Business context and reporting period
The filing is for Organovo Holdings, Inc. (not Vivosim Labs, as stated in the request metadata), for the quarter ended December 31, 2015—its fiscal 2016 third quarter—and the nine months then ended. Organovo is an early commercial-stage company developing and commercializing 3D human tissues for research, drug testing, and potential therapeutic use. Its first product, exVive3D Human Liver Tissue, launched commercially in November 2014; most related revenue is from research services. Samsara Sciences began commercial operations in January 2016.
Financial performance and position
Amounts below are in millions of dollars except per-share data. The interim financial statements are unaudited.
| Metric | Three months ended Dec. 31, 2015 | Prior-year quarter | Nine months ended Dec. 31, 2015 | Prior-year period |
|---|---|---|---|---|
| Revenue | $0.328 | $0.155 | $0.935 | $0.304 |
| Operating expenses | $10.798 | $7.116 | $31.147 | $22.631 |
| Operating loss | $(10.470) | $(6.961) | $(30.212) | $(22.327) |
| Net loss | $(10.455) | $(6.993) | $(30.203) | $(22.284) |
| Basic and diluted loss per share | $(0.11) | $(0.09) | $(0.34) | $(0.28) |
Quarterly revenue increased 112%; nine-month revenue increased 208%. Product and service revenue was $0.293 million for the quarter and $0.689 million for the nine months. The filing does not provide a clear gross-margin figure or a basis for calculating product margins.
For the nine months, operating cash use was $21.836 million, investing cash use was $1.732 million, and financing provided $43.452 million. Cash and cash equivalents rose to $70.026 million from $50.142 million at March 31, 2015. At December 31, working capital was $65.2 million; total assets were $74.536 million and total liabilities were $5.497 million. The company reported no material conventional debt; capital lease obligations were zero at quarter-end. Operating lease commitments totaled $6.456 million.
Material changes versus comparable periods
- Quarterly operating expenses rose 52%; nine-month expenses rose 38%, reflecting greater staffing, research activity, commercialization spending, and facility costs.
- Quarterly R&D expense increased 42% to $4.586 million; nine-month R&D increased 45% to $13.467 million. Quarterly average R&D headcount rose to 68 from 47.
- Quarterly SG&A increased 60% to $6.212 million; nine-month SG&A increased 32% to $17.680 million. A major quarterly factor was $1.3 million of stock-compensation expense related to accelerated vesting and an option modification following an executive’s termination.
- Nine-month cash use from operations increased to $21.8 million from $14.0 million. The company raised approximately $43.1 million net in a June 2015 public stock offering; outstanding shares increased to 92.4 million from 81.5 million at March 31, 2015.
Outlook, risks, contingencies, and unusual items
Management said existing cash and expected receipts from collaborations, products, and services should fund planned operations for at least the next 12 months. This is not a longer-term profitability forecast; the filing provides no revenue or earnings guidance. The company had an accumulated deficit of $152.5 million and continued to incur operating losses. Management cautioned that additional financing may be needed and may not be available on favorable terms; equity financing could dilute shareholders, while debt could impose payment obligations and restrictive covenants.
Key risks include successful product development and market acceptance, the ability to generate sufficient revenue and reach profitability, and continued access to capital. The company reported no material changes to the risk factors in its prior Form 10-K. No loss-contingency accrual was recorded, and management said it had not determined an unfavorable legal outcome to be probable or reasonably possible or a loss estimate to be reasonably estimable. Management stated that pending legal actions were not expected to have a material adverse effect. The quarter included the executive-related stock-compensation charge noted above; legal expense also declined after a lawsuit settlement in the second fiscal quarter. No subsequent events were reported.
Disclosure controls and procedures were deemed effective; no material change in internal control over financial reporting was reported. The company stated that it had no off-balance-sheet arrangements.
Important facts for investors to verify
- Confirm the reporting entity: the filing is for Organovo Holdings, Inc., despite the Vivosim Labs metadata.
- Assess the sustainability and conversion to cash of early product/service revenue, including customer acceptance and deferred revenue of $1.444 million.
- Evaluate the cash burn against management’s at-least-12-month runway statement and the possibility of further financing or dilution.
- Review the impact of expanded facilities, $6.456 million of operating lease commitments, and ongoing hiring and R&D costs.
- Consider equity compensation and potential dilution: 92.4 million common shares were outstanding, with substantial additional shares reserved under incentive plans and warrants.