversely affect our financial results or investors’ confidence in us and could cause our stock price to fall. Moreover, if we are not able to comply with the requirements of Section 404 in a timely manner, or if we identify deficiencies in our internal controls that are deemed to be material weaknesses, we may be required to incur significant additional financial and management resources to achieve compliance.

16


 

The price of our common stock may continue to be volatile, which could lead to losses by investors and costly securities litigation.

The trading price of our common stock is likely to be highly volatile and could fluctuate in response to factors such as:

 

announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;

 

continued macroeconomic conditions related to the COVID-19 pandemic;

 

any announcement regarding the strategic transaction process;

 

reduced government funding for research and development activities;

 

actual or anticipated variations in our operating results;

 

adoption of new accounting standards affecting our industry;

 

additions or departures of key personnel;

 

sales of our common stock or other securities in the open market;

 

degree of coverage of securities analysts and reports and recommendations issued by securities analysts regarding our business;

 

volume fluctuations in the trading of our common stock; and

 

other events or factors, many of which are beyond our control.

The stock market is subject to significant price and volume fluctuations. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been initiated against such a company. Litigation initiated against us, whether or not successful, could result in substantial costs and diversion of our management’s attention and resources, which could harm our business and financial condition.

Investors may experience dilution of their ownership interests because of the future issuance of additional shares of our capital stock.

We are authorized to issue 200,000,000 shares of common stock and 25,000,000 shares of preferred stock. As of March 31, 2020, there were an aggregate of 157,976,729 shares of our common stock issued and outstanding and available for issuance on a fully diluted basis and no shares of preferred stock outstanding. That total for our common stock includes 26,229,913 shares of our common stock that may be issued upon the exercise of outstanding stock options or is available for issuance under our equity incentive plans, and 1,188,718 shares of common stock that may be issued through our Employee Stock Purchase Plan (“ESPP”).

In the future, we may issue additional authorized but previously unissued equity securities to raise funds to support our continued operations and to implement our business plan. We may also issue additional shares of our capital stock or other securities that are convertible into or exercisable for our capital stock in connection with hiring or retaining employees, future acquisitions, or for other business purposes. If we raise additional funds from the issuance of equity securities, substantial dilution to our existing stockholders may result. In addition, the future issuance of any such additional shares of capital stock may create downward pressure on the trading price of our common stock. There can be no assurance that we will not be required to issue additional shares, warrants or other convertible securities in the future in conjunction with any capital raising efforts, including at a price (or exercise prices) below the price at which shares of our common stock is currently traded on The Nasdaq Capital Market. Moreover, depending on market conditions, we cannot be sure that additional financing will be available when needed or that, if available, financing will be obtained on terms favorable to us or to our stockholders.

17


 

We do not intend to pay dividends for the foreseeable future.

We have paid no dividends on our common stock to date and it is not anticipated that any dividends will be paid to holders of our common stock in the foreseeable future. While our future dividend policy will be based on the operating results and capital needs of our business, it is currently anticipated that any earnings will be retained to finance our future expansion and for the implementation of our business plan. As an investor, you should take note of the fact that a lack of a dividend can further affect the market value of our stock and could significantly affect the value of any investment.

Anti-takeover provisions in our organizational documents and Delaware law may discourage or prevent a change of control, even if an acquisition would be beneficial to our stockholders, which could affect our stock price adversely and prevent attempts by our stockholders to replace or remove our current management.

Our certificate of incorporation and bylaws contain provisions that could delay or prevent a change of control of our company or changes in our board of directors that our stockholders might consider favorable. Some of these provisions:

 

authorize the issuance of preferred stock which can be created and issued by our board of directors without prior stockholder approval, with rights senior to those of the common stock;

 

provide for a classified board of directors, with each director serving a staggered three-year term;

 

prohibit our stockholders from filling board vacancies, calling special stockholder meetings, or taking action by written consent; and

 

require advance written notice of stockholder proposals and director nominations.

In addition, we are subject to the provisions of Section 203 of the Delaware General Corporation Law, which may prohibit certain business combinations with stockholders owning 15% or more of our outstanding voting stock. These and other provisions in our certificate of incorporation, bylaws and Delaware law could make it more difficult for stockholders or potential acquirers to obtain control of our board of directors or initiate actions that are opposed by our then-current board of directors, including delaying or impeding a merger, tender offer, or proxy contest involving our company. Any delay or prevention of a change of control transaction or changes in our board of directors could cause the market price of our common stock to decline.

Risks Related to Our Intellectual Property

If we are not able to adequately protect our proprietary rights, our business could be harmed.

Our success will depend to a significant extent on our ability to obtain patents and maintain adequate protection for our technologies, intellectual property and products and service offerings in the United States and other countries. If we do not protect our intellectual property adequately, competitors may be able to use our technologies and gain a competitive advantage.

To protect our products and technologies, we and our collaborators and licensors must prosecute and maintain existing patents, obtain new patents and pursue other intellectual property protection. Our existing patents and any future patents we obtain may not be sufficiently broad to prevent others from using our technologies or from developing competing products and technologies. Moreover, the patent positions of many biotechnology and pharmaceutical companies are highly uncertain, involve complex legal and factual questions and have in recent years been the subject of much litigation. As a result, we cannot guarantee that:

 

any patent applications filed by us will issue as patents;

 

third parties will not challenge our proprietary rights, and if challenged that a court or an administrative board of a patent office will hold that our patents are valid and enforceable;

 

third parties will not independently develop similar or alternative technologies or duplicate any of our technologies by inventing around our claims;

 

any patents issued to us will cover our technology and products as ultimately developed;

 

we will develop additional proprietary technologies that are patentable;

 

the patents of others will not have an adverse effect on our business; or

 

as issued patents expire, we will not lose some competitive advantage.

18


 

We may not be able to protect our intellectual property rights throughout the world.

Certain foreign jurisdictions have an absolute requirement of novelty that renders any public disclosure of an invention immediately fatal to patentability in such jurisdictions. Therefore, there is a risk that we may not be able to protect some of our intellectual property in the United States or abroad due to disclosures, which we may not be aware of, by our collaborators or licensors. Some foreign jurisdictions prohibit certain types of patent claims, such as “method-of-treatment/use-type” claims; thus, the scope of protection available to us in such jurisdictions is limited.

Moreover, filing, prosecuting and defending patents on all of our potential products and technologies throughout the world would be prohibitively expensive. Competitors may use our technologies in jurisdictions where we have not sought or obtained patent protection to develop their own products and further, may export otherwise infringing products to territories where we have patent protection, but where enforcement is not as strong as that in the United States. These products may compete with our future products in jurisdictions where we do not have any issued patents and our patent claims or other intellectual property rights may not be effective or sufficient to prevent them from so competing.

Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to biopharmaceuticals, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business.

We may be involved in lawsuits or other proceedings to protect or enforce our patents or the patents of our licensors, which could be expensive, time-consuming and unsuccessful.

Competitors may infringe our patents or the patents of our collaborators or licensors. Or, our licensors may breach or otherwise prematurely terminate the provisions of our license agreements with them. To counter infringement or unauthorized use, we may be required to file infringement claims or lawsuits, which can be expensive and time-consuming. In addition, in an infringement proceeding, a court may decide that a patent of ours or our collaborators or licensors is not valid or is unenforceable or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation or defense proceedings could put one or more of our patents at risk of being invalidated, held unenforceable, or interpreted narrowly and could put our patent applications at risk of not issuing. Additionally, our licensors may retain certain rights to use technologies licensed by us for research purposes. Patent disputes can take years to resolve, can be very costly and can result in loss of rights, injunctions and substantial penalties. Moreover, patent disputes and related proceedings can distract management’s attention and interfere with running the business.

Furthermore, because of the potential for substantial discovery in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments which could harm our business.

As more companies file patents relating to bioprinters and bioprinted tissues, it is possible that patent claims relating to bioprinters or bioprinted human tissue may be asserted against us, and any such assertions could harm our business. Moreover, we may face claims from non-practicing entities, which have no relevant product revenue and against whom our own patent portfolio may thus have no deterrent effect. Any such claims, with or without merit, could be time-consuming to defend, result in costly litigation and diversion of resources, cause product shipment or delays or require us to enter into royalty or license agreements. These licenses may not be available on acceptable terms, or at all. Even if we are successful in defending such claims, infringement and other intellectual property litigation can be expensive and time-consuming to litigate and divert management’s attention from our core business. Any of these events could harm our business significantly.

Our current and future research, development and commercialization activities also must satisfy the obligations under our license agreements. Any disputes arising under our license agreements could be costly and distract our management from the conduct of our business. Moreover, premature termination of a license agreement could have an adverse impact on our business.

In addition to infringement claims against us, if third parties have prepared and filed patent applications in the United States that also claim technology to which we have rights, we may have to participate in interference proceedings in the United States Patent and Trademark Office (“PTO”) to determine the priority of invention. An unfavorable outcome could require us to cease using the related technology or to attempt to license rights to it from the prevailing party.

19


 

Third parties may also attempt to initiate reexamination, post grant review or inter partes review of our patents or those of our collaborators or licensors in the PTO. We may also become involved in similar opposition proceedings in the European Patent Office or similar offices in other jurisdictions regarding our intellectual property rights with respect to our products and technology.

We depend on license agreements with University of Missouri, Clemson, and UniQuest for rights to use certain patents, pending applications, and know how.  Failure to comply with obligations under these agreements and any related or other termination of these agreements could materially harm our business and prevent us from developing or commercializing new product candidates.

We are party to license agreements with University of Missouri, Clemson, and UniQuest PC under which we were granted exclusive rights to patents and patent applications that are important to our business and to our ability to develop and commercialize our NovoGen Bioprinters and 3D tissue products fabricated using our NovoGen Bioprinters.  Our rights to use these patents and patent applications and employ the inventions claimed in these licensed patents are subject to the continuation of and our compliance with the terms of our license agreements.  If we were to breach the terms of these license agreements and the agreements were terminated as a result, our ability to continue to develop and commercialize our NovoGen Bioprinters and 3D tissue products and to operate our business could be adversely impacted.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

From July 2012 to November 2019, we leased our main facilities at 6275 Nancy Ridge Drive, San Diego, California 92121. Since November 2019, we leased our main facilities at 440 Stevens Avenue, Solana Beach, California 92075. See “Note 6. Leases” of the Notes to the Consolidated Financial Statements contained within this Annual Report for a further discussion of properties.

We believe our facilities are adequate for our current and intermediate-term needs, and that we will be able to locate additional facilities as needed.

Item 3. Legal Proceedings.

We are not involved in any material legal proceedings or legal matters at this time. See “Note 7. Commitments and Contingencies” of the Notes to the Consolidated Financial Statements contained within this Annual Report for a further discussion of potential commitments and contingencies related to legal proceedings.

Item 4. Mine Safety Disclosures.

Not applicable.

 

20


 

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information for Common Stock

Our common stock is traded on The Nasdaq Capital Market under the symbol “ONVO.”

Holders of Record

As of March 31, 2020, we had 130,558,098 outstanding shares of common stock and approximately 88 holders of record of our common stock. The number of beneficial owners is substantially greater than the number of record holders because a large portion of our common stock is held of record through brokerage firms in “street name.”

Dividend Policy

We have never declared or paid any cash dividends on our common stock. We currently intend to retain all future earnings, if any, for use in our business and do not anticipate paying any cash dividends on our common stock in the foreseeable future.

Recent Sales of Unregistered Securities

None.

Issuer Purchases of Equity Securities

None.

 


21


 

Performance Graph

This performance graph is furnished and shall not be deemed “filed” with the SEC or subject to Section 18 of the Exchange Act, nor shall it be deemed incorporated by reference in any of our filings under the Securities Act of 1933, as amended.

The graph set forth below compares the cumulative total stockholder return data on our common stock with the cumulative return data of (i) the Nasdaq Stock Market Composite Index, and (ii) the Nasdaq Biotechnology Index over the five-year period ending March 31, 2020. This graph assumes the investment of $100 on March 31, 2015 in our common stock and each of the comparative indices and assumes the reinvestment of dividends. No cash dividends have been declared or paid on our common stock.

The comparisons in the graph and related information is not intended to forecast or be indicative of possible future performance of our common stock, and we do not make or endorse any predictions as to future stockholder returns.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*

Among Organovo Holdings, Inc.,

the Nasdaq Composite Index, and the Nasdaq Biotechnology Index

 

 

 

*

$100 invested on March 31, 2015 in stock or index, including reinvestment of dividends.

Securities Authorized for Issuance under Equity Compensation Plans

Information about securities authorized for issuance under equity compensation plans is set forth in Part III, Item 12. “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” of this Annual Report.

22


 

Item 6. Selected Financial Data (in thousands except per share data).

The following selected historical financial data reflects our consolidated statements of operations and consolidated balance sheets as of and for the years ended March 31, 2020, 2019, 2018, 2017, and 2016. The data below should be read in conjunction with, and is qualified by reference to, Item 7. “Management's Discussion and Analysis of Financial Condition and Results of Operations” and our audited financial statements and notes thereto contained elsewhere in this Annual Report. The following table is presented in thousands, except share and per share amounts.

 

 

 

Year

 

 

Year

 

 

Year

 

 

Year

 

 

Year

 

 

 

Ended

 

 

Ended

 

 

Ended

 

 

Ended

 

 

Ended

 

 

 

March 31,

 

 

March 31,

 

 

March 31,

 

 

March 31,

 

 

March 31,

 

 

 

2020

 

 

2019

 

 

2018

 

 

2017

 

 

2016

 

Selected Consolidated Statement

   of Operations Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

2,196

 

 

$

3,091

 

 

$

4,603

 

 

$

4,230

 

 

$

1,483

 

Operating loss

 

$

(21,475

)

 

$

(27,274

)

 

$

(35,271

)

 

$

(38,575

)

 

$

(38,643

)

Net loss

 

$

(18,710

)

 

$

(26,635

)

 

$

(34,803

)

 

$

(38,447

)

 

$

(38,575

)

Loss per share, basic and

   diluted

 

$

(0.14

)

 

$

(0.23

)

 

$

(0.32

)

 

$

(0.39

)

 

$

(0.43

)

Weighted average shares

   outstanding, basic and diluted

 

 

129,556,156

 

 

 

115,379,902

 

 

 

107,243,974

 

 

 

97,763,032

 

 

 

90,057,356

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

 

March 31,

 

 

March 31,

 

 

March 31,

 

 

March 31,

 

 

 

2020

 

 

2019

 

 

2018

 

 

2017

 

 

2016

 

Selected Consolidated Balance

   Sheet Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Working capital

 

$

26,508

 

 

$

34,837

 

 

$

42,102

 

 

$

59,081

 

 

$

59,162

 

Total assets

 

$

28,441

 

 

$

40,623

 

 

$

49,827

 

 

$

69,180

 

 

$

67,576

 

Long-term liabilities

 

$

-

 

 

$

588

 

 

$

583

 

 

$

807

 

 

$

905

 

Stockholders’ equity

 

$

26,631

 

 

$

36,298

 

 

$

44,586

 

 

$

62,362

 

 

$

62,181

 

 

23


 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following management’s discussion and analysis of financial condition and results of operations should be read in conjunction with our historical consolidated financial statements and the related notes. This management’s discussion and analysis contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Any statements that are not statements of historical fact are forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause our actual results or events to differ materially from those expressed or implied by the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in section Item 1A. “Risk Factors” in this Annual Report. Except as required by applicable law we do not undertake any obligation to update our forward-looking statements to reflect events or circumstances occurring after the date of this Annual Report.

Overview

We are an early-stage biotechnology company that has been focused on pioneering the development of bioprinted human tissues that emulate key aspects of human biology and disease. We have focused on developing our in vivo liver tissues to treat end-stage liver disease and a select group of life-threatening, orphan diseases, for which there are limited treatment options other than organ transplantation. We have also explored the development of other potential pipeline in vivo tissue constructs in-house and through collaborations with academic and government researchers. Our current limited operations comprise of managing certain collaborations with research institutions and universities with respect to our NovoGen Bioprinters® for research purposes. Our NovoGen Bioprinters® are automated devices that enable the fabrication of 3D living tissues comprised of mammalian cells. We believe that the use of our bioprinting platform by major research institutions may help to advance the capabilities of the platform and generate new applications for bioprinted tissues. In some instances, an academic institution or other third party has provided funding to support the academic collaborator’s access to our technology platform. This funding is typically reflected as collaboration revenues in our financial statements; however, we are not currently generating any revenues from these collaborations. Our research collaborations typically involve both us and the academic partner contributing resources directly to projects, but also involves sponsored research agreements where we fund specific research programs. We also continue to retain certain key management, employees and consultants, our core intellectual property and licenses.

Strategic Alternatives Process

In August 2018, following a pre-pre-IND meeting with the FDA regarding our lead liver therapeutic candidate, we announced that we were concentrating our financial resources around supporting our healthy liver therapeutic tissue development, and that we would continue to opportunistically generate revenue to support our therapeutics program by leveraging our cell and in vitro tissue platform including providing funded access to our developmental in vitro liver tissue platform to clients for their own R&D programs.

In August 2019, after a rigorous assessment of our liver therapeutic tissue program, we concluded that the variability of biological performance and related duration of potential benefits no longer supported an attractive opportunity due to redevelopment challenges and lengthening timelines to compile sufficient data to support an IND filing. As a result, we suspended development of our lead program and all other related in-house pipeline development activities. Our board of directors also engaged a financial advisory firm to explore its available strategic alternatives, including evaluating a range of ways to generate value from our technology platform and intellectual property, our commercial and development capabilities, our listing on The Nasdaq Capital Market, and our remaining financial assets. These strategic alternatives included possible mergers and business combinations, sales of part or all of our assets, and licensing and partnering arrangements. We implemented various restructuring steps to manage our resources and extend our cash runway, including reducing commercial activities related to our liver tissues, except for sales of primary human cells out of inventory, negotiating an exit from our long-term facility lease, selling various assets, and reducing our workforce. Additionally, in November 2019, we sold certain inventory and equipment and related proprietary information held by our wholly-owned subsidiary, Samsara, and as a result of such sale, Samsara ceased its operations.

After conducting a diligent and extensive process of evaluating strategic alternatives and identifying and reviewing potential candidates for a strategic acquisition or other transaction, which included the receipt of more than twenty-seven non-binding indications of interest from interested parties and careful evaluation and consideration of those proposals, and following extensive negotiation with Tarveda, on December 13, 2019, we entered into the Merger Agreement and, subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, our wholly owned merger subsidiary would merge into Tarveda, with Tarveda surviving the merger. The Merger Agreement included various conditions to the consummation of the merger, including approval by our stockholders at the Special Meeting.

24


 

On April 7, 2020 at the Special Meeting of Shareholders, the Merger was not approved by our stockholders. As a result, we are currently reconsidering our strategic alternatives and may pursue one of the following courses of action, which include but are not limited to the following actions:

 

Pursue another strategic transaction similar to the Merger. We may resume our process of evaluating other candidate companies interested in pursuing a strategic transaction and, if a candidate is identified, focus our attention on negotiating and completing such strategic transaction with such candidate.

 

Continue to operate and expand our business. We could elect to continue to operate and expand our business and pursue licensing or partnering transactions or utilize our intellectual property and platform technology to pursue the redevelopment of our liver tissues or the development of therapeutic tissues currently being studied by our collaborators. Due to the early development stage of our, and our collaborators’, potential therapeutic tissues, any such redevelopment or development efforts would require a significant amount of time and financial resources, and would be subject to all the risk and uncertainties involved in the development of novel, early stage therapeutic products, research tools, and drug screening technologies. There is no assurance that we could raise sufficient capital to support these efforts, that our development efforts would be successful commercially in the case of research applications or that we could successfully obtain any required regulatory approvals to market any therapeutic product we pursue. We would also need to increase qualified scientific, sales and marketing, and administrative staffing, lease a suitable facility and make other expenditures necessary to support these efforts.

 

Dissolve and liquidate our assets. If we are unable, or do not believe that we will be able, to find a suitable candidate for another strategic transaction or continue to operate our business, we may dissolve and liquidate our assets, subject to approval by our stockholders. In that event, we would be required to pay all of our debts and contractual obligations and to set aside certain reserves for potential future claims. If we dissolve and liquidate our assets, there can be no assurance as to the amount or timing of available cash that will remain for distribution to our stockholders after paying our debts and other obligations and setting aside funds for our contingent liabilities.

COVID-19

In December 2019 a respiratory illness caused by a novel strain of coronavirus, SARS-CoV-2, causing the Coronavirus Disease 2019, also known as COVID-19 or coronavirus emerged. While initially the outbreak was largely concentrated in China it has spread globally. Global health concerns relating to the COVID-19 pandemic have been weighing on the macroeconomic environment, and the pandemic has significantly increased economic volatility and uncertainty. The pandemic has resulted in government authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter-in-place or stay-at-home orders, and business shutdowns.

The extent to which the coronavirus impacts our operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak and travel bans and restrictions, quarantines, shelter-in-place or stay-at-home orders, and business shutdowns. In particular, the continued COVID-19 pandemic could adversely impact our operations, including among others, the timing and ability to pursue strategic alternatives, given the impact it may have on the manufacturing and supply chain, sales and marketing and clinical trial operations of potential strategic partners and the ability, if we elect to do so, to advance our research and development activities and pursue development of any of our pipeline products each of which could have an adverse impact on our business and our financial results. However, our employees and consultants have been working remotely prior to the COVID-19 pandemic and we currently believe our operations have not otherwise been negatively impacted by the pandemic.

Critical Accounting Policies, Estimates, and Judgments

Our financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We continually evaluate our estimates and judgments, the most critical of which are those related to revenue recognition, the measurement of operating lease right-of-use assets and lease liabilities, the valuation of stock-based compensation expense, the valuation of impairment of long-lived assets, and the valuation allowance on deferred tax assets. We base our estimates and judgments on historical experience and other factors that we believe to be reasonable under the circumstances. Materially different results can occur as circumstances change and additional information becomes known. Besides the estimates identified above that are considered critical, we make many other accounting estimates in preparing our financial statements and related disclosures. All estimates, whether or not deemed critical, affect reported amounts of assets, liabilities, revenues and expenses, as well as disclosures of contingent assets and liabilities. These estimates and judgments are also based on historical experience and other factors that are believed to be reasonable under the circumstances. Materially different results can occur as circumstances change and additional information becomes known, even for estimates and judgments that are not deemed critical.

25


 

There have been no significant changes to our critical accounting policies since March 31, 2019, with the exception of changes made upon adoption of Accounting Standards Update (“ASU”) 2016-02, Leases (“ASC 842”) and the related supplemental ASUs. Our significant accounting policies are set forth in “Note 1. Description of Business and Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements contained within this Annual Report. Of those policies, we believe that the policies discussed below may involve a higher degree of judgment and may be more critical to an accurate reflection of our financial condition and results of operations.

Revenue recognition

We have generated revenues from payments received from research service agreements, product sales, collaborative agreements with partners including pharmaceutical and biotechnology companies and academic institutions, licenses, and grants from the National Institutes of Health (“NIH”) and private not-for-profit organizations.

Billings to customers or payments received from customers are included in deferred revenue on the balance sheet until all revenue recognition criteria are met. As of March 31, 2020 and 2019, the Company had approximately $0 and $525,000, respectively, in deferred revenue related to its research service agreements, collaborative agreements, and licenses within the scope of ASU 2014-09, Revenue from Contracts with Customers (“Topic 606”). In the year ended March 31, 2020, we recognized revenue on approximately $525,000, of which $490,000 related to the expiration of an agreement with a non-refundable up-front fee, that had been recorded as deferred revenue at March 31, 2019.  

Service revenues

The Company’s service-based business, Organovo, Inc., utilized its NovoGen® bioprinting platform to provide customers access to its highly specialized tissues that model human biology and disease, and to in vitro testing services based on that technology. These contracts with customers contained multiple performance obligations including: (i) bioprinting tissues for the customer, (ii) reporting the results of tests performed on the printed tissues pursuant to the agreed upon work plan through exposure of the tissue to various factors (including the customer’s proprietary compound), and (iii) delivering specific byproduct study materials, which were satisfied, respectively, at each of the following points in time: (i) upon completion of manufacturing of the bioprinted tissue for the customer, (ii) upon delivery of the report on tests performed on the tissue, and (iii) upon making certain study materials generated from the aforementioned testing process available to the customer. The customer did not have access or control of any performance obligation prior to the point in time of full completion of the corresponding performance satisfying event as defined above. Furthermore, although the service could be customized for each customer, it was not so highly customized as to not have an alternative use either to other customers or to the Company without significant economic consequences or rework. Accordingly, the Company’s service-based business utilized point-in-time recognition under Topic 606.

For service contracts, the Company allocated the transaction price to each performance obligation based on the estimated relative standalone selling prices of the promised products or services underlying each performance obligation. If the standalone selling price was not observable through past transactions, the Company estimated the standalone selling price taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations. The transaction price for service business contracts was a fixed consideration.

In connection with the Company’s decision to pursue its strategic alternatives, the Company halted commercial activities related to its liver tissues. The Company expects to continue to maintain its external research collaborations and its intellectual property portfolio.

Product sales, net

The Company’s product-based business, Samsara, produced high-quality cell-based products for use in Organovo’s 3D tissue manufacturing and for use by life science customers. The Company recognizes product revenue when the performance obligation is satisfied, which is at the point in time the customer obtains control of the Company’s product, typically upon delivery. Product revenues are recorded at the transaction price, net of any estimates for variable consideration under Topic 606. The Company’s process for estimating variable consideration does not differ materially from its historical practices. Variable consideration is estimated using the expected value method which considers the sum of probability-weighted amounts in a range of possible amounts under the contract. Product revenue reflects the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of the individual contracts. Actual amounts of consideration ultimately received may differ from the Company’s estimates. If actual results vary materially from the Company’s estimates, the Company will adjust these estimates, which will affect revenue from product sales and earnings in the period such estimates are adjusted.

The Company provides no right of return to its customers except in cases where a customer obtains authorization from the Company for the return. To date, there have been no product returns.

26


 

On November 7, 2019, the Company entered into an agreement to sell substantially all of the Samsara inventory and associated assets for $1.5 million, which was recorded to other income. As a result, the Company will have no further product sales of cells nor tissues beyond what it sold prior to the November 2019 sale. In March 2020, the Company dissolved Samsara.

Collaborative research, development, and licenses

The Company has entered into collaborative agreements with partners that typically include one or more of the following: (i) non-exclusive license fees; (ii) non-refundable up-front fees; (iii) payments for reimbursement of research costs; (iv) payments associated with achieving specific development milestones; and (v) royalties based on specified percentages of net product sales, if any. At the initiation of an agreement, the Company has analyzed whether it results in a contract with a customer under Topic 606 or in an arrangement with a collaborator subject to guidance under ASC 808, Collaborative Arrangements.

The Company has considered a variety of factors in determining the appropriate estimates and assumptions under these arrangements, such as whether the elements are distinct performance obligations, whether there are determinable stand-alone prices, and whether any licenses are functional or symbolic. The Company has evaluated each performance obligation to determine if it can be satisfied and recognized as revenue at a point in time or over time. Typically, non-exclusive license fees, non-refundable upfront fees, and funding of research activities have been considered fixed, while milestone payments have been identified as variable consideration which must be evaluated to determine if it has been constrained and, therefore, excluded from the transaction price.

The Company’s collaborative agreements that were not completed at the implementation of Topic 606 on April 1, 2018, consisted of research collaboration and limited technology access licenses. These agreements provide the licensee with a non-exclusive, non-transferable, limited, royalty-free technology license, including access to Organovo’s proprietary bioprinter platform, training, and continued support by means of consumables and consultation throughout the duration of the contract. The Company has determined that the intellectual property license is not distinct from the continued support promised under the agreement and is therefore a single combined performance obligation. The Company recognized revenue for these combined performance obligations over time for the duration of the license period, as the combined performance obligation would not be fully satisfied until the end of the contract.

For the year ended March 31, 2020, all collaborations and licenses revenue was within the scope of Topic 606 and recognized accordingly. As of September 30, 2019, the Company completed its obligations under the existing agreements with respect to receipts of revenue and does not anticipate recording any further revenue. See “Note 4. Collaborative Research, Development, and License Agreements” in the Notes to Consolidated Financial Statements included in this Annual Report for more information on the Company’s collaborative agreements.

Grant revenue

In July 2017, the NIH awarded the Company a “Research and Development” grant totaling approximately $1.7 million, of funding over three years. The Company has concluded this government grant is not within the scope of Topic 606, as government entities do not meet the definition of a “customer” as defined by Topic 606, as there is not considered to be a transfer of control of goods or services to the government entity funding the grant. Additionally, the Company has concluded this government grant does meet the definition of a contribution and is a non-reciprocal transaction, however, Subtopic 958-605, Not-for-Profit-Entities-Revenue Recognition does not apply, as the Company is a business entity and the grant is with a governmental agency.

Revenues from this grant have been based upon internal costs incurred that are specifically covered by the grant, plus an additional rate that provides funding for overhead expenses. Revenue has been recognized as the Company incurs expenses that are related to the grant. The Company believes this policy is consistent with the overarching premise in Topic 606, to ensure that it recognizes revenues to reflect the transfer of promised goods or services to customers in an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services, even though there is no “exchange” as defined in the FASB Accounting Standards Codification (“ASC”). The Company believes the recognition of revenue as costs are incurred and amounts become earned/realizable is analogous to the concept of transfer of control of a service over time under Topic 606.

Revenue recognized under this grant was approximately $52,000 and $587,000 for the year ended March 31, 2020 and 2019, respectively.

In connection to the Company’s decision to pursue its strategic alternatives, specific to the NIH grant, all internal research activities have been halted and transferred to the University of California, San Diego, leaving a remaining available balance of approximately $0.5 million that will not be utilized by the Company.

27


 

Cost of revenues

We reported approximately $0.3 million and $0.5 million in cost of revenues for the year ended March 31, 2020 and 2019, respectively, which includes an inventory write-off during the current year fiscal second quarter of approximately $0.2 million consisting of raw materials related to the Company’s bioprinting and testing services and is a result of the Company’s decision to pursue its strategic alternatives. Cost of revenues consists of our costs related to manufacturing and delivering our product and service revenue.

Stock-based compensation

For purposes of calculating stock-based compensation, we estimate the fair value of stock options and shares acquirable under our 2016 Employee Stock Purchase Plan (the “ESPP”) using a Black-Scholes option-pricing model. The determination of the fair value of share-based payment awards utilizing the Black-Scholes model is affected by our stock price and a number of assumptions, including expected volatility, expected life, risk-free interest rate and expected dividends. For stock options, prior to fiscal year 2020, the Company used a blend of historical volatility and implied volatility of comparable companies. As of April 1, 2019, the Company is using the Company-specific historical volatility rate as it is more reflective of market conditions and a better indicator of expected volatility. For shares acquirable under our ESPP, during the first full year of ESPP offering periods, beginning September 1, 2016, the expected volatility incorporates the historical and implied volatility of comparable companies whose share prices are publicly available due to our limited historical data as an early-stage commercial business. As of September 1, 2017, we are using our Company-specific volatility rate. The expected life of the stock options is based on historical and other economic data trended into the future. The risk-free interest rate assumption is based on observed interest rates appropriate for the expected terms of our stock options. The dividend yield assumption is based on our history and expectation of no dividend payouts. If factors change and we employ different assumptions, our stock-based compensation expense may differ significantly from what we have recorded in the past. If there is a difference between the assumptions used in determining our stock-based compensation expense and the actual factors that become known over time, specifically with respect to anticipated forfeitures, we may change the input factors used in determining stock-based compensation costs for future grants. These changes, if any, may materially impact our results of operations in the period such changes are made.

For purposes of calculating stock-based compensation, we estimate the fair value of restricted stock units (“RSUs”) and performance-based restricted stock units (“PBRSUs”) with pre-defined performance criteria, is based on the closing stock price on the date of grant. No exercise price or other monetary payment is required for receipt of the shares issued in settlement of the respective award; instead, consideration is furnished in the form of the participant’s service to the Company. The expense for PBRSUs with pre-defined performance criteria is adjusted with the probability of achievement of such performance criteria at each period end.

Results of Operations

Comparison of the Years Ended March 31, 2020 and 2019

The following table summarizes our results of operations for the years ended March 31, 2020 and 2019 (in thousands):

 

 

Year Ended March 31,

 

 

Increase (decrease)

 

 

2020

 

 

2019

 

 

$

 

 

%

 

Revenues

$

2,196

 

 

$

3,091

 

 

$

(895

)

 

 

(29

%)

Cost of revenues

$

328

 

 

$

482

 

 

$

(154

)

 

 

(32

%)

Research and development

$

5,284

 

 

$

14,752

 

 

$

(9,468

)

 

 

(64

%)

Selling, general and administrative

$

18,059

 

 

$

15,131

 

 

$

2,928

 

 

 

19

%

Other income

$

2,767

 

 

$

642

 

 

$

2,125

 

 

 

331

%

 

Revenues

Revenues of $2.2 million for the year ended March 31, 2020 decreased approximately $0.9 million, or approximately 29%, over revenues of $3.1 million for the year ended March 31, 2019. This change reflects decreases of $0.5 million and $0.3 million in grant revenue and product and service revenue, respectively, over the year ended March 31, 2019, as we reduced our activities and streamlined expenses during the year to pursue strategic alternatives.

28


 

Costs and Expenses

Cost of Revenues

Cost of product and service revenues, which reflects expenses related to manufacturing our products and delivering services, was $0.3 million and $0.5 million for the years ended March 31, 2020 and 2019, respectively. The decrease was primarily due to the wind-down of certain commercial activities related to our liver tissues during the year ended March 31, 2020.

Research and Development Expenses

The following table summarizes our research and development expenses for the years ended March 31, 2020 and 2019 (in thousands):

 

 

Year ended March 31,

 

 

Increase (decrease)

 

 

2020

 

 

2019

 

 

$

 

 

%

 

Research and development

$

4,940

 

 

$

13,290

 

 

$

(8,350

)

 

 

(63

%)

Non-cash stock-based compensation

 

111

 

 

 

911

 

 

 

(800

)

 

 

(88

%)

Depreciation and amortization

 

233

 

 

 

551

 

 

 

(318

)

 

 

(58

%)

Total research and development expenses

$

5,284

 

 

$

14,752

 

 

$

(9,468

)

 

 

(64

%)

 

Research and development expenses decreased $9.5 million, or 64%, from approximately $14.8 million for the year ended March 31, 2019 to approximately $5.3 million for the year ended March 31, 2020 as we materially reduced research and development activities following our decision to pursue our strategic alternatives during the second quarter of fiscal 2020. This action caused a $4.2 million reduction of personnel related costs, a $2.4 million reduction in lab supply costs, a $1.6 million reduction in facilities costs, and a $1.3 million reduction in all other costs. The Company’s average full-time research and development staff decreased from an average of forty-seven full-time employees for the year ended March 31, 2019 to an average of fourteen full-time employees for the year ended March 31, 2020. Going forward, we do not currently expect to incur any further research and development expenses.

Selling, General and Administrative Expenses

The following table summarizes our selling, general and administrative expenses for the years ended March 31, 2020 and 2019 (in thousands):

 

 

Year ended March 31,

 

 

Increase (decrease)

 

 

2020

 

 

2019

 

 

$

 

 

%

 

Selling, general and administrative

$

13,153

 

 

$

10,420

 

 

$

2,733

 

 

 

26

%

Non-cash stock-based compensation

 

3,997

 

 

 

4,282

 

 

 

(285

)

 

 

(7

%)

Depreciation and amortization

 

909

 

 

 

429

 

 

 

480

 

 

 

112

%

Total selling, general and administrative

   expenses

$

18,059

 

 

$

15,131

 

 

$

2,928

 

 

 

19

%

 

Selling, general and administrative expenses increased approximately $2.9 million, or 19%, from $15.1 million for the year ended March 31, 2019 to approximately $18.1 million for the year ended March 31, 2020 as we incurred approximately $2.1 million of legal, accounting, financial printing, and shareholder solicitation costs related to our proposed Merger with Tarveda and $0.2 million of costs related to settling various stockholder actions. In addition, we also incurred approximately $0.9 million of depreciation and amortization costs related to leasehold improvement write-offs in connection with the early termination of our lease and $2.7 million of severance related costs in connection with restructuring the business following our decision to pursue our strategic alternatives. These actions caused a $2.2 million increase in corporate costs, a $0.7 million increase in allocated facilities costs, and a $0.5 million increase in depreciation and amortization costs, which were offset by a $0.5 million decrease in personnel and other costs. Our average selling, general and administrative headcount was twelve full-time employees for the year ended March 31, 2020 compared to twenty-two full-time employees in the prior year period.

Other Income (Expense)

Other income was approximately $2.8 million for the year ended March 31, 2020, consisting of a $1.2 million gain from the sale of Samsara assets, a $0.5 million of gain on our lease termination, $0.5 million of income from the sale of other assets, and $0.6 million of interest income. For the year ended March 31, 2019, other income was approximately $0.6 million for the year ended March 31, 2019 and consisted of $0.7 million of interest income, offset by a $0.1 million loss on disposal of assets. Interest income decreased year over year due to lower average yields and investment balances.

29


 

Financial Condition, Liquidity and Capital Resources

We have primarily devoted our efforts to developing a platform technology to produce and study living tissues that emulate key aspects of human biology and disease, raising capital and building infrastructure. Following the decision to explore strategic alternatives, we have taken steps to manage our resources and extend our cash runway, including reducing all commercial and research and development laboratory activities related to our liver tissues, negotiating an exit from our long-term facility lease, selling lab equipment and inventory, and reducing our workforce We have retained certain key management, employees and consultants, our core intellectual property, licenses, collaborations with research institutions and universities, and proprietary equipment, and will continue our operations as we explore strategic alternatives.

As of March 31, 2020, we had cash and cash equivalents of approximately $27.4 million and an accumulated deficit of $279.5 million. As of March 31, 2019, we had cash and cash equivalents of $36.5 million and an accumulated deficit of $260.8 million. We also had negative cash flows from operations of $14.9 million and $20.4 million for the years ended March 31, 2020 and 2019, respectively.

As of March 31, 2020, we had total current assets of approximately $28.3 million and current liabilities of approximately $1.8 million, resulting in working capital of $26.5 million. At March 31, 2019, we had total current assets of approximately $38.6 million and current liabilities of approximately $3.8 million, resulting in working capital of $34.8 million.

The following table sets forth a summary of the primary sources and uses of cash for the years ended March 31, 2020 and 2019 (in thousands):

 

 

Year ended March 31,

 

 

2020

 

 

2019

 

Net cash (used in) provided by:

 

 

 

 

 

 

 

Operating activities

$

(14,882

)

 

$

(20,375

)

Investing activities

 

747

 

 

 

(76

)

Financing activities

 

4,935

 

 

 

13,154

 

Net decrease in cash, cash equivalents, and restricted cash

$

(9,200

)

 

$

(7,297

)

 

Operating activities

Net cash used by operating activities was approximately $14.9 million and $20.4 million for the years ended March 31, 2020 and 2019, respectively. This $5.5 million decrease, for the year ended March 31, 2020, is a result of a $6.5 million improvement in our cash net loss resulting from streamlining our research and administrative activities, which was offset by a $1.0 million increase in working capital requirements.

Investing activities

Net cash provided by investing activities was $0.7 million versus net cash used by investing activities of less than $0.1 million for the years ended March 31, 2020 and 2019, respectively. The net cash provided by investing activities was related to proceeds from the disposal of fixed assets associated with the streamlining of our operations.

Financing activities

Net cash provided by financing activities was approximately $4.9 million and $13.2 million for the years ended March 31, 2020 and 2019, respectively. The results in both years are primarily driven by “at-the-market” share offerings.

Operations funding requirements

During the year ended March 31, 2020, we raised net proceeds of approximately $5.0 million through the sale of 6,087,382 shares of our common stock through “at-the-market” offerings, which were offset by less than $0.1 million of payroll taxes paid by the Company related to the vesting of restricted stock units where vested shares were withheld by us to satisfy employee withholding tax obligations.

During the year ended March 31, 2019, we raised net proceeds of approximately $13.2 million through the sale of 11,631,803 shares of our common stock through “at-the-market” offerings, $0.1 million through the sale of shares through the ESPP, and less than $0.1 million through stock option exercises, which were offset by $0.2 million of payroll taxes paid by the Company related to the vesting of restricted stock units where vested shares were withheld by us to satisfy employee withholding tax obligations.

30


 

Through March 31, 2020, we have financed our operations primarily through the sale of common stock in public offerings, the private placement of equity securities, from revenue derived from products and research-based services, grants, and collaborative research agreements, and from the sale of convertible notes. Based on our current operating plan and available cash resources, we have sufficient resources to fund our business for at least the next twelve months.

Aside from the maintenance of our intellectual property portfolio, license and collaboration agreements, remaining assets, and listing on The Nasdaq Capital Market, our ongoing cash requirements are expected to consist primarily of fees associated with pursuing strategic alternatives, including fees payable to financial advisors, consulting fees, legal and accounting support, insurance premiums, key employee retention, severance and change of control benefits and ongoing compensation obligations for the six general and administrative personnel that remain with us.

We have an effective shelf registration statement on Form S-3 (File No. 333-222929) (“the 2018 Shelf”) that registered $100,000,000 of common stock, preferred stock, warrants and units, or any combination of the foregoing, which expires on February 22, 2021. On March 16, 2018, we filed a prospectus supplement to the 2018 Shelf to register the sale of up to $50.0 million of shares of our common stock that may be issued in at-the-market offerings pursuant to an equity offering sales agreement we entered into with two investment banking firms as of the same date. During the year ended March 31, 2020, we sold 6,087,382 shares of common stock in at-the-market offerings, with net proceeds of approximately $5.0 million under the 2018 Shelf.

Based on our use of the 2018 Shelf through March 31, 2020, we cannot raise more than $81.3 million in future offerings under the 2018 Shelf, including through our at-the-market program.

Having insufficient funds may require us to relinquish rights to our technology on less favorable terms than we would otherwise choose. Failure to obtain adequate financing could eventually adversely affect our ability to operate as a going concern. If we raise additional funds from the issuance of equity securities, substantial dilution to our existing stockholders would likely result. If we raise additional funds by incurring debt financing, the terms of the debt may involve significant cash payment obligations as well as covenants and specific financial ratios that may restrict our ability to operate our business.

On June 25, 2019, we received a notice letter from the Listing Qualifications Staff of Nasdaq indicating that, based upon the closing bid price of our common stock for the last 30 consecutive business days, we no longer meet the requirement to maintain a minimum closing bid price of $1 per share, as set forth in Nasdaq Listing Rule 5450(a)(1). On December 26, 2019, we obtained an additional compliance period of 180 calendar days by electing to transfer to The Nasdaq Capital Market to take advantage of the additional compliance period offered on that market. On April 17, 2020 we received an additional notice letter from Nasdaq indicating that based on extraordinary market conditions, Nasdaq has determined to toll the compliance periods for bid price and market value of publicly held shares requirements (collectively, the “Price-based Requirements”) through June 30, 2020. Accordingly, since we had 66 calendar days remaining in the compliance period as of April 16, 2020, we will, upon reinstatement of the Price-based Requirements, still have 66 calendar days from July 1, 2020, or until September 4, 2020, to regain compliance. We can regain compliance, either during the suspension or during the compliance period resuming after the suspension, by evidencing compliance with the Price-based Requirements for a minimum of 10 consecutive trading days. To qualify, we would be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for The Nasdaq Capital Market.

As of March 31, 2020, we had 130,558,098 total issued and outstanding shares of common stock and no warrants were outstanding.

In addition, our 2008 Equity Incentive Plan provided for the issuance of up to 1,521,584 shares of common stock upon the exercise of outstanding stock options, of which 896,256 shares were issued. The 2008 Equity Incentive Plan terminated on July 1, 2018. The 2012 Equity Incentive Plan, as amended, provides for the issuance of up to 28,553,986 shares of our common stock, of which 14,158,654 shares remain available for issuance as of March 31, 2020, to executive officers, directors, advisory board members, employees and consultants. Additionally, 1,500,000 shares of common stock have been reserved for issuance under the 2016 ESPP, of which 1,188,718 shares remain available for future issuance as of March 31, 2020. Lastly, 2,246,918 shares of common stock have been reserved for issuances under Inducement Award Agreements. In aggregate, issued and outstanding common stock, shares underlying outstanding warrants, and shares issuable under outstanding equity awards or reserved for future issuance under the 2008 and 2012 Equity Incentive Plans, the Inducement Award Agreements, and the 2016 ESPP total 157,976,729 shares of common stock as of March 31, 2020.

31


 

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements, including unrecorded derivative instruments that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. We have certain warrants and options outstanding, but we do not expect to receive sufficient proceeds from the exercise of these instruments unless and until the underlying securities are registered, and/or all restrictions on trading, if any, are removed, and in either case the trading price of our common stock is significantly greater than the applicable exercise prices of the options and warrants.

Effect of Inflation and Changes in Prices

Management does not believe that inflation and changes in price will have a material effect on our operations.

Recent Accounting Pronouncements

For information regarding recently adopted and issued accounting pronouncements, see “Note 12. Recent Accounting Pronouncements” in the Notes to Consolidated Financial Statements contained in this Annual Report.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

The primary objective of our investment activities is to preserve our capital for the purpose of funding our operations. To achieve these objectives, our investment policy allows us to maintain a portfolio of cash, cash equivalents, and short-term investments in a variety of securities, including money market funds. Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of U.S. interest rates, particularly because the majority of our investments are comprised of cash and cash equivalents. We currently do not hedge interest rate exposure. Due to the nature of our short-term investments, we believe that we are not subject to any material market risk exposure. We have limited foreign currency risk exposure as our business operates primarily in U.S. dollars. We do not have significant foreign currency nor any other derivative financial instruments.

 

 

32


 

Item 8. Consolidated Financial Statements.

Organovo Holdings, Inc.

Index to Consolidated Financial Statements

 

 

 

F-1


 

Report of Independent Registered Public Accounting Firm

 

 

To the Board of Directors and Stockholders of:

Organovo Holdings, Inc.

 

 

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Organovo Holdings, Inc. (the “Company”) as of March 31, 2020 and 2019, and the related consolidated statements of operations and other comprehensive loss, stockholders’ equity, and cash flows for each of the two years in the period ended March 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended March 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

 

Adoption of New Accounting Standard

As discussed in Note 6 to the financial statements, the Company has changed its method of accounting for leases due to the adoption of Accounting Standards Codification Topic 842, Leases, effective April 1, 2019, under the retrospective method.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

 

/s/ Mayer Hoffman McCann P.C.

 

We have served as the Company's auditor since 2011.

 

San Diego, California

May 28, 2020

 

F-2


 

ORGANOVO HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands except for share and per share data)

 

 

 

March 31, 2020

 

 

March 31, 2019

 

Assets

 

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

27,356

 

 

$

36,477

 

Accounts receivable

 

 

111

 

 

 

503

 

Grant receivable

 

 

 

 

 

55

 

Inventory, net

 

 

 

 

 

490

 

Prepaid expenses and other current assets

 

 

851

 

 

 

1,049

 

Total current assets

 

 

28,318

 

 

 

38,574

 

Fixed assets, net

 

 

 

 

 

1,832

 

Restricted cash

 

 

 

 

 

79

 

Other assets, net

 

 

123

 

 

 

138

 

Total assets

 

$

28,441

 

 

$

40,623

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

720

 

 

$

628

 

Accrued expenses

 

 

1,090

 

 

 

2,549

 

Deferred revenue

 

 

 

 

 

525

 

Deferred rent

 

 

 

 

 

35

 

Total current liabilities

 

 

1,810

 

 

 

3,737

 

Deferred rent, net of current portion

 

 

 

 

 

588

 

Total liabilities

 

 

1,810

 

 

 

4,325

 

Commitments and Contingencies

 

 

 

 

 

 

 

 

Stockholders' Equity

 

 

 

 

 

 

 

 

Common stock, $0.001 par value; 200,000,000 shares authorized,

  130,558,098 and 124,015,429 shares issued and outstanding at

   March 31, 2020 and March 31, 2019, respectively

 

 

131

 

 

 

124

 

Additional paid-in capital

 

 

305,965

 

 

 

296,929

 

Accumulated deficit

 

 

(279,465

)

 

 

(260,755

)

Total stockholders' equity

 

 

26,631

 

 

 

36,298

 

Total Liabilities and Stockholders' Equity

 

$

28,441

 

 

$

40,623

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-3


 

ORGANOVO HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE LOSS

(in thousands except for share and per share data)

 

 

 

Year Ended

 

 

Year Ended

 

 

 

March 31,

2020

 

 

March 31,

2019

 

Revenues

 

 

 

 

 

 

 

 

Products and services

 

$

2,055

 

 

$

2,333

 

Collaborations and licenses

 

 

89

 

 

 

171

 

Grants

 

 

52

 

 

 

587

 

Total Revenues

 

 

2,196

 

 

 

3,091

 

Cost of revenues

 

 

328

 

 

 

482

 

Research and development expenses

 

 

5,284

 

 

 

14,752

 

Selling, general, and administrative expenses

 

 

18,059

 

 

 

15,131

 

Total costs and expenses

 

 

23,671

 

 

 

30,365

 

Loss from Operations

 

 

(21,475

)

 

 

(27,274

)

Other Income (Expense)

 

 

 

 

 

 

 

 

Gain (loss) on fixed asset disposals

 

 

113

 

 

 

(63

)

Gain on lease termination

 

 

525

 

 

 

 

Interest income

 

 

594

 

 

 

705

 

Other income (expense)

 

 

1,535

 

 

 

 

Total Other Income (Expense)

 

 

2,767

 

 

 

642

 

Income Tax Expense

 

 

(2

)

 

 

(3

)

Net Loss

 

$

(18,710

)

 

$

(26,635

)

Net loss per common share—basic and diluted

 

$

(0.14

)

 

$

(0.23

)

Weighted average shares used in computing net loss per common share—basic

   and diluted

 

 

129,556,156

 

 

 

115,379,902

 

Comprehensive Loss:

 

 

 

 

 

 

 

 

Net Loss

 

$

(18,710

)

 

$

(26,635

)

Comprehensive Loss

 

$

(18,710

)

 

$

(26,635

)

 

The accompanying notes are an integral part of these consolidated financial statements.

F-4


 

ORGANOVO HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands)

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Total

 

Balance at March 31, 2018

 

 

111,033

 

 

$

111

 

 

$

278,595

 

 

$

(234,120

)

 

$

44,586

 

Stock option exercises

 

622

 

 

 

1

 

 

49

 

 

 

 

 

 

50

 

Issuance of common stock under employee and

   director stock option, RSU and purchase plans

 

 

728

 

 

 

1

 

 

 

(140

)

 

 

 

 

 

(139

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

5,193

 

 

 

 

 

 

5,193

 

Issuance of common stock from public offering, net

 

 

11,632

 

 

 

11

 

 

 

13,232

 

 

 

 

 

 

13,243

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(26,635

)

 

 

(26,635

)

Balance at March 31, 2019

 

 

124,015

 

 

$

124

 

 

$

296,929

 

 

$

(260,755

)

 

$

36,298

 

Issuance of common stock under employee and

   director stock option, RSU and purchase plans

 

 

456

 

 

 

1

 

 

 

(62

)

 

 

 

 

 

(61

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

4,108

 

 

 

 

 

 

4,108

 

Issuance of common stock from public offering, net

 

 

6,087

 

 

 

6

 

 

 

4,990

 

 

 

 

 

 

4,996

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(18,710

)

 

 

(18,710

)

Balance at March 31, 2020

 

 

130,558

 

 

$

131

 

 

$

305,965

 

 

$

(279,465

)

 

$

26,631

 

 

The accompanying notes are an integral part of these consolidated financial statements.

F-5


 

ORGANOVO HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)

 

 

 

Year Ended

 

 

Year Ended

 

 

 

March 31, 2020

 

 

March 31, 2019

 

Cash Flows From Operating Activities

 

 

 

 

 

 

 

 

Net loss

 

$

(18,710

)

 

$

(26,635

)

Adjustments to reconcile net loss to net cash used in operating activities: