ORGANOVO HOLDINGS, INC. 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 thereto included in our Annual Report on Form 10-K for the fiscal year endedMarch 31, 2022 . This management's discussion and analysis contains forward-looking statements, such as statements related to our plans, objectives, expectations and intentions. Any statements that are not statements of historical fact are forward-looking statements. When used, the words "believe," "plan," "intend," "anticipate," "target," "estimate," "expect" and the like, and/or future tense or conditional constructions such as "will," "may," "could," "should," or similar expressions, identify certain of these forward-looking statements. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to risks and uncertainties, including those described in this Quarterly Report on Form 10-Q, as well as the risk factors disclosed in our Annual Report on the Form 10-K for the fiscal year endedMarch 31, 2022 , filed with theSecurities and Exchange Commission onJune 10, 2022 , and discussed in the section titled "Risk Factors" under Part II, Item 1A in this Quarterly Report on Form 10-Q, that could cause our actual results or events to differ materially from those expressed or implied by such forward-looking statements. Unless the context otherwise requires, the terms "Organovo ," the "Company", "we", "us" and "our" in this Quarterly Report on Form 10-Q refer toOrganovo Holdings, Inc. and its wholly owned subsidiaries,Organovo, Inc. andOpal Merger Sub, Inc.
Except to the limited extent required by applicable law, we do not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Quarterly Report.
Basis of Presentation
The unaudited condensed consolidated financial statements included in this Form 10-Q have been prepared in accordance with theSecurities and Exchange Commission (the "SEC") instructions to Quarterly Reports on Form 10-Q. Accordingly, the unaudited condensed consolidated financial statements presented elsewhere in this Form 10-Q and discussed below are unaudited and do not contain all the information required byU.S. generally accepted accounting principles ("GAAP") to be included in a full set of financial statements. The audited financial statements for the year endedMarch 31, 2022 , filed with theSEC on Form 10-K onJune 10, 2022 , include a summary of our significant accounting policies and should be read in conjunction with this Form 10-Q. In the opinion of management, all material adjustments necessary to present fairly the results of operations for such periods have been included in this Form 10-Q. All such adjustments are of a normal recurring nature. The results of operations for interim periods are not necessarily indicative of the results of operations for the entire year. 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 responsible for driving the disease and intend to initiate drug discovery programs around these validated targets. We are initially focusing on the intestine and have ongoing 3D tissue development efforts in ulcerative colitis ("UC") and Crohn's disease ("CD"). Recently, we announced that we have successfully advanced our first inflammatory bowel disease ("IBD") model to the next step of target discovery and validation for CD. We intend to add additional tissues/diseases/targets to our portfolio over time. 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. In addition, we are exploring opportunities to acquire clinical stage assets (Phase I and II) that are complementary to our therapeutic areas of interest and that can be taken through the FDA process and into the market on a faster timeline than our internally developed molecules. If such opportunities become part of our pipeline, we would expect to continue development of additional therapeutics from internal research along the current base case plan. 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 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. 18 -------------------------------------------------------------------------------- The majority of our current focus is on IBD, including CD and UC. We are creating high fidelity 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 have identified and validated novel therapeutic targets and we are actively focused 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 may also form partnerships around the development of targets or therapeutics for the treatment of IBD. 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. We hold a large and diverse patent portfolio related to our bioprinting platform and complementary 3D technologies. The strength of this patent portfolio, the fact that it was created early in the bioprinting revolution and growth in the bioprinting industry have made for an attractive business opportunity for us. We are now beginning to invest resources to explore and expand business and revenue opportunities from the leveraging of our patent portfolio.
COVID-19
Global health concerns relating to the COVID-19 pandemic continue to weigh on the macroeconomic environment, and the pandemic has significantly increased economic volatility and uncertainty.
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, the duration of the outbreak, and any travel bans, restrictions or other limitations that may be imposed in the future. 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 returned to working at our office and lab when necessary. We have developed guidelines and protocols to handle exposures and infections intended to keep disruptions to operations to a minimum.
Critical Accounting Policies, Estimates, and Judgments
Our financial statements are prepared in accordance with GAAP. 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 revenue recognition and the valuation of 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. There have been no significant changes to our critical accounting policies sinceMarch 31, 2022 . For a description of critical accounting policies that affect our significant judgments and estimates used in the preparation of our condensed consolidated financial statements, refer to Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Note 1. Description of Business and Summary of Significant Accounting Policies" in the Notes to Consolidated Financial Statements contained in our Annual Report on Form 10-K for the year endedMarch 31, 2022 , filed with theSEC onJune 10, 2022 . 19 --------------------------------------------------------------------------------
Results of Operations
Comparison of the three months ended
The following table summarizes our results of operations for the three months
ended
Three Months Ended
December 31, Increase (decrease)
2022 2021 $ %
Revenues $ 131 $ - $ 131 100 %
Research and development $ 1,185 $ 926 $ 259 28 %
Selling, general and administrative $ 2,305 $ 2,574 $ (269 ) (10 %)
Other income $ 95 $ 2 $ 93 4,650 %
Revenues
For the three months ended December 31, 2022 , total revenue was $0.1 million , an
increase of 100% from the three months ended December 31, 2021 . The increase in
revenue is related to sales-based royalties from licensing intellectual
property.
Costs and Expenses
Research and Development Expenses
The following table summarizes our research and development expenses for the
three months ended
Three
Months Three Months Increase
Ended Ended
December % of total December 31, % of total $ %
31, 2022 2021
Research and
development $ 1,023 86 % $ 783 85 % $ 240 31 %
Non-cash stock-based
compensation 117 10 % 111 12 % 6 5 %
Depreciation and
amortization 45 4 % 32 3 % 13 41 %
Total research and
development
expenses $ 1,185 100 % $ 926 100 % $ 259 28 %
For the three months ended December 31, 2022 , research and development expenses
were $1.2 million , an increase of $0.3 million , or approximately 28% from the
prior year period. The increase year over year directly relates to the increase
in headcount and research and development activities. Our average full-time
research and development staff increased from an average of eleven full-time
employees for the three months ended December 31, 2021 to an average of fifteen
full-time employees for the three months ended December 31, 2022 . Our fiscal
2023 operations resulted in a $0.2 million increase in personnel related costs
and a $0.1 million increase in lab expenses. Going forward, we intend to
continue to increase headcount and research and development activities with an
associated increase in expenses.
Selling, General and Administrative Expenses
The following table summarizes our selling, general and administrative expenses for the three months endedDecember 31, 2022 and 2021 (in thousands, except %): Three Three Months Months Ended Ended Increase (decrease) December % of total December 31, 2022 31, 2021 % of total $ % Selling, general and administrative$ 1,793 77 %$ 2,092 81 %$ (299 ) (14 %) Non-cash stock-based compensation 427 19 % 477 19 % (50 ) (10 %) Depreciation and amortization 85 4 % 5 0 % 80 1,600 % Total selling, general and administrative expenses$ 2,305 100 %$ 2,574 100 %$ (269 ) (10 %) 20
-------------------------------------------------------------------------------- For the three months endedDecember 31, 2022 , selling, general and administrative expenses were approximately$2.3 million , a decrease of$0.3 million , or approximately 10%, compared to the prior year period. The decrease year over year relates to a decrease in legal expenses, resulting from settling litigation that occurred in fiscal 2022. Our average full-time general and administrative staff increased from an average of four full-time employees for the three months endedDecember 31, 2021 to an average of five full-time employees for the three months endedDecember 31, 2022 . Our fiscal 2023 operations resulted in a$0.1 million increase in personnel related costs and a$0.1 million increase in depreciation and amortization, which was offset by a$0.5 million decrease in legal and general corporate costs.
Other Income
Other income was less than
Comparison of the nine months ended
The following table summarizes our results of operations for the nine months
ended
Nine Months Ended
December 31, Increase (decrease)
2022 2021 $ %
Revenues $ 208 $ - $ 208 100 %
Research and development $ 3,436 $ 2,185 $ 1,251 57 %
Selling, general and administrative $ 6,724 $ 7,381 $ (657 ) (9 %)
Other income $ 154 $ 31 $ 123 397 %
Revenues
For the nine months ended December 31, 2022 , total revenue was $0.2 million , an
increase of 100% from the nine months ended December 30, 2021 . The increase in
revenue is related to sales-based royalties from licensing intellectual
property.
Costs and Expenses
Research and Development Expenses
The following table summarizes our research and development expenses for the
nine months ended
Nine Months Nine Months
Ended Ended Increase (decrease)
December % of total December % of total $ %
31, 2022 31, 2021
Research and
development $ 2,953 86 % $ 1,837 84 % $ 1,116 61 %
Non-cash stock-based
compensation 363 11 % 267 12 % 96 36 %
Depreciation and
amortization 120 3 % 81 4 % 39 48 %
Total research and
development expenses $ 3,436 100 % $ 2,185 100 % $ 1,251 57 %
21-------------------------------------------------------------------------------- For the nine months endedDecember 31, 2022 , research and development expenses were$3.4 million , an increase of$1.3 million , or 57% from the prior year period. Our average full-time research and development staff increased from an average of eleven full-time employees for the nine months endedDecember 31, 2021 to an average of fourteen full-time employees for the nine months endedDecember 31, 2022 . Our fiscal 2023 research and development activities resulted in a$0.6 million increase in personnel related costs, a$0.4 million increase in lab expenses, and a$0.3 million increase in facility costs. Going forward, we intend to continue to increase headcount and research and development activities with an associated increase in expenses.
Selling, General and Administrative Expenses
The following table summarizes our selling, general and administrative expenses for the nine months endedDecember 31, 2022 and 2021 (in thousands, except %): Nine Months Nine Months Ended Ended Increase (decrease) December % of total December % of total $ % 31, 2022 31, 2021 Selling, general and administrative$ 5,096 75 %$ 6,204 84 %$ (1,108 ) (18 %) Non-cash stock-based compensation 1,514 23 % 1,162 16 % 352 30 % Depreciation and amortization 114 2 % 15 0 % 99 660 % Total selling, general and administrative expenses$ 6,724 100 %$ 7,381 100 %$ (657 ) (9 %) For the nine months endedDecember 31, 2022 , selling, general and administrative expenses were approximately$6.7 million , a decrease of$0.7 million , or approximately 9%, compared to the prior year period. The decrease year over year mostly relates to a decrease in legal expenses, resulting from settling litigation that occurred in fiscal 2022. During the nine months endedDecember 31, 2021 , we had an average of four full-time employees, compared to an average of five full-time employees for the nine months endedDecember 31, 2022 . Our fiscal 2023 operations resulted in a$0.6 million increase in personnel related costs, a$0.1 million increase in depreciation, amortization and other miscellaneous expenses, and a$0.2 million increase in consulting costs, which was offset by a$1.6 million decrease in legal and general corporate costs.
Other Income
Other income was
Financial Condition, Liquidity and Capital Resources
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 strategy, we intend to continue to expand our research and development functions to support our screening and drug development efforts. AtDecember 31, 2022 , we had cash and cash equivalents of approximately$20.2 million , restricted cash of approximately$0.1 million and an accumulated deficit of approximately$317.5 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 agreement for its facilities. We had negative cash flow from operations of approximately$7.7 million during the nine months endedDecember 31, 2022 . AtMarch 31, 2022 , we had cash and cash equivalents of approximately$28.7 million , restricted cash of approximately$0.1 million and an accumulated deficit of approximately$307.7 million .
At
22
--------------------------------------------------------------------------------
The following table summarizes the primary sources and uses of cash for the nine
months ended
Nine Months Ended
December 31,
2022 2021
Net cash (used in) provided by:
Operating activities $ (7,675 ) $ (6,912 )
Investing activities (804 ) (356 )
Financing activities - 205
Net decrease in cash, cash equivalents, and restricted cash
Operating activities
Net cash used in operating activities for the nine months ended
Investing activities
Net cash used in investing activities was$0.8 million for the nine months endedDecember 31, 2022 . Investing activities consisted of the purchases of equity securities of$1.1 million , the sales of equity securities of$0.4 million , the purchases of short-term investments of$9.9 million , the maturities of investments of$10.0 million , and fixed asset purchases of$0.2 million . Net cash used by investing activities, consisting of fixed asset purchases, was$0.4 million for the nine months endedDecember 31, 2021 .
Financing activities
There were no cash financing activities during the nine months endedDecember 31, 2022 . Net cash provided by financing activities, consisting of the sale of common stock through at-the-market ("ATM") offerings, was$0.2 million during the nine months endedDecember 31, 2021 .
Operations funding requirements
ThroughDecember 31, 2022 , we have financed our operations primarily through the sale of convertible notes, warrants, the private placement of equity securities, the sale of common stock through public and ATM offerings, and through revenue derived from products and research service-based agreements, collaborative agreements, licenses, and grants. 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 theNasdaq Capital Market, and other miscellaneous fees to support our operations. We expect our total operating expense for the fiscal year endingMarch 31, 2023 will be between$12.0 million and$14.0 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. 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 onFebruary 22, 2021 . OnJanuary 19, 2021 , we filed a shelf registration statement on Form S-3 (File No. 333-252224) to register$150.0 million of common stock, preferred stock, debt securities, warrants and units, or any combination of the foregoing (the "2021 Shelf") and a related prospectus. The 2021 Shelf registration statement was declared effective by theSEC onJanuary 29, 2021 and replaced the 2018 Shelf at that time. OnMarch 16, 2018 , we entered into a Sales Agreement ("Sales Agreement") withH.C. Wainwright & Co., LLC andJones Trading Institutional Services LLC (each an "Agent" and together, the "Agents"). OnJanuary 29, 2021 , we filed a prospectus supplement to the 2021 Shelf (the "ATM Prospectus Supplement"), pursuant to which we could offer and sell, from time to time through the Agents, shares of our common stock in ATM sales transactions having an aggregate offering price of up to$50.0 million . Any shares offered and sold are issued pursuant to our 2021 Shelf. 23
-------------------------------------------------------------------------------- During the nine months endedDecember 31, 2022 , we sold no shares of common stock in ATM offerings. As ofDecember 31, 2022 , we have sold an aggregate of 1,580,862 shares of common stock in ATM offerings under the ATM Prospectus Supplement, for gross proceeds of approximately$21.7 million . As ofDecember 31, 2022 , there was approximately$100.0 million available in future offerings under the 2021 Shelf, and approximately$28.3 million available for future offerings through our ATM program under the ATM Prospectus Supplement. 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 eventually 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. We cannot be sure that additional financing will be available if and when needed, or that, if available, we can obtain financing on terms favorable to our stockholders. Any failure to obtain financing when required will have a material adverse effect on our business, operating results, financial condition and ability to continue as a going concern.
As of
OnOctober 12, 2022 , our stockholders and the Board of Directors ("Board") approved the 2022 Equity Incentive Plan ("2022 Plan"), and it became effective on that date. The 2022 Plan replaced the 2012 Equity Incentive Plan ("2012 Plan") on the effective date. Upon the effective date, we ceased granting awards under the 2012 Plan and any shares remaining available for future issuance under the 2012 Plan were cancelled and are no longer available for future issuance. The 2012 Plan continues to govern awards previously granted under it. At the time the Board approved the 2022 Plan, an aggregate of 1,363,000 shares of our common stock was initially reserved for issuance under the 2022 Plan. We committed to reducing the new 2022 Plan share reserve by the number of shares that were granted under the 2012 Plan and the Inducement Plan betweenJuly 25, 2022 andOctober 12, 2022 . FromJuly 25, 2022 toOctober 12, 2022 , we issued 126,262 shares of common stock under the 2012 Plan. As a result, the number of shares reserved for future issuance under the 2022 Plan is 1,236,738 shares of common stock as ofDecember 31, 2022 . We also committed to reducing the aggregate number of shares of common stock issuable pursuant to the 2021 Inducement Equity Incentive Plan ("Inducement Plan") from 750,000 shares to 51,000 shares (which includes 50,000 shares of its common stock issuable pursuant to an outstanding option to purchase common stock with an exercise price of$2.75 per share, leaving only 1,000 shares available for future issuance under the Inducement Plan) and the share reserve was reduced effectiveOctober 12, 2022 . The 2022 Plan provides for the issuance of up to 1,236,738 shares of our common stock, of which 1,115,635 shares remain available for issuance as ofDecember 31, 2022 , to executive officers, directors, advisory board members, employees and consultants. The 2012 Equity Incentive Plan, as amended, provides for the issuance of up to 2,327,699 shares of our common stock, of which no shares remain available for issuance as ofDecember 31, 2022 . Additionally, 75,000 shares of common stock have been reserved for issuance under the 2016 Employee Stock Purchase Plan ("ESPP"), of which 59,435 shares remain available for future issuance as ofDecember 31, 2022 . Finally, 51,000 shares of common stock have been reserved for issuances under our Inducement Plan, of which 1,000 remain available for future issuance as ofDecember 31, 2022 . In aggregate, issued and outstanding common stock and shares issuable under outstanding equity awards or reserved for future issuance under the 2022 Plan, the 2012 Plan, the Inducement Plan, and the ESPP total 11,426,771 shares of common stock as ofDecember 31, 2022 .
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.
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