Organovo Holdings, Inc. — Form 10-Q Summary
Reporting period: Three months ended June 30, 2017, the first quarter of fiscal 2018; comparative period is the three months ended June 30, 2016. The filing is for Organovo Holdings, Inc., despite the request metadata naming Vivosim Labs, Inc.
Business context
Organovo is an early-commercial-stage company developing 3D-bioprinted human tissues for drug discovery, biological research, and potential therapeutic applications. Commercial offerings included ExVive Human Liver Tissue services and the ExVive Human Kidney Tissue service, for which commercial contracting began in September 2016; its Samsara Sciences subsidiary also sells human cells and tissue products. The company is pursuing preclinical development of bioprinted liver tissue for potential transplantation.
Financial performance and position
| Metric | Q1 FY2018 | Q1 FY2017 |
|---|---|---|
| Revenue | $0.990 million | $0.891 million |
| Cost of revenue | $0.301 million | $0.168 million |
| Gross profit / margin | $0.689 million / 69.6% | $0.723 million / 81.1% |
| Research and development | $5.033 million | $4.444 million |
| Selling, general and administrative | $5.856 million | $5.056 million |
| Operating loss | $10.200 million | $8.777 million |
| Net loss | $10.102 million | $8.767 million |
| Net loss per share, basic and diluted | $0.10 | $0.09 |
| Operating cash flow | $(10.653) million | $(8.541) million |
At June 30, 2017, cash and cash equivalents were $54.974 million, down from $62.751 million at March 31, 2017. Current assets were $57.868 million and current liabilities were $3.688 million, yielding working capital of $54.180 million. Total liabilities were $4.443 million; the filing reports no debt balance. The company had an accumulated deficit of $209.419 million. Financing activities provided $2.957 million, primarily from ATM stock sales; investing activities used $0.081 million. No interest or income taxes were paid during the quarter.
Changes and notable items
- Total revenue increased about 11%. Product and service revenue rose 29% to approximately $0.9 million, primarily on liver-service contracts and Samsara sales. Collaboration revenue fell about $0.2 million because the prior-year quarter included collaboration milestone revenue.
- Operating loss widened by $1.423 million. R&D expense increased 14%, reflecting higher lab materials, facility costs, and staffing. SG&A increased 16%, mainly due to higher stock-based compensation and staffing.
- Gross margin declined to approximately 69.6% from 81.1%, as cost of revenue grew faster than revenue.
- Stock-based compensation was $2.052 million, up from $1.429 million. During the quarter, the company issued 1,139,489 ATM shares for net proceeds of approximately $3.0 million; outstanding common shares were 105,724,320 at quarter-end.
- In April 2017, the company granted the new CEO 2,088,212 inducement stock options and allocated 208,822 performance-based restricted stock units. The performance-unit vesting criteria had not been formally approved, and no related expense was recorded for the quarter.
- After quarter-end, the company sold 398,728 ATM shares in July 2017 for net proceeds exceeding $1.0 million.
Outlook, risks, and contingencies
Management stated that cash resources and its current operating plan were sufficient to fund operations for at least 12 months from the financial statement issuance date. The company expects to fund development and commercialization through existing cash, revenue, grants, collaborations, royalties, and potentially additional equity or debt financing. Management cautioned that financing may not be available on acceptable terms; equity financing could dilute shareholders, while debt could impose payment obligations and restrictive covenants. Insufficient capital could force delays, reductions, or termination of development programs.
Key business risks include the company’s early commercial stage, limited revenue base, continued operating losses and cash burn, the need to establish market acceptance, and the uncertainty of developing and commercializing tissue products and therapeutic applications. Operating lease commitments totaled $5.306 million, primarily for facilities. The company disclosed no off-balance-sheet arrangements and no material changes to previously reported risk factors. It reported no accrued loss contingencies and no matter for which it determined an unfavorable outcome was probable or reasonably possible and estimable; it nevertheless noted that legal outcomes are uncertain. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether commercial growth in liver services, kidney services, and Samsara products can accelerate enough to offset rising costs and cash burn.
- How quickly cash declines under the company’s operating plan, and whether management’s stated 12-month funding sufficiency remains valid.
- Remaining ATM and shelf capacity, subsequent share issuance, and potential dilution from outstanding equity awards and warrants.
- Progress, funding needs, and development milestones for the kidney service and preclinical liver-transplant program.
- Whether collaboration revenue and customer concentration create volatility in quarterly results; the filing describes revenue as coming from a relatively small number of customers and collaborators.