Filing identity and period
The supplied filing is Organovo Holdings, Inc. (Nasdaq: ONVO), not Vivosim Labs, Inc. It is a Form 10-Q for the quarter ended September 30, 2019, the company’s fiscal second quarter of fiscal 2020. Financial amounts below are in U.S. dollars; figures are in millions unless stated otherwise.
Business context
In August 2019, after preclinical studies raised concerns about the consistency and duration of benefits from its lead liver tissue program, the board suspended that program and other therapeutic pipeline development. Organovo also halted commercial activity except for sales of primary human cells from inventory, reduced its workforce, and began an active strategic alternatives process that could include a merger, asset sale, or licensing transaction.
Financial results and liquidity
| Metric | Quarter ended Sep. 30, 2019 | Prior-year quarter | Six months ended Sep. 30, 2019 | Prior-year six months |
|---|---|---|---|---|
| Revenue | $1.230 | $0.943 | $1.898 | $1.632 |
| Cost of revenue | $0.264 | $0.125 | $0.315 | $0.245 |
| Gross profit / margin | $0.966 / 78.5% | $0.818 / 86.7% | $1.583 / 83.4% | $1.387 / 85.0% |
| Research and development | $1.445 | $3.187 | $5.268 | $6.566 |
| Selling, general and administrative | $6.348 | $3.640 | $9.663 | $8.407 |
| Operating loss | $(6.827) | $(6.009) | $(13.348) | $(13.586) |
| Net loss | $(6.294) | $(5.837) | $(12.617) | $(13.253) |
| Net loss per share | $(0.05) | $(0.05) | $(0.10) | $(0.12) |
| Operating cash flow | Not separately provided for quarter | Not separately provided for quarter | $(11.090) | $(11.346) |
Quarterly revenue increased 30%, largely because of higher sales of primary human cells and recognition of a previously deferred, non-refundable fee. Grant revenue was zero for the quarter, compared with $0.408 million a year earlier. The company said it expected only nominal inventory-related revenue in fiscal Q3 and no further R&D expense.
At September 30, cash and cash equivalents were $30.350 million, restricted cash was $0.079 million, and working capital was $29.6 million. Cash and cash equivalents were $36.477 million at March 31, 2019. Total liabilities were $6.698 million, including $4.614 million of operating lease liabilities; the filing does not report borrowings under debt facilities. Accumulated deficit was $273.372 million.
Six-month financing activities provided $4.936 million, principally from an at-the-market stock offering. The company issued 6.087 million shares through that facility for net proceeds of approximately $5.0 million. Shares outstanding were 130.435 million at September 30, 2019.
Material changes and unusual items
- Organovo terminated 46 employees, or 79% of its workforce, and recorded $2.456 million of severance expense in the quarter. It had paid $1.652 million by September 30 and expected to pay the remaining accrued amount in fiscal Q3.
- Management anticipated up to a further $3.1 million of severance and benefits costs tied to progress in the strategic process, including approximately $0.4 million expected in fiscal Q3.
- Cost of revenue included a $0.214 million inventory write-off associated with the commercial wind-down.
- Subsequent to quarter-end, the company agreed to sell certain bioprinting equipment and a non-exclusive IP license to related party Viscient for about $0.2 million, and sold Samsara inventory, equipment, and related information for $1.5 million. The latter transaction ended further Samsara product sales.
- Organovo agreed to end its main facility lease effective November 15, 2019. It expected to write off the associated right-of-use asset and lease liability in fiscal Q3, with about $0.2 million of depreciation expense related to the leasehold improvements and related changes.
- Adoption of the new lease standard resulted in recognition of right-of-use assets and lease liabilities; at September 30, the related balances were $4.089 million and $4.614 million, respectively.
Outlook, risks, and contingencies
Management estimated cash of $28–29 million at fiscal Q3-end and $26–27 million at fiscal Q4-end, excluding further effects from asset sales, transaction costs, or other unexpected costs. It stated that current resources were expected to support operations for at least 12 months under current plans, while also disclosing substantial doubt about the company’s ability to finance itself on a long-term basis. Management warned that failure to complete a strategic transaction or obtain acceptable additional capital could lead to cessation of operations, and that transaction proceeds could be below the $31.1 million of reported stockholders’ equity.
Nasdaq notified the company that its share price did not meet the $1 minimum bid requirement. The compliance period ran through December 23, 2019; a reverse stock split was among the options considered, and delisting remained a risk. A putative class action filed October 10, 2019 alleged proxy-statement misrepresentations and breach of fiduciary duty relating to a reverse-split proposal. The company disputed the claims; it recorded no litigation accrual and said a loss estimate was not reasonably determinable.
The company’s strategic process had no assured outcome or timing. Further risks include costs exceeding plans, limited value from a transaction, possible dilution if additional equity is issued, and reduced liquidity or adverse transaction terms if Nasdaq listing is lost. Management reported disclosure controls and procedures were effective as of period-end.
Important facts for investors to verify
- Confirm the filing entity and period: the document is Organovo Holdings, Inc.’s 10-Q for September 30, 2019, despite the request metadata naming Vivosim Labs, Inc. and “2019 Q2.”
- Check subsequent filings for the outcome, terms, and net proceeds of strategic transactions and asset sales, and whether operations continued or were wound down.
- Track actual cash burn, severance and transaction costs, and the company’s cash balance against its stated fiscal Q3 and Q4 estimates.
- Verify Nasdaq bid-price compliance, any market transfer or reverse stock split, and any resulting effect on trading liquidity.
- Follow the class action’s progress and any change in the company’s assessment of potential loss.
- Assess potential dilution from outstanding equity awards and any further share issuance; reported fully diluted and reserved share figures are substantial relative to common shares outstanding.