Organovo Holdings, Inc. — Form 10-Q Summary
Period and issuer: The filing is for the three months ended June 30, 2016, Organovo’s first quarter of fiscal 2017—not calendar 2016 Q1. Although the request identifies Vivosim Labs, the filing itself is for Organovo Holdings, Inc.
Business context
Organovo is an early commercial-stage company developing and commercializing 3D human tissues for drug discovery, biological research, and potential therapeutic applications. Its first commercial product, exVive3D Human Liver Tissue, is primarily sold through research services. The company is also developing 3D Human Kidney Tissue. Its subsidiary Samsara Sciences began commercial operations in January 2016 as a source and seller of human cells.
Financial results
| Metric | Quarter ended June 30, 2016 | Comparable 2015 quarter |
|---|---|---|
| Revenue | $0.891 million | $0.306 million |
| Cost of revenue | $0.168 million | Minimal; included in R&D |
| Gross profit and margin | $0.723 million; approximately 81% | Not directly comparable |
| Research and development | $4.444 million | $4.142 million |
| Selling, general and administrative | $5.056 million | $4.622 million |
| Operating loss | $8.777 million | $8.458 million |
| Net loss | $8.767 million | $8.491 million |
| Basic and diluted loss per share | $0.09 | $0.10 |
| Cash used in operating activities | $8.541 million | $6.295 million |
Revenue increased approximately 191%, led by products and services ($0.674 million, up 222%) and collaboration revenue ($0.213 million versus $0.014 million). Management attributed growth to customer adoption of liver tissue research services and a collaboration milestone. Grant revenue fell to $0.004 million from $0.083 million. Expenses rose about 10%; the company began separately reporting cost of revenue this quarter.
Liquidity, cash flow and capital
- Cash and cash equivalents were $53.538 million at June 30, down from $62.091 million at March 31, 2016.
- Working capital was approximately $52.1 million, compared with $59.2 million at March 31. Current assets were $55.181 million and current liabilities $3.136 million.
- Total liabilities were $4.004 million; the filing does not report material interest-bearing debt. It reports $5.812 million in future operating lease obligations.
- Investing activities used $0.012 million. Financing activities provided no cash in the quarter, versus $43.288 million in the prior-year quarter, which included proceeds from a public offering.
- Management stated that existing cash and its current operating plan should fund operations for at least the next 12 months. It also expects to need additional capital for development and commercialization; future financing availability and terms are uncertain.
Outlook, risks and notable items
- No specific revenue, earnings, or cash-flow guidance was provided. Management described ongoing investment in research, product development, staffing, and commercialization.
- The company had an accumulated deficit of $169.6 million and continued operating losses and negative operating cash flow. Insufficient financing could force it to delay or reduce programs; equity financing could dilute shareholders and debt could impose restrictive obligations.
- At June 30, the company had 92.390 million common shares outstanding and 17.150 million shares reserved for warrants, options, and restricted stock units. The filing reported approximately 11.6 million common stock equivalents excluded from diluted EPS as anti-dilutive.
- On July 20, 2016, Organovo moved up to $26.56 million of potential at-the-market common-stock sales to its 2015 shelf registration. This is financing capacity, not proceeds reported for the quarter.
- Subsequent events included authorization of executive grants totaling 900,000 options and 450,500 restricted stock units, and approval to move its listing from NYSE MKT to the Nasdaq Global Market in August 2016.
- The company reported no material changes to previously disclosed risk factors, no material changes in internal control, and no off-balance-sheet arrangements. It reported no accrual for legal claims and no loss that it considered probable or reasonably estimable.
Most important facts for investors to verify
- Whether the reported revenue growth and collaboration milestone activity translate into repeatable customer demand and cash collections.
- Whether operating cash burn moderates; quarterly operating cash use increased to $8.5 million.
- Management’s stated minimum 12-month funding outlook and the assumptions underlying it, including planned spending and future financing needs.
- The potential effect of the ATM program and outstanding equity awards on future share count and dilution.
- The comparability of gross margin, given that cost of revenue was separately presented for the first time this quarter.