EDGAR 10-K Filing

Company CIK: 1497253
Filing Year: 2021
Filename: 1497253_10-K_2021_0001564590-21-032980.json

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ITEM 1. BUSINESS
Item 1. Business.
Overview
Organovo Holdings, Inc. (“Organovo Holdings,” “we,” “us,” “our,” the “Company” and “our Company”) is an early-stage biotechnology company that focuses on building high fidelity, 3D tissues that recapitulate key aspects of human disease. We use these models to identify gene targets capable of modulating the disease phenotype across multiple patients and intend to initiate drug discovery programs around these validated targets. We are initially targeting the intestine and have ongoing 3D tissue development efforts in Ulcerative colitis (“UC”) and Crohn’s disease (“CD”). We intend to add additional tissues/diseases/targets to our portfolio in the coming year. In line with these plans, we are building upon both our external and in-house scientific expertise, which will be essential to our drug development effort.
We use our proprietary technology to build functional 3D human tissues that mimic key aspects of native human tissue composition, architecture, function and disease. Our advances include cell type-specific compartments, prevalent intercellular tight junctions, and the formation of microvascular structures. We believe these attributes can enable critical complex, multicellular disease models that can be used to develop clinically effective drugs across multiple therapeutic areas.
Our NovoGen Bioprinters® are automated devices that enable the fabrication of 3D living tissues comprised of mammalian cells. We believe that the use of our bioprinting platform as well as complementary 3D technologies will allow us 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 our current focus is on inflammatory bowel disease (“IBD”), including CD and UC. We expect to create disease models, leveraging our prior work including the work found in our 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.) Our current understanding of intestinal tissue models and IBD disease models leads us to believe that we can create models that provide greater insight into the biology of these diseases than are generally currently available. Using these disease models, we intend to identify and validate novel therapeutic targets. After finding therapeutic drug targets, we will focus on developing novel small molecule, antibody, or other therapeutic drug candidates to treat the disease, and advance these drug candidates towards an Investigational New Drug (“IND”) filing and potential future clinical trials.
We expect to broaden our work into additional therapeutic areas over time and are currently exploring specific tissues for development. In our work to identify the areas of interest, we evaluate areas that might be better served with 3D disease models than currently available models as well as the commercial opportunity.
Historical Operations and Strategic Alternatives Process
From early 2018 to August 2019, we focused our efforts on developing our in vivo liver tissues to treat end-stage liver disease and a select group of life-threatening, orphan diseases, for which there are limited treatment options other than organ transplantation. We also explored the development of other potential pipeline in vivo tissue constructs in-house and through collaborations with academic and government researchers. In the past, we also explored the development of in vitro tissues, including proof of concept models of diseased tissues, for use in drug discovery and development.
In August 2019, after a rigorous assessment of our in vivo liver therapeutic tissue program, we concluded that the variability of biological performance and related duration of potential benefits no longer supported an attractive opportunity due to redevelopment challenges and lengthening timelines to compile sufficient data to support an IND filing. As a result, we suspended development of our lead program and all other related in-house pipeline development activities.
Our Board of Directors (the “Board”) also engaged a financial advisory firm to explore our available strategic alternatives, including evaluating a range of ways to generate value from our technology platform and intellectual property, our commercial and development capabilities, our listing on the Nasdaq Capital Market, and our remaining financial assets. These strategic alternatives included possible mergers and business combinations, sales of part or all of our assets, and licensing and partnering arrangements. We implemented various restructuring steps to manage our resources and extend our cash runway, including reducing commercial activities related to our liver tissues, except for sales of primary human cells out of inventory, negotiating an exit from our long-term facility lease, selling various assets, and reducing our workforce. Additionally, in November 2019, we sold certain inventory and equipment and related proprietary information held by our wholly-owned subsidiary, Samsara Sciences, Inc. (“Samsara”), and as a result of such sale, Samsara ceased its operations and has since been dissolved.
After conducting a diligent and extensive process of evaluating strategic alternatives and identifying and reviewing potential candidates for a strategic acquisition or other transaction, which included the receipt of more than 27 non-binding indications of interest from interested parties and careful evaluation and consideration of those proposals, and following extensive negotiations with Tarveda Therapeutics, Inc. (“Tarveda”), on December 13, 2019, we entered into a merger agreement with Tarveda (the “Merger Agreement”). Pursuant to the Merger Agreement, and subject to the satisfaction or waiver of the conditions set forth in the Merger
Agreement, our wholly-owned merger subsidiary would merge with and into Tarveda (the “Merger”), with Tarveda becoming a wholly-owned subsidiary of Organovo and the surviving corporation of the Merger . The Merger Agreement included various conditions to the consummation of the Merger, including approval by our stockholders at a Special Meeting of Stockholders that was held on April 7, 2020 (the “Special Meeting”).
At the Special Meeting, the Merger was not approved by our stockholders. As a result, we terminated the Merger Agreement with Tarveda. Pursuant to the terms of the Merger Agreement, we were obligated to reimburse certain of Tarveda’s merger-related expenses not to exceed $300,000, which was offset by Tarveda’s portion of shared expenses incurred by us in fiscal 2020.
The Cooperation Agreement and Advisory Nominees Proposal
Following the Special Meeting and the termination of the Merger Agreement, our Board continued to solicit stockholder feedback regarding our strategic alternatives and how to maximize stockholder value. In response to feedback from our largest stockholder regarding its desire for our Board to consider opportunities in the 3D bioprinting field and suggestion that our Board should speak with Keith Murphy, our founder, stockholder and former Chief Executive Officer and Chairman, for potential business ideas, our Board initiated discussions with Mr. Murphy. Based on these discussions, we entered into a Cooperation Agreement with Mr. Murphy on July 14, 2020 (the “Cooperation Agreement”). Under the terms of the Cooperation Agreement, our Board appointed Mr. Murphy and Adam K. Stern to the Board as Class III directors, and two of our existing directors, Richard Maroun and David Shapiro, resigned from our Board and the committees thereof. Our Board also agreed to nominate, recommend, support and solicit proxies for the re-election of Messrs. Murphy and Stern at our 2020 Annual Meeting of Stockholders (the “2020 Annual Meeting”). Our Board also agreed to nominate, recommend, support and solicit proxies for an advisory stockholder vote (the “Advisory Nominees Proposal”) at the 2020 Annual Meeting to appoint three individuals, Douglas Jay Cohen, David Gobel and Alison Tjosvold Milhous (collectively, the “Advisory Nominees”), to our Board. Mr. Murphy identified each of the Advisory Nominees. Our Board approved the appointment of the Advisory Nominees, to be automatically effective immediately following the final adjournment of the 2020 Annual Meeting if the final vote tabulation for the Advisory Nominees Proposal received more votes cast “FOR” than “AGAINST” its approval. In addition, each of our then-current directors (other than Messrs. Murphy and Stern) agreed to resign from our Board immediately following the appointment of the Advisory Nominees. At the 2020 Annual Meeting held on September 15, 2020, our stockholders approved the re-election of Messrs. Murphy and Stern to our Board as Class III directors to hold office until the 2023 Annual Meeting of Stockholders and the final vote tabulation for the Advisory Nominees Proposal received more votes cast “FOR” than “AGAINST” its approval and, accordingly, effective upon the final adjournment of the 2020 Annual Meeting, Ms. Milhous was appointed as a Class I director to hold office until the 2021 Annual Meeting of Stockholders and Messrs. Cohen and Gobel were appointed as Class II directors to hold office until the 2022 Annual Meeting (collectively, the “New Director Slate”) and Carolyn Beaver, Taylor Crouch, Mark Kessel and Kirk Malloy, Ph.D. each resigned as directors. Following the election of the New Director Slate, we have recommenced operations and are now focusing our future efforts on developing highly customized 3D human tissues as living, dynamic models of healthy and diseased human biology for drug development.
Our Platform Technology
Our 3D human tissue platform is multifaceted. We approach each tissue agnostic to specific technologies, and intend to apply the best 3D technology to a given disease. We are developing novel disease models using high throughput systems, bioprinted and flow/stretch capable 3D systems as appropriate. Our proprietary NovoGen Bioprinters® and related technologies for preparing bio-inks and bioprinting multicellular tissues with complex architecture are grounded in over a decade of peer-reviewed scientific publications, deriving originally from research led by Dr. Gabor Forgacs, one of our founders and a former George H. Vineyard Professor of Biological Physics at the University of Missouri-Columbia (“MU”). We have a broad portfolio of intellectual property rights covering the principles, enabling instrumentation, applications, and methods of cell-based printing, including exclusive licenses to certain patented and patent pending technologies from MU and Clemson University. We own or exclusively license more than 90 patents and pending applications worldwide covering specific tissue designs, uses, and methods of manufacture.
The NovoGen Bioprinter® Platform
Our NovoGen Bioprinters® are automated devices that enable the fabrication of 3D living tissues comprised of mammalian cells. A custom graphic user interface (“GUI”) facilitates the 3D design and execution of scripts that direct precision movement of multiple dispensing heads to deposit defined cellular building blocks called bio-ink. Bio-ink can be formulated as a 100% cellular composition or as a mixture of cells and other matter (hydrogels, particles). Our NovoGen Bioprinters® can also dispense pure hydrogel formulations, provided the physical properties of the hydrogel are compatible with the dispensing parameters. Most typically, hydrogels are deployed to create void spaces within specific locations in a 3D tissue or to aid in the deposition of specific cell types. We are able to employ a wide variety of proprietary cell- and hydrogel-based bio-inks in the fabrication of tissues. Our NovoGen Bioprinters® also serve as important components of our tissue prototyping and manufacturing platform, as they are able to rapidly and precisely fabricate intricate small-scale tissue models for in vitro use as well as larger-scale tissues suitable for in vivo use.
Generation of bio-ink comprising human cells is the first step in our standard bioprinting. A wide variety of cells and cell-laden hydrogels can be formulated into bio-ink and bioprinted tissues, including cell lines, primary cells, and stem/progenitor cells. The majority of tissue designs employ two or more distinct varieties of bio-ink, usually comprised of cells that represent distinct compartments within a target tissue. For example, a 3D liver tissue might consist of two to three distinct bio-inks that are each made from a single cell type, a combination of cell types, and/or a combination of primary cells and one or more bio-inert hydrogels that serve as physical supports for the bioprinted tissue during its maturation period, or to transiently occupy negative spaces in a tissue design.
Research Collaborations
We continue to collaborate with several academic institutions by providing them with access to our NovoGen Bioprinters® for research purposes, including: Yale School of Medicine, University of California, San Francisco, Knight Cancer Institute at Oregon Health & Science University, and the University of Virginia. We believe that the use of our bioprinting platform by major research institutions may help to advance the capabilities of the platform and generate new applications for bioprinted tissues. In prior instances, an academic institution or other third party provided funding to support the academic collaborator’s access to our technology platform. This funding was typically reflected as collaboration revenues in our financial statements. Our academic research collaborations typically involve both parties contributing resources directly to projects. We are not currently generating any revenues from these collaborations.
Intellectual Property
We rely on a combination of patents, trademarks, trade secrets, confidential know-how, copyrights and a variety of contractual mechanisms such as confidentiality, material transfer, licenses, research collaboration, limited technology access, and invention assignment agreements, to protect our intellectual property. Our intellectual property portfolio for our core technology was initially built through licenses from MU and the Medical University of South Carolina. We subsequently expanded our intellectual property portfolio by filing patent and trademark applications worldwide and negotiating additional licenses and purchases.
We recently completed a review and analysis of our full intellectual property portfolio to align it with our current business needs, strategies and objectives. Based on that review, a number of patents and patent applications in various countries were abandoned or allowed to lapse. The numbers provided herein are reflective of those changes.
We solely own or hold exclusive licenses to 30 issued U.S. patents and more than 40 issued international patents in foreign jurisdictions including Australia, Canada, China, Denmark, France, Great Britain, Germany, Ireland, Japan, South Korea, Sweden, the Netherlands and Switzerland. We solely or jointly own or hold exclusive licenses to 8 pending U.S. patent applications and more than 14 pending international applications in foreign jurisdictions including Australia, Canada, China, the European Patent Office, Japan and South Korea. These patent families relate to our bioprinting technology and our engineered tissue products and services, including our various uses in areas of tissue creation, in vitro testing, utilization in drug discovery, and in vivo therapeutics.
In-Licensed Intellectual Property
In 2009 and 2010, we obtained world-wide exclusive licenses to intellectual property owned by MU and the Medical University of South Carolina, which now includes 6 issued U.S. patents, 2 pending U.S. applications and 11 issued international patents. Dr. Gabor Forgacs, one of our founders and a former George H. Vineyard Professor of Biophysics at MU, was one of the co-inventors of all of these works (collectively, the “Forgacs Intellectual Property”). The Forgacs Intellectual Property provides us with intellectual property rights relating to cellular aggregates, the use of cellular aggregates to create engineered tissues, and the use of cellular aggregates to create engineered tissue with no scaffold present. The intellectual property rights derived from the Forgacs Intellectual Property also enables us to utilize our NovoGen Bioprinter® to create engineered tissues.
In 2011, we obtained an exclusive license to a U.S. patent (U.S. Pat. No. 7,051,654) owned by the Clemson University Research Foundation that provides us with intellectual property rights relating to methods of using ink-jet printer technology to dispense cells and relating to the creation of matrices of bioprinted cells on gel materials.
In 2015, we obtained world-wide exclusive licenses to intellectual property owned by The University of Queensland (collectively, “UniQuest Intellectual Property”) relating to technologies for producing kidney cells and kidney organoids from induced pluripotent stem cells (“iPSCs”). This intellectual property has been returned to UniQuest Pty Limited.
The patent rights we obtained through these exclusive licenses are not only foundational within the field of 3D bioprinting but provide us with favorable priority dates. We are required to make ongoing royalty payments under these exclusive licenses based on net sales of products and services that rely on the intellectual property we in-licensed. For additional information regarding our royalty obligations see “Note 4. Collaborative Research, Development, and License Agreements” in the Notes to the Consolidated Financial Statements included in this Annual Report.
Company Owned Intellectual Property
In addition to the intellectual property we have in-licensed, we have historically innovated and grown our intellectual property portfolio.
With respect to our bioprinting platform, we have 8 issued U.S. patents and 9 issued foreign patents directed to our NovoGen Bioprinter® and methods of bioprinting: U.S. Patent Nos. 8,931,880; 9,149,952; 9,227,339; 9,315,043; 9,499,779; 9,855,369; 10,174,276 and 10,967,560; Australia Patent Nos. 2011318437, 2015202836, 2016253591, and 2013249569; China Patent Nos. ZL201180050831.4 and ZL201480054148.1; European Patent No. 2838985; Japan Patent Nos. 6333231 and 6566426. These issued patents and pending patent applications carry remaining patent terms ranging from over 12 years to just over 6 years. We have additional U.S. continuation applications pending in these families as well foreign counterpart applications in multiple countries.
Our ExVive™ Human Liver Tissue is protected by U.S. Patent Nos. 9,222,932, 9,442,105 and 10,400,219; Australia Patent Nos. 2014236780 and 2017200691; Canada Patent No. 2,903,844; and. Our ExVive™ Human Kidney Tissue is protected by U.S. Patent Nos. 9,481,868, 10,094,821 and 10,962,526; European Patent No. 3204488. These issued patents and pending patent applications carry remaining patent terms ranging from over 14 years to just over 11 years. We have additional U.S. patent applications pending in these families, as well as foreign counterpart applications in multiple countries. We currently have pending numerous patent applications in the U.S. and globally that are directed to additional tissue types, their methods of fabrication, and specific applications.
Our U.S. Pat. Nos. 9,855,369 and 9,149,952, which relate to our bioprinter technology, are the subject of IPR proceedings filed by Cellink AB, one of our competitors. In addition, U.S. Patent Nos. 9,149,952, 9,855,369, 8,931,880, 9,227,339 and 9,315,043 (all assigned to Organovo, Inc.) and U.S. Patent Nos. 7,051,654 and 9,752,116 (assigned to Clemson University and the University of Missouri, respectively) are implicated in a declaratory judgment complaint filed against Organovo, Inc., our wholly owned subsidiary, by Cellink AB and certain of its subsidiaries in the United States District Court for the District of Delaware. For more information regarding these proceedings, see the section titled “Part I, Item 3 of this Annual Report on Form 10-K.”
COVID-19
In December 2019, a respiratory illness caused by a novel strain of coronavirus, SARS-CoV-2, causing the Coronavirus Disease 2019, also known as COVID-19 emerged. While initially the outbreak was largely concentrated in China, it has since spread globally and been declared a pandemic by the World Health Organization. Global health concerns relating to the COVID-19 pandemic have been weighing on the macroeconomic environment, and the pandemic has significantly increased economic volatility and uncertainty. The pandemic has resulted in government authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter-in-place or stay-at-home orders, and business shutdowns. In 2020, we adapted quickly to COVID-19, instituting universal masking and distancing in the lab and in the offices. We encouraged and enabled remote work whenever possible. We instituted safety check software to monitor symptoms and have successfully maintained a robust level of progress while ensuring the safety of our employees. As the viral load and variants allow, we intend to carefully return to more typical lab and office work flow.
The extent to which COVID-19 impacts our operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the rise of vaccine-resistant variants, duration of the outbreak, travel bans, restrictions, quarantines, shelter-in-place or stay-at-home orders, and business shutdowns. In particular, the continued COVID-19 pandemic could adversely impact various aspects of our operations, including among others, our ability to raise additional capital, the timing and ability to pursue our strategy, given the impact the pandemic may have on the manufacturing and supply chain, sales and marketing and clinical trial operations of potential strategic partners, and the ability to advance our research and development activities and pursue development of our pipeline products, each of which could have an adverse impact on our business and our financial results. Our employees and consultants have recently returned to working at our office and lab when necessary and we currently believe our operations have not otherwise been negatively impacted by the pandemic.
Employees and Human Capital
As of June 1, 2021, we had 9 employees, 4 of which were full time employees. We have also retained some of our former employees as consultants. We have also retained a number of expert consultants in specific scientific and operational areas. Our employees are not represented by labor unions or covered under any collective bargaining agreements. We consider our relationship with our employees to be good.
Our human capital resources objectives include, as applicable, identifying, recruiting, retaining, incentivizing and integrating our existing and additional employees. The principal purposes of our equity incentive plans are to attract, retain and motivate selected employees, consultants and directors through the granting of equity-based compensation awards.
Corporate Information
We are operating the business of our subsidiaries, including Organovo, Inc., our wholly-owned subsidiary, which we acquired in February 2012. Organovo, Inc. was incorporated in Delaware in April 2007. Our common stock has traded on The Nasdaq Stock Market under the symbol “ONVO” since August 8, 2016 and we currently trade on the Nasdaq Capital Market. Prior to that time, it traded on the NYSE MKT under the symbol “ONVO” and prior to that was quoted on the OTC Market.
Our principal executive offices are located at 440 Stevens Ave, Suite 200, Solana Beach, CA 92075 and our phone number is (858) 224-1000. Our Internet website can be found at http://www.organovo.com. The content of our website is not intended to be incorporated by reference into this Annual Report or in any other report or document that we file.
Available Information
Our investor relations website is located at http://ir.organovo.com. We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Reports filed with the Securities and Exchange Commission (the “SEC”) pursuant to the Exchange Act, including annual and quarterly reports, and other reports we file, are available free of charge, through our website. The content of our website is not intended to be incorporated by reference into this Annual Report or in any other report or document that we file. We make them available on our website as soon as reasonably possible after we file them with the SEC. The reports we file with the SEC are also available on the SEC’s website (http://www.sec.gov).

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ITEM 1A. RISK FACTORS
Item 1A. Risk Factors.
Investment in our common stock involves a substantial degree of risk and should be regarded as speculative. As a result, the purchase of our common stock should be considered only by persons who can reasonably afford to lose their entire investment. Before you elect to purchase our common stock, you should carefully consider the risk and uncertainties described below in addition to the other information incorporated herein by reference. Additional risks and uncertainties of which we are unaware or which we currently believe are immaterial could also materially adversely affect our business, financial condition or results of operations. If any of the risks or uncertainties discussed in this Annual Report occur, our business, prospects, liquidity, financial condition and results of operations could be materially and adversely affected, in which case the trading price of our common stock could decline, and you could lose all or part of your investment.
Risks Related to COVID-19
We face risks related to health epidemics, including the recent COVID-19 pandemic, which could have a material adverse effect on our business and results of operations.
In December 2019, a respiratory illness caused by a novel strain of coronavirus, SARS-CoV-2, causing the Coronavirus Disease 2019, also known as COVID-19, emerged. While initially the outbreak was largely concentrated in China, it has since spread globally and been declared a pandemic by the World Health Organization. Global health concerns relating to the COVID-19 pandemic have been weighing on the macroeconomic environment, and the pandemic has significantly increased economic volatility and uncertainty. The COVID-19 pandemic has resulted in government authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter-in-place or stay-at-home orders, and business shutdowns. The extent to which COVID-19 impacts our operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the rise of vaccine-resistant variants, duration of the outbreak, travel bans, restrictions, quarantines, shelter-in-place or stay-at-home orders, and business shutdowns. The continued COVID-19 pandemic could adversely impact our operations, including among others, the impact it may have on the manufacturing and supply chain, sales and marketing and clinical trial operations of potential strategic partners, and the ability to advance our research and development activities and pursue development of any of our pipeline products, each of which could have an adverse impact on our business and our financial results. In particular, we require access to a constant, steady, reliable supply of human cells to support our development activities. The COVID-19 pandemic
could negatively impact our ability to obtain a reliable supply of sufficient human cells or a supply at cost effective prices, which would harm our business and our results of operations and could cause us to be unable to support our drug development efforts.
In addition, the stock market has been unusually volatile during the COVID-19 pandemic and such volatility may continue. Our stock price has also experienced volatility during this time, including occasional significant increases and decreases. For example, from April 1, 2020 to March 31, 2021, our closing stock price ranged from $5.20 to $21.70 per share. Such increases and decreases in our stock price may repeat or continue for the foreseeable future.
There are no comparable recent events which may provide guidance as to the effect of the COVID-19 pandemic, and, as a result, the ultimate impact of the COVID-19 pandemic, or any similar health epidemic that may occur in the future, is highly uncertain and subject to change. We do not yet know the full extent of COVID-19’s impact on our business, our operations, or the global economy as a whole. However, the effects may have a material adverse impact on our future results of operations.
Risks Related to our Business
We have recommenced our operations as an early-stage company focusing on 3D bioprinting technology to develop human tissues and disease models for drug discovery and development, which is an unproven business strategy that may never achieve profitability.
Following the election of the new board of directors at our 2020 Annual Meeting of stockholders, we have recommenced operations and are focusing our efforts on utilizing our 3D bioprinting technology to develop human tissues and disease models for drug discovery and development. We have recommenced our operations as an early-stage company with an unproven business strategy, and may never achieve profitability. Our success will depend upon the viability of our platform technology and any disease models we develop, as well as on our ability to determine which drug candidates we should pursue. Our success will also depend on our ability to select an appropriate development strategy for any drug candidates we identify, including internal development or partnering or licensing arrangements with pharmaceutical companies. We may not be able to partner or license our drug candidates. We may never achieve profitability, or even if we achieve profitability, we may not be able to maintain or increase our profitability.
We will incur substantial additional operating losses over the next several years as our research and development activities increase.
We will incur substantial additional operating losses over the next several years as our research and development activities increase. The amount of future losses and when, if ever, we will achieve profitability are uncertain. Our ability to generate revenue and achieve profitability will depend on, among other things:
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successfully developing human tissues and disease models for drug discovery and development that enable us to identify drug candidates;
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successfully outsourcing certain portions of our development efforts;
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entering into partnering or licensing arrangements with pharmaceutical companies to further develop and conduct clinical trials for any drug candidates we identify;
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obtaining any necessary regulatory approval for any drug candidates we identify; and
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raising sufficient funds to finance our activities and long-term business plan.
We might not succeed at any of these undertakings. If we are unsuccessful at one or more of these undertakings, our business, prospects, and results of operations will be materially adversely affected.
Using our platform technology to develop human tissues and disease models for drug discovery and development is new and unproven.
Utilizing our 3D bioprinting platform technology to develop human tissues and disease models for drug discovery and development will involve new and unproven technologies, disease models and approaches, each of which is subject to the risk associated with new and evolving technologies. To date, we have not identified or developed any drug candidates utilizing our new business model. Our future success will depend on our ability to utilize our 3D bioprinting platform to develop human tissues and disease models that will enable us to identify and develop viable drug candidates. We may experience unforeseen technical complications, unrecognized defects and limitations in our technology or our ability to develop disease models or identify viable drug candidates. These complications could materially delay or substantially increase the anticipated costs and time to identify and develop viable drug candidates, which would have a material adverse effect on our business and financial condition and our ability to continue operations.
We will face intense competition in our drug discovery efforts.
The biotechnology and pharmaceutical industry is subject to intense competition and rapid and significant technological change. There are many potential competitors for the disease indications we may pursue, including major drug companies, specialized biotechnology firms, academic institutions, government agencies and private and public research institutions. Many of these competitors have significantly greater financial and technical resources, experience and expertise in the following areas than we have, including:
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research and technology development;
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development of or access to disease models;
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identification and development of drug candidates;
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regulatory processes and approvals; and
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identifying and entering into agreements with potential collaborators.
Principal competitive factors in our industry include: the quality, scientific and technical support, management and the execution of drug development and regulatory approval strategies; skill and experience of employees, including the ability to recruit and retain skilled, experienced employees; intellectual property portfolio; range of capabilities, including drug identification, development and regulatory approval; and the availability of substantial capital resources to fund these activities.
In order to effectively compete, we may need to make substantial investments in our research and technology development, drug candidate identification and development, testing and regulatory approval and licensing and business development activities. There is no assurance that we will be successful in discovering effective drug candidates using our 3D bioprinted tissues or disease models. Our technologies and drug development plans also may be rendered obsolete or noncompetitive as a result of drugs, intellectual property, technologies, products and services introduced by competitors. Any of these risks may prevent us from building a successful drug discovery business or entering into a strategic partnership or collaboration related to, any drug candidates we identify on favorable terms, or at all.
As we pursue drug development through 3D tissues and disease models, we will require access to a constant, steady, reliable supply of human cells to support our development activities.
As we pursue drug development through 3D tissues and disease models, we will require access to a constant, steady, reliable supply of human cells to support our 3D tissue development activities. We purchase human cells from selected third-party suppliers based on quality assurance, cost effectiveness, and regulatory requirements. We need to continue to identify additional sources of qualified human cells and there can be no guarantee that we will be able to access the quantity and quality of raw materials needed at a cost-effective price. Any failure to obtain a reliable supply of sufficient human cells or a supply at cost effective prices, including any impact to suppliers due to the COVID-19 pandemic, would harm our business and our results of operations and could cause us to be unable to support our drug development efforts.
Our business will be adversely impacted if we are unable to successfully attract, hire and integrate key additional employees or contractors.
Our future success depends in part on our ability to successfully attract and then retain key additional executive officers and other key employees and contractors to support our drug discovery plans. Recruiting and retaining qualified scientific and clinical personnel is critical to our success. Competition to hire qualified personnel in our industry is intense, and we may be unable to hire, train, retain or motivate these key personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. If we are unable to attract and retain high quality personnel, our ability to pursue our drug discovery business will be limited, and our business, prospects, financial condition and results of operations may be adversely affected.
We may require substantial additional funding. Raising additional capital would cause dilution to our existing stockholders and may restrict our operations or require us to relinquish rights to our technologies or to a product candidate.
We currently do not have any committed external source of funds and do not expect to generate any meaningful revenue in the foreseeable future. Our existing cash, cash equivalents and interest thereon is expected to be sufficient to fund our projected operating requirements for at least the next 12 months. We have based these estimates on assumptions that may prove to be wrong, and we may use our available capital resources sooner than we currently expect if our operating plans change. If our board of directors decides that we should pursue further research and development activities than already proposed, we will require substantial additional funding to operate our proposed business, including expanding our facilities and hiring additional qualified personnel, and we would expect to finance these cash needs through a combination of equity offerings, debt financings, government or other third-party funding and licensing or collaboration arrangements.
To the extent that we raise additional capital through the sale of equity or convertible debt, the ownership interests of our stockholders will be diluted. In addition, the terms of any equity or convertible debt we agree to issue may include liquidation or other preferences that adversely affect the rights of our stockholders. Convertible debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, and declaring dividends, and may impose limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business.
Further, additional funds may not be available when we need them on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timely basis, we may be required to curtail or cease our operations. Raising additional funding through debt or equity financing is likely to be difficult or unavailable altogether given the early stage of our technology and any drug candidates we identify. Furthermore, the issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price of our common stock to decline further and existing stockholders may not agree with our financing plans or the terms of such financings.
Clinical drug development involves a lengthy and expensive process with uncertain timelines and uncertain outcomes, and results of earlier studies and trials may not be predictive of future results.
Before obtaining marketing approval from regulatory authorities for the sale of any drug candidates we identify, any such drug candidates must undergo extensive clinical trials to demonstrate the safety and efficacy of the drug candidates in humans. Human clinical testing is expensive and can take many years to complete, and we cannot be certain that any clinical trials will be conducted as planned or completed on schedule, if at all. We may elect to complete this testing, or some portion thereof, internally or enter into a partnering or development agreement with a pharmaceutical company to complete these trials. Our inability, or the inability of any third party with whom we enter into a partnering or development agreement, to successfully complete preclinical and clinical development could result in additional costs to us and negatively impact our ability to generate revenues or receive development or milestone payments. Our future success is dependent on our ability, or the ability of any pharmaceutical company with whom we enter into a partnering or development agreement, to successfully develop, obtain regulatory approval for, and then successfully commercialize any drug candidates we identify.
Any drug candidates we identify will require additional clinical development, management of clinical, preclinical and manufacturing activities, regulatory approval in applicable jurisdictions, achieving and maintaining commercial-scale supply, building of a commercial organization, substantial investment and significant marketing efforts. We are not permitted to market or promote any of our drug candidates before we receive regulatory approval from the U.S. Food and Drug Administration (“FDA”) or comparable foreign regulatory authorities, and we may never receive such regulatory approval for any of our drug candidates.
We, or any third party with whom we enter into a partnering or development agreement, may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to earn development or milestone payments or for any drug candidates to obtain regulatory approval, including:
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delays in or failure to reach agreement on acceptable terms with prospective contract research organizations (“CROs”) and clinical sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;
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failure to obtain sufficient enrollment in clinical trials or participants may fail to complete clinical trials;
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clinical trials of our drug candidates that may produce negative or inconclusive results, and as a result we, or any pharmaceutical company with who we enter into a partnering or development agreement, may decide, or regulators may require, additional clinical trials;
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suspension or termination of clinical research, either by us, any third party with whom we enter into a partnering or development agreement, regulators or institutional review boards, for various reasons, including noncompliance with regulatory requirements or a finding that the participants are being exposed to unacceptable health risks;
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additional or unanticipated clinical trials required by regulators or institutional review boards to obtain approval or any drug candidates may be subject to additional post-marketing testing requirements to maintain regulatory approval;
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regulators may revise the requirements for approving any drug candidates, or such requirements may not be as anticipated;
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the cost of clinical trials for any drug candidates may be greater than anticipated;
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the supply or quality of any drug candidates or other materials necessary to conduct clinical trials of our drug candidates may be insufficient or inadequate or may be delayed;
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regulatory authorities may suspend or withdraw their approval of a product or impose restrictions on its distribution; and
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delays due to the recent COVID-19 pandemic, including with respect to the receipt of drug candidates or other materials, submission of New Drug Applications (“NDAs”), filing of Investigational New Drug (“INDs”), and starting any clinical trials for other indications or programs.
If we, or any third party with whom we enter into a partnering or development agreement, experience delays in the completion of, or termination of, any clinical trial of any drug candidates that we develop, or are unable to achieve clinical endpoints due to unforeseen events, such as the COVID-19 pandemic, the commercial prospects of our drug candidates will be harmed, and our ability to develop milestones, development fees or product revenues from any of these drug candidates will be delayed.
We will rely upon third-party contractors and service providers for the execution of critical aspects of any future development programs. Failure of these collaborators to provide services of a suitable quality and within acceptable timeframes may cause the delay or failure of any future development programs.
We plan to outsource certain functions, tests and services to CROs, medical institutions and collaborators as well as outsource manufacturing to collaborators and/or contract manufacturers, and we will rely on third parties for quality assurance, clinical monitoring, clinical data management and regulatory expertise. We may elect, in the future, to engage a CRO to run all aspects of a clinical trial on our behalf. There is no assurance that such individuals or organizations will be able to provide the functions, tests, biologic supply or services as agreed upon or in a quality fashion and we could suffer significant delays in the development of our drug candidates or development programs.
In some cases, there may be only one or few providers of such services, including clinical data management or manufacturing services. In addition, the cost of such services could be significantly increased over time. We may rely on third parties and collaborators to enroll qualified patients and conduct, supervise and monitor our clinical trials. Our reliance on these third parties and collaborators for clinical development activities reduces our control over these activities. Our reliance on these parties, however, does not relieve us of our regulatory responsibilities, including ensuring that our clinical trials are conducted in accordance with Good Clinical Practice (“GCP”) regulations and the investigational plan and protocols contained in the regulatory agency applications. In addition, these third parties may not complete activities on schedule or may not manufacture under Current Good Manufacturing Practice (“cGMP”) conditions. Preclinical or clinical studies may not be performed or completed in accordance with Good Laboratory Practices (“GLP”) regulatory requirements or our trial design. If these third parties or collaborators do not successfully carry out their contractual duties or meet expected deadlines, obtaining regulatory approval for manufacturing and commercialization of our drug candidates may be delayed or prevented. We may rely substantially on third-party data managers for our clinical trial data. There is no assurance that these third parties will not make errors in the design, management or retention of our data or data systems. There is no assurance these third parties will pass FDA or regulatory audits, which could delay or prohibit regulatory approval.
In addition, we will exercise limited control over our third-party partners and vendors, which makes us vulnerable to any errors, interruptions or delays in their operations. If these third parties experience any service disruptions, financial distress or other business disruption, or difficulties meeting our requirements or standards, it could make it difficult for us to operate some aspects of our business.
The near and long-term viability of our drug discovery and development efforts will depend on our ability to successfully establish strategic relationships.
The near and long-term viability of our drug discovery and development efforts depend in part on our ability to successfully establish new strategic partnering, collaboration and licensing arrangements with biotechnology companies, pharmaceutical companies, universities, hospitals, insurance companies and or government agencies. Establishing strategic relationships is difficult and time-consuming. Potential partners and collaborators may not enter into relationships with us based upon their assessment of our technology or drug candidates or our financial, regulatory or intellectual property position. If we fail to establish a sufficient number of strategic relationships on acceptable terms, we may not be able to develop and obtain regulatory approval for our drug candidates or generate sufficient revenue to fund further research and development efforts. Even if we establish new strategic relationships, these relationships may never result in the successful development or regulatory approval for any drug candidates we identify for a number of reasons both within and outside of our control.
Risks Related to Government Regulation
In the past, we have used hazardous chemicals, biological materials and infectious agents in our business. Any claims relating to improper handling, storage or disposal of these materials could be time consuming and costly.
Our product manufacturing, research and development, and testing activities have involved the controlled use of hazardous materials, including chemicals, biological materials and infectious disease agents. We cannot eliminate the risks of accidental contamination or the accidental spread or discharge of these materials, or any resulting injury from such an event. We may be sued for any injury or contamination that results from our use or the use by third parties of these materials, and our liability may exceed our insurance coverage and our total assets. Federal, state and local laws and regulations govern the use, manufacture, storage, handling and disposal of these hazardous materials and specified waste products, as well as the discharge of pollutants into the environment and human health and safety matters. We were also subject to various laws and regulations relating to safe working conditions, laboratory and manufacturing practices, and the experimental use of animals. Our operations may have required that environmental permits and approvals be issued by applicable government agencies. If we failed to comply with these requirements, we could incur substantial costs, including civil or criminal fines and penalties, clean-up costs or capital expenditures for control equipment or operational changes necessary to achieve and maintain compliance.
If we fail to obtain and sustain an adequate level of reimbursement for our potential products by third-party payors, potential future sales would be materially adversely affected.
There will be no viable commercial market for our drug candidates, if approved, without reimbursement from third-party payors. Reimbursement policies may be affected by future healthcare reform measures. We cannot be certain that reimbursement will be available for our current drug candidates or any other drug candidate we may develop. Additionally, even if there is a viable commercial market, if the level of reimbursement is below our expectations, our anticipated revenue and gross margins will be adversely affected.
Third-party payors, such as government or private healthcare insurers, carefully review and increasingly question and challenge the coverage of and the prices charged for drugs. Reimbursement rates from private health insurance companies vary depending on the Company, the insurance plan and other factors. Reimbursement rates may be based on reimbursement levels already set for lower cost drugs and may be incorporated into existing payments for other services. There is a current trend in the U.S. healthcare industry toward cost containment.
Large public and private payors, managed care organizations, group purchasing organizations and similar organizations are exerting increasing influence on decisions regarding the use of, and reimbursement levels for, particular treatments. Such third-party payors, including Medicare, may question the coverage of, and challenge the prices charged for, medical products and services, and many third-party payors limit coverage of or reimbursement for newly approved healthcare products. In particular, third-party payors may limit the covered indications. Cost-control initiatives could decrease the price we might establish for products, which could result in product revenues being lower than anticipated. We believe our drugs will be priced significantly higher than existing generic drugs and consistent with current branded drugs. If we are unable to show a significant benefit relative to existing generic drugs, Medicare, Medicaid and private payors may not be willing to provide reimbursement for our drugs, which would significantly reduce the likelihood of our products gaining market acceptance.
We expect that private insurers will consider the efficacy, cost-effectiveness, safety and tolerability of our potential products in determining whether to approve reimbursement for such products and at what level. Obtaining these approvals can be a time consuming and expensive process. Our business, financial condition and results of operations would be materially adversely affected if we do not receive approval for reimbursement of our potential products from private insurers on a timely or satisfactory basis. Limitations on coverage could also be imposed at the local Medicare carrier level or by fiscal intermediaries. Medicare Part D, which provides a pharmacy benefit to Medicare patients as discussed below, does not require participating prescription drug plans to cover all drugs within a class of products. Our business, financial condition and results of operations could be materially adversely affected if Part D prescription drug plans were to limit access to, or deny or limit reimbursement of, our drug candidates or other potential products.
Reimbursement systems in international markets vary significantly by country and by region, and reimbursement approvals must be obtained on a country-by-country basis. In many countries, the product cannot be commercially launched until reimbursement is approved. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. The negotiation process in some countries can exceed 12 months. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our products to other available therapies.
If the prices for our potential products are reduced or if governmental and other third-party payors do not provide adequate coverage and reimbursement of our drugs, our future revenue, cash flows and prospects for profitability will suffer.
Current and future legislation may increase the difficulty and cost of commercializing our drug candidates and may affect the prices we may obtain if our drug candidates are approved for commercialization.
In the U.S. and some foreign jurisdictions, there have been a number of adopted and proposed legislative and regulatory changes regarding the healthcare system that could prevent or delay regulatory approval of our drug candidates, restrict or regulate post-marketing activities and affect our ability to profitably sell any of our drug candidates for which we obtain regulatory approval.
In the U.S., the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (“MMA”) changed the way Medicare covers and pays for pharmaceutical products. Cost reduction initiatives and other provisions of this legislation could limit the coverage and reimbursement rate that we receive for any of our approved products. While the MMA only applies to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates. Therefore, any reduction in reimbursement that results from the MMA may result in a similar reduction in payments from private payors.
In March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively the “PPACA”), was enacted. The PPACA was intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against healthcare fraud and abuse, add new transparency requirements for healthcare and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms. The PPACA increased manufacturers’ rebate liability under the Medicaid Drug Rebate Program by increasing the minimum rebate amount for both branded and generic drugs and revised the definition of “average manufacturer price”, which may also increase the amount of Medicaid drug rebates manufacturers are required to pay to states. The legislation also expanded Medicaid drug rebates and created an alternative rebate formula for certain new formulations of certain existing products that is intended to increase the rebates due on those drugs. The Centers for Medicare & Medicaid Services (“CMS”), which administers the Medicaid Drug Rebate Program, also has proposed to expand Medicaid rebates to the utilization that occurs in the territories of the U.S., such as Puerto Rico and the Virgin Islands. Further, beginning in 2011, the PPACA imposed a significant annual fee on companies that manufacture or import branded prescription drug products and required manufacturers to provide a 50% discount off the negotiated price of prescriptions filled by beneficiaries in the Medicare Part D coverage gap, referred to as the “donut hole.” Legislative and regulatory proposals have been introduced at both the state and federal level to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products.
There have been public announcements by members of the U.S. Congress, regarding plans to repeal and replace the PPACA and Medicare. For example, on December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act of 2017, which, among other things, eliminated the individual mandate requiring most Americans (other than those who qualify for a hardship exemption) to carry a minimum level of health coverage, effective January 1, 2019. On December 14, 2018, a U.S. District Court Judge in the Northern District of Texas, or the Texas District Court Judge, ruled that the individual mandate is a critical and inseverable feature of the PPACA, and therefore, because it was repealed as part of the Tax Cuts and Jobs Act of 2017, the remaining provisions of the PPACA are invalid as well. On December 18, 2019, the U.S. Court of Appeals for the Fifth Circuit upheld the District Court’s ruling with respect to the individual mandate but remanded the case to the District Court to consider whether other parts of the law can remain in effect. While the Texas District Court Judge has stated that the ruling will have no immediate effect, it is unclear how this decision, subsequent appeals, and other efforts to repeal and replace the PPACA will impact the law and our business. We are not sure whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our drug candidates, if any, may be. In addition, increased scrutiny by the U.S. Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing approval testing and other requirements.
Moreover, payment methodologies may be subject to changes in healthcare legislation and regulatory initiatives. For example, CMS may develop new payment and delivery models, such as bundled payment models. In addition, there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which has resulted in several U.S. Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to drug pricing, reduce the cost of prescription drugs under government payor programs, and review the relationship between pricing and manufacturer patient programs. The U.S. Department of Health and Human Services has started soliciting feedback on some of these measures and, at the same time, is implementing others under its existing authority. For example, in May 2019, CMS issued a final rule to allow Medicare Advantage Plans the option of using step therapy for Part B drugs beginning January 1, 2020. This final rule codified CMS’s policy change that was effective January 1, 2019. While any proposed measures will require authorization through additional legislation to become effective, Congress has indicated that it will continue to seek new legislative and/or administrative measures to control drug costs. We expect that additional U.S. federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that the U.S. federal government will pay for healthcare products and services, which could result in reduced demand for our drug candidates, if approved for commercialization.
In Europe, the United Kingdom formally withdrew from the European Union on January 31, 2020, and entered into a transition period that ended on December 31, 2020. A significant portion of the regulatory framework in the United Kingdom is derived from the
regulations of the European Union. We cannot predict what consequences the recent withdrawal of the United Kingdom from the European Union will have on the regulatory frameworks of the United Kingdom or the European Union, or on our future operations, if any, in these jurisdictions, and the United Kingdom is in the process of negotiating trade deals with other countries. Additionally, the United Kingdom’s withdrawal from the European Union may increase the possibility that other countries may decide to leave the European Union again.
Risks Related to Our Capital Requirements, Finances and Operations
We may be unable to continue as a going concern in the future.
We have had recurring losses from operations since inception and will likely not generate meaningful revenue for the foreseeable future. We believe that our existing cash, cash equivalents and interest thereon will be sufficient to fund our projected operating requirements under our current operating plan for at least the next 12 months. However, if our operating plans change and our projected operating requirements increase, we may be unable to continue as a going concern. In this event, the perception that we may not be able to continue as a going concern may have an adverse impact on our business due to concerns about our ability to meet our future contractual obligations or pursue additional strategic transactions. Further, if we are unable to continue as a going concern, we may have to liquidate our assets, and the values we receive for our assets in liquidation and dissolution could be significantly lower than the values reflected in our financial statements and an investor could lose all or part of its investment in our equity.
Additional funds may not be available when we need them on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timely basis, we may be required to curtail or cease our operations.
There can be no assurance that we will be able to raise sufficient additional capital on acceptable terms or at all. Raising additional funding through debt or equity financing is likely to be difficult or unavailable altogether given the early stage of our therapeutic candidates. If such additional financing is not available on satisfactory terms, or is not available in sufficient amounts, we may be required to delay, limit or eliminate the development of business opportunities and our ability to achieve our business objectives, our competitiveness, and our business, financial condition and results of operations will be materially adversely affected. If we raise additional funds through the issuance of additional debt or equity securities, it could result in dilution to our existing stockholders, increased fixed payment obligations and the existence of securities with rights that may be senior to those of our common stock. If we incur indebtedness, we could become subject to covenants that would restrict our operations and potentially impair our competitiveness, such as limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. Any of these events could significantly harm our business, financial condition and prospects. Furthermore, the issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price of our common stock to decline further and existing stockholders may not agree with our financing plans or the terms of such financings. In addition, if we seek funds through arrangements with collaborative partners, these arrangements may require us to relinquish rights to our technology or potential future product candidates or otherwise agree to terms unfavorable to us.
We have a history of operating losses and expect to incur significant additional operating losses.
We have generated operating losses each year since we began operations, including $16.8 million and $21.5 million for the years ended March 31, 2021 and 2020, respectively. As of March 31, 2021, we had an accumulated deficit of $296.3 million. We expect to incur substantial additional operating losses over the next several years as our research and development activities increase.
The amount of future losses and when, if ever, we will achieve profitability are uncertain. Our ability to generate revenue and achieve profitability will depend on, among other things:
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successfully developing human tissues and disease models for drug discovery and development that enable us to identify drug candidates;
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successfully outsourcing certain portions of our development efforts;
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entering into collaboration or licensing arrangements with pharmaceutical companies to further develop and conduct clinical trials for any drug candidates we identify;
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obtaining any necessary regulatory approvals for any drug candidates we identify; and
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raising sufficient funds to finance our activities and long-term business plan.
We might not succeed at any of these undertakings. If we are unsuccessful at one or more of these undertakings, our business, prospects, and results of operations will be materially adversely affected. We may never generate significant revenue, and even if we do generate significant revenue, we may never achieve profitability.
Our quarterly operating results may vary, which could negatively affect the market price of our common stock.
Our results of operations in any quarter may vary from quarter to quarter and are influenced by such factors as expenses related to:
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evaluating and implementing strategic alternatives, technology licensing opportunities, potential collaborations, and other strategic transactions;
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responding to the U.S. Securities and Exchange Commission (“SEC”) inquiries regarding certain of our prior disclosures and related operations;
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litigation;
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research and development expenditures, including commencement of preclinical studies and clinical trials;
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the timing of the hiring of new employees, which may require payments of signing, retention or similar bonuses; and
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changes in costs related to the COVID-19 pandemic or the general global economy.
We believe that operating results for any particular quarter are not necessarily a meaningful indication of future results. Nonetheless, fluctuations in our quarterly operating results could negatively affect the market price of our common stock.
We may identify material weaknesses in the future that may cause us to fail to meet our reporting obligations or result in material misstatements of our financial statements.
Our management team is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with U.S. generally accepted accounting principles. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected on a timely basis.
We cannot assure you that we will not have material weaknesses or significant deficiencies in our internal control over financial reporting. If we identify any material weaknesses or significant deficiencies that may exist, the accuracy and timing of our financial reporting may be adversely affected, we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports in addition to applicable stock exchange listing requirements, and our stock price may decline materially as a result.
Future strategic investments could negatively affect our business, financial condition and results of operations if we fail to achieve the desired returns on our investment.
Our ability to benefit from future external strategic investments depends on our ability to successfully conduct due diligence, evaluate prospective opportunities, and buy the equity of our target investments at acceptable market prices. Our failure in any of these tasks could result in unforeseen loses associated with the strategic investments.
We may also discover deficiencies in internal controls, data adequacy and integrity, product quality, regulatory compliance, product liabilities or other undisclosed liabilities that we did not uncover prior to our investment, which could result in us becoming subject asset impairments, including potential loss of our investment capital. In addition, if we do not achieve the anticipated benefits of an external investment as rapidly as expected, or at all, investors or analysts may downgrade our stock.
We also expect to continue to carry out strategic investments that we believe are necessary to expand our business. There are no assurances that such initiatives will yield favorable results for us. Accordingly, if these initiatives are not successful, our business, financial condition and results of operations could be adversely affected. If these risks materialize, our stock price could be materially adversely affected. Any difficulties in such investments could have a material adverse effect on our business, financial condition and results of operations.
Our business could be adversely impacted if we are unable to retain our executive officers and other key personnel.
Our future success will depend to a significant degree upon the continued contributions of our key personnel, especially our executive officers. We do not currently have long-term employment agreements with our executive officers or our other key personnel, and there is no guarantee that our executive officers or key personnel will remain employed with us. Moreover, we have not obtained key man life insurance that would provide us with proceeds in the event of the death, disability or incapacity of any of our executive officers or other key personnel. Further, the process of attracting and retaining suitable replacements for any executive officers and other key personnel we lose in the future would result in transition costs and would divert the attention of other members of our senior
management from our existing operations. Additionally, such a loss could be negatively perceived in the capital markets. Finally, certain of our executives also provide services to Viscient Biosciences, Inc. (“Viscient”). Executives that provide services to us and Viscient do not dedicate all of their time to us, as disclosed in our filings, and we may therefore compete with Viscient for the time commitments of our executive officers from time to time.
We may be subject to security breaches or other cybersecurity incidents that could compromise our information and expose us to liability.
We routinely collect and store sensitive data (such as intellectual property, proprietary business information and personally identifiable information) for ourselves, our employees and our suppliers and customers. We make significant efforts to maintain the security and integrity of our computer systems and networks and to protect this information. However, like other companies in our industry, our networks and infrastructure may be vulnerable to cyber-attacks or intrusions, including by computer hackers, foreign governments, foreign companies or competitors, or may be breached by employee error, malfeasance or other disruption. Any such breach could result in unauthorized access to (or disclosure of) sensitive, proprietary or confidential information of ours, our employees or our suppliers or customers, and/or loss or damage to our data. Any such unauthorized access, disclosure, or loss of information could cause competitive harm, result in legal claims or proceedings, liability under laws that protect the privacy of personal information, and/or cause reputational harm.
We may experience conflicts of interest with Viscient Biosciences, Inc. with respect to business opportunities and other matters.
Keith Murphy, our Executive Chairman, is the Chief Executive Officer, Chairman and principal stockholder of Viscient, a private company that he founded in 2017 that is focused on drug discovery and development utilizing 3D tissue technology and multi-omics (genomics, transcriptomics, metabolomics). Jeffrey N. Miner, our Chief Scientific Officer, is a co-founder, the Chief Scientific Officer and a significant stockholder of Viscient, and Thomas Einar Jurgensen, our General Counsel, also serves as outside counsel to Viscient. In addition, Adam Stern, Douglas Jay Cohen and David Gobel (through the Methuselah Foundation and the Methuselah Fund), members of our Board, have invested funds through a convertible promissory note in Viscient, but do not serve as an employee, officer or director of Viscient. Additional members of our Research and Development organization also work at Viscient, and we expect that additional employees or consultants of ours will also be employees of or consultants to Viscient. We also expect to share certain facilities and equipment with Viscient. During fiscal 2020, we provided services to Viscient, and Viscient has previously purchased primary human cell-based products from our former subsidiary, Samsara Sciences, Inc. We expect to continue to provide services to Viscient and enter into additional agreements with Viscient in the future.
In addition, we license, as well as cross-license, certain intellectual property to and from Viscient and expect to continue to do so in the future. In particular, pursuant to an Asset Purchase and Non-Exclusive Patent License Agreement with Viscient, dated November 6, 2019, as amended, we have provided a paid up, worldwide, irrevocable, perpetual, non-exclusive license to Viscient under certain of our patents and know-how to (a) make, have made, use, sell offer to sell, import and otherwise exploit the inventions and subject matter covered by certain patents regarding certain bioprinter devices and bioprinting methods, engineered liver tissues, engineered renal tissues, engineered intestinal tissue and engineered tissue for in vitro research use, (b) to use and internally repair the bioprinters, and (c) to make additional bioprinters for internal use only in connection with drug discovery and development research, target identification and validation, compound screening, preclinical safety, absorption, distribution, metabolism, excretion and toxicology (ADMET) studies, and in vitro research to complement clinical development of a therapeutic compound. Although we have entered, and expect to enter, into agreements and arrangements that we believe appropriately govern the ownership of intellectual property created by joint employees or consultants of Viscient and/or using our or Viscient’s facilities or equipment, it is possible that we may disagree with Viscient as to the ownership of intellectual property created by shared employees or consultants, or using shared equipment or facilities.
On December 28, 2020, we entered into an intercompany agreement with Viscient and Organovo, Inc., our wholly-owned subsidiary (the “Intercompany Agreement”). Pursuant to the Intercompany Agreement, we 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 us 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, Viscient and we each agreed to share certain facilities and equipment and, subject to further agreement, to each make certain employees available for specified projects to the other party at prices to be determined in good faith by the parties. Under the Intercompany Agreement, each party will retain its own prior intellectual property.
Due to the interrelated nature of Viscient with us, conflicts of interest may arise with respect to transactions involving business dealings between us and Viscient, potential acquisitions of businesses or products, the development and ownership of technologies and products, the sale of products, markets and other matters in which our best interests and the best interests of our stockholders may conflict with the best interests of the stockholders of Viscient. In addition, we and Viscient may disagree regarding the interpretation of certain terms of the arrangements we previously entered into with Viscient or may enter into in the future. We cannot guarantee that any conflict of interest will be resolved in our favor, or that, with respect to our transactions with Viscient, we will negotiate terms that
are as favorable to us as if such transactions were with another third-party. In addition, executives that provide services to us and Viscient may not dedicate all of their time to us and we may therefore compete with Viscient for the time commitments of our executive officers from time to time.
Risks Related to Our Common Stock and Liquidity Risks
We could fail to maintain the listing of our common stock on the Nasdaq Capital Market, which could seriously harm the liquidity of our stock and our ability to raise capital or complete a strategic transaction.
The Nasdaq Stock Market LLC (“Nasdaq”) has established continued listing requirements, including a requirement to maintain a minimum closing bid price of at least $1 per share. If a company trades for 30 consecutive business days below such minimum closing bid price, it will receive a deficiency notice from Nasdaq. Assuming it is in compliance with the other continued listing requirements, Nasdaq would provide such company a period of 180 calendar days in which to regain compliance by maintaining a closing bid price at least $1 per share for a minimum of ten consecutive business days.
On June 25, 2019, we received a notice letter from the Listing Qualifications Staff of Nasdaq indicating that, based upon the closing bid price of our common stock for the last 30 consecutive business days, we no longer met the requirement to maintain a minimum closing bid price of $1 per share, as set forth in Nasdaq Listing Rule 5450(a)(1). On December 26, 2019, we obtained an additional compliance period of 180 calendar days by electing to transfer to the Nasdaq Capital Market to take advantage of the additional compliance period offered on that market. To qualify, we would be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for the Nasdaq Capital Market. On March 26, 2020, we obtained shareholder approval to effect a reverse stock split in a range from 20:1 to 40:1. On April 17, 2020, we received an additional notice letter from Nasdaq indicating that based on extraordinary market conditions, Nasdaq has determined to toll the compliance periods for bid price and market value of publicly held shares requirements through June 30, 2020. Accordingly, since we had 66 calendar days remaining in, the compliance period as of April 16, 2020, we had until September 4, 2020 to regain compliance. On August 18, 2020, we effected a 1-for-20 reverse stock split of our common stock, and on September 2, 2020, we received notification from Nasdaq that the closing bid price of our common stock had been at $1.00 per share or greater for ten consecutive business days. However, there can be no assurance that we will maintain compliance with the minimum bid price requirement or other listing requirements necessary for us to maintain the listing of our common stock on the Nasdaq Capital Market.
A delisting from the Nasdaq Capital Market and commencement of trading on the OTCBB would likely result in a reduction in some or all of the following, each of which could have a material adverse effect on stockholders:
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the liquidity of our common stock;
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the market price of our common stock (and the accompanying valuation of our Company);
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our ability to obtain financing or complete a strategic transaction;
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the number of institutional and other investors that will consider investing in shares of our common stock;
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the number of market markers or broker-dealers for our common stock; and
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the availability of information concerning the trading prices and volume of shares of our common stock.
Our two largest shareholders have significant influence over key decision making as a result of their concentrated ownership of the voting power of our outstanding capital stock.
Our two largest shareholders, ARK Investment Management LLC (“ARK”) and Nikko Asset Management Americas, Inc. (“Nikko”), own approximately 9.48% and 7.11%, respectively, of our outstanding stock and are able to exercise sufficient voting rights to significantly influence the outcome of matters submitted to our stockholders for approval, including the election of directors and any merger, consolidation, sale of all or substantially all of our assets, or liquidation or dissolution. These concentrated positions could delay, defer, or prevent a change of control, merger, consolidation, or sale of all or substantially all of our assets, or liquidation or dissolution that a substantial portion of our other stockholders support, or conversely this significant influence could potentially result in the consummation of such a transaction or liquidation that a substantial portion of our other stockholders do not support. This significant influence could also discourage a potential investor from acquiring our common stock or a potential counterparty from entering into negotiations about a potential strategic transaction and might harm the trading price of our common stock. As stockholders, even with significant influence, ARK and Nikko are entitled to vote their shares in their own interests, which may not always be in the interests of our stockholders generally.
There is no assurance that an active market in our common stock will continue at present levels or increase in the future.
Our common stock is currently traded on the Nasdaq Capital Market, but there is no assurance that an active market in our common stock will continue at present levels or increase in the future. As a result, an investor may find it difficult to dispose of our common stock on the timeline and at the volumes they desire. This factor limits the liquidity of our common stock and may have a material adverse effect on the market price of our common stock and on our ability to raise additional capital.
The price of our common stock may continue to be volatile, which could lead to losses by investors and costly securities litigation.
The trading price of our common stock is likely to be highly volatile and could fluctuate in response to factors such as:
•
announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;
•
continued macroeconomic conditions related to the COVID-19 pandemic;
•
our ability to execute on our new strategic plan;
•
reduced government funding for research and development activities;
•
actual or anticipated variations in our operating results;
•
adoption of new accounting standards affecting our industry;
•
additions or departures of key personnel;
•
sales of our common stock or other securities in the open market;
•
degree of coverage of securities analysts and reports and recommendations issued by securities analysts regarding our business;
•
volume fluctuations in the trading of our common stock; and
•
other events or factors, many of which are beyond our control.
The stock market is subject to significant price and volume fluctuations. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been initiated against such a company. Litigation initiated against us, whether or not successful, could result in substantial costs and diversion of our management’s attention and resources, which could harm our business and financial condition.
Investors may experience dilution of their ownership interests because of the future issuance of additional shares of our capital stock.
We are authorized to issue 200,000,000 shares of common stock and 25,000,000 shares of preferred stock. As of March 31, 2021, there were an aggregate of 9,831,627 shares of our common stock issued and outstanding and available for issuance on a fully diluted basis and no shares of preferred stock outstanding. That total for our common stock includes 1,101,700 shares of our common stock that may be issued upon the vesting of restricted stock units, the exercise of outstanding stock options, or is available for issuance under our equity incentive plans, and 59,435 shares of common stock that may be issued through our Employee Stock Purchase Plan (“ESPP”).
In the future, we may issue additional authorized but previously unissued equity securities to raise funds to support our continued operations and to implement our business plan. We may also issue additional shares of our capital stock or other securities that are convertible into or exercisable for our capital stock in connection with hiring or retaining employees, future acquisitions, or for other business purposes. If we raise additional funds from the issuance of equity securities, substantial dilution to our existing stockholders may result. In addition, the future issuance of any such additional shares of capital stock may create downward pressure on the trading price of our common stock. There can be no assurance that we will not be required to issue additional shares, warrants or other convertible securities in the future in conjunction with any capital raising efforts, including at a price (or exercise prices) below the price at which shares of our common stock is currently traded on the Nasdaq Capital Market. Moreover, depending on market conditions, we cannot be sure that additional financing will be available when needed or that, if available, financing will be obtained on terms favorable to us or to our stockholders.
We do not intend to pay dividends for the foreseeable future.
We have paid no dividends on our common stock to date and it is not anticipated that any dividends will be paid to holders of our common stock in the foreseeable future. While our future dividend policy will be based on the operating results and capital needs of our business, it is currently anticipated that any earnings will be retained to finance our future expansion and for the implementation of our business plan. As an investor, you should take note of the fact that a lack of a dividend can further affect the market value of our stock and could significantly affect the value of any investment.
Anti-takeover provisions in our organizational documents and Delaware law may discourage or prevent a change of control, even if an acquisition would be beneficial to our stockholders, which could affect our stock price adversely and prevent attempts by our stockholders to replace or remove our current management.
Our Certificate of Incorporation, as amended (“Certificate of Incorporation”), and Bylaws, as amended (“Bylaws”) contain provisions that could delay or prevent a change of control of our company or changes in our board of directors that our stockholders might consider favorable. Some of these provisions:
•
authorize the issuance of preferred stock which can be created and issued by our board of directors without prior stockholder approval, with rights senior to those of the common stock;
•
provide for a classified board of directors, with each director serving a staggered three-year term;
•
provide that each director may be removed by the stockholders only for cause;
•
prohibit our stockholders from filling board vacancies, calling special stockholder meetings, or taking action by written consent; and
•
require advance written notice of stockholder proposals and director nominations.
In addition, we are subject to the provisions of Section 203 of the Delaware General Corporation Law, which may prohibit certain business combinations with stockholders owning 15% or more of our outstanding voting stock. These and other provisions in our Certificate of Incorporation, Bylaws and Delaware law could make it more difficult for stockholders or potential acquirers to obtain control of our board of directors or initiate actions that are opposed by our then-current board of directors, including delaying or impeding a merger, tender offer, or proxy contest involving our company. Any delay or prevention of a change of control transaction or changes in our board of directors could cause the market price of our common stock to decline.
Risks Related to Our Intellectual Property
If we are not able to adequately protect our proprietary rights, our business could be harmed.
Our success will depend to a significant extent on our ability to obtain patents and maintain adequate protection for our technologies, intellectual property and products and service offerings in the United States and other countries. If we do not protect our intellectual property adequately, competitors may be able to use our technologies and gain a competitive advantage.
To protect our products and technologies, we, and our collaborators and licensors, must prosecute and maintain existing patents, obtain new patents and pursue other intellectual property protection. Our existing patents and any future patents we obtain may not be sufficiently broad to prevent others from using our technologies or from developing competing products and technologies. Moreover, the patent positions of many biotechnology and pharmaceutical companies are highly uncertain, involve complex legal and factual questions and have in recent years been the subject of much litigation. As a result, we cannot guarantee that:
•
any patent applications filed by us will issue as patents;
•
third parties will not challenge our proprietary rights, and if challenged that a court or an administrative board of a patent office will hold that our patents are valid and enforceable;
•
third parties will not independently develop similar or alternative technologies or duplicate any of our technologies by inventing around our claims;
•
any patents issued to us will cover our technology and products as ultimately developed;
•
we will develop additional proprietary technologies that are patentable;
•
the patents of others will not have an adverse effect on our business; or
•
as issued patents expire, we will not lose some competitive advantage.
As previously disclosed, we have recommenced certain historical operations and are now focusing our future efforts on developing highly customized 3D human tissues as living, dynamic models for healthy and diseased human biology for drug development. Previously, we focused our efforts on developing our in vivo liver tissues to treat end-stage liver disease and a select group of life-threatening, orphan diseases, for which there were limited treatment options other than organ transplant. We also explored the development of other potential pipeline in vivo tissue constructs. As we focus our business on developing highly customized 3D human tissues, we may sell, discontinue, adjust or abandon certain patents and patent applications relating to our historical operations. There can be no assurance that we will be successful at such efforts or sell or otherwise monetize such assets on acceptable terms, if at all. There is also no guarantee that our remaining patents will be sufficiently broad to prevent others from using our technologies or from developing competing products and technologies.
We may not be able to protect our intellectual property rights throughout the world.
Certain foreign jurisdictions have an absolute requirement of novelty that renders any public disclosure of an invention immediately fatal to patentability in such jurisdictions. Therefore, there is a risk that we may not be able to protect some of our intellectual property in the United States or abroad due to disclosures, which we may not be aware of, by our collaborators or licensors. Some foreign jurisdictions prohibit certain types of patent claims, such as “method-of-treatment/use-type” claims; thus, the scope of protection available to us in such jurisdictions is limited.
Moreover, filing, prosecuting and defending patents on all of our potential products and technologies throughout the world would be prohibitively expensive. Competitors may use our technologies in jurisdictions where we have not sought or obtained patent protection to develop their own products and further, may export otherwise infringing products to territories where we have patent protection, but where enforcement is not as strong as that in the United States. These products may compete with our future products in jurisdictions where we do not have any issued patents and our patent claims or other intellectual property rights may not be effective or sufficient to prevent them from competing.
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to biopharmaceuticals, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business.
Patents covering our products could be found invalid or unenforceable if challenged in court or before administrative bodies in the United States or abroad.
The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our patents may be challenged in the courts or patent offices in the United States and abroad. We may be subject to a third-party preissuance submission of prior art to the U.S. Patent and Trademark Office (the “USPTO”), or become involved in opposition, derivation, revocation, reexamination, post-grant and inter partes review (“IPR”), or interference proceedings or other similar proceedings challenging our patent rights. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate or render unenforceable, our patent rights, allow third parties to commercialize our technology or products and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize products without infringing third-party patent rights. Moreover, we may have to participate in interference proceedings declared by the USPTO to determine priority of invention or in post-grant challenge proceedings, such as oppositions in a foreign patent office, that challenge our priority of invention or other features of patentability with respect to our patents and patent applications. Such challenges may result in loss of patent rights, in loss of exclusivity or in patent claims being narrowed, invalidated or held unenforceable, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of our technology or products. Such proceedings also may result in substantial cost and require significant time from our scientists and management, even if the eventual outcome is favorable to us.
For example, in June 2021, Cellink AB filed petitions for IPR at the USPTO’s Patent Trial and Appeal Board (the “PTAB”) of U.S. Pat. Nos. 9,855,369 and 9,149,952 (the “IPR Patents”), two of our issued U.S. patents that relate to our current bioprinter technology. The PTAB may determine to institute IPR proceedings for one or both patents. Although all claims of the IPR Patents remain valid and enforceable until the PTAB makes its rulings and any appeals of such rulings have been exhausted, if we are unsuccessful in the IPR proceedings, in whole or in part, we may lose our IPR patents or the scope of these patents may be narrowed, which could limit our ability to stop others from using or commercializing products and technology similar or identical to ours. In addition, the cost to us of the IPR proceedings or other proceedings, even if resolved in our favor, could be substantial. Also in June 2021, Cellink AB and its subsidiaries Cellink LLC, Mattek Corporation, and Visikol, Inc. filed a declaratory judgment complaint against us in the United States District Court for the District of Delaware (The “Action”). Under the Action, the Cellink AB and the other plaintiffs assert claims for declaratory judgments of non-infringement of U.S. Patent Nos. 9,149,952, 9,855,369, 8,931,880, 9,227,339 and 9,315,043 (all assigned to Organovo, Inc.) and U.S. Patent Nos. 7,051,654 and 9,752,116 (assigned to Clemson University and the University of Missouri, respectively).
Some of our competitors, including Cellink AB, may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their substantially greater financial resources. Patent litigation and other proceedings may also absorb significant management time. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could impair our ability to compete in the marketplace. The occurrence of any of the foregoing could have a material adverse effect on our business, financial condition or results of operations. We may become involved in lawsuits to protect or enforce our inventions, patents or other intellectual property or the patents of our licensors, which could be expensive and time consuming.
In addition, if we initiate legal proceedings against a third party to enforce a patent covering our products, the defendant could counterclaim that such patent is invalid or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness, or non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO or made a misleading statement during prosecution. Third parties may also raise claims challenging the validity or enforceability of our patents before administrative bodies in the United States or abroad, even outside the context of litigation, including through re-examination, post-grant review, IPR, interference proceedings, derivation proceedings and equivalent proceedings in foreign jurisdictions (e.g., opposition proceedings). Such proceedings could result in the revocation of, cancellation of or amendment to our patents in such a way that they no longer cover our products. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to the validity question, for example, we cannot be certain that there is no invalidating prior art, of which we and the patent examiner were unaware during prosecution. If a third party were to prevail on a legal assertion of invalidity or unenforceability, we would lose at least part, and perhaps all, of the patent protection on our products. Such a loss of patent protection would have a material adverse effect on our business, financial condition, and results of operations.
We may be involved in lawsuits or other proceedings to protect or enforce our patents or the patents of our licensors, which could be expensive, time-consuming and unsuccessful.
Competitors may infringe our patents or the patents of our collaborators or licensors or our licensors may breach or otherwise prematurely terminate the provisions of our license agreements with them. To counter infringement or unauthorized use, we may be required to file infringement claims or lawsuits, which can be expensive and time-consuming. In addition, in an infringement proceeding, a court may decide that a patent of ours or our collaborators or licensors is not valid or is unenforceable or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation or defense proceedings could put one or more of our patents at risk of being invalidated, held unenforceable, or interpreted narrowly and could put our other patent applications at risk of not issuing. Additionally, our licensors may continue to retain certain rights to use technologies licensed by us for research purposes. Patent disputes can take years to resolve, can be very costly and can result in loss of rights, injunctions or substantial penalties. Moreover, patent disputes and related proceedings can distract management’s attention and interfere with running our business.
Furthermore, because of the potential for substantial discovery in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments which could harm our business.
As more companies file patents relating to bioprinters and bioprinted tissues, it is possible that patent claims relating to bioprinters or bioprinted human tissue may be asserted against us. In addition, the drug candidates we pursue may also be pursued by other companies, and it is possible that patent claims relating to such drug candidates may also be asserted against us. Any patent claims asserted against us could harm our business. Moreover, we may face claims from non-practicing entities, which have no relevant product revenue and against whom our own patent portfolio may have no deterrent effect. Any such claims, with or without merit, could be time-consuming to defend, result in costly litigation and diversion of resources, cause product shipment or delays or require us to enter into royalty or license agreements. These licenses may not be available on acceptable terms, or at all. Even if we are successful in defending such claims, infringement and other intellectual property litigation can be expensive and time-consuming to litigate and divert management’s attention from our core business. Any of these events could harm our business significantly.
Our current and future research, development and commercialization activities also must satisfy the obligations under our license agreements. Any disputes arising under our license agreements could be costly and distract our management from the conduct of our business. Moreover, premature termination of a license agreement could have an adverse impact on our business.
In addition to infringement claims against us, if third parties have prepared and filed patent applications in the United States that also claim technology to which we have rights, we may have to participate in interference proceedings in the United States Patent and Trademark Office (“PTO”) to determine the priority of invention and opposition proceedings outside of the United States. An unfavorable outcome could require us to cease using the related technology or to attempt to license rights to it from the prevailing party.
Third parties may also attempt to initiate reexamination, post grant review or inter partes review of our patents or those of our collaborators or licensors in the PTO. We may also become involved in similar opposition proceedings in the European Patent Office or similar offices in other jurisdictions regarding our intellectual property rights with respect to our products and technology.
We depend on license agreements with University of Missouri and Clemson University for rights to use certain patents, pending applications, and know how. Failure to comply with or maintain obligations under these agreements and any related or other termination of these agreements could materially harm our business and prevent us from developing or commercializing new product candidates.
We are party to license agreements with University of Missouri and Clemson University under which we were granted exclusive rights to patents and patent applications that are important to our business and to our ability to develop and commercialize our NovoGen Bioprinters and 3D tissue products fabricated using our NovoGen Bioprinters. Our rights to use these patents and patent applications and employ the inventions claimed in these licensed patents are subject to the continuation of and our compliance with the terms of our license agreements. If we were to breach the terms of these license agreements and the agreements were terminated as a result, our ability to continue to develop and commercialize our NovoGen Bioprinters and 3D tissue products and to operate our business could be adversely impacted.
We may be unable to adequately prevent disclosure of trade secrets and other proprietary information.
In order to protect our proprietary and licensed technology and processes, we rely in part on confidentiality agreements with our corporate partners, employees, consultants, manufacturers, outside scientific collaborators and sponsored researchers and other advisors. These agreements may not effectively prevent disclosure of our confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently discover our trade secrets and proprietary information. Failure to obtain or maintain trade secret protection could adversely affect our competitive business position.
We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties.
We employ or engage individuals who were previously employed at other biopharmaceutical companies. Although we have no knowledge of any such claims against us, we may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise used or disclosed confidential information of our employees’ former employers or other third parties. Litigation may be necessary to defend against these claims. There is no guarantee of success in defending these claims, and even if we are successful, litigation could result in substantial cost and be a distraction to our management and other employees. To date, none of our employees have been subject to such claims.
General Risk Factors
Compliance with the reporting requirements of federal securities laws can be expensive.
We are a public reporting company in the United States, and accordingly, subject to the information and reporting requirements of the Exchange Act and other federal securities laws, including the compliance obligations of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”). The costs of complying with the reporting requirements of the federal securities laws, including preparing and filing annual and quarterly reports and other information with the SEC and furnishing audited reports to stockholders, can be substantial.
If we fail to comply with the rules of Section 404 of the Sarbanes-Oxley Act related to accounting controls and procedures, or, if we discover material weaknesses and deficiencies in our internal control and accounting procedures, we may be subject to sanctions by regulatory authorities and our stock price could decline.
Section 404 of the Sarbanes-Oxley Act (“Section 404”) requires that we evaluate and determine the effectiveness of our internal control over financial reporting. We believe our system and process evaluation and testing comply with the management certification requirements of Section 404. We cannot be certain, however, that we will be able to satisfy the requirements in Section 404 in all future periods. If we are not able to continue to meet the requirements of Section 404 in a timely manner or with adequate compliance, we may be subject to sanctions or investigation by regulatory authorities, such as the SEC or Nasdaq. Any such action could adversely affect our financial results or investors’ confidence in us and could cause our stock price to fall. Moreover, if we are not able to comply with the requirements of Section 404 in a timely manner, or if we identify deficiencies in our internal controls that are deemed to be material weaknesses, we may be required to incur significant additional financial and management resources to achieve compliance.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B. Unresolved Staff Comments.
None.

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ITEM 2. PROPERTIES
Item 2. Properties.
From July 2012 to November 2019, we leased our main facilities at 6275 Nancy Ridge Drive, San Diego, California 92121. Since November 2019, we leased our main facilities at 440 Stevens Avenue, Solana Beach, California 92075. Since November 2020, we leased our temporary lab space for research and development operations at 11585 Sorrento Valley Road, Suite 106, San Diego, CA 92121. Additionally, in November 2020, we entered into a sixty-two month lease agreement for our long term permanent premises, consisting of approximately 8,051 square feet of lab and office space. After certain tenant improvements are made, we expect to commence the lease in the third quarter of fiscal year 2022. See “Note 6. Leases” of the Notes to the Consolidated Financial Statements contained within this Annual Report for a further discussion of properties.

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ITEM 3. LEGAL PROCEEDINGS
Item 3. Legal Proceedings.
In June 2021, Cellink AB filed petitions for IPR at the USPTO’s Patent Trial and Appeal Board (the “PTAB”) of U.S. Pat. Nos. 9,855,369 and 9,149,952 (the “IPR Patents”), for two of our issued U.S. patents that relate to our current bioprinter technology. In an IPR, a petitioner may request that the PTAB consider the validity of issued patent claims on the basis of obviousness or anticipation tied to patents and printed publications. The PTAB may determine to institute IPR proceedings for one or both patents. Any patent claim the PTAB determines to be unpatentable is stricken from the challenged patent.
We may file a preliminary response to Cellink AB’s IPR petition in September 2021. We expect the PTAB to reach a decision in December 2021 whether to institute Cellink AB’s IPRs. If the PTAB decides to institute the IPRs, it will then conduct an administrative trial to determine the patentability of patent claims challenged in the IPRs and a final determination by the PTAB will be issued within 1 year (extendable for good cause by 6 months). If the PTAB declines to institute an IPR as to a challenged claim, the PTAB’s decision is final and non-appealable. If the PTAB decides to institute the IPRs and issues a decision, any party may appeal final written decisions of the PTAB to the U.S. Court of Appeals for the Federal Circuit. All claims of the IPR Patents remain valid and enforceable until the PTAB makes its rulings and any appeals of such rulings have been exhausted.
We cannot predict the ultimate outcome of the IPR proceedings filed by Cellink AB. If we are unsuccessful in the IPR proceedings, in whole or in part, we may lose the IPR Patents or the scope of these patents may be narrowed, which could limit our ability to stop others from using or commercializing products and technologies similar or identical to ours. For more information regarding the risks presented by the IPR proceedings with respect to the IPR Patents, see the section of this Annual Report on Form 10-K entitled “Risk Factors-Risks Related to Our Intellectual Property.”
Also in June 2021, Cellink AB and its subsidiaries Cellink LLC, Mattek Corporation, and Visikol, Inc. filed a declaratory judgment complaint against us in the United States District Court for the District of Delaware (the “Action”). Under the Action, the Cellink Parties assert claims for declaratory judgments of non-infringement of U.S. Patent Nos. 9,149,952, 9,855,369, 8,931,880, 9,227,339 and 9,315,043 (all assigned to Organovo, Inc.) and U.S. Patent Nos. 7,051,654 and 9,752,116 (assigned to Clemson University and the University of Missouri, respectively). We believe the claims asserted in the Action are without merit and intend to vigorously defend against them. However, we cannot predict the ultimate outcome of the Action. If we are unsuccessful in the Action, in whole or in part, the scope of these patents may be narrowed, which could limit our ability to stop others from using or commercializing products and technologies similar or identical to ours. For more information regarding the risks presented by the declaratory judgment proceedings, see the section of this Annual Report on Form 10-K entitled “Risk Factors-Risks Related to Our Intellectual Property.”
Except as set forth above, we are not involved in any material legal proceedings or legal matters at this time. See “Note 7. Commitments and Contingencies” of the Notes to the Consolidated Financial Statements contained within this Annual Report for a further discussion of potential commitments and contingencies related to legal proceedings.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures.
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information for Common Stock
Our common stock is traded on the Nasdaq Capital Market under the symbol “ONVO.”
Holders of Record
As of March 31, 2021, we had 8,670,492 outstanding shares of common stock and approximately 41 holders of record of our common stock. The number of beneficial owners is substantially greater than the number of record holders because a large portion of our common stock is held of record through brokerage firms in “street name.”
Dividend Policy
We have never declared or paid any cash dividends on our common stock. We currently intend to retain all future earnings, if any, for use in our business and do not anticipate paying any cash dividends on our common stock in the foreseeable future.
Recent Sales of Unregistered Securities
None.
Issuer Purchases of Equity Securities
We satisfy certain U.S. federal and state tax withholding obligations due upon the vesting of restricted stock unit awards by automatically withholding from the shares being issued in connection with such award a number of shares of our common stock with an aggregate fair market value on the date of vesting equal to the minimum tax withholding obligations. The following table sets forth information with respect to shares of our common stock repurchased by us to satisfy certain tax withholding obligations during the three months ended March 31, 2021:
(a) Total Number of Shares (or Units) Purchased
(b) Average Price Paid Per Share (or Unit)
January 1, 2021 - January 31, 2021
-
$
-
February 1, 2021 - February 28, 2021
(1)
$
17.17
March 1, 2021 - March 31, 2021
-
$
-
Total
$
17.17
(1)
Represents shares of our common stock withheld from employees for the payment of taxes.
Performance Graph
This performance graph is furnished and shall not be deemed “filed” with the SEC or subject to Section 18 of the Exchange Act, nor shall it be deemed incorporated by reference in any of our filings under the Securities Act of 1933, as amended.
The graph set forth below compares the cumulative total stockholder return data on our common stock with the cumulative return data of (i) the Nasdaq Stock Market Composite Index, and (ii) the Nasdaq Biotechnology Index over the five-year period ending March 31, 2021. This graph assumes the investment of $100 on March 31, 2016 in our common stock and each of the comparative indices and assumes the reinvestment of dividends. No cash dividends have been declared or paid on our common stock.
The comparisons in the graph and related information is not intended to forecast or be indicative of possible future performance of our common stock, and we do not make or endorse any predictions as to future stockholder returns.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Organovo Holdings, Inc.,
the Nasdaq Composite Index, and the Nasdaq Biotechnology Index
*
$100 invested on March 31, 2016 in stock or index, including reinvestment of dividends.
Securities Authorized for Issuance under Equity Compensation Plans
Information about securities authorized for issuance under equity compensation plans is set forth in Part III, Item 12. “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” of this Annual Report.

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ITEM 6. SELECTED FINANCIAL DATA

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following management’s discussion and analysis of financial condition and results of operations should be read in conjunction with our historical consolidated financial statements and the related notes. This management’s discussion and analysis contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Any statements that are not statements of historical fact are forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause our actual results or events to differ materially from those expressed or implied by the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in section Item 1A. “Risk Factors” in this Annual Report. Except as required by applicable law we do not undertake any obligation to update our forward-looking statements to reflect events or circumstances occurring after the date of this Annual Report.
Overview
We are an early-stage biotechnology company that is focusing on building high fidelity, 3D tissues that recapitulate key aspects of human disease. We use these models to identify gene targets capable of modulating the disease phenotype across multiple patients and intend to initiate drug discovery programs around these validated targets. We are initially targeting the intestine and have ongoing 3D tissue development efforts in UC and CD. We intend to add additional tissues/diseases/targets to our portfolio in the coming year. In line with these plans, we are building upon both our external and in-house scientific expertise, which will be essential to our drug development effort.
We use our proprietary technology to build functional 3D human tissues that mimic key aspects of native human tissue composition, architecture, function and disease. Our 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 for selected therapeutic areas.
Our NovoGen Bioprinters® are automated devices that enable the fabrication of 3D living tissues comprised of mammalian cells. We believe that the use of our bioprinting platform as well as complementary 3D technologies will allow us 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 our current focus is on IBD, including CD and UC. We expect to create disease models, leveraging our prior work including the work found in our 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.) Our current understanding of intestinal tissue models and IBD disease models leads us to believe that we can create models that provide greater insight into the biology of these diseases than are generally currently available. Using these disease models, we intend to identify and validate novel therapeutic targets. After finding therapeutic drug targets, we will focus on developing novel small molecule, antibody, or other therapeutic drug candidates to treat the disease, and advance these drug candidates towards an IND and clinical trials.
We expect to broaden our work into additional therapeutic areas over time and are currently exploring specific tissues for development. In our work to identify the areas of interest, we evaluate areas that might be better served with 3D disease models than currently available models as well as the commercial opportunity.
Historical Operations and Strategic Alternatives Process
From early 2018 to August 2019, we focused our efforts on developing our in vivo liver tissues to treat end-stage liver disease and a select group of life-threatening, orphan diseases, for which there are limited treatment options other than organ transplantation. We also explored the development of other potential pipeline in vivo tissue constructs in-house and through collaborations with academic and government researchers. In the past, we also explored the development of in vitro tissues, including proof of concept models of diseased tissues, for use in drug discovery and development.
In August 2019, after a rigorous assessment of our in vivo liver therapeutic tissue program, we concluded that the variability of biological performance and related duration of potential benefits no longer supported an attractive opportunity due to redevelopment challenges and lengthening timelines to compile sufficient data to support an IND filing. As a result, we suspended development of our lead program and all other related in-house pipeline development activities.
Our Board also engaged a financial advisory firm to explore our available strategic alternatives, including evaluating a range of ways to generate value from our technology platform and intellectual property, our commercial and development capabilities, our listing on the Nasdaq Capital Market, and our remaining financial assets. These strategic alternatives included possible mergers and business combinations, sales of part or all of our assets, and licensing and partnering arrangements. We implemented various restructuring steps to manage our resources and extend our cash runway, including reducing commercial activities related to our liver tissues, except for sales of primary human cells out of inventory, negotiating an exit from our long-term facility lease, selling various assets, and reducing our workforce. Additionally, in November 2019, we sold certain inventory and equipment and related proprietary
information held by our wholly-owned subsidiary, Samsara, and as a result of such sale, Samsara ceased its operations and has since been dissolved.
After conducting a diligent and extensive process of evaluating strategic alternatives and identifying and reviewing potential candidates for a strategic acquisition or other transaction, which included the receipt of more than 27 non-binding indications of interest from interested parties and careful evaluation and consideration of those proposals, and following extensive negotiation with Tarveda, on December 13, 2019, we entered into the Merger Agreement. Pursuant to the Merger Agreement, and subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, our wholly-owned merger subsidiary would merge with and into Tarveda, with Tarveda becoming a wholly-owned subsidiary of Organovo and the surviving corporation of the Merger . The Merger Agreement included various conditions to the consummation of the Merger, including approval by our stockholders at the Special Meeting.
At the Special Meeting, the Merger was not approved by our stockholders. As a result, we terminated the Merger Agreement with Tarveda. Pursuant to the terms of the Merger Agreement, we were obligated to reimburse certain of Tarveda’s merger-related expenses not to exceed $300,000, which was offset by Tarveda’s portion of shared expenses incurred by us in fiscal 2020.
The Cooperation Agreement and Advisory Nominees Proposal
Following the Special Meeting and the termination of the Merger Agreement, our Board continued to solicit stockholder feedback regarding our strategic alternatives and how to maximize stockholder value. In response to feedback from our largest stockholder regarding its desire for our Board to consider opportunities in the 3D bioprinting field and suggestion that our Board should speak with Keith Murphy, our founder, stockholder and former Chief Executive Officer and Chairman, for potential business ideas, our Board initiated discussions with Mr. Murphy. Based on these discussions, we entered into the Cooperation Agreement. Under the terms of the Cooperation Agreement, our Board appointed Mr. Murphy and Adam K. Stern to the Board as Class III directors, and two of our existing directors, Richard Maroun and David Shapiro, resigned from our Board and the committees thereof. Our Board also agreed to nominate, recommend, support and solicit proxies for the re-election of Messrs. Murphy and Stern at the 2020 Annual Meeting. Our Board also agreed to nominate, recommend, support and solicit proxies for the Advisory Nominees Proposal at the 2020 Annual Meeting to appoint the Advisory Nominees to our Board. Mr. Murphy identified each of the Advisory Nominees. Our Board approved the appointment of the Advisory Nominees, to be automatically effective immediately following the final adjournment of the 2020 Annual Meeting if the final vote tabulation for the Advisory Nominees Proposal received more votes cast “FOR” than “AGAINST” its approval. In addition, each of our then-current directors (other than Messrs. Murphy and Stern) agreed to resign from our Board immediately following the appointment of the Advisory Nominees. At the 2020 Annual Meeting held on September 15, 2020, our stockholders approved the re-election of Messrs. Murphy and Stern to our Board as Class III directors to hold office until the 2023 Annual Meeting of Stockholders and the final vote tabulation for the Advisory Nominees Proposal received more votes cast “FOR” than “AGAINST” its approval and, accordingly, effective upon the final adjournment of the 2020 Annual Meeting, Ms. Milhous was appointed as a Class I director to hold office until the 2021 Annual Meeting of Stockholders and Messrs. Cohen and Gobel were appointed as Class II directors to hold office until the 2022 Annual Meeting and Carolyn Beaver, Taylor Crouch, Mark Kessel and Kirk Malloy, Ph.D. each resigned as directors. Following the election of the New Director Slate, we have recommenced operations and are now focusing our future efforts on developing highly customized 3D human tissues as living, dynamic models of healthy and diseased human biology for drug development.
COVID-19
In December 2019 a respiratory illness caused by a novel strain of coronavirus, SARS-CoV-2, causing the Coronavirus Disease 2019, also known as COVID-19 emerged. While initially the outbreak was largely concentrated in China, it has since spread globally and been declared a pandemic by the World Health Organization. Global health concerns relating to the COVID-19 pandemic have been weighing on the macroeconomic environment, and the pandemic has significantly increased economic volatility and uncertainty. The pandemic has resulted in government authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter-in-place or stay-at-home orders, and business shutdowns. In 2020, we adapted quickly to COVID-19, instituting universal masking and distancing in the lab and in the offices. We encouraged and enabled remote work whenever possible. We instituted safety check software to monitor symptoms. We have successfully maintained a robust level of progress while ensuring the safety of our employees. As the viral load and variants allow, we intend to carefully return to more typical lab and office work flow.
The extent to which the coronavirus impacts our operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the rise of vaccine-resistant variants, duration of the outbreak, travel bans, restrictions, quarantines, shelter-in-place or stay-at-home orders, and business shutdowns. In particular, the continued COVID-19 pandemic could adversely impact various aspects of our operations, including among others, our ability to raise additional capital, the timing and ability to pursue our revised strategy, given the impact the pandemic may have on the manufacturing and supply chain, sales and marketing and clinical trial operations of potential strategic partners and the ability to advance our research and development activities and pursue development of our pipeline products each of which could have an adverse impact on our business and our financial
results. Our employees and consultants have recently returned to working at our office and lab when necessary and we currently believe our operations have not been negatively impacted by the pandemic.
Critical Accounting Policies, Estimates, and Judgments
Our financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). Any reference in this annual report to applicable guidance is meant to refer to the authoritative accounting principles generally accepted in the United States as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We continually evaluate our estimates and judgments, the most critical of which are those related to stock-based compensation expense. We base our estimates and judgments on historical experience and other factors that we believe to be reasonable under the circumstances. Besides the estimates identified above that are considered critical, we make many other accounting estimates in preparing our financial statements and related disclosures. All estimates, whether or not deemed critical, affect reported amounts of assets, liabilities, revenues and expenses, as well as disclosures of contingent assets and liabilities. These estimates and judgments are also based on historical experience and other factors that are believed to be reasonable under the circumstances. Materially different results can occur as circumstances change and additional information becomes known, even for estimates and judgments that are not deemed critical.
Since March 31, 2020, the significant changes to our critical accounting policies include removing revenue recognition related items. Our significant accounting policies are set forth in “Note 1. Description of Business and Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements contained within this Annual Report. Of those policies, we believe that the policies discussed below may involve a higher degree of judgment and may be more critical to an accurate reflection of our financial condition and results of operations. Accounting policies regarding stock-based compensation are considered critical, as they require significant estimates, judgements, and assumptions. If there is a difference between the assumptions used in determining our stock-based compensation expense and the actual factors that become known over time, specifically with respect to anticipated forfeitures, we may change the input factors used in determining stock-based compensation costs for future grants. These changes, if any, may materially impact our results of operations in the period such changes are made.
Stock-based compensation
For purposes of calculating stock-based compensation, we estimate the fair value of stock options and shares acquirable under our Amended and Restated 2012 Equity Incentive Plan (the “2012 Plan”), our 2016 Employee Stock Purchase Plan (the “ESPP”) or our 2021 Inducement Equity Plan (the “Inducement Plan”) using a Black-Scholes option-pricing model. The determination of the fair value of share-based payment awards utilizing the Black-Scholes model is affected by our stock price and a number of assumptions, including expected volatility, expected life, risk-free interest rate and expected dividends. For stock options, prior to fiscal year 2020, we used a blend of historical volatility and implied volatility of comparable companies. As of April 1, 2019, we were using the Company-specific historical volatility rate as it was more reflective of market conditions and a better indicator of expected volatility. For certain options granted with vesting criteria contingent on market conditions, we engage with valuation specialists to calculate fair value and requisite service periods using Monte Carlo simulations. For shares acquirable under our ESPP, we use our Company-specific volatility rate. The expected life of the stock options is based on historical and other economic data trended into the future. The risk-free interest rate assumption is based on observed interest rates appropriate for the expected terms of our stock options. The dividend yield assumption is based on our history and expectation of no dividend payouts. If factors change and we employ different assumptions, our stock-based compensation expense may differ significantly from what we have recorded in the past.
For purposes of calculating stock-based compensation, we estimate the fair value of restricted stock units (“RSUs”) and performance-based restricted stock units (“PBRSUs”) with pre-defined performance criteria, based on the closing stock price on the date of grant. No exercise price or other monetary payment is required for receipt of the shares issued in settlement of the respective award; instead, consideration is furnished in the form of the participant’s service to us. The expense for PBRSUs with pre-defined performance criteria is adjusted with the probability of achievement of such performance criteria at each period end.
All of the above accounting policies regarding stock-based compensation are considered critical, as they require significant estimates, judgements, and assumptions. If there is a difference between the assumptions used in determining our stock-based compensation expense and the actual factors that become known over time, specifically with respect to anticipated forfeitures, we may change the input factors used in determining stock-based compensation costs for future grants. These changes, if any, may materially impact our results of operations in the period such changes are made.
Results of Operations
Comparison of the Years Ended March 31, 2021 and 2020
The following table summarizes our results of operations for the years ended March 31, 2021 and 2020 (in thousands, except percentages):
Year Ended March 31,
Increase (decrease)
$
%
Revenues
$
-
$
2,196
$
(2,196
)
(100
%)
Cost of revenues
$
-
$
$
(328
)
(100
%)
Research and development
$
1,103
$
5,284
$
(4,181
)
(79
%)
Selling, general and administrative
$
15,723
$
18,059
$
(2,336
)
(13
%)
Other income
$
$
2,767
$
(2,765
)
(100
%)
Revenues
We had no revenues for the year ended March 31, 2021 compared to $2.2 million of revenue for the year ended March 31, 2020. The $2.2 million decrease was due to the termination of revenue generating activities following our decision to restructure operations to preserve capital as we pursued various strategic alternatives.
Costs and Expenses
Cost of Revenues
Cost of product and service revenues, which reflects expenses related to manufacturing our products and delivering services, was zero for the year ended March 31, 2021, compared to $0.3 million for the year ended March 31, 2020. The decrease was due to the termination of revenue generating activities following our decision to restructure operations to preserve capital as we pursued various strategic alternatives.
Research and Development Expenses
The following table summarizes our research and development expenses for the years ended March 31, 2021 and 2020 (in thousands, except percentages):
Year Ended March 31,
Increase (decrease)
$
%
Research and development
$
$
4,940
$
(3,968
)
(80
%)
Non-cash stock-based compensation
(6
)
(5
%)
Depreciation and amortization
(207
)
(89
%)
Total research and development expenses
$
1,103
$
5,284
$
(4,181
)
(79
%)
Research and development expenses decreased $4.2 million, or 79%, from approximately $5.3 million for the year ended March 31, 2020 to approximately $1.1 million for the year ended March 31, 2021 as we materially reduced research and development activities following our decision to pursue our strategic alternatives during the second quarter of fiscal 2020. This action resulted in a $2.0 million reduction of personnel related costs, a $0.6 million reduction in lab expenses, a $0.9 million reduction in facilities costs, and a $0.7 million reduction in all other costs. Our full-time research and development staff decreased from an average of fourteen full-time employees for the year ended March 31, 2020 to an average of two full-time employees for the year ended March 31, 2021. Going forward, in line with our renewed research and development efforts, we expect to hire additional employees and incur significantly more research and development expenses.
Selling, General and Administrative Expenses
The following table summarizes our selling, general and administrative expenses for the years ended March 31, 2021 and 2020 (in thousands, except percentages):
Year Ended March 31,
Increase (decrease)
$
%
Selling, general and administrative
$
10,257
$
13,153
$
(2,896
)
(22
%)
Non-cash stock-based compensation
5,451
3,997
1,454
%
Depreciation and amortization
(894
)
(98
%)
Total selling, general and administrative
expenses
$
15,723
$
18,059
$
(2,336
)
(13
%)
Selling, general and administrative expenses decreased approximately $2.3 million, or 13%, from $18.1 million for the year ended March 31, 2020 to approximately $15.7 million for the year ended March 31, 2021. Overall, the decrease year over year is due to minimal spending in the first and second quarters of fiscal 2021 following the termination of the Merger Agreement. Other activity in fiscal 2021 includes the expenses incurred as a result of the approval of the Advisory Nominees Proposal in September 2020 triggering a “Change of Control” under our severance plan, as well as renewed operations in the third quarter. The higher expenses in fiscal 2020 are attributed to normal operations as well as our business restructuring in the second quarter to pursue strategic alternatives, which resulted in significant expenses. Overall, we had a $0.6 million decrease in personnel related costs, a $0.9 million decrease in depreciation and amortization, a $0.4 decrease in facilities costs, a $1.0 million decrease in general, legal, and corporate costs, offset by a $0.5 million increase in consulting fees. Our average selling, general and administrative headcount was five full-time employees for the year ended March 31, 2021 compared to twelve full-time employees in the prior year period.
Other Income (Expense)
Other income was less than $0.1 million for the year ended March 31, 2021. A loss of less than $0.1 million from the disposal of fixed assets was offset by interest income of less than $0.1 million. For the year ended March 31, 2020, other income was approximately $2.8 million and consisted of a $1.2 million gain from the sale of Samsara assets, a $0.5 million of gain on our lease termination, $0.5 million of income from the sale of other assets and $0.6 million of interest income.
Financial Condition, Liquidity and Capital Resources
We originally devoted our efforts to developing a platform technology to produce and study living tissues, with a focus on liver tissue, that emulate key aspects of human biology and disease, raising capital and building infrastructure. Following the decision to explore strategic alternatives, we took steps to manage our resources and extend our cash runway. These steps included reducing all commercial and research and development laboratory activities related to our liver tissues, except for sales or primary human cells out of inventory, negotiating an exit from our long-term facility lease, selling lab equipment and other inventory, and reducing our workforce. We have retained certain key management, employees and consultants, our core intellectual property, licenses, collaborations with research institutions and universities, and proprietary equipment. Going forward, we intend to leverage our proprietary technology platform to develop therapeutic drugs. Our initial plan is to focus on IBD, including CD and UC with a goal of broadening our work into additional therapeutic areas over time. In connection with our new strategy, we intend to rebuild our research and development functions to support our screening and drug development efforts.
As of March 31, 2021, we had cash and cash equivalents of approximately $37.4 million and an accumulated deficit of $296.3 million. As of March 31, 2020, we had cash and cash equivalents of $27.4 million and an accumulated deficit of $279.5 million. We had negative cash flows from operations of $13.3 million and $14.9 million for the years ended March 31, 2021 and 2020, respectively.
As of March 31, 2021, we had total current assets of approximately $38.4 million and current liabilities of approximately $0.7 million, resulting in working capital of $37.7 million. At March 31, 2020, we had total current assets of approximately $28.3 million and current liabilities of approximately $1.8 million, resulting in working capital of $26.5 million.
The following table sets forth a summary of the primary sources and uses of cash for the years ended March 31, 2021 and 2020 (in thousands):
Year Ended March 31,
Net cash (used in) provided by:
Operating activities
$
(13,323
)
$
(14,882
)
Investing activities
(393
)
Financing activities
23,835
4,935
Net increase (decrease) in cash, cash equivalents, and restricted cash
$
10,119
$
(9,200
)
Operating activities
Net cash used in operating activities was approximately $13.3 million and $14.9 million for the years ended March 31, 2021 and 2020, respectively. The $1.6 million decrease in operating cash usage, for the year ended March 31, 2021, can be attributed primarily to our operational restructuring, which included a significant decrease in headcount.
Investing activities
Net cash used in investing activities was $0.4 million versus net cash provided by investing activities of $0.7 million for the years ended March 31, 2021 and 2020, respectively. The net cash used in investing activities was related to the purchase of fixed assets in the year ended March 31, 2021. The net cash provided by investing activities was related to proceeds from the disposal of fixed assets associated with the streamlining of our operations in the year ended March 31, 2020.
Financing activities
Net cash provided by financing activities was approximately $23.8 million and $4.9 million for the years ended March 31, 2021 and 2020, respectively. The results in both years are primarily driven by at-the-market share offerings. Refer to “Operations funding requirements” below for further information regarding financing activities.
Operations funding requirements
During the year ended March 31, 2021, we raised net proceeds of approximately $23.8 million through the sale of 1,932,972 shares of our common stock through at-the-market offerings.
Through March 31, 2021, we have financed our operations primarily through the sale of common stock in public offerings, the private placement of equity securities, from revenue derived from products and research-based services, grants, and collaborative research agreements, and from the sale of convertible notes.
Our ongoing cash requirements include research and development expenses, compensation for personnel, consulting fees, legal and accounting support, insurance premiums, facilities, maintenance of our intellectual property portfolio, license and collaboration agreements, listing on the Nasdaq Capital Market, and other misceallaneous fees to support our operations. We expect our total operating expense for the fiscal year ending March 31, 2022 to be between $13.0 million and $15.0 million. Based on our current operating plan and available cash resources, we believe we have sufficient resources to fund our business for at least the next twelve months.
In June 2021, our U.S. Pat. Nos. 9,855,369 and 9,149,952, which relate to our bioprinter technology, are the subject of IPR proceedings filed by Cellink AB and its subsidiaries, MatTek Incorporated and Visikol, Inc. collectively (“Cellink AB”). The objective of the IPR proceedings is to invalidate the claims in the noted patents. We estimate the costs of the IPR proceedings to total between $850,000 and $950,000.
We previously had an effective shelf registration statement on Form S-3 (File No. 333-222929) (the “2018 Shelf”) that 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, we filed a shelf registration statement on Form S-3 (File No. 333-252224) and a related prospectus supplement. The shelf registration statement was declared effective by the SEC on January 29, 2021 (the “2021 Shelf”). The 2021 Shelf registered $150.0 million of common stock, preferred stock, debt securities, warrants and units, or any combination of the foregoing. The 2021 Shelf replaced the 2018 Shelf on January 29, 2021.
On March 16, 2018, we entered into a Sales Agreement (“2018 Sales Agreement”) with H.C. Wainwright & Co., LLC and Jones Trading Institutional Services LLC (each an “Agent” and together, the “Agents”) and filed a prospectus supplement to the 2018 Shelf, pursuant to which we could offer and sell, from time to time through the Agents, shares of our common stock in at-the-market sales transactions having an aggregate offering price of up to $50.0 million. We raised approximately $22.0 million in gross proceeds under
the 2018 Shelf and the 2018 Sales Agreement. On January 29, 2021, we filed a prospectus supplement to the 2021 Shelf, pursuant to which we may offer and sell, from time to time through the Agents, shares of our common stock in at-the-market sales transactions having an aggregate offering price of up to $50.0 million less the at-the-market sales raised under the 2018 Shelf. Any shares offered and sold will be issued pursuant to our 2021 Shelf.
We can raise up to $150.0 million in future offerings under the 2021 Shelf, which includes up to $28.0 million through our at-the-market program. During the year ended March 31, 2021, we sold 379,655 shares of common stock in at-the-market offerings, with net proceeds of approximately $3.0 million under the 2018 Shelf. During the year ended March 31, 2021, we sold 1,553,317 shares of common stock in at-the-market offerings, with net proceeds of approximately $20.8 million under the 2021 Shelf. As of March 31, 2021, there was approximately $128.6 million available in future offerings under the 2021 Shelf, and approximately $28.0 million available for future offerings through our at-the-market program.
Having insufficient funds may require us to relinquish rights to our technology on less favorable terms than we would otherwise choose. Failure to obtain adequate financing could adversely affect our ability to operate as a going concern. If we raise additional funds from the issuance of equity securities, substantial dilution to our existing stockholders would likely result. If we raise additional funds by incurring debt financing, the terms of the debt may involve significant cash payment obligations as well as covenants and specific financial ratios that may restrict our ability to operate our business.
On June 25, 2019, we received a notice letter from the Listing Qualifications Staff of Nasdaq indicating that, based upon the closing bid price of our common stock for the last 30 consecutive business days, we no longer met the requirement to maintain a minimum closing bid price of $1 per share, as set forth in Nasdaq Listing Rule 5450(a)(1). On December 26, 2019, we obtained an additional compliance period of 180 calendar days by electing to transfer to the Nasdaq Capital Market to take advantage of the additional compliance period offered on that market. On March 26, 2020, we obtained shareholder approval to effect a reverse stock split in a range from 20:1 to 40:1. On August 18, 2020, we effected a 1-for-20 reverse stock split of our common stock and on September 2, 2020, we received notification from Nasdaq that we had regained compliance.
As of March 31, 2021, we had 8,670,492 total issued and outstanding shares of common stock.
Our 2008 Equity Incentive Plan (the “2008 Plan”) provided for the issuance of up to 76,079 shares of common stock upon the exercise of outstanding stock options, of which 44,812 shares were issued. The 2008 Plan terminated on July 1, 2018. The 2012 Plan provides for the issuance of up to 1,427,699 shares of our common stock, of which 63,759 shares remain available for issuance as of March 31, 2021, to executive officers, directors, advisory board members, employees and consultants. Additionally, 75,000 shares of common stock have been reserved for issuance under the 2016 ESPP, of which 59,435 shares remain available for future issuance as of March 31, 2021. Further, 104,410 shares of common stock have been reserved for issuances under certain Inducement Award Stock Option Agreements and Inducement Award Performance-Based Restricted Stock Unit Agreements (the “Inducement Award Agreements”). Finally, 750,000 shares of common stock have been reserved for issuances under our Inducement Plan. In aggregate, issued and outstanding common stock and shares issuable under outstanding equity awards or reserved for future issuance under the 2008 Plan, the 2012 Plan, the Inducement Plan, the Inducement Award Agreements, and the 2016 ESPP total 9,831,627 shares of common stock as of March 31, 2021.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements, including unrecorded derivative instruments that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. We have certain options outstanding, but we do not expect to receive sufficient proceeds from the exercise of these instruments unless and until the underlying securities are registered, and/or all restrictions on trading, if any, are removed, and in either case the trading price of our common stock is significantly greater than the applicable exercise prices of the options and warrants.
Effect of Inflation and Changes in Prices
Management does not believe that inflation and changes in price will have a material effect on our operations.
Recent Accounting Pronouncements
For information regarding recently adopted and issued accounting pronouncements, see “Note 12. Recent Accounting Pronouncements” in the Notes to the Consolidated Financial Statements contained in this Annual Report.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
We invest our excess cash in short term, high quality interest bearing securities including US government and US government agency securities and high-grade corporate commercial paper. The primary objective of our investment activities is to preserve our capital for the purpose of funding our operations. To achieve these objectives, our investment policy allows us to maintain a portfolio of cash, cash equivalents, and short-term investments in a variety of securities, including money market funds. Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of U.S. interest rates, particularly because the majority of our investments are comprised of cash and cash equivalents. We currently do not hedge interest rate exposure. Due to the nature of our short-term investments, we believe that we are not subject to any material market risk exposure. We have limited foreign currency risk exposure as our business operates primarily in U.S. dollars. We do not have significant foreign currency nor any other derivative financial instruments.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Consolidated Financial Statements.
Organovo Holdings, Inc.
Index to Consolidated Financial Statements
Page
Number
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of March 31, 2021 and 2020
Consolidated Statements of Operations and Other Comprehensive Loss for the years ended March 31, 2021 and 2020
Consolidated Statements of Stockholders’ Equity for the years ended March 31, 2021 and 2020
Consolidated Statements of Cash Flows for the years ended March 31, 2021 and 2020
Notes to 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. (the “Company”) as of March 31, 2021 and 2020, 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, 2021, 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, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended March 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
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 audits 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 audits, 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 have served as the Company's auditor since 2011.
San Diego, California
June 15, 2021
ORGANOVO HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands except for share and per share data)
March 31, 2021
March 31, 2020
Assets
Current Assets
Cash and cash equivalents
$
37,364
$
27,356
Accounts receivable
-
Prepaid expenses and other current assets
1,034
Total current assets
38,398
28,318
Fixed assets, net
-
Restricted cash
-
Other assets, net
1,027
Total assets
$
39,917
$
28,441
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable
$
$
Accrued expenses
1,090
Total current liabilities
1,810
Commitments and Contingencies
Stockholders' Equity
Common stock, $0.001 par value; 200,000,000 shares authorized,
8,670,492 and 6,527,905 shares issued and outstanding at
March 31, 2021 and 2020, respectively
Additional paid-in capital
335,479
306,089
Accumulated deficit
(296,291
)
(279,465
)
Treasury stock, 46 shares at cost
(1
)
-
Total stockholders' equity
39,196
26,631
Total Liabilities and Stockholders' Equity
$
39,917
$
28,441
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,
March 31,
Revenues
Products and services
$
-
$
2,055
Collaborations and licenses
-
Grants
-
Total Revenues
-
2,196
Cost of revenues
-
Research and development expenses
1,103
5,284
Selling, general, and administrative expenses
15,723
18,059
Total costs and expenses
16,826
23,671
Loss from Operations
(16,826
)
(21,475
)
Other Income (Expense)
Gain (loss) on fixed asset disposals
(19
)
Gain on lease termination
-
Interest income
Other income (expense)
1,535
Total Other Income (Expense)
2,767
Income Tax Expense
(2
)
(2
)
Net Loss
$
(16,826
)
$
(18,710
)
Net loss per common share-basic and diluted
$
(2.44
)
$
(2.80
)
Weighted average shares used in computing net loss per common share-basic
and diluted
6,902,000
6,477,808
Comprehensive Loss:
Net Loss
$
(16,826
)
$
(18,710
)
Comprehensive Loss
$
(16,826
)
$
(18,710
)
The accompanying notes are an integral part of these consolidated financial statements.
ORGANOVO HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
Additional
Common Stock
Paid-in
Treasury Stock
Accumulated
Shares
Amount
Capital
Shares
Amount
Deficit
Total
Balance at March 31, 2019
6,201
$
$
297,047
-
$
-
$
(260,755
)
$
36,298
Issuance of common stock under employee and
director stock option, RSU and purchase plans
(62
)
-
-
-
(61
)
Stock-based compensation expense
-
-
4,108
-
-
-
4,108
Issuance of common stock from public offering, net
-
4,996
-
-
-
4,996
Net loss
-
-
-
-
-
(18,710
)
(18,710
)
Balance at March 31, 2020
6,528
$
$
306,089
-
$
-
$
(279,465
)
$
26,631
Stock option exercises
-
-
-
-
Issuance of common stock under employee and
director stock option, RSU and purchase plans
-
(4
)
-
-
-
(4
)
Stock-based compensation expense
-
-
5,556
-
-
-
5,556
Issuance of common stock from public offering, net
1,932
23,796
-
-
-
23,798
Purchase of treasury stock
-
(1
)
-
(1
)
Net loss
-
-
-
-
-
(16,826
)
(16,826
)
Balance at March 31, 2021
8,671
$
$
335,479
-
$
(1
)
$
(296,291
)
$
39,196
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, 2021
March 31, 2020
Cash Flows From Operating Activities
Net loss
$
(16,826
)
$
(18,710
)
Adjustments to reconcile net loss to net cash used in operating activities:
(Gain) loss on disposal of fixed assets
(113
)
(Gain) loss on lease termination
-
(525
)
Depreciation and amortization
1,142
Stock-based compensation
5,556
4,108
Inventory write-off
-
Increase (decrease) in cash resulting from changes in:
Accounts receivable
Grants receivable
-
Inventory
-
Prepaid expenses and other assets
(1,135
)
Accounts payable
(439
)
Accrued expenses
(650
)
(1,459
)
Deferred revenue
-
(525
)
Operating Right-of-use asset and lease liability, net
-
(98
)
Net cash used in operating activities
(13,323
)
(14,882
)
Cash Flows From Investing Activities
Purchases of fixed assets
(405
)
-
Proceeds from disposals of fixed assets
Net cash provided by (used in) investing activities
(393
)
Cash Flows From Financing Activities
Proceeds from issuance of common stock, net
23,798
4,996
Employee taxes paid related to net share settlement of equity awards
(4
)
(61
)
Proceeds from exercise of stock options
-
Purchase of treasury stock
(1
)
-
Net cash provided by financing activities
23,835
4,935
Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash
10,119
(9,200
)
Cash, cash equivalents, and restricted cash at beginning of period
27,356
36,556
Cash, cash equivalents, and restricted cash at end of period
$
37,475
$
27,356
Reconciliation of cash, cash equivalents, and restricted cash to the
consolidated balance sheets
Cash and cash equivalents
$
37,364
$
27,356
Restricted cash
-
Total cash, cash equivalents and restricted cash
$
37,475
$
27,356
Supplemental Disclosure of Cash Flow Information:
Restricted cash released
$
-
$
Tenant improvements funded by landlord
$
-
$
Assets held for sale
$
-
$
Income taxes paid
$
$
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 an early-stage 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 capable of modulating the disease phenotype across multiple patients and intends to initiate drug discovery programs around these validated targets. The Company is initially targeting 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 in the coming year. 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 for a variety of 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 that it can develop 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 expects to create 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 therapeutic targets. After finding novel therapeutic drug targets, the Company intends to develop 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 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.
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.
Historical Operations and Strategic Alternatives Process
From early 2018 to August 2019, the Company has focused its efforts on developing its in vivo liver tissues to treat end-stage liver disease and a select group of life-threatening, orphan diseases, for which there are limited treatment options other than organ transplantation. The Company also explored the development of other potential pipeline in vivo tissue constructs in-house and through collaborations with academic and government researchers. In the past, the Company also explored the development of in vitro tissues, including proof of concept models of diseased tissues, for use in drug discovery and development.
In August 2019, after a rigorous assessment of its in vivo liver therapeutic tissue program, the Company concluded that the variability of biological performance and related duration of potential benefits no longer supported an attractive opportunity due to redevelopment challenges and lengthening timelines to compile sufficient data to support an IND filing. As a result, the Company suspended development of its lead program and all other related in-house pipeline development activities.
The Company’s Board of Directors (the “Board”) also engaged a financial advisory firm to explore the Company’s available strategic alternatives, including evaluating a range of ways to generate value from its technology platform and intellectual property, its commercial and development capabilities, its listing on the Nasdaq Capital Market, and the Company’s remaining financial assets. These strategic alternatives included possible mergers and business combinations, sales of part or all of its assets, and licensing and partnering arrangements. The Company implemented various restructuring steps to manage its resources and extend its cash runway, including reducing commercial activities related to its liver tissues, except for sales of primary human cells out of inventory, negotiating an exit from its long-term facility lease, selling various assets, and reducing its workforce. Additionally, in November
2019, the Company sold certain inventory and equipment and related proprietary information held by its wholly-owned subsidiary, Samsara Sciences, Inc. (“Samsara”), and as a result of such sale, Samsara ceased its operations.
After conducting a diligent and extensive process of evaluating strategic alternatives and identifying and reviewing potential candidates for a strategic acquisition or other transaction, which included the receipt of more than 27 non-binding indications of interest from interested parties and careful evaluation and consideration of those proposals, and following extensive negotiation with Tarveda Therapeutics, Inc. (“Tarveda”), on December 13, 2019, the Company entered into a merger agreement with Tarveda (the “Merger Agreement”). Pursuant to the Merger Agreement, and subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, the Company’s wholly-owned merger subsidiary would merge with and into Tarveda (the “Merger”), with Tarveda becoming a wholly-owned subsidiary of Organovo and the surviving corporation of the Merger . The Merger Agreement included various conditions to the consummation of the Merger, including approval by the Company’s stockholders at a Special Meeting of Stockholders that was held on April 7, 2020 (the “Special Meeting”).
At the Special Meeting, the Merger was not approved by the Company’s stockholders. As a result, the Company terminated the Merger Agreement with Tarveda. Pursuant to the terms of the Merger Agreement, the Company was obligated to reimburse certain of Tarveda’s merger-related expenses not to exceed $300,000, which was offset by Tarveda’s portion of shared expenses incurred by Organovo in fiscal 2020.
The Cooperation Agreement and Advisory Nominees Proposal
Following the Special Meeting and the termination of the Merger Agreement, the Board continued to solicit stockholder feedback regarding the Company’s strategic alternatives and how to maximize stockholder value. In response to feedback from its largest stockholder regarding its desire for the Board to consider opportunities in the 3D bioprinting field and suggestion that the Board should speak with Keith Murphy, the Company’s founder, stockholder and former Chief Executive Officer and Chairman, for potential business ideas, the Board initiated discussions with Mr. Murphy. Based on these discussions, the Company entered into a Cooperation Agreement with Mr. Murphy on July 14, 2020 (the “Cooperation Agreement”). Under the terms of the Cooperation Agreement, the Board appointed Mr. Murphy and Adam K. Stern to the Board as Class III directors, and two of the Company’s existing directors, Richard Maroun and David Shapiro, resigned from the Board and all Board committees. The Board also agreed to nominate, recommend, support and solicit proxies for the re-election of Messrs. Murphy and Stern at the Company’s 2020 Annual Meeting of Stockholders (the “2020 Annual Meeting”). The Board also agreed to nominate, recommend, support and solicit proxies for an advisory stockholder vote (the “Advisory Nominees Proposal”) at the 2020 Annual Meeting to appoint three individuals, Douglas Jay Cohen, David Gobel and Alison Tjosvold Milhous (collectively, the “Advisory Nominees”), to the Board. Mr. Murphy identified each of the Advisory Nominees. The Board approved the appointment of the Advisory Nominees, to be automatically effective immediately following the final adjournment of the 2020 Annual Meeting if the final vote tabulation for the Advisory Nominees Proposal received more votes cast “FOR” than “AGAINST” its approval. In addition, each of the Company’s then-current directors (other than Messrs. Murphy and Stern) agreed to resign from the Board immediately following the appointment of the Advisory Nominees. At the 2020 Annual Meeting held on September 15, 2020, the Company’s stockholders approved the re-election of Messrs. Murphy and Stern to the Board as Class III directors to hold office until the 2023 Annual Meeting of Stockholders and the final vote tabulation for the Advisory Nominees Proposal received more votes cast “FOR” than “AGAINST” its approval and, accordingly, effective upon the final adjournment of the 2020 Annual Meeting, Ms. Milhous was appointed as a Class I director to hold office until the 2021 Annual Meeting of Stockholders and Messrs. Cohen and Gobel were appointed as Class II directors to hold office until the 2022 Annual Meeting (collectively, the “New Director Slate”) and Carolyn Beaver, Taylor Crouch, Mark Kessel and Kirk Malloy, Ph.D. each resigned as directors.
COVID-19
In December 2019, a respiratory illness caused by a novel strain of coronavirus, SARS-CoV-2, causing the Coronavirus Disease 2019, also known as COVID-19 emerged. While initially the outbreak was largely concentrated in China, it has since spread globally and has been declared a pandemic by the World Health Organization. Global health concerns relating to the COVID-19 pandemic have been weighing on the macroeconomic environment, and the pandemic has significantly increased economic volatility and uncertainty. The pandemic has resulted in government authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter-in-place or stay-at-home orders, and business shutdowns. In 2020, the Company adapted quickly to COVID-19, instituting universal masking and distancing in the lab and in the offices. The Company encouraged and enabled remote work whenever possible. The Company instituted safety check software to monitor symptoms and successfully maintained a robust level of progress while ensuring the safety of its employees. As the viral load and variants allow, the Company intends to carefully return to more typical lab and office work flow.
The extent to which the coronavirus impacts the Company’s operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the rise of vaccine-resistant variants, duration of the outbreak, travel bans and restrictions, quarantines, shelter-in-place or stay-at-home orders, and business shutdowns. In particular, the continued coronavirus pandemic could adversely impact various aspects of the Company’s operations, including among others, the ability to raise additional capital, the timing and ability to pursue the Company’s strategy, given the impact the pandemic may have on the
manufacturing and supply chain, sales and marketing and clinical trial operations of potential strategic partners, and the ability to advance its research and development activities and pursue development of its pipeline products, each of which could have an adverse impact on the Company’s business and financial results.
Nasdaq Listing and Reverse Stock Split
On June 25, 2019, the Company received a notice letter from the Listing Qualifications Staff of the Nasdaq Stock Market LLC (“Nasdaq”) indicating that, based upon the closing bid price of its common stock for the last 30 consecutive business days, the Company no longer met the requirement to maintain a minimum closing bid price of $1 per share, as set forth in Nasdaq Listing Rule 5450(a)(1). On December 26, 2019, the Company obtained an additional compliance period of 180 calendar days by electing to transfer to The Nasdaq Capital Market to take advantage of the additional compliance period offered on that market. On March 26, 2020, the Company obtained shareholder approval to effect a reverse stock split in a range from 20:1 to 40:1. On August 18, 2020, the Company effected a 1-for-20 reverse stock split of its common stock (the “Reverse Stock Split”), and on September 2, 2020, the Company received notification from Nasdaq that the closing bid of its common stock had been at $1.00 per share or greater for ten consecutive business days. Unless otherwise indicated, all share amounts, per share data, share prices, exercise prices and conversion rates set forth in these notes and the accompanying consolidated financial statements have, where applicable, been adjusted retroactively to reflect the Reverse Stock Split.
Liquidity
As of March 31, 2021, the Company had cash and cash equivalents of approximately $37.4 million, restricted cash of approximately $0.1 million and an accumulated deficit of approximately $296.3 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 $13.3 million during the year ended March 31, 2021.
Through March 31, 2021, the Company has financed its operations primarily through the sale of convertible notes, warrants, the private placement of equity securities, the sale of common stock through public and at-the-market (“ATM”) offerings, and through revenue derived from product and research service-based agreements, collaborative agreements, licenses, and grants. During the year ended March 31, 2021, the Company issued 1,932,972 shares of its common stock through its ATM facility and received net proceeds of approximately $23.8 million.
The Company believes its cash and cash equivalents on hand will be sufficient to meet its financial obligations for at least the next 12 months of operations. The approval of the Advisory Nominees Proposal triggered a “Change of Control” under the Company’s severance plan, as well as its Directors and Officers (“D&O”) liability insurance policies, which required the following cash outlays: (i) approximately $2.8 million for severance obligations; (ii) approximately $2.0 million (or $1.7 million net of returned premium) for a six year D&O tail insurance policy; and (iii) a new D&O policy premium at approximately $0.8 million. The cash outlays for severance obligations and D&O tail insurance policies were one-time non-recurring expenses that occurred in September 2020 and therefore are reflected in the ending cash balance. In addition, as the Company recommences its operations and is focusing its efforts on drug discovery and development, the Company will need to raise additional capital to implement this new business plan. The Company cannot predict with certainty the exact amount or timing for any future capital raises. If required, the Company may 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, financial condition and ability to continue as a going concern.
Use of estimates
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. Significant estimates used in preparing the consolidated financial statements include those assumed in revenue recognition, the valuation of stock-based compensation expense, and the valuation allowance on deferred tax assets. On an ongoing basis, management reviews these estimates and assumptions. Though the impact of the COVID-19 pandemic to the Company’s business and operating results presents additional uncertainty, the Company continues to use the best information available to inform its significant accounting estimates.
Financial instruments
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 90 days or less to be cash equivalents.
Restricted cash
As of March 31, 2021 and 2020, the Company had approximately $0.1 million and $0 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.
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, 2021 and 2020.
Assets held for sale
The Company classifies assets held for sale if all held for sale criteria is met pursuant to ASC 360-10. Assets classified as held for sale are not depreciated and are measured at the lower of their carrying amount or fair value less cost to sell. Further, assets held for sale are presented as current assets on the consolidated balance sheet.
Research and development
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.
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 research service agreements, product sales, collaborative agreements with partners including pharmaceutical and biotechnology companies and academic institutions, licenses, and grants from the National Institutes of Health (“NIH”) and private not-for-profit organizations.
Billings to customers or payments received from customers are included in deferred revenue on the consolidated balance sheet until all revenue recognition criteria are met. As of March 31, 2021 and 2020, the Company had no deferred revenue related to its research service agreements, collaborative agreements, and licenses within the scope of Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (“Topic 606”). In the year ended March 31, 2020, the Company recognized revenue of approximately $525,000, of which $490,000 related to the expiration of an agreement with a non-refundable up-front fee, that had been recorded as deferred revenue at March 31, 2019. The Company did not generate any revenues for the year ended March 31, 2021.
Service revenues
The Company’s service-based business, Organovo, Inc., previously utilized its NovoGen® bioprinting platform to provide customers access to its highly specialized tissues that model human biology and disease, and to in vitro testing services based on that technology. These contracts with customers contained multiple performance obligations including: (i) bioprinting tissues for the customer, (ii) reporting the results of tests performed on the printed tissues pursuant to the agreed upon work plan through exposure of the tissue to various factors (including the customer’s proprietary compound), and (iii) delivering specific byproduct study materials, which were satisfied, respectively, at each of the following points in time: (i) upon completion of manufacturing of the bioprinted tissue for the customer, (ii) upon delivery of the report on tests performed on the tissue, and (iii) upon making certain study materials generated from the aforementioned testing process available to the customer. The customer did not have access or control of any performance obligation prior to the point in time of full completion of the corresponding performance satisfying event as defined above. Furthermore, although the service could be customized for each customer, it was not so highly customized as to not have an alternative use either to other customers or to the Company without significant economic consequences or rework. Accordingly, the Company’s service-based business utilized point-in-time recognition under Topic 606.
For service contracts, the Company allocates the transaction price to each performance obligation based on the estimated relative standalone selling prices of the promised products or services underlying each performance obligation. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations. The transaction price for service business contracts is a fixed consideration.
In connection with the Company’s decision to pursue its strategic alternatives, the Company halted commercial activities related to its liver tissues in the year ended March 31, 2020.
Product sales, net
The Company’s former product-based business, Samsara, produced high-quality cell-based products for use in Organovo’s 3D tissue manufacturing and for use by life science customers. The Company recognizes product revenue when the performance obligation is satisfied, which is at the point in time the customer obtains control of the Company’s product, typically upon delivery. Product revenues are recorded at the transaction price, net of any estimates for variable consideration under Topic 606. The Company’s process for estimating variable consideration does not differ materially from its historical practices. Variable consideration is estimated using the expected value method which considers the sum of probability-weighted amounts in a range of possible amounts under the contract. Product revenue reflects the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of the individual contracts. Actual amounts of consideration ultimately received may differ from the Company’s estimates. If actual results vary materially from the Company’s estimates, the Company will adjust these estimates, which will affect revenue from product sales and earnings in the period such estimates are adjusted.
The Company provides no right of return to its customers except in cases where a customer obtains authorization from the Company for the return. To date, there have been no product returns.
On November 7, 2019, the Company entered into an agreement to sell substantially all of the Samsara inventory and associated assets for $1.5 million, which was recorded to other income. As a result, the Company had no further product sales of cells nor tissues beyond what it sold prior to the November 2019 sale. In March 2020, the Company dissolved Samsara.
Collaborative research, development, and licenses
The Company has entered into collaborative agreements with partners that typically include one or more of the following: (i) non-exclusive license fees; (ii) non-refundable up-front fees; (iii) payments for reimbursement of research costs; (iv) payments associated with achieving specific development milestones; and (v) royalties based on specified percentages of net product sales, if any. At the initiation of an agreement, the Company has analyzed whether it results in a contract with a customer under Topic 606 or in an arrangement with a collaborator subject to guidance under ASC Topic 808, Collaborative Arrangements (“Topic 808”).
The Company has considered a variety of factors in determining the appropriate estimates and assumptions under these arrangements, such as 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-exclusive license fees, non-refundable upfront fees, and funding of research activities have been considered fixed, while milestone 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.
The Company’s collaborative agreements that were not completed at the implementation of Topic 606 on April 1, 2018, consisted of research collaboration and limited technology access licenses. These agreements provide the licensee with a non-exclusive, non-
transferable, limited, royalty-free technology license, including access to Organovo’s proprietary bioprinter platform, training, and continued support by means of consumables and consultation throughout the duration of the contract. The Company has determined that the intellectual property license is not distinct from the continued support promised under the agreement and is therefore a single combined performance obligation. The Company recognized revenue for these combined performance obligations over time for the duration of the license period, as the combined performance obligation would not be fully satisfied until the end of the contract.
As of September 30, 2019, the Company completed its obligations under the existing agreements with respect to receipts of revenue and did not generate revenue for the year ended March 31, 2021. See “Note 4. Collaborative Research, Development, and License Agreements” for more information on the Company’s collaborative agreements.
Grant revenue
In July 2017, the NIH awarded the Company a “Research and Development” grant totaling approximately $1,657,000 of funding over three years. The Company has concluded this government grant is not within the scope of Topic 606, as government entities do not meet the definition of a “customer” as defined by Topic 606, as there is not considered to be a transfer of control of goods or services to the government entity funding the grant. Additionally, the Company has concluded this government grant does meet the definition of a contribution and is a non-reciprocal transaction, however, Subtopic 958-605, Not-for-Profit-Entities-Revenue Recognition does not apply, as the Company is a business entity and the grant is with a governmental agency.
Revenues from this grant have been based upon internal costs incurred that are specifically covered by the grant, plus an additional rate that provides funding for overhead expenses. Revenue has been recognized as the Company incurs expenses that are related to the grant. The Company believes this policy is consistent with the overarching premise in Topic 606, to ensure that it recognizes revenues to reflect the transfer of promised goods or services to customers in an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services, even though there is no “exchange” as defined in the Financial Accounting Standards Board’s Accounting Standards Codification (“ASC”). The Company believes the recognition of revenue as costs are incurred and amounts become earned/realizable is analogous to the concept of transfer of control of a service over time under Topic 606.
Revenue recognized under this grant was approximately $0 and $52,000 during the years ended March 31, 2021 and 2020, respectively.
In connection with the Company’s decision to pursue its strategic alternatives, specific to the NIH grant, all internal research activities have been halted and transferred to the University of California, San Diego, leaving a remaining available balance of approximately $0.5 million that will not be utilized by the Company.
Cost of revenue
The Company reported $0 and $0.3 million in cost of revenue for the years ended March 31, 2021 and 2020, respectively. Cost of revenues consists of the Company’s costs related to manufacturing and delivering its product and service revenue.
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). For the years ended March 31, 2021 and 2020, the comprehensive loss was equal to the net 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, 2021 and 2020 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 1.0 million shares and 0.6 million shares for the years ended March 31, 2021 and 2020, respectively.
Note 2. Fixed Assets
Fixed assets consisted of the following (in thousands):
March 31,
March 31,
Laboratory equipment
$
$
-
Computer software and equipment
Fixed Assets, gross
1,383
Less accumulated depreciation
(1,002
)
(415
)
Fixed Assets, net
$
$
-
As of March 31, 2021, all of the Company’s fixed assets were active and in use. Depreciation expense for the years ended March 31, 2021 and 2020 was approximately $27,000 and $1,128,000, respectively.
Assets held for sale consisted of the following (in thousands):
March 31,
March 31,
Laboratory equipment
$
-
$
Vehicles
-
Assets held for sale, gross
-
Less accumulated depreciation
-
(659
)
Assets held for sale, net
$
-
$
As of March 31, 2020, all of the Company’s vehicles and lab equipment were categorized as held for sale. Assets held for sale are reflected on the consolidated balance sheet as other current assets.
Note 3. Accrued Expenses
Accrued expenses consisted of the following (in thousands):
March 31,
March 31,
Accrued compensation
$
$
Accrued legal and professional fees
Other accrued expenses
$
$
1,090
Note 4. Collaborative Research, Development, and License Agreements
Collaboration Agreements
In December 2016, the Company signed a collaborative non-exclusive research affiliation with a university medical school and a non-profit medical charity, under which the Company received a one-time grant from the charity towards the placement of a NovoGen® Bioprinter at the university for the purpose of developing a kidney organoid for potential therapeutic applications. Revenue of $0 and $19,000 was recorded under this agreement for the years ended March 31, 2021 and 2020, respectively. The Company completed its obligations under this agreement and does not anticipate receiving any additional cash or recording any further revenue.
In November 2019, the Company signed a non-exclusive patent license agreement with Viscient Biosciences, Inc. (“Viscient”), a related party, including a one-time, non-refundable fee of $70,000 for a license to certain Company patents for in vitro research limited to certain fields of use. The Company received the one-time payment in November 2019, which was recorded as revenue. The
Company completed its obligations under these agreements with respect to receipts of revenue and does not anticipate recording any further revenue. See “Note 10. Related Parties” for more 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 minimum annual royalties of $25,000 in January 2021 and January 2020 for their respective calendar years, 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, 2021 and 2020. The license agreement terminates upon expiration of the patents licensed and is subject to certain conditions as defined in the license agreement, which is expected to expire after 2029.
In March 2010, 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 engineered biological nerve grafts. The Company received the exclusive worldwide rights to commercialize products comprising this technology for all fields of use. The Company was required to pay the University of Missouri royalties ranging from 1% to 3% of net sales of covered tissue products depending on the level of net sales achieved by the Company each year. The license agreement was terminated on February 18, 2021. No payments were made in the years ended March 31, 2021 and 2020.
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, 2021 and 2020. The annual minimum royalty is creditable against royalties owed during the same calendar year.
UniQuest
In August 2015, the Company entered into a license agreement with UniQuest Pty Limited (“UniQuest”) to in-license certain technology and intellectual property relating to technologies for in vitro applications with the exclusion of individual cell types isolated and purified from the organoids or induced pluripotent stem-derived kidney structures. The Company received the exclusive worldwide rights to commercialize products comprising this technology for all fields of use. The Company was required to pay UniQuest certain royalties based on net sales of licensed products, depending on the level of net sales reached each year, and certain royalties for any consideration invoiced or received by the Licensee in return for the grant of sub-licenses, options, marketing, or distribution rights, arising from the licensed intellectual property. In addition, the Company was required to pay certain milestone payments. As of March 31, 2021, the Company had made two milestone payments of $20,000. The license agreement was terminated on April 22, 2021 and the intellectual property was returned to UniQuest.
In December 2016, the Company entered into a license agreement with UniQuest to in-license certain technology and intellectual property relating to technologies for generation of organoids or cells in a 3D configuration via a bioprinter or other device for additive cellular manufacturing and use in in vivo applications. The Company received the exclusive worldwide rights to commercialize products comprising this technology for all fields of use. The Company was required to pay UniQuest certain royalties based on net sales of licensed products, depending on the level of net sales reached each year, and certain royalties for any consideration invoiced or received by the Company in return for the grant of sub-licenses, options, marketing, or distribution rights, arising from the licensed intellectual property. In addition, the Company was required to pay certain milestone payments. As of March 31, 2021, the Company had not made any milestone payments. The license agreement was terminated on April 22, 2021 and the intellectual property was returned to UniQuest.
Capitalized license fees consisted of the following (in thousands):
March 31,
March 31,
License fees
$
$
Less accumulated amortization
(109
)
(95
)
License fees, net
$
$
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 $14,000 for each of the years ended March 31, 2021 and 2020. At March 31, 2021, the weighted average remaining amortization period for all licenses was approximately 9 years. The annual amortization expense of licenses for the next five years is estimated to be approximately $14,000 per year.
Note 5. Stockholders’ Equity
Stock-based compensation expense and valuation information
Stock-based awards include stock options and RSUs under the Amended and Restated 2012 Equity Incentive Plan (“2012 Plan”), inducement awads, 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, 2021
Year Ended
March 31, 2020
Research and development
$
$
General and administrative
$
5,451
$
3,997
Total
$
5,556
$
4,108
The total unrecognized compensation cost related to unvested stock option grants as of March 31, 2021 was approximately $4,300,000 and the weighted average period over which these grants are expected to vest is 2.86 years.
The total unrecognized stock-based compensation cost related to unvested RSUs (not including performance-based RSUs) as of March 31, 2021 was approximately $222,000, which will be recognized over a weighted average period of 3.75 years.
The total unrecognized stock-based compensation cost related to unvested performance-based RSUs as of March 31, 2021 was approximately $15,000, which will be recognized over a weighted average period of 0.25 years.
As of March 31, 2021, there are no participants enrolled into the ESPP for the current purchase period, beginning March 1, 2021.
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 fair value of stock options was estimated at the grant date using the following weighted average assumptions:
Year Ended
March 31, 2021
Year Ended
March 31, 2020
Dividend yield
-
-
Volatility
107.88
%
84.36
%
Risk-free interest rate
0.61
%
1.53
%
Expected life of options
5.81 years
6.00 years
Weighted average grant date fair value
$
6.97
$
4.60
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 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 Company’s 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 weighted average assumptions:
Year Ended
March 31, 2021*
Year Ended
March 31, 2020
Dividend yield
-
-
Volatility
0.00
%
43.69
%
Risk-free interest rate
0.00
%
2.52
%
Expected term
6 months
6 months
Grant date fair value
$
-
$
5.80
*There were no participants in the ESPP for the purchase period September 1, 2020 - February 28, 2021 nor any participants in the ESPP for the current purchase period (beginning March 1, 2021).
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.
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 May of 2008, the Board approved the 2008 Equity Incentive Plan (the “2008 Plan”). The 2008 Plan authorized the issuance of up to 76,079 common shares for awards of incentive stock options, non-statutory stock options, restricted stock awards, restricted stock award units, and stock appreciation rights. The 2008 Plan terminated on July 1, 2018. As of March 31, 2021, 44,812 shares under the 2008 Plan have been issued.
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, bringing the aggregate shares issuable under the 2012 Plan to 1,427,699. The 2012 Plan as amended and restated became effective on July 26, 2018 and terminates ten years after such date. As of March 31, 2021, 63,759 shares remain available for issuance under the 2012 Plan.
On April 24, 2017, the Company filed a Registration Statement on Form S-8 with the Securities and Exchange Commission (the “SEC”) authorizing the issuance of 114,852 shares of the Company’s common stock, pursuant to the terms of an Inducement Award Stock Option Agreement and an Inducement Award Performance-Based Restricted Stock Unit Agreement (collectively, the “2017 Inducement Award Agreements”).
On August 14, 2018, the Company filed a Registration Statement on Form S-8 with the SEC authorizing the issuance of 56,770 shares of the Company’s common stock, pursuant to the terms of an Inducement Award Stock Option Agreement and an Inducement Award Restricted Stock Unit Agreement (collectively, the “2018 Inducement Award Agreements” and, together with the 2017 Inducement Award Agreements the “Inducement Award Agreements”).
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.
The Company previously had an effective shelf registration statement on Form S-3 (File No. 333-222929) and the related prospectus supplement 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) and related prospectus supplement. The shelf registration statement was declared effective by the SEC on January 29, 2021 (the “2021 Shelf”). The 2021 Shelf registered $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 replaced the 2018 Shelf on January 29, 2021.
On March 16, 2018, the Company entered into a Sales Agreement (“2018 Sales Agreement”) with H.C. Wainwright & Co., LLC and Jones Trading Institutional Services LLC (each an “Agent” and together, the “Agents”) and filed a prospectus supplement to the 2018 Shelf, pursuant to which the Company could offer and sell, from time to time through the Agents, shares of its common stock in at-the-market sales transactions having an aggregate offering price of up to $50.0 million. During the years ended March 31, 2021 and 2020, the Company issued 379,655 shares and 304,369 shares of common stock, respectively, for net proceeds of $3.0 million and $5.0 million in at-the-market offerings under the 2018 Sales Agreement pursuant to the 2018 Shelf. As of March 31, 2021, the Company has sold an aggregate of 1,265,614 shares of common stock in at-the-market offerings under the 2018 Sales Agreement pursuant to the 2018 Shelf, with gross proceeds of approximately $22.0 million.
On January 29, 2021, the Company filed a prospectus supplement to the 2021 Shelf, pursuant to which the Company may offer and sell, from time to time through the Agents, shares of its common stock in at-the-market sales transactions having an aggregate offering price of up to $50.0 million less at-the-market proceeds raised under the 2018 Shelf. Any shares offered and sold will be issued pursuant to the Company’s 2021 Shelf. During the year ended March 31, 2021, the Company issued 1,553,317 shares of common stock for net proceeds of $20.8 million in at-the-market offerings under the 2018 Sales Agreement pursuant to the 2021 Shelf. As of March 31, 2021, the Company has sold an aggregate of 1,553,317 shares of common stock in at-the-market offerings under the 2018 Sales Agreement pursuant to the 2021 Shelf, with gross proceeds of approximately $21.4 million. As of March 31, 2021, there was approximately $128.6 million available in future offerings under the 2021 Shelf, and approximately $28.0 million available for future offerings through the Company’s at-the-market program.
During the years ended March 31, 2021 and 2020, the Company issued 7,800 and 0 shares of common stock, respectively, upon exercise of stock options.
On June 25, 2019, the Company received a notice letter from the Listing Qualifications Staff of Nasdaq indicating that, based upon the closing bid price of the Company’s common stock for the last 30 consecutive business days, the Company no longer met the requirement to maintain a minimum closing bid price of $1 per share, as set forth in Nasdaq Listing Rule 5450(a)(1). On December 26, 2019, the Company obtained an additional compliance period of 180 calendar days by electing to transfer to The Nasdaq Capital Market. On March 26, 2020, the Company obtained shareholder approval to effect a reverse stock split in a range from 20:1 to 40:1. On August 18, 2020, the Company effected the Reverse Stock Split of its common stock, and on September 2, 2020, the Company received notification from Nasdaq that it had regained compliance with the requirement to maintain a minimum closing bid price of $1 per share, as set forth in Nasdaq Listing Rule 5450(a)(1).
Restricted stock units
During the year ended March 31, 2021, the Company issued RSUs for an aggregate of 20,000 shares of common stock to its employees. These shares of common stock will be issued upon vesting of the RSUs.
The following table summarizes the Company’s RSUs (not including performance-based RSUs) activity for the year ended March 31, 2021:
Number of
Shares
Weighted
Average Price
Unvested at March 31, 2020
24,031
$
38.93
Granted
20,000
$
10.27
Vested
(16,726
)
$
45.35
Cancelled / forfeited
(6,248
)
$
24.79
Unvested at March 31, 2021
21,057
$
10.79
Performance-based restricted stock units
On April 24, 2017, the Company issued a Performance-Based Restricted Stock Unit Award for 10,441 shares of common stock (the “PBRSU”) to its newly hired Chief Executive Officer (“CEO”). The PBRSU was issued outside of the 2012 Plan, pursuant to an Inducement Award Performance-Based Restricted Stock Unit Agreement, as an “inducement award” within the meaning of Nasdaq Marketplace Rule 5635(c)(4). While outside the Company’s 2012 Plan, the terms and conditions of this award are consistent with awards granted to the Company’s executive officers pursuant to the 2012 Plan. On August 23, 2017, the Board approved the vesting criteria for the PBRSU. The vesting of the PBRSU was divided into five separate tranches each with independent vesting criteria. The first four tranches had performance criteria related to annual revenue goals with measurement at the end of fiscal year 2019 (20 percent), fiscal year 2020 (20 percent), fiscal year 2021 (20 percent), and fiscal year 2022 (20 percent). The fifth tranche has a performance metric related to a path to profitability goal measured as Negative Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) achievable at any point between the grant date and the end of fiscal year 2020 (20 percent). The number of units that could ultimately vest for each tranche ranged from 0 percent to 120 percent of the target amount, not to exceed 10,441 in aggregate. On December 12, 2018, the Board approved an amendment to the vesting criteria for the PBRSU. As of March 31, 2020, 100% of the Negative Adjusted EBITDA tranche, or 2,088 shares, had vested and 418 units had been forfeited. Based on the amendment to the vesting criteria, the remaining 7,935 units eligible to vest upon future performance were divided into three separate but equal tranches with independent vesting criteria based on the achievement of certain regulatory milestones.
Based on the amended PBRSU vesting terms, a Type III modification, the modified grant date fair value of the PBRSUs is $165,000 of which one-third is being recognized over the expected service period of each tranche ending April 23, 2023. The Company began recording stock-based compensation expense for the initial performance tranches after the August 23, 2017 grant date when the initial financial performance goals were established and approved and has modified its recording of compensation expense in accordance with the amended performance tranches beginning on December 12, 2018. On September 15, 2020, vesting of all tranches accelerated due to a change in control.
On July 2, 2019, the Company issued Performance-Based Restricted Stock Unit Awards (the “PBRSU Retention Awards”) for an aggregate of 301,391 shares of common stock to its management team. The PBRSUs were issued pursuant to the 2012 Plan. The PBRSU Retention Awards were to vest in full upon the earlier of: (i) the Company’s engagement in a pre-IND meeting with the FDA, (ii) twenty-four months from the grant date, or (iii) a change in control. As of March 31, 2021, 111,682 shares were forfeited due to terminations, and vesting for 177,480 shares was accelerated due to a change in control. The remaining 12,229 shares are expected to vest twenty-four months from the grant date as these particular shares require two of the conditions to be met in order to vest.
The following table summarizes the Company’s performance-based restricted stock unit activity for the year ended March 31, 2021:
Number of
Shares
Weighted
Average Price
Unvested at March 31, 2020
197,644
$
10.24
Granted
-
$
-
Vested
(185,415
)
$
10.27
Canceled / forfeited
-
$
-
Unvested at March 31, 2021
12,229
$
9.80
Stock options
During the year ended March 31, 2021 under the 2012 Plan, 751,875 stock options were issued at various exercise prices.
On April 24, 2017, in connection with the appointment of a new CEO, the Company granted 104,410 stock options outside of the 2012 Plan. The Company intended for these to be “inducement awards” within the meaning of Nasdaq Marketplace Rule 5635(c)(4). While granted outside the Company’s 2012 Plan, the terms and conditions of this stock option award are consistent with awards granted to the Company’s executive officers pursuant to the 2012 Plan. On September 15, 2020, vesting of all these options accelerated due to a change in control. On August 14, 2018, in connection with the appointment of a new CMO, the Company allocated 48,734 stock options outside of the 2012 Plan. The Company intended for these to be “inducement awards” within the meaning of Nasdaq Marketplace Rule 5635(c)(4). While outside the Company’s 2012 Plan, the terms and conditions of these awards were consistent with awards granted to the Company’s executive officers pursuant to the 2012 Plan. These stock options were to vest over a four-year period, with a quarter of the option shares vesting on the one-year anniversary of the vesting commencement date and the remaining options shares vesting in equal quarterly installments over the next 12 quarterly periods. The CMO was terminated in August 2019 and all of the options were forfeited.
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. 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.
The following table summarizes stock option activity for the year ended March 31, 2021:
Options
Outstanding
Weighted-
Average
Exercise Price
Aggregate
Intrinsic
Value
Outstanding at March 31, 2020
377,980
$
41.81
$
-
Options granted
751,875
$
8.48
$
-
Options canceled
(117,400
)
$
17.15
$
-
Options exercised
(7,800
)
$
5.32
$
-
Outstanding at March 31, 2021
1,004,655
$
20.03
$
856,400
Vested and Exercisable at March 31, 2021
363,700
$
40.11
$
58,340
The weighted-average remaining contractual term of stock options exercisable and outstanding at March 31, 2021 was approximately 1.18 years.
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 or 500 shares per employee per six-month purchase period. 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, 2021, no shares were issued under the ESPP. At March 31, 2021, there were 59,435 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, 2021:
Common stock issuable pursuant to options outstanding and reserved under the 2012 Plan
900,245
Common stock reserved under the 2012 Plan
63,759
Common stock reserved under the ESPP
59,435
Common stock reserved under the 2021 Inducement Equity Plan
750,000
Common stock issuable pursuant to restricted stock units outstanding under the 2012 Plan
21,057
Common stock issuable pursuant to performance-based restricted stock units outstanding under the 2012 Plan
12,229
Common stock issuable pursuant to options outstanding and reserved under the Incentive Award Agreements
104,410
Total at March 31, 2021
1,911,135
Note 6. 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 July 2012 to November 2019, the Company leased its main facilities at 6275 Nancy Ridge Drive, San Diego, California 92121. The lease, as amended in 2013, 2015, 2016, 2018, and 2019, consisted of approximately 45,580 rentable square feet containing laboratory, clean room and office space. Monthly rental payments were approximately $87,000 with 3% annual escalators. The lease for 14,685 of the total rentable square footage was amended to accelerate the expiration date from December 15, 2018 to October 31, 2018. On November 30, 2018, the Company agreed to extend the term for the remainder of the total rentable square footage under the lease from August 31, 2021 to August 31, 2024 in exchange for $500,000 of landlord funded tenant improvements and a rescission of its option to terminate the lease on or after September 1, 2019 with 9 months prior written notice. On October 11, 2019, the Company entered into an agreement to accelerate the expiration date of the term of the lease for its main facilities on 6275 Nancy Ridge Drive from August 31, 2024 to November 15, 2019. Under this agreement, the landlord and the Company agreed that the other is excused as of the termination date from any further obligations. As such, the Company wrote-off its associated right-of-use asset of approximately $4.1 million and lease liabilities of approximately $4.6 million in fiscal 2020, which resulted in a $0.5 million gain on lease termination.
In addition to the Company’s main facility lease, on March 21, 2019, the Company entered into an agreement to lease several copy machines for a term of 36 months. The lease contained fixed monthly payments through the entire term of the lease, and it did not contain an option to extend the term or a bargain purchase option. This lease was also carried forward as an operating lease through the adoption of Topic 842. On October 9, 2019, the Company entered into an agreement to assume its leased copy machines, which terminates future obligations. As such, the Company wrote-off its associated right-of-use asset of approximately $26,000 and lease liabilities of approximately $26,000 in the third quarter of fiscal 2020.
On October 2, 2019, the Company entered into an agreement to rent office space at 440 Stevens Avenue, Suite 200, Solana Beach, California 92075. This agreement is a month-to-month contract and can be terminated at-will by either party at any time. As such, the Company has concluded that this agreement does not contain a lease and will be expensed as incurred (referred to as “rent expense”). Monthly rental payments are approximately $4,000 per month.
On November 23, 2020, the Company entered into two lease agreements, pursuant to which the Company will temporarily lease approximately 3,212 square feet of office space (the “Temporary Lease”) in San Diego and permanently lease approximately 8,051 square feet of office space (the “Permanent Lease”) in San Diego once certain tenant improvements for the Company’s permanent premises have been completed by the landlord and the premises are ready for occupancy. The Temporary Lease commenced on November 27, 2020 and is intended to serve as temporary premises for approximately ten months. The Permanent Lease is projected to commence in the third quarter of fiscal 2022 and is intended to serve as the Company’s permanent premises for approximately sixty-two months. Once the Permanent Lease commences, monthly rental payments will be approximately $32,000 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 are expensed as incurred. The Company also determined that the Permanent Lease will require balance sheet recognition of a right-of-use asset and lease liability under ASC 842 once the Permanent Lease commences. The Company is currently evaluating the financial statement impact of the Permanent Lease.
For the years ended March 31, 2021 and 2020, the Company recorded operating lease expense of approximately $0 and $568,000, respectively. In addition, for the years ended March 31, 2021 and 2020, the Company recorded rent expense for the office space of approximately $50,000 and $19,000, respectively. Variable lease costs 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. Variable lease expense was approximately $13,000 and $305,000 for the years ended March 31, 2021 and 2020, respectively. Lastly, for the years ended March 31, 2021 and 2020, short term lease expense was approximately $54,000 and $37,000, respectively.
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. On October 10, 2019, a putative class action lawsuit was filed in the U.S. District Court for the District of Delaware against the Company and the Board in connection with the annual proxy statement filed by the Company on July 26, 2019. The case was captioned Rianhard v. Crouch, et al., Case No. 19-cv-1922 (D. Del. Oct. 10, 2019) (the “Action”). The complaint alleged that the Schedule 14A proxy statement contained material misrepresentations in connection with the reverse stock split proposal recommended therein and asserted claims for violations of Section 14(a) of the Securities Exchange Act of 1934 and Rule 14a-9 promulgated thereunder, as well as claims for breach of fiduciary duty. On November 25, 2019, the Action was voluntarily dismissed.
On December 31, 2019, the Company received a demand pursuant to Delaware General Corporation Law Section 220 for certain books and records of the Company (the “Demand”). The Company objected to the Demand and made a limited production of certain records to the demanding stockholder. As of March 31, 2021, the demanding stockholder withdrew its Demand.
On January 30, 2020, the Company received a demand letter (the “Letter”) from a purported stockholder alleging that the disclosures in the Form S-4 filed with the SEC on December 23, 2019 violated federal securities laws by failing to disclose certain allegedly material information. The Letter demanded, among other things, that the Company make corrective disclosures and reserves the right to pursue legal action. The Company believes the assertions in the Letter are without merit and now moot.
On March 4, 2020, the Company received a letter from the SEC regarding an inquiry into certain of the Company’s prior disclosures and related operations. The Company has cooperated with the SEC in response to this subpoena. On October 5, 2020, the Company received a letter from the SEC with the following response: “We have concluded the investigation as to Organovo Holdings, Inc. (“Organovo”). Based on the information we have as of this date, we do not intend to recommend an enforcement action by the Commission against Organovo.”
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 of these 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. Income Taxes
A reconciliation of the statutory federal rate and the effective rate, for operations, is as follows for the years ended March 31, 2021 and 2020 (in thousands, except percentages):
March 31,
March 31,
Tax computed at federal statutory rate
$
(3,533
)
21%
$
(3,929
)
21%
State income tax, net of federal benefit
(823
)
4.9%
(714
)
3.8%
Executive compensation
-3.0%
-
0.0%
Stock-based compensation
2,662
-15.8%
-4.8%
Research credits
(35
)
0.1%
(421
)
2.2%
Change in tax rate
(282
)
1.7%
(193
)
1.0%
Removal of net operating losses and research development credits
3,269
-19.4%
5,091
-27.2%
Other
(215
)
1.4%
-0.3%
Valuation allowance
(1,552
)
9.1%
(797
)
4.2%
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, 2021 and 2020 (in thousands, except percentages):
March 31,
March 31,
Deferred tax assets:
Net operating loss carry forwards
$
-
$
-
Research and development credits
-
Depreciation and amortization
(7
)
Accrued expenses and reserves
Stock compensation
2,433
3,899
Other, net
Total deferred tax assets
2,524
4,078
Valuation allowance
(2,524
)
(4,078
)
$
-
$
-
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, 2021. 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, no amounts are being considered as an uncertain tax position or disclosed as an unrecognized tax benefit. 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 decreased by approximately $1,552,000 and approximately $797,000 for the years ended March 31, 2021 and 2020, respectively.
The Company had federal and state net operating loss carryforwards of approximately $194.6 million and $40.4 million, respectively, as of March 31, 2021. Federal net operating loss carryforwards of approximately $51.0 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 $4.2 million and $3.9 million at March 31, 2021, respectively. The federal research tax credit carryforwards begin expiring in 2028. The state research tax credit carryforwards do not expire.
On March 27, 2020, the CARES Act was enacted in response to the COVID-19 pandemic. The CARES Act contains temporary taxpayer favorable provisions related to the use of net operating losses and the deductibility of interest expense, charitable contributions, and qualified improvement property. Due to the generation of losses, the Company does not expect to be materially impacted by the CARES Act.
The Company did not record any accruals for income tax accounting uncertainties for the year ended March 31, 2021.
The Company did not accrue either interest or penalties from inception through March 31, 2021.
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 various state jurisdictions. As of March 31, 2021, 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 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 has not experienced losses in such accounts, and management believes that the Company is not exposed to any significant credit risk with respect to its cash and cash equivalents.
The Company is also potentially subject to concentrations of credit risk in its revenues and accounts receivable. Because it is in the early commercial stage, the Company’s revenues to date have been derived from a relatively small number of customers and collaborators. However, the Company has not historically experienced any accounts receivable write-downs and management does not believe significant credit risk exists as of March 31, 2021.
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 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. During fiscal 2020, the Company provided services to Viscient. For the year ended March 31, 2020, the Company recognized revenue of $107,000 for research services provided to Viscient. In November 2019, the Company entered into an agreement with Viscient to sell certain bioprinting equipment and a non-exclusive license to certain intellectual property for approximately $171,000, of which $101,000 was recognized as other income and $70,000 was recognized as revenue in the year ended March 31 2020. In addition to the services provided by the Company, Viscient purchased primary human cell-based products from the Company’s former subsidiary, Samsara. For the year ended March 31, 2020, the Company recognized revenue of $128,000 related to the sales of products to Viscient. The Company had no revenue activity for the year ended March 31, 2021. There was $0 of accounts receivable outstanding as of March 31, 2021, and approximately $111,000 of accounts receivable outstanding as of March 31, 2020. Further, in July 2020, the Company entered into a Cooperation Agreement with Mr. Murphy and in September 2020, the Company hired three of Viscient’s employees. See “Note 1. Description of Business and Summary of Significant Accounting Policies” for more information.
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 year ended March 31, 2021, the Company incurred approximately $38,000 in consulting expenses from Viscient. Additionally, the Company purchased lab equipment from Viscient for approximately $35,000 as part of the asset purchase agreement.
Note 11. 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, 2021 and 2020 were approximately $39,000 and $152,000, respectively.
Note 12. 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.
Adoption of New Accounting Pronouncements
In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606, which provides guidance on whether certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606. The amendments in this update provide more comparability in the presentation of revenue for certain transactions between collaborative arrangement participants. The key improvements to GAAP for collaborative arrangements resulting from this amendment are to (i) clarify that certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606 when the collaborative arrangement participant is a customer in the context of a unit-of-account, (ii) add unit-of-account guidance in Topic 808 to align with the guidance in Topic 606, and (iii) require that in a transaction with a collaborative arrangement participant that is not directly related to sales to third parties, presenting the transaction together with revenue recognized under Topic 606 is precluded if the collaborative arrangement participant is not a customer. The amendments in this ASU are effective for all entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years with early adoption permitted. This new guidance became effective for the Company on April 1, 2020 and did not have a significant impact on the Company’s consolidated financial statements.
Note 13. Restructuring
In August 2019, after a rigorous assessment of the Company’s lead liver therapeutic tissue program following completion of various preclinical studies, the Company’s Board concluded that the variability of biological performance and related duration of potential benefits presented development challenges and lengthy redevelopment timelines that no longer supported an attractive opportunity for the Company and its stockholders. Furthermore, the Company’s Board deemed the stage of development of the Company’s other therapeutic pipeline assets, including stem cell based tissue programs, to be too premature to potentially reach IND filing status within an acceptable investment horizon and with the Company’s available resources. As a result, the Company suspended all development of its lead program and all other related pipeline development activity and engaged a financial advisory firm to explore its strategic alternatives, including evaluating a range of ways to generate value from the Company’s technology platform and intellectual property, its commercial and development capabilities, its listing on the Nasdaq Capital Market, and its remaining financial assets. Under the restructuring plan, the Company terminated the employment of 52 employees, or 90% of its workforce, and recorded a restructuring charge during the year ended March 31, 2020 of approximately $2.7 million, related to employee severance and benefits costs, of which $1.7 million was paid out during the fiscal second quarter of fiscal 2020, $0.9 million was paid out during the fiscal third quarter of fiscal 2020, and $0.1 million was paid out during the fiscal fourth quarter of fiscal 2020. Less than $0.1 million was paid out during the first quarter of fiscal 2021.
The approval of the Advisory Nominees Proposal in September 2020 triggered a “Change of Control” under the Company’s severance plan. As a result, the Company terminated the employment of its executive officers and recorded a restructuring charge of approximately $2.8 million, related to employee severance and benefits costs, of which approximately $2.6 million was paid out during the second quarter of fiscal 2021. The Company expects to pay approximately $30,000 each quarter through the end of fiscal 2022 as part of the severance and benefit obligations.
Restructuring charges were recorded in selling, general and administrative expenses and were comprised of the following (in thousands):
Year Ended
Year Ended
March 31, 2021
March 31, 2020
Severance for Involuntary Employee Terminations
$
2,808
$
2,727
Total Restructuring Expense
$
2,808
$
2,727
The following table summarizes the activity and balances of the restructuring reserve (in thousands):
Severance for
Involuntary
Employee
Terminations
Balance at March 31, 2020
$
Increase to reserve
$
2,808
Utilization of reserve:
Payments
$
(2,694
)
Balance at March 31, 2021
$
The restructuring accrual is reflected on the consolidated balance sheet at March 31, 2021 as accrued expenses.
Note 14. Subsequent Events
Between April 1, 2021 and the date of filing, the Company issued 27,545 shares of its common stock pursuant to its ATM facility for net proceeds of approximately $271,000.
In June 2021, the Company’s U.S. Pat. Nos. 9,855,369 and 9,149,952, which relate to its bioprinter technology, are the subject of IPR proceedings filed by Cellink AB and its subsidiaries, MatTek Incorporated and Visikol, Inc. collectively (“Cellink AB”). The objective of the IPR proceedings is to invalidate the claims in the noted patents. As of the date of this filing, the Company concluded that the probability of a loss contingency or unfavorable outcome from this event is remote.
In addition, U.S. Patent Nos. 9,149,952, 9,855,369, 8,931,880, 9,227,339 and 9,315,043 (all assigned to Organovo, Inc.) and U.S. Patent Nos. 7,051,654 and 9,752,116 (licensed exclusively to Organovo) are subject to a declaratory judgment complaint against the Company brought by Cellink AB to obtain a declaration from the court that they do not infringe any claims of the noted patents. As of the date of this filing, the Company concluded that the probability of a loss contingency or unfavorable outcome from this event is reasonably possible. However, the Company is currently unable to estimate a possible loss or range of loss related to the declaratory judgment complaint.

---

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.

---

ITEM 9A. CONTROLS AND PROCEDURES
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed pursuant to the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our executive chairman and our principal financial and accounting officer, as appropriate, to allow timely decisions regarding required disclosure.
Under the supervision of our Executive Chairman and our Chief Financial Officer, and with the participation of all members of management, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act. Based on this evaluation, our executive chairman and our principal financial officer concluded that our disclosure controls and procedures were designed and operating effectively as of the end of the period covered by this Annual Report.
Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Our management’s annual report on internal control over financial reporting is set forth below.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our system of internal control over financial reporting is designed to provide reasonable assurance to our management and the Board regarding the preparation and fair presentation of our consolidated financial statements for external purposes in accordance with generally accepted accounting principles.
Our management, under the supervision of our Executive Chairman and our Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of March 31, 2021. In making this assessment, we used the framework included in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the criteria set forth in Internal Control - Integrated Framework (2013), our management concluded that our internal control over financial reporting was effective as of March 31, 2021.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the fourth quarter of the fiscal year ended March 31, 2021 to which this report relates that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including our Executive Chairman and our Chief Financial Officer, do not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

---

ITEM 9B. OTHER INFORMATION
Item 9B. Other Information.
None.
PART III

---

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers and Corporate Governance.
Information relating to our directors, executive officers and corporate governance, including our Code of Business Conduct, will be included in the proxy statement for the 2021 annual meeting of the Company’s stockholders, expected to be filed within 120 days of the end of our fiscal year, which is incorporated herein by reference. The full text of our Code of Business Conduct, which is the code of ethics that applies to all of our officers, directors and employees, can be found in the “Investors” section of our website accessible to the public at www.organovo.com.

---

ITEM 11. EXECUTIVE COMPENSATION
Item 11. Executive Compensation.
Information relating to executive compensation will be included in the proxy statement for the 2021 annual meeting of the Company’s stockholders, expected to be filed within 120 days of the end of our fiscal year, which is incorporated herein by reference.

---

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table summarizes information about the Company’s equity compensation plans by type as of March 31, 2021:
(C)
(A)
Number of
Number of
securities available
securities to be
(B)
for future issuance
issued upon
Weighted-average
under Equity
exercise/vesting
exercise price
Compensation Plans
of outstanding
of outstanding
(excluding securities
options, warrants,
options, warrants,
reflected in
Plan category
units and rights
units and rights
column (A))
Equity compensation plans approved by security holders (1)
933,531 (2)
$
15.45
123,194 (3)
Equity compensation plans not approved by security holders (4)
104,410 (5)
$
54.60
750,000 (6)
(1)
Includes the 2008 Plan, the 2012 Plan, and the ESPP.
(2)
Includes stock options to purchase 900,245 shares of common stock with a per share weighted-average exercise price of $16.02. Also includes 21,057 restricted stock units and 12,229 performance-based restricted stock units with no exercise price.
(3)
Includes 59,435 shares of common stock available for purchase under the ESPP as of March 31, 2021.
(4)
Includes the Inducement Award Agreements and the Inducement Plan
(5)
Includes 104,410 stock options with a per share exercise price of $54.60 pursuant to the Inducement Award Agreements granted to our former Chief Executive Officer upon commencement of his employment. While outside the 2012 Plan, the terms and conditions of the award pursuant to the Inducement Award Agreements is consistent with awards granted to the Company’s executive officers pursuant to the 2012 Plan.
(6)
Includes 750,000 shares of common stock reserved for issuance pursuant to the Inducement Plan.
Information relating to the beneficial ownership of our common stock will be included in the proxy statement for the 2021 annual meeting of the Company’s stockholders, expected to be filed within 120 days of the end of our fiscal year, which is incorporated herein by reference.

---

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Information relating to certain relationships and related transactions and director independence will be included in the proxy statement for the 2021 annual meeting of the Company’s stockholders, expected to be filed within 120 days of the end of our fiscal year, which is incorporated herein by reference.

---

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. Principal Accountant Fees and Services.
Information relating to principal accountant fees and services will be included in the proxy statement for the 2021 annual meeting of the Company’s stockholders, expected to be filed within 120 days of the end of our fiscal year, which is incorporated herein by reference.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibits, Financial Statement Schedules.
(a). The following documents have been filed as part of this Annual Report:
1.
Consolidated Financial Statements: The information required by this item is included in Item 8 of Part II of this annual report.
2.
Financial Statement Schedules: Financial statement schedules required under the related instructions are not applicable for the years ended March 31, 2021 and 2020 and have therefore been omitted.
3.
Exhibits: The exhibits listed in the Exhibit Index attached to this report are filed or incorporated by reference as part of this annual report.
(b). The exhibits listed in the accompanying Exhibit Index are filed or incorporated by reference as part of this Annual Report.
EXHIBIT INDEX
Exhibit No.
Description
2.1
Agreement and Plan of Merger and Reorganization, dated as of December 13, 2019, by and among the Company, Opal Merger Sub, Inc. and Tarveda Therapeutics, Inc. (incorporated by reference from Exhibit 2.1 to the Company’s Current Report on Form 8-K, as filed with the SEC on December 16, 2019).
2.2
First Amendment to Merger Agreement, dated as of January 26, 2020, by and among the Company, Opal Merger Sub, Inc. and Tarveda Therapeutics, Inc. (incorporated by reference from Exhibit 2.1 to the Company’s Current Report on Form 8-K, as filed with the SEC on January 29, 2020).
3.1
Certificate of Incorporation of Organovo Holdings, Inc. (Delaware) (incorporated by reference from Exhibit 3.1 to the Company’s Current Report on Form 8-K, as filed with the SEC on February 3, 2012).
3.2
Certificate of Amendment of Certificate of Incorporation of Organovo Holdings, Inc. (incorporated by reference from Exhibit 3.1 to the Company’s Current Report on Form 8-K, as filed with the SEC on July 27, 2018).
3.3
Certificate of Second Amendment of Certificate of Incorporation of Organovo Holdings, Inc. (incorporated by reference from Exhibit 3.1 to the Company’s Current Report on Form 8-K as filed with the SEC on August 17, 2020).
3.4
Bylaws of Organovo Holdings, Inc. (Delaware) (incorporated by reference from Exhibit 3.2 to the Company’s Current Report on Form 8-K, as filed with the SEC on February 3, 2012).
3.5
Amendment to Bylaws of Organovo Holdings, Inc., dated October 10, 2019 (incorporated by reference from Exhibit 99.1 to the Company’s Current Report on Form 8-K, as filed with the SEC on October 11, 2019).
4.1*
Description of Securities.
10.1+
Organovo, Inc. 2008 Equity Incentive Plan (incorporated by reference from Exhibit 10.14 to the Company’s Current Report on Form 8-K, as filed with the SEC on February 13, 2012).
10.2+
Organovo Holdings, Inc. 2012 Equity Incentive Plan (incorporated by reference from Exhibit 10.15 to the Company’s Current Report on Form 8-K, as filed with the SEC on February 13, 2012).
10.3+
Form of Stock Option Award Agreement under the 2012 Equity Incentive Plan (incorporated by reference from Exhibit 10.16 to the Company’s Current Report on Form 8-K, as filed with the SEC on February 13, 2012).
10.4+
Form of Indemnification Agreement (incorporated by reference from Exhibit 10.17 to the Company’s Current Report on Form 8-K, as filed with the SEC on February 13, 2012).
10.5†
License Agreement dated as of March 24, 2009, by and between Organovo, Inc. and the Curators of the University of Missouri (incorporated by reference from Exhibit 10.23 to the Company’s Current Report on Form 8-K, as filed with the SEC on May 11, 2012).
10.6†
License Agreement dated as of March 12, 2010 by and between the Company and the Curators of the University of Missouri (incorporated by reference from Exhibit 10.24 to the Company’s Current Report on Form 8-K, as filed with the SEC on May 11, 2012).
10.7†
License Agreement dated as of May 2, 2011, by and between the Company and Clemson University Research Foundation (incorporated by reference from Exhibit 10.25 to the Company’s Current Report on Form 8-K, as filed with the SEC on May 11, 2012).
10.8
First Amendment to Lease, dated December 4, 2013, by and between Organovo, Inc. and ARE-SD Region No. 25, LLC. (incorporated by reference from Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q, as filed with the SEC on February 6, 2014).
10.9+
Form of Non-Employee Director Stock Option Award Agreement under the 2012 Equity Incentive Plan (incorporated by reference to Exhibit 10.35 to the Company’s Annual Report on Form 10-K, as filed with the SEC on June 9, 2015).
10.10+
Form of Executive Stock Option Award Agreement under the 2012 Equity Incentive Plan (incorporated by reference to Exhibit 10.36 to the Company’s Annual Report on Form 10-K, as filed with the SEC on June 9, 2015).
10.11+
Organovo Holdings, Inc. Severance and Change in Control Plan (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q, as filed with the SEC on November 9, 2015).
10.12+
Amendment to the Organovo Holdings, Inc. Severance and Change in Control Plan, dated May 19, 2020 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, as filed with the SEC on May 20, 2020).
10.13+
Form of Organovo Holdings, Inc. Severance and Change in Control Plan Participation Agreement (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q, as filed with the SEC on November 9, 2015).
10.14+
Offer Letter, between Craig Kussman and Organovo Holdings, Inc., dated July 29, 2016 (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K, as filed with the SEC on August 2, 2016).
Exhibit No.
Description
10.15+
Form of Restricted Stock Unit Grant Notice and Restricted Stock Unit Agreement (Retention Form) under the 2012 Equity Incentive Plan (incorporated by reference from Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q, as filed with the SEC on August 4, 2016).
10.16+
Form of Employee Restricted Stock Unit Grant Notice and Restricted Stock Unit Agreement under the 2012 Equity Incentive Plan (incorporated by reference from Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q, as filed with the SEC on August 4, 2016).
10.17+
Form of Non-Employee Director Restricted Stock Unit Grant Notice and Restricted Stock Unit Agreement under the 2012 Equity Incentive Plan (incorporated by reference from Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q, as filed with the SEC on August 4, 2016).
10.18+
Organovo Holdings, Inc. 2016 Employee Stock Purchase Plan (incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K, as filed with the SEC on August 18, 2016).
10.19+
Offer Letter, dated April 11, 2017, by and between Organovo Holdings, Inc. and Taylor Crouch (incorporated by reference from Exhibit 10.2 to the Company’s Current Report on Form 8-K, as filed with the SEC on April 11, 2017).
10.20+
Organovo Holdings, Inc. Inducement Award Stock Option Agreement, dated April 24, 2017 (incorporated by reference from Exhibit 99.1 to the Company’s Registration Statement on Form S-8 (File No. 333-217437), as filed with the SEC on April 24, 2017).
10.21+
Organovo Holdings, Inc. Inducement Award Performance-Based Restricted Stock Unit Agreement, dated April 24, 2017 (incorporated by reference from Exhibit 99.2 to the Company’s Registration Statement on Form S-8 (File No. 333-217437), as filed with the SEC on April 24, 2017).
10.22+
Organovo Holdings, Inc. Amended and Restated 2012 Equity Incentive Plan (incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K, as filed with the SEC on July 27, 2018).
10.23+
Organovo Holdings, Inc. Inducement Award Stock Option Agreement, dated August 14, 2018 (incorporated by reference from Exhibit 99.1 to the Company’s Registration Statement on Form S-8 (File No. 333-226837), as filed with the SEC on August 14, 2018).
10.24+
Organovo Holdings, Inc. Inducement Award Restricted Stock Unit Agreement, dated August 14, 2018 (incorporated by reference from Exhibit 99.2 to the Company’s Registration Statement on Form S-8 (File No. 333-226837), as filed with the SEC on August 14, 2018).
10.25+
Consulting Agreement, dated September 15, 2020, by and between Organovo and Multi Dimensional Bio Insight LLC. (incorporated by reference from Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q, as filed with the SEC on November 5, 2020).
10.26+
Consulting Agreement, dated August 25, 2020, by and between Organovo and Danforth Advisors (incorporated by reference from Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q, as filed with the SEC on November 5, 2020).
10.27+
Offer Letter, dated September 15, 2020, between the Company and Jeffrey N. Miner (incorporated by reference from Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q, as filed with the SEC on November 5, 2020).
10.28
Engagement Agreement, dated July 23, 2020, by and between Organovo and Optima Law Group of San Diego (incorporated by reference from Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q, as filed with the SEC on November 5, 2020).
10.29
Lease Agreement dated November 23, 2020, between Organovo Holdings, Inc. and San Diego Inspire 1, LLC (Temporary Lease Agreement - 176647423.3) (incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K, as filed with the SEC on November 25, 2020).
10.30
Lease Agreement dated November 23, 2020, between Organovo Holdings, Inc. and San Diego Inspire 1, LLC (Permanent Lease Agreement 176640186.8) (incorporated by reference from Exhibit 10.2 to the Company’s Current Report on Form 8-K, as filed with the SEC on November 25, 2020).
10.31#
Intercompany Agreement, dated December 28, 2020, by and among Organovo Holdings, Inc., Organovo, Inc. and Viscient Biosciences, Inc. (incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K, as filed with the SEC on December 31, 2020).
10.32+
Offer Letter, dated December 28, 2020, between the Company and Tom Jurgensen (incorporated by reference from Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q, as filed with the SEC on February 8, 2021).
10.33
Sales Agreement, dated March 16, 2018, by and among Organovo Holdings, Inc., H.C. Wainwright & Co., LLC and JonesTrading Institutional Services LLC. (incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K, as filed with the SEC on March 16, 2018).
Exhibit No.
Description
10.34#
Organovo Holdings, Inc. Amended and Restated 2012 Equity Incentive Plan (incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K, as filed with the SEC on March 10, 2021).
10.35#
Organovo Holdings, Inc. 2021 Inducement Equity Incentive Plan (incorporated by reference from Exhibit 10.2 to the Company’s Current Report on Form 8-K, as filed with the SEC on March 10, 2021).
10.36#
Form of Stock Option Agreement under the Organovo Holdings, Inc. 2021 Inducement Equity Incentive Plan (incorporated by reference from Exhibit 4.2 to the Company’s Registration Statement on Form S-8 (File No. 333-254714), as filed with the SEC on March 25, 2021).
10.37#
Form of Restricted Stock Unit Agreement under the Organovo Holdings, Inc. 2021 Inducement Equity Incentive Plan (incorporated by reference from Exhibit 4.3 to the Company’s Registration Statement on Form S-8 (File No. 333-254714), as filed with the SEC on March 25, 2021).
21.1*
Subsidiaries of Organovo Holdings, Inc.
23.1*
Consent of Independent Registered Public Accounting Firm.
24.1*
Power of Attorney (included on signature page hereto).
31.1*
Certification of Chief Executive Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended.
31.2*
Certification of Chief Financial Officer a Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended.
32.1*
Certifications Required Under Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and to 18 U.S.C. Section 1350.
101.INS*
XBRL Instance Document
101.SCH*
XBRL Taxonomy Extension Schema
101.CAL*
XBRL Taxonomy Extension Calculation Linkbase
101.DEF*
XBRL Taxonomy Extension Definition Linkbase
101.LAB*
XBRL Taxonomy Extension Label Linkbase
101.PRE*
XBRL Taxonomy Extension Presentation Linkbase
*
Filed herewith.
+
Designates management contracts and compensation plans.
†
This Exhibit has been filed separately with the Secretary of the Securities and Exchange Commission without the redaction pursuant to a Confidential Treatment Request under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
#
Certain identified information has been omitted pursuant to Item 601(b)(10) of Regulation S-K because such information is both (i) not material and (ii) would likely cause competitive harm to the Registrant if publicly disclosed. The Registrant hereby undertakes to furnish supplemental copies of the unredacted exhibit upon request by the Securities and Exchange Commission.