Weotherwise, we have been advised that in the opinion of the
Securities and Exchange CommissionSEC such indemnification
for liabilities arising under the Securities Act is against public policy as expressed in the Securities Act and is therefore unenforceable. In the event that a claim for indemnification against such liabilities
(other than our payment of expenses incurred or paid by our directors, officers, or controlling persons in the successful defense of any action, suit, or proceeding) is asserted by
one of our directors, officers, or controlling persons in connection with the
securitiesCommon Stock being registered, we will, unless in the opinion of our
legal counsel the matter has been settled by controlling precedent, submit
the question of whether such indemnification is against public policy to a court of appropriate
jurisdiction. Wejurisdiction the question whether such indemnification by us is against public policy as expressed in the Securities Act and will
then be governed by the
court’s decision.final adjudication of the issue.
Organovo Holdings, Inc.
Index to Consolidated Financial Statements
Index to Unaudited Condensed Consolidated Financial Statements
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. (“Company”) as of March 31, 2023 and 2022, 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, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended March 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
Going Concern Uncertainty
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has incurred recurring losses and negative cash flows from operations and is dependent on additional financing to fund operations. These conditions raise substantial doubt about its ability to continue as a going concern. Management’s plans regarding these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
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 audit 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 audit 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.
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there were no critical audit matters.
/s/ Mayer Hoffman McCann P.C.
We served as the Company's auditor from 2011 to 2023.
San Diego, California
July 13, 2023
ORGANOVO HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands except for share and per share data)
| | | | | | | | |
| | March 31, 2023 | | | March 31, 2022 | |
Assets | | | | | | |
Current Assets | | | | | | |
Cash and cash equivalents | | $ | 15,301 | | | $ | 28,675 | |
Accounts receivable | | | 152 | | | | — | |
Investment in equity securities | | | 706 | | | | — | |
Prepaid expenses and other current assets | | | 889 | | | | 858 | |
Total current assets | | | 17,048 | | | | 29,533 | |
Fixed assets, net | | | 902 | | | | 662 | |
Restricted cash | | | 143 | | | | 143 | |
Operating lease right-of-use assets | | | 1,705 | | | | 2,153 | |
Prepaid expenses and other assets, net | | | 515 | | | | 805 | |
Total assets | | $ | 20,313 | | | $ | 33,296 | |
Liabilities and Stockholders' Equity | | | | | | |
Current Liabilities | | | | | | |
Accounts payable | | $ | 331 | | | $ | 415 | |
Accrued expenses | | | 2,848 | | | | 489 | |
Operating lease liability, current portion | | | 492 | | | | 479 | |
Total current liabilities | | | 3,671 | | | | 1,383 | |
Operating lease liability, net of current portion | | | 1,313 | | | | 1,704 | |
Total liabilities | | | 4,984 | | | | 3,087 | |
Commitments and Contingencies | | | | | | |
Stockholders' Equity | | | | | | |
Common stock, $0.001 par value; 200,000,000 shares authorized, 8,716,906 and 8,710,627 shares issued and outstanding at March 31, 2023 and 2022, respectively | | | 9 | | | | 9 | |
Additional paid-in capital | | | 340,317 | | | | 337,940 | |
Accumulated deficit | | | (324,998 | ) | | | (307,739 | ) |
Accumulated other comprehensive income | | | 2 | | | | — | |
Treasury stock, 46 shares at cost | | | (1 | ) | | | (1 | ) |
Total stockholders' equity | | | 15,329 | | | | 30,209 | |
Total Liabilities and Stockholders' Equity | | $ | 20,313 | | | $ | 33,296 | |
The accompanying notes are an integral part of these consolidated financial statements.
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, 2023 | | | March 31, 2022 | |
Revenues | | | | | | |
Royalty revenue | | $ | 370 | | | $ | 1,500 | |
Total Revenues | | | 370 | | | | 1,500 | |
Research and development expenses | | | 8,885 | | | | 3,320 | |
Selling, general, and administrative expenses | | | 9,216 | | | | 9,659 | |
Total costs and expenses | | | 18,101 | |
| | 12,979 | |
Loss from Operations | | | (17,731 | ) | | | (11,479 | ) |
Other Income (Expense) | | | | | | |
Loss on fixed asset disposals | | | (9 | ) | | | — | |
Gain on investment in equity securities | | | 29 | | | | — | |
Interest income | | | 454 | | | | 8 | |
Other income | | | — | | | | 25 | |
Total Other Income | | | 474 | | | | 33 | |
Income Tax Expense | | | (2 | ) | | | (2 | ) |
Net Loss | | $ | (17,259 | ) | | $ | (11,448 | ) |
Other comprehensive income: | | | | | | |
Unrealized gain on available-for-sale debt securities | | | 2 | | | | — | |
Comprehensive loss | | $ | (17,257 | ) | | $ | (11,448 | ) |
Net loss per common share—basic and diluted | | $ | (1.98 | ) | | $ | (1.32 | ) |
Weighted average shares used in computing net loss per common share—basic and diluted | | | 8,713,032 | | | | 8,703,596 | |
The accompanying notes are an integral part of these consolidated financial statements.
ORGANOVO HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | | | | | Treasury Stock | | | | | | | | | |
| | Shares | | | Amount | | | Additional Paid-in Capital | | | Shares | | Amount | | | Accumulated Deficit | | | Accumulated Other Comprehensive Income | | Total | |
Balance at March 31, 2021 | | | 8,671 | | | $ | 9 | | | $ | 335,479 | | | | — | | $ | (1 | ) | | $ | (296,291 | ) | | | — | | $ | 39,196 | |
Issuance of common stock under employee and director stock option, RSU and purchase plans | | | 13 | | | | — | | | | (46 | ) | | | — | | | — | | | | — | | | | — | | | (46 | ) |
Stock-based compensation expense | | | — | | | | — | | | | 2,256 | | | | — | | | — | | | | — | | | | — | | | 2,256 | |
Issuance of common stock from public offering, net | | | 27 | | | | — | | | | 251 | | | | — | | | — | | | | — | | | | — | | | 251 | |
Net loss | | | — | | | | — | | | | — | | | | — | | | — | | | | (11,448 | ) | | | — | | | (11,448 | ) |
Balance at March 31, 2022 | | | 8,711 | | | $ | 9 | | | $ | 337,940 | | | | — | | $ | (1 | ) | | $ | (307,739 | ) | | | — | | $ | 30,209 | |
Issuance of common stock under employee and director stock option, RSU and purchase plans | | | 6 | | | | — | | | | — | | | | — | | | — | | | | — | | | | — | | | — | |
Stock-based compensation expense | | | — | | | | — | | | | 2,377 | | | | — | | | — | | | | — | | | | — | | | 2,377 | |
Net loss | | | — | | | | — | | | | — | | | | — | | | — | | | | (17,259 | ) | | | — | | | (17,259 | ) |
Unrealized gain on available-for-sale debt securities | | | — | | | | — | | | | — | | | | — | | | — | | | | — | | | | 2 | | | 2 | |
Balance at March 31, 2023 | | | 8,717 | | | $ | 9 | | | $ | 340,317 | | | | — | | $ | (1 | ) | | $ | (324,998 | ) | | $ | 2 | | $ | 15,329 | |
The accompanying notes are an integral part of these consolidated financial statements.
ORGANOVO HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| | | | | | | | |
| | Year Ended | | | Year Ended | |
| | March 31, 2023 | | | March 31, 2022 | |
Cash Flows From Operating Activities | | | | | | |
Net loss | | $ | (17,259 | ) | | $ | (11,448 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | |
Gain on investment in equity securities | | | (29 | ) | | | — | |
Loss on disposal of fixed assets | | | 9 | | | | — | |
Accretion on investments | | | (105 | ) | | | — | |
Depreciation and amortization | | | 293 | | | | 142 | |
Stock-based compensation | | | 2,377 | | | | 2,256 | |
Increase (decrease) in cash resulting from changes in: | |
| | |
| |
Accounts receivable | | | (152 | ) | | | — | |
Prepaid expenses and other assets | | | 177 | | | | 384 | |
Accounts payable | | | (148 | ) | | | 134 | |
Accrued expenses | | | 2,359 | | | | 49 | |
Operating right-of-use asset and lease liability, net | | | 70 | | | | 30 | |
Net cash used in operating activities | | | (12,408 | ) | | | (8,453 | ) |
Cash Flows From Investing Activities | | | | | | |
Purchases of fixed assets | | | (396 | ) | | | (409 | ) |
Purchases of investments | | | (9,893 | ) | | | — | |
Maturities of investments | | | 10,000 | | | | — | |
Purchases of equity securities | | | (1,061 | ) | | | — | |
Proceeds from sales of equity securities | | | 384 | | | | — | |
Net cash used in investing activities | | | (966 | ) | | | (409 | ) |
Cash Flows From Financing Activities | | | | | | |
Proceeds from issuance of common stock, net | | | — | | | | 251 | |
Employee taxes paid related to net share settlement of equity awards | | | — | | | | (46 | ) |
Net cash provided by financing activities | | | — | | | | 205 | |
Net Decrease in Cash, Cash Equivalents, and Restricted Cash | | | (13,374 | ) | | | (8,657 | ) |
Cash, cash equivalents, and restricted cash at beginning of period | | | 28,818 | | | | 37,475 | |
Cash, cash equivalents, and restricted cash at end of period | | $ | 15,444 | | | $ | 28,818 | |
Reconciliation of cash, cash equivalents, and restricted cash to the consolidated balance sheets | | | | | | |
Cash and cash equivalents | | $ | 15,301 | | | $ | 28,675 | |
Restricted cash | | | 143 | | | | 143 | |
Total cash, cash equivalents and restricted cash | | $ | 15,444 | | | $ | 28,818 | |
Supplemental Disclosure of Cash Flow Information: | | | | | | |
Income taxes paid | | $ | 2 | | | $ | 2 | |
Operating lease liabilities arising from obtaining right-of-use assets | | $ | — | | | $ | 2,301 | |
Purchases of fixed assets in accounts payable | | $ | 64 | | | $ | — | |
The accompanying notes are an integral part of these consolidated financial statements.
Organovo Holdings, Inc.
Notes to Consolidated Financial Statements
Note 1. Description of Business and Summary of Significant Accounting Policies
Nature of operations and basis of presentation
Organovo Holdings, Inc. (“Organovo Holdings,” “Organovo,” and the “Company”) is a biotechnology company that focuses on building high fidelity, 3D tissues that recapitulate key aspects of human disease. The Company uses these models to identify gene targets responsible for driving the disease and intends to initiate drug discovery programs around these validated targets. The Company is initially focusing on the intestine and has ongoing 3D tissue development efforts in ulcerative colitis (“UC”) and Crohn’s disease (“CD”). The Company intends to add additional tissues/diseases/targets to its portfolio over time. In line with these plans, the Company is building upon both its external and in house scientific expertise, which will be essential to its drug development effort.
The Company uses its proprietary technology to build functional 3D human tissues that mimic key aspects of native human tissue composition, architecture, function and disease. Organovo’s advances include cell type-specific compartments, prevalent intercellular tight junctions, and the formation of microvascular structures. Management believes these attributes can enable critical complex, multicellular disease models that can be used to develop clinically effective drugs across multiple therapeutic areas.
The Company’s NovoGen Bioprinters® are automated devices that enable the fabrication of 3D living tissues comprised of mammalian cells. The Company believes that the use of its bioprinting platform as well as complementary 3D technologies will allow it to develop an understanding of disease biology that leads to validated novel drug targets and therapeutics to those targets to treat disease.
The majority of the Company’s current focus is in inflammatory bowel disease (“IBD”), including CD and UC. The Company is creating high fidelity disease models, leveraging its prior work including the work found in its peer-reviewed publication on bioprinted intestinal tissues (Madden et al. Bioprinted 3D Primary Human Intestinal Tissues Model Aspects of Native Physiology and ADME/Tox Functions. iScience. 2018 Apr 27;2:156-167. doi: 10.1016/j.isci.2018.03.015.) The Company’s current understanding of intestinal tissue models and IBD disease models leads it to believe that it can create models that provide greater insight into the biology of these diseases than are generally currently available. Using these disease models, the Company intends to identify and validate novel therapeutic targets. After finding therapeutic drug targets, the Company intends to focus on developing novel small molecule, antibody, or other therapeutic drug candidates to treat the disease, and advance these novel drug candidates towards an Investigational New Drug (“IND”) filing and potential future clinical trials.
In March of 2023, the Company entered into and closed an asset purchase agreement with Metacrine, Inc to acquire their farnesoid X receptor ("FXR") program. FXR is a mediator of gastrointestinal ("GI") and liver diseases. FXR agonism has been tested in a variety of preclinical models of IBD. The acquired program contains two clinically tested compounds and over 2,000 discovery or preclinical compounds.
The Company expects to broaden its work into additional therapeutic areas over time and is currently exploring specific tissues for development. In the Company’s work to identify the areas of interest, it evaluates areas that might be better served with 3D disease models than currently available models as well as the potential commercial opportunity.
Except where specifically noted or the context otherwise requires, references to “Organovo Holdings”, “the Company”, and “Organovo” in these notes to the consolidated financial statements refers to Organovo Holdings, Inc. and its wholly owned subsidiaries, Organovo, Inc., and Opal Merger Sub, Inc.
Liquidity and Going Concern
The accompanying consolidated financial statements have been prepared on the basis that we are a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the normal course of business. As of March 31, 2023, the Company had cash and cash equivalents of approximately $15.3 million, restricted cash of approximately $0.1 million and an accumulated deficit of approximately $325.0 million. The restricted cash was pledged as collateral for a letter of credit that the Company is required to maintain as a security deposit under the terms of the lease agreements for its facilities. The Company also had negative cash flows from operations of approximately $12.4 million during the year ended March 31, 2023.
Through March 31, 2023, the Company has financed its operations primarily through the sale of common stock through public and at-the-market (“ATM”) offerings, the private placement of equity securities, from revenue derived from the licensing of intellectual
property, products and research-based services, grants, and collaborative research agreements, and from the sale of convertible notes. During the year ended March 31, 2023, the Company issued zero shares of its common stock through its ATM facility.
Based on our current operating plan and available cash resources, we will need substantial additional funding to support future operating activities. We have concluded that the prevailing conditions and ongoing liquidity risks faced by us raise substantial doubt about our ability to continue as a going concern for at least one year following the date these financial statements are issued. The accompanying consolidated financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern. As the Company continues its operations and is focusing its efforts on drug discovery and development, the Company will need to raise additional capital to implement this business plan. The Company cannot predict with certainty the exact amount or timing for any future capital raises. The Company will seek to raise additional capital through debt or equity financings, or through some other financing arrangement. However, the Company cannot be sure that additional financing will be available if and when needed, or that, if available, it can obtain financing on terms favorable to its stockholders. Any failure to obtain financing when required will have a material adverse effect on the Company’s business, operating results, and financial condition.
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. On an ongoing basis, management reviews these estimates and assumptions.
Investments
Investments consist of investments in debt securities and investments in equity securities.
Investments in debt securities consist of investments in U.S. Treasury bills. As of March 31, 2023, all investments that have original maturities of three months or less are classified as cash equivalents on the Consolidated Balance Sheets. Prior to March 31, 2023, the Company classified certain investments as held-to-maturity. All investments previously classified as held-to-maturity matured prior to March 31, 2023. As of March 31, 2023, all investments are classified as available-for-sale, as the sale of such investments may be required prior to maturity to implement management strategies. Available-for-sale debt securities are recorded at fair value. Any unrealized gains and losses are included in accumulated other comprehensive income as a component of stockholders' equity until realized. As U.S. Treasury bills are risk-free, any declines in fair value are considered temporary.
Investments in equity securities consist of investments in the common stock of entities traded in active markets. The Company does not have the ability to exercise significant influence over any entities. Therefore, initial investments are recorded at cost, and are remeasured at fair value as of the balance sheet date. Any gains or losses resulting from the change in fair value are recorded in net income. The investments in equity securities are classified as current assets.
Fair value measurement
Financial assets and liabilities are measured at fair value, which is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The following is a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value:
•Level 1 — Quoted prices in active markets for identical assets or liabilities.
•Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
•Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
For certain of the Company’s financial instruments, including cash and cash equivalents, prepaid expenses and other assets, accounts payable, accrued expenses, the carrying amounts are generally considered to be representative of their respective fair values because of the short-term nature of those instruments.
Cash and cash equivalents
The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.
As of March 31, 2023 and 2022, the Company had approximately $0.1 million of restricted cash, respectively, deposited with a financial institution. The entire amount was held in certificates of deposit to support a letter of credit agreement related to the Company’s facility leases entered into in November 2020 and amended in November 2021.
Fixed assets and depreciation
Fixed assets are carried at cost. Expenditures that extend the life of the asset are capitalized and depreciated. Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the related assets or, in the case of leasehold improvements, over the lesser of the useful life of the related asset or the remaining lease term. The estimated useful lives of the fixed assets range between one and seven years.
Impairment of long-lived assets
In accordance with authoritative guidance, the Company reviews its long-lived assets, including fixed assets and other assets, for impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be fully recoverable. To determine recoverability of its long-lived assets, the Company evaluates whether future undiscounted net cash flows will be less than the carrying amount of the assets and adjusts the carrying amount of its assets to fair value. Management has determined that no impairment of long-lived assets occurred as of March 31, 2023 and 2022.
Research and development expenses, including direct and allocated expenses, consist of independent research and development costs, as well as costs associated with sponsored research and development. Research and development costs are expensed as incurred.
Acquired in-process research and development
The Company has acquired drug candidates in development. The costs to acquire a drug candidate are immediately expensed as acquired in-process research and development, provided that the drug candidate has no alternative future use. Acquired in-process research and development expenses are included in total research and development expenses on the Consolidated Statements of Operations and Other Comprehensive Loss.
FXR Program
In March 2023, the Company acquired Metacrine's FXR program for $4.0 million. The FXR program was determined to have no alternative future use, and therefore was considered acquired in-process research and development and fully expensed. For the year ended March 31, 2023, the Company paid a $2.0 million upfront payment, and the remaining $2.0 million will be paid in the next fiscal year (see detail in "Note 4. Accrued Expenses") upon final transfer of the drug compounds, related data, and IP.
Income taxes
Deferred income taxes are recognized for the tax consequences in future years for differences between the tax basis of assets and liabilities and their financial reporting amounts at each year end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the combination of the tax payable for the year and the change during the year in deferred tax assets and liabilities. The Company’s policy regarding uncertainty in income taxes is pursuant to ASC 740-10. Interest and penalties that would be assessed in relation to the settlement value of unrecognized tax benefits is recognized as a component of income tax expense.
Revenue recognition
The Company has generated revenues from payments received from licensing intellectual property.
The Company has entered into a license agreement with a company that includes the following: (i) non-refundable upfront fees and (ii) royalties based on specified percentages of net product sales, if any. At the initiation of the agreement, the Company has analyzed whether it results in a contract with a customer under Topic 606.
The Company has considered a variety of factors in determining the appropriate estimates and assumptions under these arrangements, such as whether the Company is a principal vs. agent, 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-refundable upfront fees have been considered fixed, while sales-based royalty 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. Please refer to “Note 5: Collaborative Research, Development, and License Agreements” for further information.
Stock-based compensation
The Company accounts for stock-based compensation in accordance with the ASC Topic 718, Compensation — Stock Compensation, which establishes accounting for equity instruments exchanged for employee and non-employee services. Under such provisions, stock-based compensation cost is measured at the grant date, based on the calculated fair value of the award (determined using either the Black-Scholes or Monte Carlo option-pricing models, depending on the complexity of the equity grant), and is recognized as an expense, under the straight-line method, over the employee’s requisite service period (generally the vesting period of the equity grant).
Comprehensive income (loss)
Comprehensive income (loss) is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources. The Company is required to record all components of comprehensive income (loss) in the financial statements in the period in which they are recognized. Net income (loss) and other comprehensive income (loss), including unrealized gains and losses on investments, are reported, net of their related tax effect, to arrive at comprehensive income (loss).
Net loss per share
Basic and diluted net loss per share has been computed using the weighted-average number of shares of common stock outstanding during the period. The weighted-average number of shares used to compute diluted loss per share excludes any assumed exercise of stock options and warrants, shares reserved for purchase under the Company’s 2016 Employee Stock Purchase Plan (“ESPP”), the assumed release of restriction of restricted stock units (“RSUs”), and shares subject to repurchase as the effect would be anti-dilutive. No dilutive effect was calculated for the years ended March 31, 2023 and 2022 as the Company reported a net loss for each respective period and the effect would have been anti-dilutive.
Common stock equivalents excluded from computing diluted net loss per share were approximately 1.6 million shares and 1.2 million shares for the years ended March 31, 2023 and 2022, respectively.
Note 2. Investments and fair value measurement
Investments in debt securities
As of March 31, 2023, the Company held $4.9 million of investments in debt securities (which are included in the $15.3 million of cash and cash equivalents). For the year ended March 31, 2023, there was $0.3 million of interest income related to the investments in debt securities. There were less than $0.1 million of unrealized gains recorded on investments in debt securities for the year ended March 31, 2023. As the investments in debt securities consist of U.S. Treasury bills from active markets, the fair value is measured using level 1 inputs.
The following table summarizes the Company's investments in debt securities that are measured at fair value as of March 31, 2023 (in thousands):
| | | | | | | | | | | | | | | | |
| | Amortized costs basis | | | Gross unrealized gains | | | Gross unrealized losses | | | Fair value | |
As of March 31, 2023 | | | | | | | | | | | | |
Investment in debt securities | | $ | 4,943 | | | $ | 2 | | | $ | — | | | $ | 4,945 | |
Investments in equity securities
For the year ended March 31, 2023, there was $1.1 million of equity securities purchased, and $0.4 million of equity securities sold. As of March 31, 2023, the fair value of investment in equity securities was $0.7 million, resulting in less than a $0.1 million unrealized gain on investment in equity securities. As the investments in equity securities consist of common stock from active markets, the fair value is measured using level 1 inputs.
The following table presents the activity for investments in equity securities measured at fair value for the year ended March 31, 2023 (in thousands):
| | | | |
| | | |
| | Investment in Equity Securities (in thousands) | |
Balance at March 31, 2022 | | $ | — | |
Purchases at cost | | | 1,061 | |
Sales | | | (384 | ) |
Gain on investment in equity securities | | | 29 | |
Balance at March 31, 2023 | | $ | 706 | |
Note 3. Fixed Assets
Fixed assets consisted of the following (in thousands):
| | | | | | | | |
| | March 31, 2023 | | | March 31, 2022 | |
Laboratory equipment | | $ | 1,575 | | | $ | 1,171 | |
Furniture and fixtures | | | 66 | | | | 38 | |
Computer software and equipment | | | 537 | | | | 524 | |
Fixed Assets, gross | | | 2,178 | | | | 1,733 | |
Less accumulated depreciation | | | (1,276 | ) | | | (1,071 | ) |
Fixed Assets, net | | $ | 902 | | | $ | 662 | |
As of March 31, 2023 and 2022, all of the Company’s fixed assets were active and in use. Depreciation expense for the years ended March 31, 2023 and 2022 was approximately $211,000 and $128,000, respectively.
Note 4. Accrued Expenses
Accrued expenses consisted of the following (in thousands):
| | | | | | | | |
| | March 31, 2023 | | | March 31, 2022 | |
Accrued compensation | | $ | 609 | | | $ | 434 | |
Accrued legal and professional fees | | | 193 | | | | 27 | |
Acquired in-process research and development | | | 2,000 | | | | — | |
Other accrued expenses | | | 46 | | | | 28 | |
| | $ | 2,848 | | | $ | 489 | |
Note 5. Collaborative Research, Development, and License Agreements
License Agreements
From June 2021 to February 2022, certain patents owned or sublicensed by the Company became the subject of IPR proceedings filed by Cellink AB and its subsidiaries (collectively, “BICO Group AB”). The Company and BICO Group AB were also engaged in litigation regarding patent infringement during the same time period. On February 22, 2022, the Company and BICO Group AB signed a settlement and patent license agreement (“License Agreement”) to close all matters noted above. In addition to closing all legal matters and patent disputes noted above, as part of the agreement, the Company agreed to grant a non-exclusive license to BICO
Group AB to use the Company’s aforementioned patents for its business operations of manufacturing and selling bioprinters as well as bioinks. The Company concluded that the nature of the license granted represents functional intellectual property.
As part of the License Agreement, BICO Group AB agreed to pay the Company a one time, nonrefundable upfront fee of $1,500,000. Based on Topic 606, the Company concluded that the performance obligation related to this upfront fee consisted of the Company filing stipulations of dismissal of all legal matters noted above, as well as the Company granting the non-exclusive license of the aforementioned patents within five days of receiving the upfront payment. The conditions of the performance obligation were satisfied, and therefore the Company recognized revenue of $1,500,000 on February 22, 2022, the executed date of the License Agreement.
Additionally, as part of the License Agreement, BICO Group AB agreed to pay the Company ongoing sales-based royalties (based on percentages of BICO Group AB’s net sales) for the use of the granted license. The sales-based royalties became effective beginning on February 22, 2022, the effective date of the License Agreement, and continue until the expiration of the last surviving licensed patent. As the sales-based royalties are required to be paid 45 days after the end of every quarter, there is variable consideration that must be estimated to determine royalty revenue within a given reporting period. Sales-based royalties that occurred prior to fiscal 2023 were recognized as revenue on a one quarter lag due to constraints on the estimates of variable consideration. During fiscal 2023, the Company began to estimate sales-based royalties earned each quarter. For the year ended March 31, 2023, the Company recorded $370,000 of royalty revenue based on sales-based royalties from the License Agreement. This recognized revenue is related to sales-based royalties earned from February 22, 2022 through March 31, 2023.
Also as part of the License Agreement, certain patents involved in the agreement are sublicensed by the Company from the University of Missouri and Clemson University. See below for further information.
University of Missouri
In March 2009, the Company entered into a license agreement with the Curators of the University of Missouri to in-license certain technology and intellectual property relating to self-assembling cell aggregates and to intermediate cellular units. The Company received the exclusive worldwide rights to commercialize products comprising this technology for all fields of use. The Company is required to pay the University of Missouri royalties ranging from 1% to 3% of net sales of covered tissue products, and of the fair market value of covered tissues transferred internally for use in the Company’s commercial service business, depending on the level of net sales achieved by the Company each year. The Company paid the minimum annual royalty of $25,000 in January 2022 for its respective calendar year, which is credited against royalties due during the subsequent twelve months. No payments have been made in excess of the minimum annual royalties in the years ended March 31, 2023 and 2022.
The license agreement with the University of Missouri also includes an additional sales royalty of 3% of all revenue received from a sublicensee, when such sublicense is entered pursuant to settlement of litigation. Such revenue shall include, but not be limited to, all option fees, license issue fees (upfront payments), license maintenance fees, equity, and all royalty payments. Such revenue shall not include research funding provided to licensee by sublicensee. However, per the agreement, in the event that the Company defends the technology by litigation, it can offset any royalties due by legal expenses incurred. As of March 31, 2023, the Company’s legal expenses exceeded royalties owed from the upfront payment and sales-based royalties related to the License Agreement. Therefore, no royalty expense to the University of Missouri was recorded for the year ended March 31, 2023. No royalty expense related to sales-based royalties has been recorded to date.
On December 5, 2022, the Company amended the license agreement with the University of Missouri, whereas the Company agreed to pay a single, upfront payment of $50,000 to the University of Missouri in exchange for the aforementioned licensed intellectual property to be fully paid up by the Company. As a result, the Company will continue to have rights to the licensed intellectual property until its expiration, but will no longer owe minimum annual royalty payments, royalty payments based on net sales, or any other payments (other than patent annuities and any prosecution costs) in the future.
Clemson University
In May 2011, the Company entered into a license agreement with Clemson University Research Foundation to in-license certain technology and intellectual property relating to ink-jet printing of viable cells. The Company received the exclusive worldwide rights to commercialize products comprising this technology for all fields of use. The Company is required to pay the university royalties ranging from 1.5% to 3% of net sales of covered tissue products and the fair market value of covered tissues transferred internally for use in the Company’s commercial service business, depending on the level of net sales reached each year. The license agreement terminates upon expiration of the patents licensed, which are expected to expire in May 2024, and is subject to certain conditions as defined in the license agreement. Minimum annual royalty payments of $20,000 were due for each of the two years beginning with
calendar 2014, and $40,000 per year beginning with calendar 2016. Royalty payments of $40,000 were made in each of the years ended March 31, 2023 and 2022. The annual minimum royalty is creditable against royalties owed during the same calendar year.
In addition to the annual royalties noted above, the University is owed 40% of all payments including but not limited to, upfront payments, license fees, issue fees, maintenance fees, and milestone payments received from third parties, including sublicensees, in consideration for sublicensing rights to licensed products. However, per the agreement, in the event that the Company defends the technology by litigation, it can offset any royalties due by legal expenses incurred. As of March 31, 2023, the Company’s legal expenses exceeded royalties owed from the upfront payment and sales-based royalties related to the License Agreement. Therefore, no royalty expense to Clemson University was recorded for the year ended March 31, 2023. No royalty expense related to sales-based royalties has been recorded to date.
Capitalized License Fees
Capitalized license fees consisted of the following (in thousands):
| | | | | | | | |
| | March 31, 2023 | | | March 31, 2022 | |
License fees | | $ | 114 | | | $ | 218 | |
Less accumulated amortization | | | (101 | ) | | | (124 | ) |
License fees, net | | $ | 13 | | | $ | 94 | |
The above license fees, net of accumulated amortization, are included in Other Assets in the accompanying consolidated balance sheets and are being amortized over the life of the related patents. Amortization expense of licenses was approximately $82,000 and $14,000 for the years ended March 31, 2023 and 2022, respectively. At March 31, 2023, the weighted average remaining amortization period for all licenses was approximately 2 years. The annual amortization expense of licenses for the next five years is estimated to be approximately $3,000 per year.
The Salk Institute for Biological Studies
In March 2023, the Company acquired the FXR Agonist program from Metacrine. All patent rights related to this program have been assigned to the Company in connection with the acquisition. In addition, the Company assumed and was assigned a license agreement with the Salk Institute for Biological Studies (hereafter “Salk”) that provides certain payments to Salk upon the successful development and commercialization of the lead compound, FXR314. The Company is required to pay Salk royalties ranging from 1% to 1.125% of net sales of therapeutics based on FXR314. In addition, the Company is required to make certain milestone payments based on the successful initiation and/or completion of certain development milestones, including $500,000 within 45 days of the dosing of the first patient in a phase III clinical trial, $1,000,000 within 45 days of FDA approval of the first Licensed Product and $1,500,000 within 45 days of the first commercial sale of a Licensed Product in the Territory. There are also reduced milestone payments application to a second or third licensed product, if any. Should the company sublicense the a licensed product to a third party, then it must pay a 3.5% of sublicensing revenue attributable to such a sublicense.
Note 6. Stockholders’ Equity
Preferred stock
The Company is authorized to issue 25,000,000 shares of preferred stock. There are no shares of preferred stock currently outstanding, and the Company has no present plans to issue shares of preferred stock.
Common stock
In January 2012, the Board approved the 2012 Plan. The 2012 Plan authorized the issuance of up to 327,699 shares of common stock for awards of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock, RSUs, performance units, performance shares, and other stock or cash awards. The Board and stockholders of the Company approved an amendment to the 2012 Plan in August 2013 to increase the number of shares of common stock that may be issued under the 2012 Plan by 250,000 shares. In August 2015, the Board and stockholders of the Company approved an amendment to the 2012 Plan to further increase the number of shares of common stock that may be issued under the 2012 Plan by 300,000 shares. In July 2018, the Board and stockholders of the Company approved an amendment to the 2012 Plan to further increase the number of shares of common stock that may be issued under the 2012 Plan by 550,000 shares. In October 2021, the Board and stockholders of the Company approved an amendment to the 2012 Plan to further increase the number of shares of common stock that may be issued under the 2012 Plan by 900,000, bringing the
aggregate shares issuable under the 2012 Plan to 2,327,699. The 2012 Plan as amended and restated became effective on July 26, 2018 and terminates ten years after such date.
In March 2021, the Board approved the Inducement Plan. The Inducement Plan authorized the issuance of up to 750,000 shares of common stock for awards of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock, RSUs, performance units, performance shares, and other stock or cash awards. In February 2022, 50,000 incentive stock options were issued under the Inducement Plan.
On October 12, 2022, the Company's stockholders and the Board approved the 2022 Plan, and it became effective on that date. The 2022 Plan replaced the 2012 Plan on the effective date. Upon the effective date, the Company ceased granting awards under the 2012 Plan and any shares remaining available for future issuance under the 2012 Plan were cancelled and are no longer available for future issuance. The 2012 Plan continues to govern awards previously granted under it. At the time the Board approved the 2022 Plan, an aggregate of 1,363,000 shares of the Company’s common stock was initially reserved for issuance under the 2022 Plan. The Company committed to reducing the new 2022 Plan share reserve by the number of shares that were granted under the 2012 Plan and the Inducement Plan between July 25, 2022 and October 12, 2022. From July 25, 2022 to October 12, 2022, the Company issued 126,262 shares of its common stock under the 2012 Plan. As a result, the number of shares reserved for future issuance under the 2022 Plan is 1,236,738 shares of common stock. The Company also committed to reducing the aggregate number of shares of its common stock issuable pursuant to the Inducement Plan from 750,000 shares to 51,000 shares (which includes 50,000 shares of its common stock issuable pursuant to an outstanding option to purchase common stock with an exercise price of $2.75 per share, leaving only 1,000 shares available for future issuance under the Inducement Plan) and the share reserve was reduced effective October 12, 2022.
The Company previously had an effective shelf registration statement on Form S-3 (File No. 333-222929) and the related prospectus previously declared effective by the SEC on February 22, 2018 (the “2018 Shelf”), which registered $100.0 million of common stock, preferred stock, warrants and units, or any combination of the foregoing, that was set to expire on February 22, 2021. On January 19, 2021, the Company filed a shelf registration statement on Form S-3 (File No. 333-252224) to register $150.0 million of the Company’s common stock, preferred stock, debt securities, warrants and units, or any combination of the foregoing (the “2021 Shelf”) and a related prospectus. The 2021 Shelf was declared effective by the SEC on January 29, 2021 and replaced the 2018 Shelf at that time.
On March 16, 2018, the Company entered into a Sales Agreement (“Sales Agreement”) with H.C. Wainwright & Co., LLC and Jones Trading Institutional Services LLC (each an “Agent” and together, the “Agents”). On January 29, 2021, the Company filed a prospectus supplement to the 2021 Shelf (the “ATM Prospectus Supplement”), pursuant to which the Company may offer and sell, from time to time through the Agents, shares of its common stock in ATM sales transactions having an aggregate offering price of up to $50.0 million. Any shares offered and sold will be issued pursuant to the 2021 Shelf. During the year ended March 31, 2023, the Company issued zero shares of common stock in ATM offerings under the ATM Prospectus Supplement. As of March 31, 2023, the Company has sold an aggregate of 1,580,862 shares of common stock in ATM offerings under the ATM Prospectus Supplement, with gross proceeds of approximately $21.7 million. As of March 31, 2023, there was approximately $100.0 million available for future offerings under the 2021 Shelf (excluding amounts available but not yet issued under the ATM Prospectus Supplement), and approximately $28.3 million available for future offerings through the Company’s ATM program under the ATM Prospectus Supplement.
Restricted stock units
The following table summarizes the Company’s RSUs activity for the year ended March 31, 2023:
| | | | | | | | |
| | Number of Shares | | | Weighted Average Price | |
Unvested at March 31, 2022 | | | 15,500 | | | $ | 10.58 | |
Granted | | | 117,642 | | | $ | 1.53 | |
Vested | | | (5,425 | ) | | $ | 11.02 | |
Cancelled / forfeited | | | — | | | $ | — | |
Unvested at March 31, 2023 | | | 127,717 | | | $ | 2.22 | |
Stock options
During the year ended March 31, 2023 under both the 2022 Plan and 2012 Plan, 255,474 stock options were granted at various exercise prices, respectively.
On March 8, 2021, the Company granted 120,000 and 25,000 stock options, respectively, to its Executive Chairman and its Chief Scientific Officer under the 2012 Plan. On October 7, 2021, the Company granted an additional 120,000 and 25,000 stock options, respectively, to the aforementioned officers. These stock options have unique vesting criteria based on market conditions, more specifically the Company’s stock price. As these market condition based stock options require significant estimates and assumptions to calculate their fair value, the Company engaged with valuation specialists to calculate the fair value and requisite service periods using Monte Carlo simulations. The stock options will be expensed over their determined requisite service periods. As of March 31, 2023, half of the aforementioned stock options were fully expensed over their requisite service periods. However, to date, none of the stock options have vested.
On October 7, 2021, the Company granted 60,000 and 15,000 stock options, respectively, to its Executive Chairman and its Chief Scientific Officer under the 2012 Plan. These stock options have unique vesting criteria based on specific Company performance conditions. The vesting criteria for half of these options was relating to the Company recognizing $1.5 million of revenue per year based on three quarters of results, which was achieved on February 22, 2022 (refer to “Note 4. Collaborative Research, Development, and License Agreements” for more information). The remaining unvested options have vesting criteria relating to the Company closing a seven-figure cash up front deal with a major pharmaceutical company. As of March 31, 2023, management estimated there was a 0% probability of achievement, and therefore no expense has been recorded to date.
The following table summarizes stock option activity for the year ended March 31, 2023:
| | | | | | | | | | | | |
| | Options Outstanding | | | Weighted- Average Exercise Price | | | Aggregate Intrinsic Value | |
Outstanding at March 31, 2022 | | | 1,203,671 | | | $ | 7.36 | | | $ | 71,650 | |
Options granted | | | 255,474 | | | $ | 2.34 | | | $ | — | |
Options canceled | | | (7,928 | ) | | $ | 5.66 | | | $ | — | |
Options exercised | | | — | | | $ | — | | | $ | — | |
Outstanding at March 31, 2023 | | | 1,451,217 | | | $ | 6.49 | | | $ | 38,327 | |
Vested and Exercisable at March 31, 2023 | | | 559,685 | | | $ | 7.07 | | | $ | 472 | |
The weighted-average remaining contractual term of stock options exercisable and outstanding at March 31, 2023 was approximately 8.00 years.
During the years ended March 31, 2023 and 2022, the Company issued zero shares of common stock upon exercise of stock options.
Employee Stock Purchase Plan
In June 2016, the Board, and in August 2016, its stockholders subsequently approved, the ESPP. The Company reserved 75,000 shares of common stock for issuance thereunder. The ESPP permits employees after five months of service to purchase common stock through payroll deductions, limited to 15 percent of each employee’s compensation up to $25,000 per employee per year. Shares under the ESPP are purchased at 85 percent of the fair market value at the lower of (i) the closing price on the first trading day of the six-month purchase period or (ii) the closing price on the last trading day of the six-month purchase period. The initial offering period commenced in September 2016. During the year ended March 31, 2023, 1,009 shares were issued under the ESPP. At March 31, 2023, there were 58,426 shares remaining available for the purchase under the ESPP.
Common stock reserved for future issuance
Common stock reserved for future issuance consisted of the following at March 31, 2023:
| | | | |
Common stock issuable pursuant to options outstanding and reserved under the 2012 Plan |
|
| 1,345,664 |
|
Common stock reserved under the 2012 Plan |
|
| — |
|
Common stock issuable pursuant to options outstanding and reserved under the 2022 Plan |
|
| 55,553 |
|
Common stock reserved under the 2022 Plan |
|
| 1,071,471 |
|
Common stock reserved under the ESPP |
|
| 58,426 |
|
Common stock reserved under the 2021 Inducement Equity Plan |
|
| 1,000 |
|
Common stock issuable pursuant to restricted stock units outstanding under the 2012 Plan |
|
| 10,075 |
|
Common stock issuable pursuant to restricted stock units outstanding under the 2022 Plan |
|
| 117,642 |
|
Common stock issuable pursuant to options outstanding and reserved under the Inducement Plan |
|
| 50,000 |
|
Total at March 31, 2023 |
|
| 2,709,831 |
|
Stock-based compensation expense and valuation information
Stock-based awards include stock options and RSUs under the Company's 2022 Equity Incentive Plan ("2022 Plan"), Amended and Restated 2012 Equity Incentive Plan (“2012 Plan”), inducement awards, performance-based RSUs under an Incentive Award Performance-Based Restricted Stock Unit Agreement, the 2021 Inducement Equity Incentive Plan (“Inducement Plan”), and rights to purchase stock under the ESPP. The Company calculates the grant date fair value of all stock-based awards in determining the stock-based compensation expense.
Stock-based compensation expense for all stock-based awards consists of the following (in thousands):
| | | | | | | | |
| | Year Ended March 31, 2023 | | | Year Ended March 31, 2022 | |
Research and development | | $ | 473 | | | $ | 419 | |
General and administrative | | | 1,904 | | | | 1,837 | |
Total | | $ | 2,377 | | | $ | 2,256 | |
The total unrecognized compensation cost related to unvested stock option grants as of March 31, 2023 was approximately $2,492,000 and the weighted average period over which these grants are expected to vest is 2.05 years.
The total unrecognized stock-based compensation cost related to unvested RSUs (not including performance-based RSUs) as of March 31, 2023 was approximately $210,000, which will be recognized over a weighted average period of 1.24 years.
As of March 31, 2023, there are no participants enrolled into the ESPP for the current purchase period, beginning March 1, 2023.
The Company uses either the Black-Scholes or Monte Carlo option-pricing models to calculate the fair value of stock options, depending on the complexity of the equity grants. Stock-based compensation expense is recognized over the vesting period using the straight-line method. The assumed dividend yield was based on the Company’s expectation of not paying dividends in the foreseeable future. The Company uses its Company-specific historical volatility rate. The risk-free interest rate assumption was based on U.S. Treasury rates. The weighted average expected life of options was estimated using the average of the contractual term and the weighted average vesting term of the options. The fair value of stock options was estimated at the grant date using the following weighted average assumptions:
| | | | | | | | |
| | Year Ended March 31, 2023 | | | Year Ended March 31, 2022 | |
Dividend yield | | | — | | | | — | |
Volatility | | | 95.53 | % | | | 95.65 | % |
Risk-free interest rate | | | 3.32 | % | | | 1.30 | % |
Expected life of options | | 6.00 years | | | 5.75 years | |
Weighted average grant date fair value | | $ | 1.83 | | | $ | 4.73 | |
The fair value of each RSU is recognized as stock-based compensation expense over the vesting term of the award. The fair value is based on the closing stock price on the date of the grant.
The Company uses the Black-Scholes valuation model to calculate the fair value of shares issued pursuant to the ESPP. Stock-based compensation expense is recognized over the purchase period using the straight-line method. The fair value of ESPP shares was estimated at the purchase period commencement date using the following assumptions:
| | | | | | | | |
| | Year Ended March 31, 2023 | | | Year Ended March 31, 2022* | |
Dividend yield | | | — | | | | — | |
Volatility | | | 86.58 | % | | | 0.00 | % |
Risk-free interest rate | | | 3.34 | % | | | 0.00 | % |
Expected term | | 6 months | | | | — | |
Grant date fair value | | $ | 0.82 | | | $ | — | |
*There were no participants in the ESPP for the purchase periods March 1, 2021 – August 31, 2022 nor any participants in the ESPP for the current purchase period (beginning March 1, 2023).
The assumed dividend yield was based on the Company’s expectation of not paying dividends in the foreseeable future. The Company uses the Company-specific historical volatility rate as the indicator of expected volatility. The risk-free interest rate assumption was based on U.S. Treasury rates. The expected life is the 6-month purchase period.
Note 7. Leases
After the initial adoption of ASC 842, on an on-going basis, the Company evaluates all contracts upon inception and determines whether the contract contains a lease by assessing whether there is an identified asset and whether the contract conveys the right to control the use of identified asset in exchange for consideration over a period of time. If a lease is identified, the Company will apply the guidance from ASC 842 to properly account for the lease.
Operating Leases
From October 2019 to July 2021, the Company rented office space in Solana Beach, California. This agreement was a month-to-month contract and could be terminated at-will by either party at any time. As such, the Company concluded that this agreement did not contain a lease and was expensed as incurred (referred to as “rent expense”). Monthly rental payments were approximately $4,000 per month.
On November 23, 2020, the Company entered into two lease agreements, pursuant to which the Company temporarily leased approximately 3,212 square feet of lab and office space (the “Temporary Lease”) in San Diego and permanently leased approximately 8,051 square feet of office space (the “Permanent Lease”) in San Diego once certain tenant improvements for the Company’s permanent premises were completed by the landlord and the premises were ready for occupancy. Additionally, on November 17, 2021, the Permanent Lease was amended to add an additional 2,892 square feet of office space in the same building. The Temporary Lease commenced on November 27, 2020 and served as temporary premises until the Permanent Lease was ready for occupancy. The Permanent Lease commenced on December 17, 2021 and is intended to serve as the Company’s permanent premises for approximately sixty-two months. Monthly rental payments are approximately $40,900 with 3% annual escalators.
The Company determined that the Temporary Lease is considered a short term lease under ASC 842 and therefore elected an accounting policy for short term leases to recognize lease payments as an expense on a straight-line basis over the lease term (referred to as “short term lease expense”). Variable lease expenses related to the short term lease, such as payments for additional monthly fees to cover the Company’s share of certain facility expenses (common area maintenance, or CAM) are expensed as incurred.
The Company determined that the Permanent Lease is considered an operating lease under ASC 842, and therefore upon the lease commencement date of December 17, 2021, recognized lease liabilities and corresponding right-of-use assets of $2.3 million. The Company aggregates all lease and non-lease components for each class of underlying assets into a single lease component. As the Permanent Lease did not have a discount rate implicit in the lease, the Company estimated its incremental borrowing rate to discount the lease payments based on information available at the lease commencement. The Company records operating lease expense on a straight-line basis over the life of the lease (referred to as “operating lease expense”). Variable lease expenses associated with the Company’s leases, such as payments for additional monthly fees to cover the Company’s share of certain facility expenses (common area maintenance, or CAM) are expensed as incurred.
The table below summarizes the Company’s lease liabilities and corresponding right-of-use assets as of March 31, 2023 (in thousands):
| | | | |
| | March 31, 2023 | |
ASSETS | | | |
Operating lease right-of-use assets | | $ | 1,705 | |
Total lease right-of-use assets | | $ | 1,705 | |
| | | |
LIABILITIES | | | |
Current | | | |
Operating lease liability | | $ | 492 | |
Noncurrent | | | |
Operating lease liability, net of current portion | | $ | 1,313 | |
Total lease liabilities | | $ | 1,805 | |
| | | |
Weighted average remaining lease term: | | 3.83 years | |
Weighted average discount rate: | | | 6 | % |
The Company recorded rent expense of approximately zero and $18,000 for the years ended March 31, 2023 and 2022, respectively. Variable lease expense was approximately $146,000 and $59,000 for the years ended March 31, 2023 and 2022, respectively. Short term lease expense was approximately zero and $117,000 for the years ended March 31, 2023 and 2022, respectively. Lastly, operating lease expense was approximately $499,000 and $172,000 for the years ended March 31, 2023 and 2022, respectively.
Cash outflows associated with the Company’s operating lease for the years ended March 31, 2023 and 2022 were $430,000 and $183,000, respectively.
Future lease payments relating to the Company’s operating lease liabilities as of March, 31, 2023 are as follows (in thousands):
| | | | |
Fiscal year ending March 31, 2024 | | $ | 508 | |
Fiscal year ending March 31, 2025 | | | 523 | |
Fiscal year ending March 31, 2026 | | | 538 | |
Fiscal year ending March 31, 2027 | | | 460 | |
Thereafter | | | — | |
Total future lease payments | | | 2,029 | |
Less: Imputed Interest | | | (224 | ) |
Total lease obligations | | | 1,805 | |
Less: Current obligations | | | (492 | ) |
Noncurrent lease obligations | | $ | 1,313 | |
Note 8. Commitments and Contingencies
Legal matters
In addition to commitments and obligations in the ordinary course of business, the Company may be subject, from time to time, to various claims and pending and potential legal actions arising out of the normal conduct of its business.
The Company assesses contingencies to determine the degree of probability and range of possible loss for potential accrual in its financial statements. Because litigation is inherently unpredictable and unfavorable resolutions could occur, assessing litigation contingencies is subjective and requires judgments about future events. When evaluating contingencies, the Company may be unable to provide a meaningful estimate due to a number of factors, including the procedural status of the matter in question, the presence of complex or novel legal theories, and/or the ongoing discovery and development of information important to the matters. In addition, damage amounts claimed in litigation against it may be unsupported, exaggerated or unrelated to possible outcomes, and as such are not meaningful indicators of its potential liability.
The Company regularly reviews contingencies to determine the adequacy of its accruals and related disclosures. During the period presented, the Company has not recorded any accrual for loss contingencies associated with any claims or legal proceedings; determined that an unfavorable outcome is probable or reasonably possible; or determined that the amount or range of any possible
loss is reasonably estimable. However, the outcome of legal proceedings and claims brought against the Company is subject to significant uncertainty. Therefore, although management considers the likelihood of such an outcome to be remote, if one or more legal matters were resolved against the Company in a reporting period, the Company’s consolidated financial statements for that reporting period could be materially adversely affected.
Note 9. Income Taxes
A reconciliation of the statutory federal rate and the effective rate, for operations, is as follows for the years ended March 31, 2023 and 2022 (in thousands, except percentages):
| | | | | | | | | |
| March 31, 2023 | | | | March 31, 2022 | | |
Tax computed at federal statutory rate | $ | (3,624 | ) | 21% | | $ | (2,404 | ) | 21% |
State income tax, net of federal benefit | | (44 | ) | 0.2% | | | (6 | ) | 0% |
Stock-based compensation | | 167 | | -1% | | | 1,857 | | -16.2% |
Research credits | | 60 | | -0.4% | | | (249 | ) | 2.1% |
Change in tax rate | | 157 | | -0.9% | | | 454 | | -4.0% |
Removal of net operating losses and research development credits | | 1,410 | | -8.2% | | | 2,269 | | -19.8% |
Other | | 1 | | 0% | | | 20 | | -0.1% |
Valuation allowance | | 1,873 | | -10.7% | | | (1,941 | ) | 16.9% |
Provision (benefit) for income taxes | $ | — | | 0.0% | | $ | — | | 0.0% |
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s net deferred tax assets are as follows as of March 31, 2023 and 2022 (in thousands, except percentages):
| | | | | | | |
| March 31, 2023 | | | March 31, 2022 | |
Deferred tax assets: | | | | | |
Amortization | $ | 598 | | | $ | — | |
Section 174 R&D capitalization | | 855 | | | | — | |
Accrued expenses and reserves | | 116 | | | | 110 | |
Operating lease liability | | 384 | | | | 611 | |
Stock-based compensation | | 755 | | | | 554 | |
Inventory | | 251 | | | | — | |
Other, net | | 3 | | | | 3 | |
Total deferred tax assets | | 2,962 | | | | 1,278 | |
Valuation allowance | | (2,458 | ) | | | (583 | ) |
Net deferred tax assets | $ | 504 | | | $ | 695 | |
Deferred tax liabilities: | | | | | |
Operating lease right-of-use assets | | (363 | ) | | | (603 | ) |
Depreciation | | (135 | ) | | | (92 | ) |
Investment in equity securities | | (6 | ) | | | — | |
Total deferred tax liabilities | $ | (504 | ) | | $ | (695 | ) |
| $ | — | | | $ | — | |
A full valuation allowance has been established to offset the deferred tax assets as management cannot conclude that realization of such assets is more likely than not. Under the Internal Revenue Code (“IRC”) Sections 382 and 383, annual use of the Company’s net operating loss and research tax credit carryforwards to offset taxable income may be limited based on cumulative changes in ownership. The Company has not completed an analysis to determine whether any such limitations have been triggered as of March 31, 2023. Until this analysis is completed, the Company has removed the deferred tax assets related to net operating losses from its deferred tax asset schedule. Further, until a study is completed and any limitation known, approximately $1.6 million and $1.5 million for the years ended March 31, 2023 and 2022, respectively, would be considered as an uncertain tax position if netted against the deferred tax asset. Due to the existence of the valuation allowance, future changes in the Company’s unrecognized tax benefits will not impact its effective tax rate. Any carryforwards that will expire prior to utilization as a result of such limitations will be removed from deferred tax assets with a corresponding reduction of the valuation allowance. The valuation allowance increased by approximately $1,875,000 and decreased by approximately $1,941,000 for the years ended March 31, 2023 and 2022, respectively.
The Company had federal and state net operating loss carryforwards of approximately $210.5 million and $40.9 million, respectively, as of March 31, 2023. Federal net operating loss carryforwards of approximately $66.8 million will carryforward indefinitely and be available to offset up to 80% of future taxable income each year subject to revisions made by the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The remaining federal net operating losses will begin to expire in 2028, unless previously utilized. The state net operating loss carryforwards (“NOLs”) will begin to expire in 2028, unless previously utilized.
The Company had federal and state research tax credit carryforwards of approximately $4.7 million and $4.3 million at March 31, 2023, respectively. The federal research tax credit carryforwards begin expiring in 2028. The state research tax credit carryforwards do not expire.
The Company did not record any accruals for income tax accounting uncertainties for the year ended March 31, 2023.
The Company did not accrue either interest or penalties from inception through March 31, 2023.
The Company does not expect its unrecognized tax benefits to significantly increase or decrease within the next 12 months.
The Company is subject to tax in the United States and in California. As of March 31, 2023, the Company’s tax years from inception are subject to examination by the tax authorities due to the generation of net operating losses. The Company is not currently under examination by any jurisdiction.
Note 10. Concentrations
Credit risk and significant customers
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments. The Company maintains cash balances at various financial institutions located within the United States. Accounts at these institutions are secured by the Federal Deposit Insurance Corporation. Balances may exceed federally insured limits. The Company is also potentially subject to concentrations of credit risk in its revenues and accounts receivable. However, the Company only receives royalty revenue from one licensee and has not historically experienced any accounts receivable write-downs.
Note 11. Related Parties
From time to time, the Company will enter into an agreement with a related party in the ordinary course of its business. These agreements are ratified by the Board or a committee thereof pursuant to its related party transaction policy.
Viscient Biosciences (“Viscient”) is an entity for which Keith Murphy, the Company’s Executive Chairman, serves as the Chief Executive Officer and President. Dr. Jeffrey Miner, the Company’s Chief Scientific Officer, is also the Chief Scientific Officer of Viscient, and Thomas Jurgensen, the Company’s General Counsel, previously served as outside legal counsel to Viscient through his law firm, Optima Law Group, APC.
On December 28, 2020, the Company entered into an intercompany agreement (the “Intercompany Agreement”) with Viscient and Organovo, Inc., the Company’s wholly-owned subsidiary, which included an asset purchase agreement for certain lab equipment. Pursuant to the Intercompany Agreement, the Company agreed to provide Viscient certain services related to 3D bioprinting technology, which includes, but is not limited to, histology services, cell isolation, and proliferation of cells and Viscient agreed to provide the Company certain services related to 3D bioprinting technology, including bioprinter training, bioprinting services, and qPCR assays, in each case on payment terms specified in the Intercompany Agreement and as may be further determined by the parties. In addition, the Company and Viscient each agreed to share certain facilities and equipment and, subject to further agreement, to each make certain employees available for specified projects for the other party at prices to be determined in good faith by the parties. The Company evaluated the accounting for the Intercompany Agreement and concluded that any services provided by Viscient to the Company will be expensed as incurred, and any compensation for services provided by the Company to Viscient will be considered a reduction of personnel related expenses. Any services provided to Viscient do not fall under Topic 606 as the Intercompany Agreement is not a contract with a customer. For the years ended March 31, 2023 and 2022, the Company incurred approximately zero and $47,000 in consulting expenses from Viscient, respectively. Additionally, for the years ended March 31, 2023 and 2022, the Company provided approximately $59,000 and $48,000 of histology services to Viscient, respectively.
Note 12. Defined Contribution Plan
The Company has a defined contribution 401(k) plan covering substantially all employees. During the year ended March 31, 2015, the 401(k) plan was amended (the “Amended Plan”) to include an employer matching provision. Under the terms of the Amended Plan, the Company will make matching contributions on up to the first 6% of compensation contributed by its employees. Amounts expensed under the Company’s 401(k) plan for the years ended March 31, 2023 and 2022 were approximately $10,000 and $25,000, respectively.
Note13. Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies. Unless otherwise stated, the Company believes that the impact of the recently issued accounting pronouncements that are not yet effective will not have a material impact on its consolidated financial position or results of operations upon adoption.
Organovo Holdings, Inc.
Condensed Consolidated Balance Sheets
(in thousands except for share and per share data)
| | | | | | | | |
| | December 31, 2023 | | | March 31, 2023 | |
| | (Unaudited) | | | | |
Assets | | | | | | |
Current Assets | | | | | | |
Cash and cash equivalents | | $ | 5,295 | | | $ | 15,301 | |
Accounts receivable | | | 33 | | | | 152 | |
Investment in equity securities | | | — | | | | 706 | |
Prepaid expenses and other current assets | | | 913 | | | | 889 | |
Total current assets | | | 6,241 | | | | 17,048 | |
Fixed assets, net | | | 739 | | | | 902 | |
Restricted cash | | | 143 | | | | 143 | |
Operating lease right-of-use assets | | | 1,403 | | | | 1,705 | |
Prepaid expenses and other assets, net | | | 355 | | | | 515 | |
Total assets | | $ | 8,881 | | | $ | 20,313 | |
Liabilities and Stockholders’ Equity | | | | | | |
Current Liabilities | | | | | | |
Accounts payable | | $ | 471 | | | $ | 331 | |
Accrued expenses | | | 727 | | | | 2,848 | |
Operating lease liability, current portion | | | 502 | | | | 492 | |
Total current liabilities | | | 1,700 | | | | 3,671 | |
Operating lease liability, net of current portion | | | 999 | | | | 1,313 | |
Total liabilities | | | 2,699 | | | | 4,984 | |
Commitments and Contingencies (Note 7) | | | | | | |
Stockholders’ Equity | | | | | | |
Common stock, $0.001 par value; 200,000,000 shares authorized, 9,838,755 and 8,716,906 shares issued and outstanding at December 31, 2023 and March 31, 2023, respectively | | | 10 | | | | 9 | |
Additional paid-in capital | | | 342,796 | | | | 340,317 | |
Accumulated deficit | | | (336,624 | ) | | | (324,998 | ) |
Accumulated other comprehensive income | | | 1 | | | | 2 | |
Treasury stock, 46 shares at cost | | | (1 | ) | | | (1 | ) |
Total stockholders’ equity | | | 6,182 | | | | 15,329 | |
Total Liabilities and Stockholders’ Equity | | $ | 8,881 | | | $ | 20,313 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
Organovo Holdings, Inc.
Unaudited Condensed Consolidated Statements of Operations and Other Comprehensive Loss
(in thousands except share and per share data)
| | | | | | | | | | | | | | | | |
| | Three Months Ended | | | Three Months Ended | | | Nine Months Ended | | | Nine Months Ended | |
| | December 31, 2023 | | | December 31, 2022 | | | December 31, 2023 | | | December 31, 2022 | |
Revenues | | | | | | | | | | | | |
Royalty revenue | | $ | 5 | | | $ | 131 | | | $ | 80 | | | $ | 208 | |
Total Revenues | | | 5 | | | | 131 | | | | 80 | | | | 208 | |
Research and development expenses | | | 1,434 | | | | 1,185 | | | | 4,435 | | | | 3,436 | |
Selling, general and administrative expenses | | | 2,251 | | | | 2,305 | | | | 7,635 | | | | 6,724 | |
Total costs and expenses | | | 3,685 | | | | 3,490 | | | | 12,070 | | | | 10,160 | |
Loss from Operations | | | (3,680 | ) | | | (3,359 | ) | | | (11,990 | ) | | | (9,952 | ) |
Other Income (Expense) | | | | | | | | | | | | |
(Loss) gain on investment in equity securities | | | — | | | | (48 | ) | | | 12 | | | | (123 | ) |
Interest income | | | 76 | | | | 143 | | | | 354 | | | | 277 | |
Total Other Income | | | 76 | | | | 95 | | | | 366 | | | | 154 | |
Income Tax Expense | | | — | | | | — | | | | (2 | ) | | | (2 | ) |
Net Loss | | $ | (3,604 | ) | | $ | (3,264 | ) | | $ | (11,626 | ) | | $ | (9,800 | ) |
Other Comprehensive Loss: | | | | | | | | | | | | |
Unrealized gain (loss) on available-for-sale debt securities | | $ | — | | | $ | 3 | | | $ | (1 | ) | | $ | 3 | |
Comprehensive Loss | | $ | (3,604 | ) | | $ | (3,261 | ) | | $ | (11,627 | ) | | $ | (9,797 | ) |
Net loss per common share—basic and diluted | | $ | (0.40 | ) | | $ | (0.37 | ) | | $ | (1.31 | ) | | $ | (1.13 | ) |
Weighted average shares used in computing net loss per common share—basic and diluted | | | 9,115,455 | | | | 8,713,617 | | | | 8,850,881 | | | | 8,712,294 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
Organovo Holdings, Inc.
Unaudited Condensed Consolidated Statements of Stockholders’ Equity
(in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three and Nine Months Ended December 31, 2022 | |
| | Common Stock | | | | | | Treasury Stock | | | | | | | | | | |
| | Shares | | | Amount | | | Additional Paid-in Capital | | | Shares | | | Amount | | | Accumulated Deficit | | | Accumulated Other Comprehensive Income | | | Total | |
Balance at March 31, 2022 | | | 8,711 | | | $ | 9 | | | $ | 337,940 | | | | — | | | $ | (1 | ) | | $ | (307,739 | ) | | $ | — | | | $ | 30,209 | |
Issuance of common stock under employee and director stock option, RSU, and purchase plans | | | 1 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Stock-based compensation expense | | | — | | | | — | | | | 660 | | | | — | | | | — | | | | — | | | | — | | | | 660 | |
Net loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | (3,215 | ) | | | — | | | | (3,215 | ) |
Balance at June 30, 2022 (Unaudited) | | | 8,712 | | | $ | 9 | | | $ | 338,600 | | | | — | | | $ | (1 | ) | | $ | (310,954 | ) | | $ | — | | | $ | 27,654 | |
Issuance of common stock under employee and director stock option, RSU, and purchase plans | | | 1 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Stock-based compensation expense | | | — | | | | — | | | | 673 | | | | — | | | | — | | | | — | | | | — | | | | 673 | |
Net loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | (3,321 | ) | | | — | | | | (3,321 | ) |
Balance at September 30, 2022 (Unaudited) | | | 8,713 | | | $ | 9 | | | $ | 339,273 | | | | — | | | $ | (1 | ) | | $ | (314,275 | ) | | $ | — | | | $ | 25,006 | |
Issuance of common stock under employee and director stock option, RSU, and purchase plans | | | 1 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Stock-based compensation expense | | | — | | | | — | | | | 544 | | | | — | | | | — | | | | — | | | | — | | | | 544 | |
Net loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | (3,264 | ) | | | — | | | | (3,264 | ) |
Unrealized gain on available-for-sale debt securities | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 3 | | | | 3 | |
Balance at December 31, 2022 (Unaudited) | | | 8,714 | | | $ | 9 | | | $ | 339,817 | | | | — | | | $ | (1 | ) | | $ | (317,539 | ) | | $ | 3 | | | $ | 22,289 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three and Nine Months Ended December 31, 2023 | |
| | Common Stock | | | | | | Treasury Stock | | | | | | | | | | |
| | Shares | | | Amount | | | Additional Paid-in Capital | | | Shares | | | Amount | | | Accumulated Deficit | | | Accumulated Other Comprehensive Income | | | Total | |
Balance at March 31, 2023 | | | 8,717 | | | $ | 9 | | | $ | 340,317 | | | | — | | | $ | (1 | ) | | $ | (324,998 | ) | | $ | 2 | | | $ | 15,329 | |
Issuance of common stock under employee and director stock option, RSU, and purchase plans | | | 1 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Stock-based compensation expense | | | — | | | | — | | | | 475 | | | | — | | | | — | | | | — | | | | — | | | | 475 | |
Net loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | (4,028 | ) | | | — | | | | (4,028 | ) |
Balance at June 30, 2023 (Unaudited) | | | 8,718 | | | $ | 9 | | | $ | 340,792 | | | | — | | | $ | (1 | ) | | $ | (329,026 | ) | | $ | 2 | | | $ | 11,776 | |
Issuance of common stock under employee and director stock option, RSU, and purchase plans | | | 1 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Stock-based compensation expense | | | — | | | | — | | | | 675 | | | | — | | | | — | | | | — | | | | — | | | | 675 | |
Net loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | (3,994 | ) | | | — | | | | (3,994 | ) |
Unrealized loss on available-for-sale debt securities | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (1 | ) | | | (1 | ) |
Balance at September 30, 2023 (Unaudited) | | | 8,719 | | | $ | 9 | | | $ | 341,467 | | | | — | | | $ | (1 | ) | | $ | (333,020 | ) | | $ | 1 | | | $ | 8,456 | |
Issuance of common stock under employee and director stock option, RSU, and purchase plans | | | 119 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Issuance of common stock from public offering | | | 935 | | | | 1 | | | | 1,172 | | | | — | | | | — | | | | — | | | | — | | | | 1,173 | |
Stock-based compensation expense | | | 66 | | | | — | | | | 157 | | | | — | | | | — | | | | — | | | | — | | | | 157 | |
Net loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | (3,604 | ) | | | — | | | | (3,604 | ) |
Balance at December 31, 2023 (Unaudited) | | | 9,839 | | | $ | 10 | | | $ | 342,796 | | | | — | | | $ | (1 | ) | | $ | (336,624 | ) | | $ | 1 | | | $ | 6,182 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
Organovo Holdings, Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
| | | | | | | | |
| | Nine Months Ended | | | Nine Months Ended | |
| | December 31, 2023 | | | December 31, 2022 | |
Cash Flows From Operating Activities | | | | | | |
Net loss | | $ | (11,626 | ) | | $ | (9,800 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | |
(Gain) loss on investment in equity securities | | | (12 | ) | | | 123 | |
Accretion on investments | | | (128 | ) | | | (104 | ) |
Depreciation and amortization | | | 209 | | | | 234 | |
Stock-based compensation | | | 1,307 | | | | 1,877 | |
Increase (decrease) in cash resulting from changes in: | | | | | | |
Accounts receivable | | | 119 | | | | (76 | ) |
Prepaid expenses and other assets | | | 132 | | | | 18 | |
Accounts payable | | | 140 | | | | (173 | ) |
Accrued expenses | | | (2,121 | ) | | | 157 | |
Operating lease right-of-use assets and liabilities, net | | | (2 | ) | | | 69 | |
Net cash used in operating activities | | | (11,982 | ) | | | (7,675 | ) |
Cash Flows From Investing Activities | | | | | | |
Purchases of fixed assets | | | (42 | ) | | | (234 | ) |
Purchases of investments | | | (9,873 | ) | | | (9,893 | ) |
Maturities of investments | | | 10,000 | | | | 10,000 | |
Purchases of equity securities | | | — | | | | (1,061 | ) |
Sales of equity securities | | | — | | | | 384 | |
Liquidation of equity securities | | | 718 | | | | — | |
Net cash provided by (used in) investing activities | | | 803 | | | | (804 | ) |
Cash Flows From Financing Activities | | | | | | |
Proceeds from issuance of common stock, net | | | 1,173 | | | | — | |
Net cash provided by financing activities | | | 1,173 | | | | — | |
Net decrease in cash, cash equivalents, and restricted cash | | | (10,006 | ) | | | (8,479 | ) |
Cash, cash equivalents, and restricted cash at beginning of period | | | 15,444 | | | | 28,818 | |
Cash, cash equivalents, and restricted cash at end of period | | $ | 5,438 | | | $ | 20,339 | |
Reconciliation of cash, cash equivalents, and restricted cash to the condensed consolidated balance sheets | | | | | | |
Cash and cash equivalents | | $ | 5,295 | | | $ | 20,196 | |
Restricted cash | | | 143 | | | | 143 | |
Total cash, cash equivalents, and restricted cash | | $ | 5,438 | | | $ | 20,339 | |
Supplemental Disclosure of Cash Flow Information: | | | | | | |
Income taxes paid | | $ | 2 | | | $ | 2 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
Organovo Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Note1. Description of Business
Nature of Operations
Organovo Holdings, Inc. (“Organovo Holdings,” “Organovo,” and the “Company”) is a clinical stage biotechnology company that focuses on clinical drug development of the farnesoid X receptor (“FXR”) agonist FXR314. FXR is a mediator of gastrointestinal and liver diseases. FXR agonism has been tested in a variety of preclinical models of inflammatory bowel disease ("IBD"). FXR314 is the lead compound in the Company's established FXR program containing two clinically tested compounds (including FXR314) and over 2,000 discovery or preclinical compounds. FXR314 is a drug with safety and tolerability after daily oral dosing in Phase 1 and Phase 2 trials. Further, FXR314 has FDA clinical trial authorization for a Phase 2 trial in ulcerative colitis ("UC").
The Company’s current clinical focus is in advancing FXR314 in IBD, including UC and Crohn’s disease (“CD”). The Company plans to start a Phase 2a clinical trial in UC in the calendar year 2024.
A second focus of the Company is building high fidelity, 3D tissues that recapitulate key aspects of human disease. The Company uses its proprietary technology to build functional 3D human tissues that mimic key aspects of native human tissue composition, architecture, function and disease. Management believes these attributes can enable critical complex, multicellular disease models that can be used to develop clinically effective drugs across multiple therapeutic areas.
As with the clinical development program, the Company is initially focusing on the intestine and has ongoing 3D tissue development efforts in human tissue models of UC and CD. The Company uses these models to identify new molecular targets responsible for driving these diseases and to explore the mechanism of action of known drugs including FXR314 and related molecules. The Company intends to initiate drug discovery programs around these new validated targets to identify drug candidates for partnering and/or internal clinical development.
The Company’s current understanding of intestinal tissue models and IBD disease models leads it to believe that it can create models that provide greater insight into the biology of these diseases than are generally currently available. The Company is creating high fidelity disease models, leveraging its prior work including the work found in its peer-reviewed publication on bioprinted intestinal tissues (Madden et al. Bioprinted 3D Primary Human Intestinal Tissues Model Aspects of Native Physiology and ADME/Tox Functions. iScience. 2018 Apr 27;2:156-167. doi: 10.1016/j.isci.2018.03.015.) Organovo’s advances include cell type-specific compartments, prevalent intercellular tight junctions, and the formation of microvascular structures.
Using these disease models, the Company intends to identify and validate novel therapeutic targets. After finding therapeutic drug targets, the Company intends to focus on developing novel small molecule, antibody, or other therapeutic drug candidates to treat the disease, and advance these novel drug candidates towards an Investigational New Drug (“IND”) filing and potential future clinical trials.
The Company expects to broaden its work into additional therapeutic areas over time and is currently exploring specific tissues for development. In the Company’s work to identify the areas of interest, it evaluates areas that might be better served with 3D disease models than currently available models as well as the potential commercial opportunity. In line with these plans, the Company is building upon both its external and in house scientific expertise, which will be essential to its drug development effort.
Except where specifically noted or the context otherwise requires, references to “Organovo Holdings”, “the Company”, and “Organovo” in these notes to the unaudited condensed consolidated financial statements refers to Organovo Holdings, Inc. and its wholly owned subsidiaries, Organovo, Inc., and Opal Merger Sub, Inc.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not necessarily include all information and notes required by GAAP for complete financial statements. The condensed consolidated balance sheet at March 31, 2023 is derived from the Company’s audited consolidated balance sheet at that date.
The unaudited condensed consolidated financial statements include the accounts of Organovo and its wholly owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation. In the opinion of management, the unaudited financial information for the interim periods presented reflects all adjustments, which are only normal and recurring, necessary for a fair statement of the Company’s financial position, results of operations, stockholders’ equity and cash flows. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2023, as filed with the Securities and Exchange Commission (“SEC”). Operating results for any interim period are not necessarily indicative of the operating results for any other interim period or the Company’s full fiscal year ending March 31, 2024 (see “Note 1. Description of Business”).
Liquidity and Going Concern
The accompanying consolidated financial statements have been prepared on the basis that we are a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the normal course of business. As of December 31, 2023, the Company had cash and cash equivalents of approximately $5.3 million, restricted cash of approximately $0.1 million and an accumulated deficit of approximately $336.6 million. The restricted cash was pledged as collateral for a letter of credit that the Company is required to maintain as a security deposit under the terms of the lease agreement for its facilities. The Company also had negative cash flows from operations of approximately $12.0 million during the nine months ended December 31, 2023.
Through December 31, 2023, the Company has financed its operations primarily through the sale of common stock through public and at-the-market (“ATM”) offerings, the private placement of equity securities, from revenue derived from the licensing of intellectual property, products and research service-based services, grants, and collaborative research agreements, and from the sale of convertible notes. During the nine months ended December 31, 2023, the Company issued 934,621 shares of its common stock through its ATM facility.
Based on the Company's current operating plan and available cash resources, it will need substantial additional funding to support future operating activities. The Company has concluded that the prevailing conditions and ongoing liquidity risks faced by it raise substantial doubt about its ability to continue as a going concern for at least one year following the date these financial statements are issued. The accompanying consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern. As the Company continues its operations and is focusing its efforts on drug discovery and development, the Company will need to raise additional capital to implement this business plan. The Company cannot predict with certainty the exact amount or timing for any future capital raises. The Company will seek to raise additional capital through debt or equity financings, or through some other financing arrangement. However, the Company cannot be sure that additional financing will be available if and when needed, or that, if available, it can obtain financing on terms favorable to its stockholders. Any failure to obtain financing when required will have a material adverse effect on the Company’s business, operating results, and financial condition.
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. On an ongoing basis, management reviews these estimates and assumptions.
Investments
Investments consist of investments in debt securities and investments in equity securities.
Investments in debt securities consist of investments in U.S. Treasury bills. All investments that have original maturities of three months or less are classified as cash equivalents on the Condensed Consolidated Balance Sheets. Prior to December 31, 2022, the Company classified certain investments as held-to-maturity. All investments previously classified as held-to-maturity matured prior to December 31, 2022. As of December 31, 2023 and March 31, 2023, all investments are classified as available-for-sale, as the sale of such investments may be required prior to maturity to implement management strategies. Available-for-sale debt securities are recorded at fair value. Any unrealized gains and losses are included in accumulated other comprehensive income as a component of stockholders' equity until realized. As U.S. Treasury bills have minimal risk, any declines in fair value are considered temporary.
Investments in equity securities consist of investments in the common stock of entities traded in active markets. The Company does not have the ability to exercise significant influence over any entities. Therefore, initial investments are recorded at cost, and are remeasured at fair value as of the balance sheet date. Any gains or losses resulting from the change in fair value are recorded in net income. The investments in equity securities are classified as current assets.
Fair value measurement
Financial assets and liabilities are measured at fair value, which is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The following is a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value:
•Level 1 — Quoted prices in active markets for identical assets or liabilities.
•Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
•Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Net Loss Per Share
Basic and diluted net loss per share has been computed using the weighted-average number of shares of common stock outstanding during the period. The weighted-average number of shares used to compute diluted loss per share excludes any assumed exercise of stock options, shares reserved for purchase under the Company’s 2016 Employee Stock Purchase Plan (“2016 ESPP”), the assumed vesting of restricted stock units (“RSUs”), and shares subject to repurchase as the effect would be anti-dilutive. No dilutive effect was calculated for each of the three and nine months ended December 31, 2023 and 2022 as the Company reported a net loss for each respective period and the effect would have been anti-dilutive.
Common stock equivalents excluded from computing diluted net loss per share due to their anti-dilutive effect were approximately 0.8 million at December 31, 2023 and 1.5 million at December 31, 2022.
Revenue recognition
The Company has generated revenues from payments received from licensing intellectual property.
The Company has entered into a license agreement with a company that includes the following: (i) non-refundable upfront fees and (ii) royalties based on specified percentages of net product sales, if any. At the initiation of the agreement, the Company has analyzed whether it results in a contract with a customer under Topic 606.
The Company has considered a variety of factors in determining the appropriate estimates and assumptions under these arrangements, such as whether the Company is a principal vs. agent, 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-refundable upfront fees have been considered fixed, while sales-based royalty 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. Please refer to “Note 6: Collaborative Research, Development, and License Agreements” for further information.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies. Unless otherwise stated, the Company believes that the impact of the recently issued accounting pronouncements that are not yet effective will not have a material impact on its consolidated financial position or results of operations upon adoption.
Note 3. Investments and Fair Value Measurement
Investments in debt securities
As of December 31, 2023, the Company held $2.0 million of investments in debt securities (which are included in the $5.3 million of cash and cash equivalents). For the three and nine months ended December 31, 2023, there was less than $0.1 million and $0.1 million, respectively, of interest income related to the investments in debt securities. As the investments in debt securities consist of U.S. Treasury bills from active markets, the fair value is measured using level 1 inputs.
The following table summarizes the Company's investments in debt securities that are measured at fair value as of December 31, 2023 (in thousands):
| | | | | | | | | | | | | | | | |
| | Amortized costs basis | | | Gross unrealized gains | | | Gross unrealized losses | | | Fair value | |
As of March 31, 2023 | | | | | | | | | | | | |
Investment in debt securities | | $ | 4,943 | | | $ | 2 | | | $ | — | | | $ | 4,945 | |
As of December 31, 2023 | | | | | | | | | | | | |
Investment in debt securities | | $ | 1,995 | | | $ | — | | | $ | — | | | $ | 1,995 | |
Investments in equity securities
For the nine months ended December 31, 2023, there was $0.7 million of equity securities liquidated and less than a $0.1 million gain on the investment in equity securities. As of December 31, 2023, the fair value of investment in equity securities was zero, as a result of the liquidation of the shares by the underlying company on June 26, 2023. As the investment in equity securities consists of common stock from active markets, the fair value is measured using level 1 inputs.
The following table presents the activity for investments in equity securities measured at fair value for the nine months ended December 31, 2023 (in thousands):
| | | | |
| | Investment in Equity Securities (in thousands) | |
Balance at March 31, 2023 | | $ | 706 | |
Liquidation of equity securities | | | (718 | ) |
Gain on investment in equity securities | | | 12 | |
Balance at December 31, 2023 | | $ | — | |
Note 4. Accrued Expenses
Accrued expenses consisted of the following (in thousands):
| | | | | | | | |
| | December 31, 2023 | | | March 31, 2023 | |
Accrued compensation | | $ | 439 | | | $ | 609 | |
Accrued legal and professional fees | | | 97 | | | | 193 | |
Acquired in-process research and development | | | — | | | | 2,000 | |
Other accrued expenses | | | 191 | | | | 46 | |
| | $ | 727 | | | $ | 2,848 | |
Note 5. Stockholders’ Equity
Preferred Stock
The Company is authorized to issue 25,000,000 shares of preferred stock. There are no shares of preferred stock currently outstanding, and the Company has no current plans to issue shares of preferred stock.
Common Stock
In March 2021, the Company's Board of Directors ("Board") approved the 2021 Inducement Equity Incentive Plan ("Inducement Plan"). The Inducement Plan authorized the issuance of up to 750,000 shares of common stock for awards of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock, RSUs, performance units, performance shares, and other stock or cash awards. The only persons eligible to receive grants under the Inducement Plan are individuals who satisfy the standards for inducement grants under Nasdaq guidance. The Company also committed to reducing the aggregate number of shares of its common stock issuable pursuant to the Inducement Plan from 750,000 shares to 51,000 shares (which includes 50,000 shares of its common stock issuable pursuant to an outstanding option to purchase common stock with an exercise price of $2.75 per share, leaving only 1,000 shares available for future issuance under the Inducement Plan) and the share reserve was reduced accordingly effective October 12, 2022. As of December 31, 2023, there were 1,000 shares available for future grant under the Inducement Plan.
On October 12, 2022, the Company's stockholders and the Board approved the 2022 Equity Incentive Plan ("2022 Plan"), and it became effective on that date. The 2022 Plan replaced the Amended and Restated 2012 Equity Incentive Plan ("2012 Plan") on the effective date. Upon the effective date, the Company ceased granting awards under the 2012 Plan and any shares remaining available for future issuance under the 2012 Plan were cancelled and are no longer available for future issuance. The 2012 Plan continues to govern awards previously granted under it. At the time the Board approved the 2022 Plan, an aggregate of 1,363,000 shares of the Company’s common stock was initially reserved for issuance under the 2022 Plan. The Company committed to reducing the 2022 Plan share reserve by the number of shares that were granted under the 2012 Plan and the Inducement Plan between July 25, 2022 and October 12, 2022. From July 25, 2022 to October 12, 2022, the Company issued 126,262 shares of its common stock under the 2012 Plan. As a result, the number of shares initially reserved for future issuance under the 2022 Plan was 1,236,738 shares of common stock.
The Company previously had an effective shelf registration statement on Form S-3 (File No. 333-222929), declared effective by the SEC on February 22, 2018 (the “2018 Shelf”), which registered $100.0 million of common stock, preferred stock, warrants and units, or any combination of the foregoing, that expired on February 22, 2021. On January 19, 2021, the Company filed a shelf registration statement on Form S-3 (File No. 333-252224) to register $150.0 million of the Company’s common stock, preferred stock, debt securities, warrants and units, or any combination of the foregoing (the “2021 Shelf”). The 2021 Shelf was declared effective by the SEC on January 29, 2021 and replaced the 2018 Shelf at that time. On January 26, 2024, the Company filed a new shelf registration statement on Form S-3 (File No. 333-276722) to register $150.0 million of the Company’s common stock, preferred stock, debt securities, warrants and units, or any combination of the foregoing (the “2024 Shelf”). The 2024 Shelf has not yet been declared effective by the SEC.
On March 16, 2018, the Company entered into a Sales Agreement (“Sales Agreement”) with H.C. Wainwright & Co., LLC and Jones Trading Institutional Services LLC (each an “Agent” and together, the “Agents”). On January 29, 2021, the Company filed a prospectus supplement to the 2021 Shelf (the “2021 ATM Prospectus Supplement”), pursuant to which the Company may offer and sell, from time to time, through the Agents, shares of its common stock in ATM sales transactions having an aggregate offering price of up to $50.0 million. Any shares offered and sold will be issued pursuant to the 2021 Shelf until it is replaced by the 2024 Shelf. During each of the three and nine months ended December 31, 2023, the Company issued 934,621 shares of common stock in ATM offerings under the 2021 ATM Prospectus Supplement. As of December 31, 2023, the Company had sold an aggregate of 2,515,483 shares of common stock in ATM offerings, with gross proceeds of approximately $22.9 million. As of December 31, 2023, there was approximately $100.0 million available for future offerings under the 2021 Shelf (excluding amounts available but not yet issued under the ATM Prospectus Supplement), and approximately $27.1 million available for future offerings through the Company’s ATM program under the 2021 ATM Prospectus Supplement. On January 26, 2024, the Company filed a prospectus to the 2024 Shelf (the “2024 ATM Prospectus”), pursuant to which the Company may offer and sell, from time to time, through the Agents, shares of its common stock in ATM sales transactions having an aggregate offering price of up to $2,605,728. Any shares offered and sold in these ATM sales transactions will be issued pursuant to the 2024 Shelf.
Restricted Stock Units
The following table summarizes the Company’s RSUs activity for the nine months ended December 31, 2023:
| | | | | | | | |
| | Number of Shares | | | Weighted Average Price | |
Unvested at March 31, 2023 | | | 127,717 | | | $ | 2.22 | |
Granted | | | 117,642 | | | $ | 1.39 | |
Vested | | | (121,467 | ) | | $ | 1.81 | |
Cancelled / forfeited | | | — | | | $ | — | |
Unvested at December 31, 2023 | | | 123,892 | | | $ | 1.84 | |
Stock Options
During the three and nine months ended December 31, 2023, under the 2022 Plan, 40,000 and 171,257 stock options were granted at various exercise prices, respectively.
On August 28, 2023, the Company's Executive Chairman voluntarily forfeited 462,500 outstanding stock options, of which 312,918 were unvested and therefore cancelled, and 149,582 were vested and therefore expired. The forfeited stock option awards were not replaced by other awards or other compensation and there is no plan to replace the forfeited awards. Therefore, all previous unrecognized compensation expense associated with the forfeited awards, approximately $519,000, was recognized as a selling, general, and administrative expense on the date of forfeiture.
The following table summarizes the Company’s stock option activity from March 31, 2023 to December 31, 2023:
| | | | | | | | | | | | |
| | Options Outstanding | | | Weighted Average Exercise Price | | | Aggregate Intrinsic Value | |
Outstanding at March 31, 2023 | | | 1,451,217 | | | $ | 6.49 | | | $ | 38,327 | |
Options granted | | | 171,257 | | | $ | 1.72 | | | $ | — | |
Options cancelled / forfeited | | | (593,384 | ) | | $ | 7.10 | | | $ | — | |
Options expired | | | (333,631 | ) | | $ | 7.42 | | | $ | — | |
Outstanding at December 31, 2023 | | | 695,459 | | | $ | 4.35 | | | $ | — | |
Vested and Exercisable at December 31, 2023 | | | 381,029 | | | $ | 5.83 | | | $ | — | |
The weighted average remaining contractual term of stock options exercisable and outstanding at December 31, 2023 was approximately 7.36 years.
Employee Stock Purchase Plan
In June 2016,the Board adopted, and in August 2016, the Company’s stockholders subsequently approved, the 2016 ESPP. The Company reserved 75,000 shares of common stock for issuance thereunder. As of October 31, 2023, the 2016 ESPP was replaced by the 2023 ESPP (as defined below).
In July 2023, the Board adopted, and on October 31, 2023, the Company's stockholders subsequently approved, the 2023 Employee Stock Purchase Plan (the "2023 ESPP"). The 2023 ESPP became effective on October 31, 2023 and replaced the 2016 ESPP on that date. The Company reserved 45,000 shares of common stock for issuance thereunder. The 2023 ESPP permits employees to purchase common stock through payroll deductions, limited to 15 percent of each employee’s compensation up to $25,000 per employee per year or 500 shares per employee per six-month purchase period. Shares under the 2023 ESPP are purchased at 85 percent of the fair market value at the lower of (i) the closing price on the first trading day of the six-month purchase period or (ii) the closing price on the last trading day of the six-month purchase period. The initial offering under the 2023 ESPP will commence in March 2024.
Common Stock Reserved for Future Issuance
Common stock reserved for future issuance consisted of the following at December 31, 2023:
| | | | |
Common stock issuable pursuant to options outstanding and reserved under the 2012 Plan |
|
| 440,591 |
|
Common stock reserved under the 2012 Plan |
|
| — |
|
Common stock issuable pursuant to options outstanding and reserved under the 2022 Plan |
|
| 204,868 |
|
Common stock reserved under the 2022 Plan |
|
| 1,643,798 |
|
Common stock reserved under the 2023 ESPP |
|
| 45,000 |
|
Common stock reserved under the 2021 Inducement Equity Plan |
|
| 1,000 |
|
Common stock issuable pursuant to restricted stock units outstanding under the 2012 Plan |
|
| 6,250 |
|
Common stock issuable pursuant to restricted stock units outstanding under the 2022 Plan |
|
| 117,642 |
|
Common stock issuable pursuant to options outstanding and reserved under the Inducement Plan |
|
| 50,000 |
|
Total at December 31, 2023 |
|
| 2,509,149 |
|
Stock-based Compensation Expense and Valuation Information
Stock-based awards include stock options and RSUs under the 2022 Plan, 2012 Plan, Inducement Plan, and rights to purchase stock under the 2023 ESPP. The Company calculates the grant date fair value of all stock-based awards in determining the stock-based compensation expense.
Stock-based compensation expense for all stock-based awards consists of the following (in thousands):
| | | | | | | | | | | | | | | | |
| | Three Months Ended | | | Three Months Ended | | | Nine Months Ended | | | Nine Months Ended | |
| | December 31, 2023 | | | December 31, 2022 | | | December 31, 2023 | | | December 31, 2022 | |
Research and development | | $ | 40 | | | $ | 117 | | | $ | 87 | | | $ | 363 | |
General and administrative | | | 117 | | | | 427 | | | | 1,220 | | | | 1,514 | |
Total | | $ | 157 | | | $ | 544 | | | $ | 1,307 | | | $ | 1,877 | |
The total unrecognized compensation cost related to unvested stock option grants as of December 31, 2023 was approximately $0.6 million and the weighted average period over which these grants are expected to vest is 2.30 years.
The total unrecognized compensation cost related to unvested RSUs as of December 31, 2023 was $0.2 million, which will be recognized over a weighted average period of 0.97 years.
The Company uses either the Black-Scholes or Monte Carlo option-pricing models to calculate the fair value of stock options, depending on the complexity of the equity grants. Stock-based compensation expense is recognized over the vesting period using the straight-line method. The assumed dividend yield is based on the Company’s expectation of not paying dividends in the foreseeable future. The Company uses the Company-specific historical volatility rate as the indicator of expected volatility. The risk-free interest rate assumption is based on U.S. Treasury rates. The weighted average expected life of options was estimated using the average of the contractual term and the weighted average vesting term of the options. The measurement and classification of share-based payments to non-employees is consistent with the measurement and classification of share-based payments to employees. The fair value of stock options was estimated at the grant date using the following weighted average assumptions:
| | | | | | | | | | | | | | | | |
| | Three Months Ended | | | Three Months Ended | | | Nine Months Ended | | | Nine Months Ended | |
| | December 31, 2023 | | | December 31, 2022 | | | December 31, 2023 | | | December 31, 2022 | |
Dividend yield | | | — | | | | — | | | | — | | | | — | |
Volatility | | | 100.31 | % | | | 95.93 | % | | | 98.93 | % | | | 95.43 | % |
Risk-free interest rate | | | 4.66 | % | | | 3.97 | % | | | 4.12 | % | | | 3.21 | % |
Expected life of options | | 6.00 years | | | 6.00 years | | | 6.00 years | | | 6.00 years | |
Weighted average grant date fair value | | $ | 1.16 | | | $ | 1.23 | | | $ | 1.38 | | | $ | 1.96 | |
The fair value of each RSU is recognized as stock-based compensation expense over the vesting term of the award. The fair value is based on the closing stock price on the date of the grant.
The Company uses the Black-Scholes valuation model to calculate the fair value of shares issued pursuant to the 2016 ESPP and the 2023 ESPP. Stock-based compensation expense is recognized over the purchase period using the straight-line method. The fair value of ESPP shares was estimated at the purchase period commencement date using the following assumptions:
| | | | | | | | | | | | | | | | |
| | Three Months Ended | | | Three Months Ended | | | Nine Months Ended | | | Nine Months Ended | |
| | December 31, 2023* | | | December 31, 2022* | | | December 31, 2023* | | | December 31, 2022 | |
Dividend yield | | | — | | | | — | | | | — | | | | — | |
Volatility | | | 0.00 | % | | | 0.00 | % | | | 0.00 | % | | | 86.58 | % |
Risk-free interest rate | | | 0.00 | % | | | 0.00 | % | | | 0.00 | % | | | 3.34 | % |
Expected term | | | — | | | | — | | | | — | | | 6 months | |
Grant date fair value | | $ | — | | | $ | — | | | $ | — | | | $ | 0.82 | |
*There were no participants in the 2016 ESPP or the 2023 ESPP for the purchase periods beginning September 1, 2022, March 1, 2023 or September 1, 2023.
The assumed dividend yield is based on the Company’s expectation of not paying dividends in the foreseeable future. The Company uses the Company-specific historical volatility rate as the indicator of expected volatility. The risk-free interest rate assumption is based on U.S. Treasury rates. The expected life is the 6-month purchase period.
Note 6. Collaborative Research, Development, and License Agreements
License Agreements
From June 2021 to February 2022, certain patents owned or sublicensed by the Company became the subject of inter partes review proceedings filed by Cellink AB and its subsidiaries (collectively, “BICO Group AB”). The Company and BICO Group AB were also engaged in litigation regarding patent infringement during the same time period. On February 22, 2022, the Company and BICO Group AB signed a settlement and patent license agreement (“License Agreement”) to close all matters noted above. In addition to closing all legal matters and patent disputes noted above, as part of the agreement, the Company agreed to grant a non-exclusive license to BICO Group AB to use the Company’s aforementioned patents for its business operations of manufacturing and selling bioprinters as well as bioinks. The Company concluded that the nature of the license granted represents functional intellectual property.
As part of the License Agreement, BICO Group AB agreed to pay the Company ongoing sales-based royalties (based on percentages of BICO Group AB’s net sales) for the use of the granted license. The sales-based royalties became effective beginning on February 22, 2022, the effective date of the License Agreement, and continue until the expiration of the last surviving licensed patent. As the sales-based royalties are required to be paid 45 days after the end of every quarter, there is variable consideration that must be estimated to determine royalty revenue within a given reporting period. Once actual revenue earned is determined in the following fiscal quarter, an adjustment is made from the previously estimated amount. The Company estimated royalty revenue of $33,000 for the three months ended December 31, 2023. However, there was a decrease adjustment of approximately $28,000 relating to the prior quarter. For the three and nine months ended December 31, 2023, the Company recorded $5,000 and $80,000 of royalty revenue based on sales-based royalties from the License Agreement, respectively.
Also as part of the License Agreement, certain patents involved in the agreement are sublicensed by the Company from the University of Missouri and Clemson University. See below for further information.
University of Missouri
In March 2009, the Company entered into a license agreement with the Curators of the University of Missouri ("University of Missouri") to in-license certain technology and intellectual property relating to self-assembling cell aggregates and intermediate cellular units. The Company received the exclusive worldwide rights to commercialize products comprising this technology for all fields of use. The Company is required to pay the University of Missouri royalties ranging from 1% to 3% of net sales of covered tissue products, and of the fair market value of covered tissues transferred internally for use in the Company’s commercial service business, depending on the level of net sales achieved by the Company each year.
The license agreement with the University of Missouri also includes an additional sales royalty of 3% of all revenue received from a sublicensee, when such sublicense is entered pursuant to settlement of litigation. Such revenue shall include, but not be limited to, all option fees, license issue fees (up-front payments), license maintenance fees, equity, and all royalty payments. Such revenue shall not include research funding provided to licensee by sublicensee. However, per the agreement, in the event that the Company defends the technology by litigation, it can offset any royalties due by legal expenses incurred. No royalty expense related to sales-based royalties has been recorded to date.
On December 5, 2022, the Company amended the license agreement with the University of Missouri, where the Company agreed to pay a single, up-front payment of $50,000 to the University of Missouri in exchange for the aforementioned licensed intellectual property to be fully paid up by the Company. As a result, the Company will continue to have rights to the licensed intellectual property until its expiration, but will no longer owe minimum annual royalty payments, royalty payments based on net sales, or any other payments (other than patent annuities and any prosecution costs) in the future.
Clemson University
In May 2011, the Company entered into a license agreement with Clemson University Research Foundation ("CURF") to in-license certain technology and intellectual property relating to ink-jet printing of viable cells. The Company received the exclusive worldwide rights to commercialize products comprising this technology for all fields of use. The Company is required to pay CURF royalties ranging from 1.5% to 3% of net sales of covered tissue products and the fair market value of covered tissues transferred internally for use in the Company’s commercial service business, depending on the level of net sales reached each year. The license agreement terminates upon expiration of the patents licensed, which are expected to expire in May 2024, and is subject to certain conditions as defined in the license agreement. Minimum annual royalty payments of $20,000 were due for two years beginning in calendar 2014, and $40,000 per year beginning in calendar 2016. Royalty payments of $40,000 were made in each of the years ended March 31, 2023 and 2022. The annual minimum royalty is creditable against royalties owed during the same calendar year.
In addition to the annual royalties noted above, CURF is owed 40% of all payments including but not limited to, upfront payments, license fees, issue fees, maintenance fees, and milestone payments received from third parties, including sublicensees, in consideration for sublicensing rights to licensed products. However, per the agreement, in the event that the Company defends the technology by litigation, it can offset any royalties due by legal expenses incurred. As of December 31, 2023, the Company’s legal expenses exceeded royalties owed from the upfront payment and sales-based royalties related to the license agreement. Therefore, no royalty expense to CURF was recorded for the nine months ended December 31, 2023. No royalty expense related to sales-based royalties has been recorded to date.
Note 7. Commitments and Contingencies
Legal Matters
In addition to commitments and obligations in the ordinary course of business, the Company may be subject, from time to time, to various claims and pending and potential legal actions arising out of the normal conduct of its business.
The Company assesses contingencies to determine the degree of probability and range of possible loss for potential accrual in its financial statements. Because litigation is inherently unpredictable and unfavorable resolutions could occur, assessing litigation contingencies is subjective and requires judgments about future events. When evaluating contingencies, the Company may be unable to provide a meaningful estimate due to a number of factors, including the procedural status of the matter in question, the presence of complex or novel legal theories, and/or the ongoing discovery and development of information important to the matters. In addition, damage amounts claimed in litigation against it may be unsupported, exaggerated or unrelated to possible outcomes, and as such are not meaningful indicators of its potential liability.
The Company regularly reviews contingencies to determine the adequacy of its accruals and related disclosures. During the period presented, the Company has not recorded any accrual for loss contingencies associated with any claims or legal proceedings; determined that an unfavorable outcome is probable or reasonably possible; or determined that the amount or range of any possible loss is reasonably estimable. However, the outcome of legal proceedings and claims brought against the Company is subject to significant uncertainty. Therefore, although management considers the likelihood of such an outcome to be remote, if one or more legal matters were resolved against the Company in a reporting period, the Company’s consolidated financial statements for that reporting period could be materially adversely affected.
Note 8. Leases
After the initial adoption of Accounting Standards Codification Topic 842 (“ASC 842”), on an on-going basis, the Company evaluates all contracts upon inception and determines whether the contract contains a lease by assessing whether there is an identified asset and whether the contract conveys the right to control the use of the identified asset in exchange for consideration over a period of time. If a lease is identified, the Company will apply the guidance from ASC 842 to properly account for the lease.
Operating Leases
On November 23, 2020, the Company entered into a lease agreement, pursuant to which the Company permanently leased approximately 8,051 square feet of lab and office space (the “Permanent Lease”) in San Diego once certain tenant improvements were completed by the landlord and the premises were ready for occupancy. Additionally, on November 17, 2021, the Permanent Lease was amended to add an additional 2,892 square feet of office space in the same building. The Permanent Lease commenced on December 17, 2021 and is intended to serve as the Company’s permanent premises for approximately sixty-two months. Monthly rental payments will be approximately $40,800 with 3% annual escalators.
The Company determined that the Permanent Lease is considered an operating lease under ASC 842, and therefore upon the lease commencement date of December 17, 2021, recognized lease liabilities and corresponding right-of-use assets of $2.3 million. The Company records operating lease expense on a straight-line basis over the life of the lease (referred to as “operating lease expense”). Variable lease expenses associated with the Company’s leases, such as payments for additional monthly fees to cover the Company’s share of certain facility expenses (common area maintenance) are expensed as incurred.
The table below summarizes the Company’s lease liabilities and corresponding right-of-use assets as of December 31, 2023 (in thousands except the year and percentage):
| | | | |
| | December 31, 2023 | |
ASSETS | | | |
Operating lease right-of-use assets | | $ | 1,403 | |
Total lease right-of-use assets | | $ | 1,403 | |
| | | |
LIABILITIES | | | |
Current | | | |
Operating lease liability | | $ | 502 | |
Noncurrent | | | |
Operating lease liability, net of current portion | | $ | 999 | |
Total lease liabilities | | $ | 1,501 | |
| | | |
Weighted average remaining lease term: | | 3.08 | |
Weighted average discount rate: | | | 6 | % |
Variable lease expense was approximately $39,000 and $114,000 for the three and nine months ended December 31, 2023, respectively, and approximately $34,000 and $110,000 for the three and nine months ended December 31, 2022, respectively. Operating lease expense was approximately $125,000 and $377,000 for the three and nine months ended December 31, 2023, respectively, and approximately $114,000 and $373,000 for the three and nine months ended December 31, 2022, respectively.
Cash flows associated with the Company’s operating lease for the three and nine months ended December 31, 2023, were approximately $125,000 and $377,000, respectively, and approximately $59,000 and $304,000 for the three and nine months ended December 31, 2022, respectively.
Future lease payments relating to the Company’s operating lease liabilities as of December 31, 2023, are as follows (in thousands):
| | | | |
Fiscal year ending March 31, 2024 | | $ | 129 | |
Fiscal year ending March 31, 2025 | | | 523 | |
Fiscal year ending March 31, 2026 | | | 538 | |
Fiscal year ending March 31, 2027 | | | 460 | |
Total future lease payments | | | 1,650 | |
Less: Imputed interest | | | (149 | ) |
Total lease obligations | | | 1,501 | |
Less: Current obligations | | | (502 | ) |
Noncurrent lease obligations | | $ | 999 | |
Note 9. Concentrations
Credit risk and significant customers
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments. The Company maintains cash balances at various financial institutions located within the United States. Accounts at these institutions are secured by the Federal Deposit Insurance Corporation. Balances may exceed federally insured limits. The Company is also potentially subject to concentrations of credit risk in its revenues and accounts receivable. However, the Company only receives royalty revenue from one licensee and has not historically experienced any accounts receivable write-downs.
Note 10. Related Parties
From time to time, the Company will enter into an agreement with a related party in the ordinary course of its business. These agreements are ratified by the Board or a committee thereof pursuant to its related party transaction policy.
Viscient Biosciences (“Viscient”) is an entity for which Keith Murphy, the Company’s Executive Chairman, serves as the Chief Executive Officer and President. Dr. Jeffrey Miner, the Company’s former Chief Scientific Officer, is also the Chief Scientific Officer of Viscient, and Thomas Jurgensen, the Company’s former General Counsel, previously served as outside legal counsel to Viscient through his law firm, Optima Law Group, APC.
On December 28, 2020, the Company entered into an intercompany agreement (the “Intercompany Agreement”) with Viscient and Organovo, Inc., the Company’s wholly-owned subsidiary, which included an asset purchase agreement for certain lab equipment. Pursuant to the Intercompany Agreement, the Company agreed to provide Viscient certain services related to 3D bioprinting technology, which include, but are not limited to, histology services, cell isolation, and proliferation of cells and Viscient agreed to provide the Company certain services related to 3D bioprinting technology, including bioprinter training, bioprinting services, and qPCR assays, in each case on payment terms specified in the Intercompany Agreement and as may be further determined by the parties. In addition, the Company and Viscient each agreed to share certain facilities and equipment and, subject to further agreement, to each make certain employees available for specified projects for the other party at prices to be determined in good faith by the parties. The Company evaluated the accounting for the Intercompany Agreement and concluded that any services provided by Viscient to the Company will be expensed as incurred, and any compensation for services provided by the Company to Viscient will be considered a reduction of personnel related expenses. Any services provided to Viscient do not fall under Topic 606 as the Intercompany Agreement is not a contract with a customer. For the three and nine months ended December 31, 2023 and 2022, the Company incurred no consulting expenses from Viscient. Additionally, for the three and nine months ended December 31, 2023, the Company provided approximately $3,000 and $13,000 of histology services to Viscient, respectively, and $17,000 and $44,000 for the three and nine months ended December 31, 2022, respectively.
Note 11. Restructuring
On August 18, 2023, the Company announced to its employees a plan to reduce the Company’s workforce, effective August 25, 2023, by approximately six employees, which represented approximately 24% of its employees as of August 18, 2023. The Company has refocused operations on FXR314, its clinical drug candidate. This decision to reduce the Company’s workforce was made in order to focus spending on the Company’s clinical program for FXR314, reduce ongoing operating expenses not related to clinical expenses, and extend the Company’s cash runway. The Company estimates that it will incur approximately $0.4 million of cash expenditures in connection with the reduction in force, which relate to severance pay, and are expected to be incurred through the quarter ending March 31, 2024. The Company anticipates annual cost savings of $1.5 million resulting from the reduction in force.
Approximately $0.4 million of restructuring charges were recorded during the nine months ended December 31, 2023, and no restructuring charges were recorded during the three months ended December 31, 2023.
| | | | | | | | |
| | Three Months Ended | | | Nine Months Ended | |
(in thousands) | | December 31, 2023 | | | December 31, 2023 | |
Severance for Involuntary Employee Terminations | | $ | — | | | $ | 380 | |
Total Restructuring Expense | | $ | — | | | $ | 380 | |
The following table summarizes the activity and balances of the restructuring reserve (in thousands):
| | | | |
| | Severance for Involuntary Employee Terminations | |
Balance at March 31, 2023 | | $ | — | |
Increase to reserve | | | 380 | |
Utilization of reserve: | | | |
Payments | | | (263 | ) |
Balance at December 31, 2023 | | $ | 117 | |
Note 12. Subsequent Events
Between January 1, 2024 and the date of the filing of this Quarterly Report on Form 10-Q, the Company issued 201,319 shares of common stock in ATM offerings under the 2021 ATM Prospectus Supplement for net proceeds of approximately $0.2 million.
Up to [________] shares of Common Stock
Up to [________] Pre-Funded Warrants to Purchase up to [________] Shares of Common Stock
Up to [________] Shares of Common Stock Underlying the Pre-Funded Warrants
Common Stock
PROSPECTUS
[_________] , 2024
Part II
Information Not Required in the Prospectus
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth an estimate of the fees and expenses relating to the issuance and distribution of the securities being registered hereby, other than underwriting discounts and commissions, all of which shall be borne by Organovo Holdings, Inc. (the “Registrant”). All of such fees and expenses, except for the SEC registration fee, are estimates:
| |
|
|
SEC registration fee | $[___] |
FINRA filing fee | $[___] |
Legal fees and expenses | $[___] |
Printing fees and expenses | $[___] |
Accounting fees and expenses | $[___] |
Transfer agent fees and expenses | $[___] |
Miscellaneous fees and expenses | $[___] |
Total | $[___] |
Item 14. Indemnification of Directors and Officers.
Section 102 of the General Corporation Law of the State of Delaware (the “DGCL”) permits a corporation to eliminate or limit the personal liability of directors of a corporation to the corporation or its stockholders for monetary damages for a breach of fiduciary duty as a director, except where the director breached his duty of loyalty to the corporation or its stockholders, failed to act in good faith, engaged in intentional misconduct or knowingly violated a law, authorized the payment of a dividend or approved a stock repurchase or redemption in violation of the DGCL or derived an improper personal benefit. The Registrant’s certificate of incorporation, as amended, provides that no director of the Registrant shall be personally liable to it or its stockholders for monetary damages for any breach of fiduciary duty as a director, notwithstanding any provision of law imposing such liability, except to the extent that the DGCL prohibits the elimination or limitation of liability of directors for breaches of fiduciary duty.
Section 145 of the DGCL provides that a corporation has the power to indemnify a director, officer, employee or agent of the corporation, or a person serving at the request of the corporation for another corporation, partnership, joint venture, trust or other enterprise in related capacities against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with an action, suit or proceeding to which he or she was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding by reason of such position, if such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation, and, in any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful, except that, in the case of actions brought by or in the right of the corporation, no indemnification shall be made with respect to judgments, fines and amounts paid in settlement in connection with such action, suit or proceeding or with respect to any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or other adjudicating court determines that, despite the adjudication of liability but in view of all of the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.
The Registrant’s amended and restated bylaws provide that the Registrant will indemnify each person who was or is a party or threatened to be made a party to any threatened, pending or completed action, suit or proceeding (other than an action by or in the right of the Registrant) by reason of the fact that he or she is or was a director or officer of the Registrant, or is or was serving, at the Registrant’s request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise (all such persons being referred to as an “Indemnitee”), against expenses (including, attorneys’ fees), judgments, fines, and amounts paid in settlement actually and reasonably incurred in connection with such action, suit or proceeding, if such Indemnitee acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the Registrant’s best interests, and, with respect to any criminal action or proceeding, he or she had no reasonable cause to believe his or her conduct was unlawful. The Registrant’s bylaws, as amended, also provide that the Registrant will indemnify any Indemnitee who was or is a party to an action or suit by or in the right of the Registrant to procure a judgment in the Registrant’s favor by reason of the fact that the Indemnitee is or was, a director or officer, or is or was serving, or has agreed to serve, at the Registrant’s request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including, attorneys’ fees) actually and reasonably
incurred by such Indemnitee in connection with the defense or settlement of such action or suit, if the Indemnitee acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the Registrant’s best interests, except that no indemnification shall be made with respect to any claim, issue or matter as to which such person shall have been adjudged to be liable to the Registrant, unless, and only to the extent, that the Court of Chancery or the court in which such action or suit was brought determines, despite the adjudication of liability but in view of all the circumstances, he or she is entitled to indemnification of such expenses which the Court of Chancery or such other court shall deem proper. Notwithstanding the foregoing, to the extent that any Indemnitee has been successful, on the merits or otherwise, he or she will be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred in connection therewith. Expenses must be advanced to an Indemnitee under certain circumstances.
The Registrant has entered into indemnification agreements with each of its directors and executive officers that may be broader than the specific indemnification provisions contained in the DGCL. These indemnification agreements require the Registrant, among other things, to indemnify its directors and executive officers against liabilities that may arise by reason of their status or service. These indemnification agreements also require the Registrant to advance all expenses incurred by the directors and executive officers in investigating or defending any such action, suit or proceeding, subject to certain exceptions.
The Registrant’s amended and restated bylaws provide that the Registrant may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Registrant or is or was serving at the request of the Registrant as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her in any such capacity, or arising out of his or her status as such, whether or not the Registrant would have the power to indemnify such person against such liability under the DGCL. The Registrant has obtained insurance under which, subject to the limitations of the insurance policies, coverage is provided to the Registrant’s directors and executive officers against loss arising from claims made by reason of breach of fiduciary duty or other wrongful acts as a director or executive officer, including claims relating to public securities matters, and to the Registrant with respect to payments that may be made by the Registrant to these directors and executive officers pursuant to the Registrant’s indemnification obligations or otherwise as a matter of law.
See also the undertakings set out in response to Item 17 herein.
Item 15. Recent Sales of Unregistered Securities