2018 annual report
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.com.
Creating Value by Investing in
Tomorrow, Today.
For more information, visit our online annual report at www.organovo.com.
Multiple Paths for Creating Value
Therapeutic Tissues
We are developing our liver tissue to
treat a range of rare, life‑threatening
diseases for which there are limited
treatment options. Our goal is
to delay or reduce the need for
an organ transplant, while also
reducing the annual cost of care for
patients. Our strategy envisions our
NovoTissues® being able to treat
multiple disease areas, offering
significant research, manufacturing
and developmental benefits.
Drug Profiling
Capabilities
We are harnessing our
foundational ability to characterize
specialized human cells and to
3D bioprint functional human
tissues to create novel liver
disease modeling platforms. We
expect that our platforms will be
increasingly accessed by our
clients through collaborative,
revenue‑generating
agreements.
1
Therapeutic
Tissues
2
High-Quality
Human Cells
(Samsara)
3
Disease Modeling
Platform Supports
Drug Discovery &
Development
.com.
Today
We facilitate a better understanding of disease processes, the discovery of novel
therapeutics, and the safety assessment of drugs in a disease‑relevant background.
The global biopharma industry has launched more
than 250 clinical therapeutic programs to pursue
treatments across the liver disease spectrum
including NASH.
Our 3D bioprinting platform enables the creation
of durable, multi‑cellular tissues with complex
architecture that replicates key aspects of
native biology.
We have seen great revenue traction from our
with essentially a lab to human translation, which
Samsara division, which more than tripled its
we believe can greatly improve the effectiveness
contribution to our business during fiscal 2018.
of drug research.
We have the potential to provide our customers
Tomorrow
We are targeting submission of our first Investigational New Drug Application (IND) in
calendar‑year 2020.
We are building out our IND‑track therapeutics programs,
having reached our first regulatory milestone in fiscal
2018, with the FDA granting us orphan designation for
our first indication.
Liver disease is a growing public health crisis throughout
the U.S., Europe and Asia, with approximately one‑third
of the developed world suffering from deteriorating
liver function.
Inborn errors of
metabolism such as
Alpha‑1‑antitrypsin
deficiency and Type 1
Tyrosinemia represent
rare and potentially fatal
diseases with great
unmet need.
We are a biotechnology company pioneering the development of 3D bioprinted
tissues aimed at treating a range of serious adult and pediatric liver diseases.
Dear Fellow Stockholders,
Change and What’s Ahead
animal models for Alpha-1-antitrypsin
good retention and functionality of
It has been an exhilarating first year
deficiency (“A1AT”). A1AT is our lead
our tissues, and improved survival
for me as Organovo’s CEO. We
therapeutic indication, representing
rates in established animal models
have evolved the way we define
just one area in a group of rare, often
for this serious condition. As we look
ourselves and how we bring the
fatal diseases known as inborn errors
ahead, we’ll likely pursue orphan
value of our platform technology
of metabolism (“IEMs”). We wrapped
designation with the FDA for this
to customers and future patients.
up the year by achieving orphan
second indication in fiscal 2019, with
We are harnessing our remarkable
drug designation from the FDA for
the objective of ending the year with
ability to 3D bioprint tissues with
this first Investigational New Drug
two liver therapeutic tissue programs
the primary goal of implanting our
(“IND”)-track program. We aim to
on track for an IND targeted for
functioning tissues into pediatric
work closely with the FDA and our
calendar 2020.
and adult patients to treat a range
key advisers to confirm the scientific
of liver diseases. For these patients,
validation course we’ll need to follow
treatment options are very limited,
for a successful pre-IND meeting for
and an organ transplant is often the
A1AT in order to commence IND-
only path back to better health.
enabling studies in the near-term. We
Fiscal 2018 was an important
transition year, as we demonstrated
preclinical proof-of-concept data
for our NovoTissues® liver implant in
also began new animal model studies
in a second therapeutic area known
as Type 1 Tyrosinemia, and have
presented early evidence showing
Taylor J. Crouch
President and Chief Executive Officer
1
For more information, visit our online annual report at www.organovo.com. Our research programs will continue
technology platform for partners,
provide “patient on a plate” results
to explore additional liver disease
collaborators and clients. Our
in a fraction of the time and costs of
areas including other inborn errors
foundational ability to characterize
conducting human clinical trials.
of metabolism, and we’ll also begin
specialized human cells and build
exploring the large market involving
robust, functional human tissues
“acute on chronic” liver failure. When
allows us to create custom disease
taking all these together, we estimate
models that mimic non-alcoholic
that the unique benefits of bridging
steatohepatitis (“NASH”) conditions.
patients to transplant or providing a
We believe our platform represents
therapeutic alternative to transplant
the only comprehensive, non-clinical
could create an addressable peak
way to investigate key aspects of drug
global sales opportunity of more
efficacy and safety utilizing histology,
than $4 billion. The A1AT treatment
which is the gold standard of
alone has the potential to approach
diagnosing and measuring response
$1 billion in peak sales.
in NASH. Because of our ability to
Using the same liver platform today,
we’re also aiming to build immediate
value by providing access to our
create a disease testing capability,
which we believe will be predictive
of real human outcomes, we seek to
Along with our early adopters,
we’re pioneering a new path
in this dynamic space of drug
discovery and development, and
we believe clients will turn to us to
explore solutions across the R&D
spectrum from novel drug targeting
research, to comprehensive lead
candidate profiling, to evaluating
the competitive advantage aspects
of drugs already in the clinic.
Ultimately, the stream of revenues
generated through this access
provides scientific validation and
financial support for our therapeutics
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Liver Therapeutic Tissue Pipeline
Disease
Preclinical
IND-Enabling
Clinical
Regulatory Status
Healthy Tissue
Validation
A1AT Deficiency
Type 1 Tyrosinemia
(FAH Deficiency)
Other IEMs
Potential: FastTrack and/
or RMAT Acceleration
Orphan Designation
pathway, and also has the potential
our current support of NASH R&D
our stream of near-term revenues,
to generate new pipeline ideas and
through to a range of potentially
we hope to reduce the need for
capabilities.
breakthrough clinical applications
other methods of financing our
Creating long-term value
As we continue to demonstrate
the remarkable utility of our 3D
bioprinted tissues, we are focused
on critical advances to medicine that
enabled by our NovoTissues
therapeutics path to the clinic.
platform. We believe our technology
has the potential to transform the
care of patients with debilitating and
often fatal liver diseases.
I thank my colleagues for their
dedication and hard work during a
busy and transformative year. I am
grateful for the support of our clients,
our platform may provide, spanning
These key business and scientific
partners and stockholders. We enter
objectives are aligned with
fiscal 2019 with many important
strong financial discipline and
milestones in sight, for what is sure to
the prudent management of our
be another exciting year for Organovo.
capital resources. We’ll continue to
tightly manage our operating costs
and streamline our operations to
focus on our existing commercial
opportunities and therapeutics
Taylor J. Crouch
President and Chief Executive Officer
research program. By leveraging
June 2018
3
For more information, visit our online annual report at www.organovo.com. Financial Highlights*
(in millions)
Organovo Holdings, Inc.
2014
2015
2016
2017
2018
Revenue
Product and Service
Collaborations
Grants
Net Loss
$ 0.4
$ 0.6
$
1.5
$ —
$ 0.3
$ 0.8
$ 0.2
$ 0.1
$ 0.5
$ 0.1
$ 0.1
$ 0.2
$
$
$
$
4.2
3.2
1.0
0.0
$ 4.6
$ 3.6
$ 0.4
$ 0.6
$ (25.8)
$ (30.1)
$ (38.6)
$
(38.4)
$ (34.8)
Cash and Cash Equivalents
$ 48.2
$ 50.1
$ 62.1
$ 62.8
$ 43.7
* Fiscal year ending March 31
Revenue Growth
(dollars in millions)
$5
$4
$3
$2
$1
$0
4
2014
2018
Grants
Collaborations
Product and Service
Safe Harbor Statement
Any statements contained in this Annual Report that do not describe historical facts are forward-
looking statements as defined under the Federal securities laws. The Company has based these
forward-looking statements on its current expectations and the information currently available to
it, but any forward-looking statements are subject to a number of risks and uncertainties. The
factors that could cause the Company’s actual future results to differ materially from its current
expectations, or from the results implied by any forward-looking statements, include, but are not
limited to, the final results of the Company's preclinical studies may be different from the
Company's studies or interim preclinical data results and may not support further clinical
development of its therapeutic tissues; the Company may not successfully complete the required
preclinical and clinical trials required to obtain regulatory approval for its therapeutic tissues on a
timely basis or at all; risks and uncertainties relating to the Company's ability to develop, market
and sell products and services based on its technology; the expected benefits and efficacy of the
Company's products, services and technology; the Company’s ability to successfully complete
studies and provide the technical information required to support market acceptance of its
products, services and technology, on a timely basis or at all; the Company's business, research,
product development, regulatory approval, marketing and distribution plans and strategies,
including its use of third party distributors; the Company’s ability to recognize deferred revenue;
the Company’s ability to raise sufficient funds to finance its long-term business plan; and the
Company’s ability to meet its fiscal year 2019 goals. These and other factors are identified and
described in more detail in the Company's filings with the SEC, including its Annual Report on
Form 10-K filed with the SEC on May 31, 2018. You should not place undue reliance on these
forward-looking statements, which speak only as of the date that they were made. These
cautionary statements should be considered with any written or oral forward-looking statements
that the Company may issue in the future. Except as required by applicable law, including the
securities laws of the United States, the Company does not intend to update any of the forward-
looking statements to conform these statements to reflect actual results, later events or
circumstances or to reflect the occurrence of unanticipated events.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended March 31, 2018
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
Commission File No. 001-35996
ORGANOVO HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
6275 Nancy Ridge Drive, Suite 110
San Diego, CA
(Address of principal executive offices)
27-1488943
(IRS Employer Identification No.)
92121
(Zip code)
Registrant’s telephone number, including area code: 858-224-1000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $0.001 per share
Name of each exchange on which registered
The NASDAQ Stock Market
(NASDAQ Global Market)
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and
post such files). Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging
growth company. See the definitions of “accelerated filer”, “large accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of
the Exchange Act.
Large accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
The aggregate market value of the voting and non-voting common equity held by non-affiliates based on the closing stock price as reported on the NASDAQ
Global Market on September 30, 2017, the last trading day of the registrant’s second fiscal quarter, was $232,023,855. For purposes of this computation only, shares of
common stock held by each executive officer, director, and 10% or greater stockholders have been excluded in that such persons may be deemed affiliates.
The number of outstanding shares of the registrant’s common stock, as of May 29, 2018 was 111,126,625.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information required for Part III of this report is incorporated herein by reference to the definitive proxy statement for the 2018 annual meeting of the
registrant’s stockholders, expected to be filed within 120 days of the end of the registrant’s fiscal year.
Organovo Holdings, Inc.
Annual Report on Form 10-K
For the Year Ended March 31, 2018
Table of Contents
Important Information Regarding Forward-Looking Statements
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Page
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PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
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Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Consolidated Financial Statements
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
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F-1
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PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11.
Item 12.
Item 13.
Item 14.
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
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PART IV
Item 15.
Exhibits and Financial Statement Schedules
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Important Information Regarding Forward-Looking Statements
Portions of this annual report on Form 10-K (including information incorporated by reference) include “forward-looking statements”
within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995, based on our current
beliefs, expectations and projections regarding our technology, our product and service development opportunities and timelines, our
business strategies, customer acceptance and the market potential of our technology, products and services, our future capital
requirements, our future financial performance and other matters. This includes, in particular, Item 1. “Business” and Item 7.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this annual report on Form 10-K, as
well as other portions of this annual report on Form 10-K. The words “believe,” “expect,” “anticipate,” “project,” “could,” “would,”
and similar expressions, among others, generally identify “forward-looking statements,” which speak only as of the date the
statements were made. The matters discussed in these forward-looking statements are subject to risks, uncertainties and other factors
that could cause our actual results to differ materially from those projected, anticipated or implied in the forward-looking statements.
As a result, you should not place undue reliance on any forward-looking statements. The most significant of these risks, uncertainties
and other factors are described in Item 1A. “Risk Factors” of this annual report on Form 10-K. Except to the limited extent required by
applicable law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
1
Item 1. Business.
Overview
PART I
Organovo Holdings, Inc. (“Organovo Holdings,” “we,” “us,” “our,” “the Company” and “our Company”) is a biotechnology company
pioneering a unique set of therapeutic and drug profiling capabilities based on its revolutionary ability to 3D bioprint tissues that
emulate human biology and disease. We are developing in vivo liver tissues to treat a range of rare, life-threatening diseases, for
which there are few current treatment options other than organ transplantation. Our first program, which focuses on a rare disease
known as Alpha-1-antitrypsin deficiency (“A1AT”), received the U.S. Food and Drug Administration’s (“FDA”) orphan drug
designation in December 2017 and is targeted for an Initial New Drug Application (“IND”) filing in calendar-year 2020. We are also
capitalizing on our foundational ability to isolate highly specialized human cells to build robust, functional human tissues by creating a
range of novel preclinical in vitro disease modeling platforms, including a broad set of non-alcoholic fatty liver disease (“NAFLD”)
and non-alcoholic steatohepatitis (“NASH”) conditions. Our clients are accessing these diseased tissue platforms through a growing
number of collaborative, revenue-generating agreements.
We aim to grow revenue through product sales, fee-based service agreements and collaborations for our in vitro tissues to help provide
a portion of the required cash flow to support our in vivo therapeutics development program. Our in vitro and in vivo tissues are both
built upon the same proprietary 3D bioprinting technology and our highly specialized cells, providing valuable synergies in advancing
each of our businesses. We are striving to change the face of medicine by enabling translational drug discovery and through clinical
development of novel approaches to treating disease.
In the near-term, we will focus on several value-driving inflection points including:
Partnering with the FDA and expert advisers to finalize the confirmatory animal studies and scientific validation path
leading to a successful pre-IND meeting for our first liver therapeutic tissue indication, A1AT;
Validating a second unmet disease area using the same healthy liver therapeutic tissue patch and moving into an additional
IND-track program;
Deploying a broad range of proof-of-concept disease modeling capabilities in NASH to enable steady-state, high content
drug screening collaborations with current and prospective clients;
Growing our Samsara Sciences, Inc. (“Samsara”) division’s cell-based product revenue, as well as continuing to generate
revenue from grant and licensing agreements; and
Continuing to present and publish major scientific findings of our tissue platform.
Over the long-term, we will focus on achieving the following key milestones:
One or more successful IND submissions, leading to the initiation of Phase I clinical studies involving implantation and
functional evaluation of our liver therapeutic tissue patch in target disease patients;
Achieving key FDA designations associated with tissue-based approaches that address serious unmet medical needs in
rare disease indications, which can include Regenerative Medicine Advanced Therapy (“RMAT”), Orphan Disease, Fast
Track and Breakthrough designations;
Achieving operational breakeven profitability for our commercial business by securing significant revenue-generating fee-
based service agreements and collaborations and creating business opportunities which may lead to valuable spin-out
and/or partnering opportunities; and
Continuing academic, partner and internal research programs to generate additional, high value tissue applications and
therapeutics pipeline opportunities in other organ and disease areas.
Our Platform Technology
Our 3D human tissue platform is enabled by our proprietary NovoGen Bioprinters® and related technologies for preparing bio-inks
and bioprinting multicellular tissues with complex architecture. We believe the tissue-like configuration and extended lifespan of our
3D human tissues make them ideally suited for the assessment of drug safety and efficacy, and as implantable tissue patches for
augmentation or replacement of organ function. Our foundational proprietary technology, grounded in over a decade of peer-reviewed
scientific publications, derives from research led by Dr. Gabor Forgacs, the former George H. Vineyard Professor of Biological
Physics at the University of Missouri-Columbia. 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 the University of Missouri-Columbia and Clemson University. We have continued to develop our
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technology and grow our intellectual property portfolio. In addition to our in-licensed patents, we own more than 100 additional
patents and pending applications worldwide covering specific tissue designs, uses, and methods of manufacture. We believe that our
broad and exclusive commercial rights to patented and patent-pending 3D tissues and related bioprinting technology provide us with a
strong and defensible market position for the successful commercialization of 3D bioprinted human tissues to address a broad array of
unmet preclinical and clinical needs.
The key distinguishing features of our bioprinted 3D human tissues are their dense cellularity and the controlled patterning of specific
cell types relative to each other, both of which are enabled by our proprietary bio-inks and bioprinters. Cells within our bioprinted
tissues develop extensive cell-cell interactions and features analogous to those found in native tissues, which drives their extended
viability and function outside of the body. Unlike the majority of engineered tissue strategies, where biomaterials are the major
component of the tissue and cells are present in relatively low proportions, the Organovo platform builds tissues that are comprised
almost entirely of human cells with minimal usage of any biomaterial components. Prior to the invention of our NovoGen® bioprinting
platform, the most common fabrication method for 3D tissues was the use of biomaterial scaffolding into which cells were
incorporated. While useful for some applications, scaffold-based engineered tissues lack features of native tissue that are critical to
function such as dense cellularity where cells have intimate contact with neighboring cells, and an intricate architecture created by the
spatial arrangement of specific cellular compartments relative to each other. Moreover, we focus exclusively on the use of human cells
as inputs, yielding functional models of human tissue that can be used in vitro for drug discovery and development. In addition,
complex bioprinted human tissues may also address unmet clinical needs by serving as tissue grafts for the augmentation or
replacement of functional mass in tissues and organs that are damaged by trauma or disease
Our Market Opportunity
We believe that our proprietary 3D bioprinting platform enables us to deliver functional human tissues to multiple clinical markets for
direct therapeutic purposes and to the drug discovery and development market for the creation and optimization of novel therapeutic
treatments:
1)
2)
Implantable 3D Tissues for Therapeutic Use: We have identified several target diseases where there are significant
unmet needs that can potentially be addressed by our tissue platform. The FDA is currently providing significant
development and financial incentives to pursue diseases involving serious, unmet pediatric conditions and/or involving
breakthrough regenerative medicine treatment strategies, which is strongly aligned with our market opportunities. Our
ultimate goal is to construct surgically implantable tissues that restore significant functional mass to a damaged tissue or
organ after delivery. It is our belief that, in most cases, whole organ replacement will not be required to achieve
meaningful clinical outcomes and address unmet medical needs. We believe 3D tissues with well-defined architecture and
composition can create a new product category within cell and tissue therapies. Our future tissue products may include
bioprinted tissues (patches, tubes, etc.) or hybrids comprised of bioprinted tissues and device component(s). We may
develop specific tissue targets with partners through technology licenses and royalty-bearing deals, or may self-fund the
development of our tissue targets through preclinical and clinical development.
During the past year, we have implanted our 3D bioprinted human liver tissue patches onto the livers of diseased mice,
and through serum and histopathologic evaluation of the implanted therapeutic tissue, showed engraftment, retention and
a high degree of disease clearing through 125 days post-implantation, a significant increase in duration from our earlier
preclinical studies. These results demonstrate a significant increase in the reported duration of implanted human
hepatocyte synthetic function, demonstrating sustained presence of key human liver proteins such as albumin and A1AT
in the animal bloodstream. In addition, our pathologic evaluation of diseased animals receiving our implanted bioprinted
liver tissues suggested an approximately 75 percent reduction in the pathologic hallmarks of the disease in treated animals
versus non-treated animals in the region of implant.
3D Tissue Models for Drug Discovery and Development: Our NovoGen® bioprinting platform can produce highly
specialized human tissues that model human biology and disease. We have used our bioprinting platform to create a wide
array of key aspects of human tissues, including blood vessels, liver tissues, skin tissues, kidney tissues, lung tissues,
intestinal tissues and tissues with tumors. Our 3D bioprinted tissues possess unique features, including cell type-specific
compartments, prevalent intercellular tight junctions and microvascular structures. These features facilitate the
development of complex, multicellular disease models for use in the development of targeted therapeutics for bowel
disease, lung disease, liver disease, kidney disease and oncology. During the past year, we have demonstrated that our
ExVive™ Human Liver Tissue is capable of modeling the pathogenesis of non-alcoholic steatohepatitis (“NASH”),
whereby immune competent bioprinted tissues containing Kupffer cells were exposed to steatogenic cues via a nutrient
overload approach of simple sugars and fatty acids, followed by inflammatory stimulation using prototypical inducers.
Key features of NASH such as steatosis, increased inflammatory cytokine release, hepatic stellate cell activation, and
subsequent fibrogenesis, which are largely lacking in other commercially available liver disease models, are attainable in
the fully human ExVive™ Liver Tissue via a nutrient overload approach, analogous to diets high in fat and sugar and
inflammatory stimuli. The longevity of our ExVive™ Liver Tissue, which is typically several weeks, allows for the
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testing of several induction strategies such as various dosing and durations of insults (nutrients, inflammatory inducers,
xenobiotics), and also has the potential to enable the study of multiple, modulatory approaches to profile prophylactic and
treatment oriented drug strategies. Together, these features suggest that our ExVive™ Human Liver Tissue holds promise
for the study of complex, chronic conditions such as NASH, which may enable a better understanding of disease
processes, lead to the discovery of novel therapeutics, facilitate target identification and validation, facilitate the
identification of potential biomarkers, and allow for the safety assessment of drugs in a disease-relevant background.
3)
Procurement of Specialized Human Cells for Use in Customer’s Research Programs: In January 2016, we formed
our wholly-owned subsidiary, Samsara Sciences, Inc. (“Samsara”). Samsara is becoming an industry-leading source for
the provision and delivery of a broad range of primary human liver cells to facilitate customer research studies. Samsara
also supports our own R&D mission by providing high-quality cell-based products that form the building blocks of our
custom disease models and therapeutic tissues. In March 2018, we announced a multi-year agreement with Lonza
Bioscience Solutions, representing Samsara’s largest contract to date, with one of the world’s leading suppliers to the
pharmaceutical, biotech and specialty ingredient markets.
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, etc.). 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 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.
Our efforts in systems engineering are focused on ensuring the continuous improvement and evolution of our NovoGen Bioprinters®
to meet the needs of internally driven and externally partnered tissue programs. To date, several generations of NovoGen Bioprinters®
have been designed, developed, and are being used for tissue production.
Generation of bio-ink comprising human cells is the first step in 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 might consist of two to three distinct bio-inks that are each made from a single cell type or
combination of multiple cell types. Our NovoGen Bioprinters® can optionally dispense bio-inert hydrogels to 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 currently 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 (“UCSF”), Knight Cancer Institute at Oregon
Health & Science University (“OHSU”), the National Eye Institute (“NEI”), Murdoch Children’s Research Institute (“MCRI”), and
the University of Virginia (“UVA”). We believe that the use of our bioprinting platform by major research institutions will help to
advance the capabilities of the platform and generate new applications for bioprinted tissues, ultimately creating future opportunities
for our commercial products and intellectual property licensing. Our collaborations with pharmaceutical and biotechnology
companies generally involve the partner providing research funding to cover, in part or in full, the scope of work. This funding is
typically reflected as collaboration revenues in our financial statements. Our research collaborations typically involve both us and the
academic partner contributing resources directly to projects, but also may involve sponsored research agreements where we fund
specific research programs. We may also contribute a bioprinter and technical support or a bioprinter and research headcount,
depending on the project scope.
Samsara Sciences, Inc. (“Samsara”)
In January 2016, we announced that Samsara had commenced commercial operations. We formed Samsara to serve as a key source of
certain of the primary human cells we utilize in our products and services and in the development of our therapeutic products. We
believe Samsara can help us optimize our supply chain and reduce operating expenses related to cell sourcing and procurement and
ensure that the cellular raw materials we use are of the highest quality and are derived from tissues that are ethically sourced in full
compliance with state and federal guidelines. Samsara has begun providing us with qualified liver cells for use in our 3D Human Liver
Tissue manufacturing, and certain other human cells for use in our preclinical research and development programs. In addition to
serving as one of our key suppliers, Samsara offers human cells for use by life science customers, both directly and through
distribution partners.
4
Competition
We are subject to competition from pharmaceutical and biotechnology companies; academic and research institutions; and
government or other publicly-funded agencies that are pursuing the development of tissue models and therapeutic products targeted to
our potential customers and market opportunities. We believe our future success will depend, in large part, on our ability to maintain a
first mover advantage and competitive lead in our industry.
Set forth below is a discussion of the competitive factors for each of the markets in which we intend to utilize our technology:
1)
Implantable 3D Tissues for Clinical Use: This aspect of our business involves application of our 3D bioprinting
technology to generate human tissues suitable for implantation in vivo to augment or replace damaged or degenerating
tissues. Our platform has the ability to enable the generation and optimization of unique, scaffold-free or hybrid tissue
prototypes and ultimately support production of the tissue. We may undertake these efforts alone, or as partnered projects
with leading therapeutic companies seeking to develop a therapeutic tissue product for a specific application. There are a
number of companies pursuing the discovery, development, and commercialization of tissue-based products for a variety
of applications, including but not limited to Organogenesis, Poietis and Aspect Biosystems. Primarily, our clinical
competition may come from other biotech companies targeting small and large molecule strategies and cell engineering
approaches for treating one or more of the same diseases we elect to target. These companies uniquely represent potential
competition for us while also being partner candidates.
2) Models for Drug Discovery and Development: This aspect of our business is driven by leveraging our technology as a
high-end partnered service that designs and delivers highly complex, custom tissue models of normal or diseased tissue
for use in drug discovery and development. Each model is designed to enable a customer to discover or optimally
formulate a pharmacologic product that delivers a specific therapeutic effect, or avoids a particular side effect.
Competition in this area arises mainly from two sources, traditional cell-based in vitro culture approaches and traditional
in vivo animal models and testing. We may also face future competition from companies like Cyfuse Biomedical
(including service companies using their instrument platform), Emulate, Hesperos, HemoShear, Mimetas,
Ascendance/Hepatopac, InSphero, and CN Bio Innovations. We believe that an important factor distinguishing our
approach from that of our competitors is our ability to build models that are composed of human cells and have a 3D
tissue-like configuration (i.e., able to generate results that are not subject to inherent limitations of 2D monolayer culture).
We acknowledge, however, that there are some areas of research for which the existing methods (2D cell culture and/or
animal studies) are adequate and 3D in vitro human tissues are not sufficiently advantageous on a cost basis.
Research and Development
We continuously engage in research and development to enhance our platform technology, to develop new products and service
offerings and to pursue our therapeutic initiatives. Our research and development efforts include internal initiatives as well as
collaborative development opportunities with third parties. Our research and development expenses were $18.0 million, $19.5 million
and $18.0 million for the fiscal years ended March 31, 2018, 2017, and 2016, respectively. We focus our research and development
activities in areas where we have technological expertise and where we believe a significant market opportunity exists for our
technology and the products and services we develop. We intend to continue our focus on research and development as a key strategy
for the growth of our business.
Intellectual Property
Our success depends in large part on our ability to establish and protect our proprietary bioprinting technologies and our engineered
tissue products and services. 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 the University of Missouri-Columbia (“MU”) and the Medical University of
South Carolina. We have subsequently expanded our intellectual property portfolio by filing patent and trademark applications
worldwide and negotiating additional licenses and purchases.
We solely own or hold exclusive licenses to 18 issued U.S. patents and more than 40 issued international patent applications. We
solely or jointly own, or hold exclusive licenses to more than 18 pending U.S. patent applications and more than 90 pending
international applications. These patent families relate to our bioprinting technology and our engineered tissue products and services,
including its various uses in areas of tissue creation, in vitro testing, utilization in drug discovery, and in vivo therapeutics.
5
In-Licensed IP
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, 13 issued international patents and 2 pending
international applications. 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 MMX 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). At the time, Professor Melissa Little and her team at The University of Queensland developed a method of
growing kidney tissue from iPSCs for potential use in drug screening, disease modeling and cell therapy. Professor Little’s research
was eventually published in 2015 in the prestigious scientific journal Nature. Currently, the UniQuest Intellectual Property includes 2
pending U.S. patent application, one issued international patent and 17 pending international patent applications.
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 7. Licensing Agreements and Research Contracts” in the Notes to Consolidated Financial Statements included in
this Annual Report.
Company Owned IP
In addition to the IP we have in-licensed, we have continued to innovate and grow our IP portfolio.
With respect to our bioprinting platform, we have 6 issued U.S. patents and 7 issued foreign patents directed to our NovoGen MMX
Bioprinter® and methods of bioprinting: U.S. Patent Nos. 8,931,880; 9,149,952; 9,227,339, 9,499,779, 9,315,043 and 9,855,369;
Australia Patent Nos. 2,011,318,437, 2,015,202,836, and 2,013,249,569; China Patent No. ZL201180050831.4; Hong Kong Patent
No. HK1187024, Israel Patent No. 225392, and Russia Patent No. 2,560,393. We have additional U.S. continuation applications
pending in these families as well foreign counterpart applications in multiple countries. We intend to continue pursuing patent
protection as we continue to innovate in relation to the design, features, and functionality of our bioprinter platform and bioprinting
methods.
We are also pursuing U.S. and foreign patents covering our 3D bioprinted tissues and methods of fabricating such tissues. Our
ExVive™ Human Liver Tissue is protected by U.S. Patent No. 9,222,932, U.S. Patent No. 9,442,105, Singapore Patent No.
1,120,157,202Y, Israel Patent No. 241,055, Australia Patent No. 201,423,6780, Canada Patent No. 2,903,844, and Russia Patent No.
2625016. Our ExVive™ Human Kidney Tissue is protected by U.S. Patent No. 9,481,868. 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 types of tissues, their methods of fabrication, and
specific applications. We intend to continue filing additional patent applications as we continue to innovate in this area.
Additionally, in 2013, we purchased the exclusive rights to “Perfusion Bioreactors for Culturing Cells” (U.S. Patent No. 7,767,446,
Japan Patent No. 4,914,835, and Australia Patent No. 2,005,287,162) from Becton Dickinson and Company. This patent represents the
acquisition of bioreactor technology for the support of our 3D tissues for use in drug discovery and development.
We believe that protection of the proprietary nature of our bioprinting technologies and products and services is essential to our
business. Accordingly, we have adopted and will continue a vigorous program to secure and maintain protection of our intellectual
property. Under this program, we intend to continue to file patent applications with respect to novel technology, and improvements
thereof, that are important to our business. This program may also feature out-bound patent licensing of some or all of our IP portfolio.
We also will continue to rely upon trade secret and confidential know-how protection of our methods and technology, including our
proprietary in-house manufacturing methods and in vitro testing methods. As with other areas of biotechnology, this provides a critical
adjunct to the protection offered by patents. As always, we continue to pursue our internal technological innovation and external
licensing opportunities to develop and maintain our competitive position. There can be no assurance, however, that others will not
independently develop substantially equivalent proprietary technology or that we can meaningfully protect our proprietary position.
6
Regulatory Considerations
We are not aware of any current U.S. Food and Drug Administration (FDA) regulatory requirements for sale or use of our in vitro 3D
tissues and models in research applications, and we are not currently conducting research services pursuant to Good Laboratory
Practice (“GLP”). GLP data is required in the development of any human therapeutic, and our technology platform has been designed
to support compliance with GLP, although no independent certification has been performed to date to confirm this compliance.
Therapeutic tissues and other regenerative medicine products are subject to an extensive, lengthy and uncertain regulatory approval
process by the FDA and comparable agencies in other countries. The regulation of new products is extensive, and the required process
of laboratory testing and human studies is lengthy and expensive. For example, as our therapeutic tissue constructs move into clinical
and commercial settings, full compliance with the FDA’s cGTP (current Good Tissue Practices) and cGMP (current Good
Manufacturing Practices) guidelines will be required. Suitable design and documentation for clinical use of the bioprinter will be a
part of future phases of our NovoGen Bioprinter® design programs.
The process required by the FDA under the drug provisions of the United States Food, Drug, and Cosmetic Act before our initial
therapeutic tissue products may be marketed in the U.S. generally involves the following:
Preclinical laboratory and animal tests;
Submission of an Investigational New Drug Application (“IND”), which must become effective before human clinical
trials may begin;
Adequate and well-controlled human clinical trials to establish the safety and efficacy of the product candidate for its
intended use;
Submission to the FDA of an Biologic License Application (“BLA”); and
FDA review and approval, or otherwise, of a BLA.
The testing and approval process requires substantial time, effort, and financial resources. The resource investment necessary to meet
the requirements of these regulations will fall on our collaborating partners, or may be shared with us, to the extent that we are
developing proprietary products that are the result of a collaboration effort. The resource investment of time, staff and expense to
satisfy these regulations will fall on us for the proprietary products we are developing on our own. We may not be able to obtain FDA
approvals for those products in a timely manner, or at all. We may encounter significant delays or excessive costs in our efforts to
secure necessary approvals or licenses. Even if we obtain FDA regulatory approvals, the FDA extensively regulates manufacturing,
labeling, distributing, marketing, promotion and advertising after product approval. Moreover, several of our product development
areas may involve relatively new technology and have not been the subject of extensive product testing in humans. The regulatory
requirements governing these products and related clinical procedures remain uncertain and the products themselves may be subject to
substantial review by the FDA and/or foreign governmental regulatory authorities that could prevent or delay approval of these
products and procedures. Regulatory requirements ultimately imposed on our products could limit our ability to test, manufacture and,
ultimately, commercialize our products and thereby could adversely affect our financial condition and results of operations.
Raw Materials
We use live human cells to produce our 3D tissues. We source cells only from suppliers who have provided assurances that their cells
come from tissues that were (1) collected in compliance with applicable laws, and (2) provided based on informed consent by the donors.
We formed our wholly-owned subsidiary, Samsara, in 2016 to serve as a key source of the primary human cells we use in our products
and services and in the development of therapeutic products. Samsara is currently supplying us with qualified human liver and kidney
cells for use in manufacturing our ExVive™ Human Liver Tissue and ExVive™ Human Kidney Tissue, as well as certain specialized
cells for research and development activities. We believe that Samsara can help us optimize our supply chain and reduce operating
expenses and ensure that the human cells we use for our services, products and research and development programs are of the highest
quality and are derived from tissues that are ethically sourced in full compliance with state and federal guidelines. In addition to Samsara,
we also purchase human cells from selected third-party suppliers based on quality assurance, cost effectiveness and regulatory
requirements. Although we believe we have adequate available sources of raw materials, there can be no guarantee that we will be able to
access the quantity of raw material needed to meet our demands on a timely basis or at a cost effective price.
Employees
As of May 1, 2018, we had approximately 75 full-time employees. We also engage consultants and temporary employees from time to
time to provide services that relate to our bioprinting business and technology as well as for general administrative services.
7
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 SEC pursuant to the Exchange Act, including annual
and quarterly reports, and other reports we file, are available free of charge, through our website, and we make them available on the
website as soon as reasonably possible after we file them with the SEC. The content of our website is not intended to be incorporated
by reference into this report or in any other report or document that we file.
The reports we file with the SEC can also be inspected and copied at the public reference facilities maintained by the SEC at 100 F
Street, N.E., Washington, D.C. 20549. Investors may obtain information on the operation of the public reference room by calling the
SEC at 1-800-SEC-0330. Investors can request copies of these documents upon payment of a duplicating fee by writing to the SEC.
The reports we file with the SEC are also available on the SEC’s website (http://www.sec.gov).
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 Our Business and Our Industry
We have a limited operating history and a history of operating losses, and expect to incur significant additional operating losses.
We were incorporated in 2007, and opened our laboratories in San Diego, California in January 2009. Since our incorporation, we
have focused primarily on the development of our platform technology and the development of our biological research, drug discovery
and therapeutic products and services based on that technology. We announced the initiation of contracting for our ExVive™ Human
Liver Tissue and ExVive™ Human Kidney services in November 2014 and September 2016, respectively, for use in toxicology and
other preclinical drug testing. We only recently began focusing on offering our tissues to support in vitro disease modeling. Because of
our limited commercial operating history, investors have limited historical financial or other information upon which to base an
evaluation of our performance and future prospects. Moreover, our future prospects must be considered in light of the uncertainties,
risks, expenses, and difficulties frequently encountered by companies in their early stages of operations and competing in new and
rapidly developing technology areas. Additionally, our therapeutic tissue programs are in the early stages of development, and there is
no assurance if or when we will obtain the required regulatory approvals to be marketing a therapeutic product. We have generated
operating losses each year since we began operations, including $35.3 million, $38.6 million and $38.6 million for the years ended
March 31, 2018, 2017, and 2016, respectively. As of March 31, 2018, we had incurred cumulative operating losses of $181.1 million
and cumulative net losses totaling $234.1 million. We expect to incur substantial additional operating losses over the next several
years as our research, development, regulatory and commercial 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:
successfully completing the required preclinical and clinical trials required to obtain regulatory approval for our
therapeutic tissue program;
successfully developing drug discovery, biological research, and therapeutic tools, products and services that are more
effective than existing technologies and can be offered at competitive prices;
successfully completing studies and providing the technical information required to support market acceptance of our
products, services and technology;
successfully completing our existing collaborative agreements, and entering into new collaborative relationships;
successfully developing an effective sales and marketing infrastructure to commercialize our products and services;
entering into successful manufacturing, distribution and sales and marketing arrangements with third parties; and
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.
8
We are an early-stage company with an unproven business strategy, and may never achieve profitability.
We are in the early stages of using our proprietary platform technology to develop and commercialize functional human tissues that
can be employed in drug discovery and development and in biological research. We are also in the early stages of developing and
completing preclinical studies for our first therapeutic liver tissue candidate, which focuses on a rare disease known as Alpha-1-
antitrypsin deficiency (“A1AT”). Our success will depend upon the commercial adoption of our platform technology, as well as on
our ability to determine which drug discovery, biological research, and therapeutic tools, products and services can be successfully
developed and commercialized with our platform technology. Our success will also depend on our ability to increase customer
awareness and demand for our products and services, to enter into additional collaboration agreements on favorable terms and to select
an appropriate commercialization strategy for the products and services we or our collaborators choose to pursue. Additionally, our
success will depend on our ability to successfully develop, complete preclinical and clinical studies and eventually obtain regulatory
approval for any therapeutic tissue candidates we elect to pursue. If we are not successful in implementing our product development,
regulatory and commercialization strategies, which are new and unproven, and/or if we underprice or overrun our cost estimates for
our contracts or our development, regulatory and commercialization activities, we may never achieve profitability, or even if we
achieve profitability, we may not be able to maintain or increase our profitability.
We may not be able to correctly estimate our future revenues and operating expenses, which could lead to cash shortfalls, and
require us to secure additional financing sooner than planned.
We may not correctly predict the amount or timing of future revenues and our operating expenses may fluctuate significantly in the
future as a result of a variety of factors, many of which are outside of our control. These factors include:
our expectations regarding revenues from sales of our products and services, and from collaborations with third parties;
the time and cost of developing, completing preclinical and clinical studies and obtaining required regulatory approvals
for the therapeutic tissue candidates we elect to pursue;
the time and resources required to develop our drug discovery and biological research tools, products and services;
the cost and time to pursue additional research and development programs as part of our long-term business plan;
the cost and time required to create effective sales and marketing capabilities and commercialization strategies;
the expenses we incur to maintain and improve our platform technology;
the cost and time to satisfy unique customer requirements regarding validation studies and/or cell sourcing;
the costs to attract and retain personnel with the skills required for effective operations; and
the costs of preparing, filing, prosecuting, defending and enforcing patent claims and other patent related costs, including
litigation costs and the results of such litigation.
In addition, our budgeted expense levels are based in part on our expectations concerning future revenues from sales of our products
and services, and from collaborations with third parties. However, we may not correctly predict the amount or timing of future
revenues. In addition, we may not correctly estimate the costs and time required to develop, complete preclinical and clinical studies
and obtain regulatory approval for our therapeutic tissue candidates. We may not be able to adjust our operations in a timely manner
to compensate for any unexpected shortfall in our revenues or any increase in our expenses as part of implementing our long-term
business plan. As a result, a significant shortfall in our planned revenues or a significant increase in our planned expenses could have
an immediate and material adverse effect on our business and financial condition. In such case, we may be required to issue additional
equity or debt securities or enter into other commercial arrangements, including relationships with corporate and other partners, sooner
than anticipated to secure the additional financial resources to support our development efforts and future operations.
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:
the results of our development and regulatory approval progress for our therapeutic tissue candidates;
our reported revenues and financial results;
the number and scope of ongoing client engagements and collaborations;
the commencement, postponement, delay, progress, completion, or cancellation of client contracts or collaborations in the
quarter;
changes in the mix of our products and services;
9
changes in the general global economy
competitive pricing pressures;
the extent of cost overruns or delays in our product development and regulatory approval plans;
holiday buying patterns of our clients;
budget cycles of our clients;
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 will require significant additional financing to support our long-term business plans.
We have used significant funds to develop our current bioprinting technologies, products and services and our tissue platform
development and commercialization infrastructure. We will require additional funds to support our long-term business plans,
including the development and regulatory approval process for any therapeutic tissue candidates we elect to pursue. We expect that we
will be required to issue additional equity or debt securities or enter into other commercial arrangements, including relationships with
corporate and other partners, to secure the additional financial resources to support our development and regulatory approval efforts
and to implement our long-term business plans. Depending upon market conditions, we may not be successful in raising sufficient
additional capital on a timely basis, on favorable terms, or at all. Additionally, the issuance of additional equity securities, including
securities convertible into or exercisable for our equity securities, would result in the dilution of the ownership interests of our present
stockholders. If we fail to obtain sufficient additional financing, or enter into relationships with others that provide additional financial
resources, we may not be able to develop our technology and products or complete the preclinical and clinical studies required to
obtain required regulatory approval for any therapeutic tissue candidate in accordance with our long-term business plan, and we may
be required to delay significantly, reduce the scope of or eliminate one or more of our research or development programs, downsize
our general and administrative infrastructure, or seek alternative measures to raise additional funds.
Our current therapeutic product candidate portfolio is in the early stages of development.
We are in the early stages of developing potential therapeutic products based on our proprietary technology. In October 2016, we
announced our plan to develop 3D bioprinted human liver tissue for direct transplantation to patients. This therapeutic program is in
the early stages of preclinical development. The results of our future preclinical studies on our therapeutic liver tissue may be different
from our existing studies and preclinical results, and may not support further clinical development of this therapeutic product
candidate. Moreover, we have not finalized the design of the preclinical studies required to support an IND submission for our first
liver therapeutic tissue indication, A1AT. There is no assurance that we will be successful in obtaining FDA approval of our IND
submission, or that our future preclinical studies will support the filling of an IND for our therapeutic tissue candidate. Further, we
may not successfully complete the required preclinical and clinical trials required to obtain regulatory approval for our therapeutic
liver tissue on a timely basis, or at all. Similarly, there is no assurance that we can successfully identify and develop additional
therapeutic product candidates, prove that they are safe and efficacious in clinical trials, or meet applicable regulatory standards. We
do not currently have sufficient resources to complete the clinical development of our therapeutic liver tissue or any other therapeutic
tissue candidate we identify, and as a result, we will need to raise additional funds or pursue licensing, partnering and other strategic
alternatives. There is no assurance, however, that we will be able to do so based on their early stage of development of our therapeutic
liver tissue and any other therapeutic tissue candidates we identify. As a result, we may not be successful in developing, showing
clinical efficacy, obtaining regulatory approval or raising the required capital for our therapeutic liver tissue or any therapeutic
programs we identify and elect to pursue.
10
If testing of a particular product candidate does not yield successful results, then we will be unable to obtain the regulatory
approvals required to commercialize that product candidate.
We must demonstrate our product candidates’ safety and efficacy in humans through extensive clinical testing. Our research and
development programs are at an early stage of development. We may experience numerous unforeseen events during, or as a result of,
the testing process that could delay or prevent us from obtaining the regulatory approvals required to commercialization of any of our
product candidates, including the following:
•
•
•
•
the safety and efficacy results attained in early human clinical trials may not be indicative of results that are obtained in
later clinical trials;
after reviewing test results, we may abandon projects that we might previously have believed to be promising;
we or our regulators may suspend or terminate clinical trials because the participating subjects or patients are being
exposed to unacceptable health risks; and
our product candidates may not have the desired effects or may include undesirable side effects or other characteristics
that preclude regulatory approval or limit their commercial use if approved.
We may not enjoy the market exclusivity benefits of our orphan drug designation.
Although we may obtain orphan designations in the treatment of certain diseases our therapeutic products are intended to treat, the
designation may not be applicable to any particular product we might get approved and that product may not be the first product to
receive approval for that indication. Under the Orphan Drug Act, the first product with an orphan drug designation receives market
exclusivity, which prohibits the FDA from approving the “same” drug for the same indication. The FDA has stated that drugs can be
the “same” even when they are not identical, but has not provided guidance with respect to how it will determine “sameness” in the
context of 3D bioprinted tissues. It is possible that another bioprinted therapeutic tissue product could be approved for the treatment of
a disease one of our orphan products is intended to treat before our product is approved, which means that we may not obtain orphan
drug exclusivity and could also potentially be blocked from approval until the first product’s orphan drug exclusivity for a product
expires or we demonstrate, if we can, that our product is superior. Further, even if we obtain orphan drug exclusivity for a product,
that exclusivity may not effectively protect the product from competition because different drugs can be approved for the same
condition. Even after an orphan drug is approved and granted orphan drug exclusivity, the FDA can subsequently approve the same
drug for the same condition if the FDA concludes that the later drug is safer, more effective or makes a major contribution to patient
care.
Our platform technology and our drug discovery, biological research, therapeutic tools, products and services are new and
unproven.
Our platform technology, as well as our drug discovery, biological research, therapeutic tools, products and services, involve new and
unproven models and approaches. We only began offering our first commercial product (and related research services), our ExVive™
Human Liver Tissue, on a limited basis in April 2014 and more broadly in November 2014. We only began offering our second
product (and related research services), our ExVive™ Human Kidney Tissue, for predictive preclinical testing of drug compounds in
September 2016. We only recently begin focusing on offering our tissues to support in vitro disease modeling. As a result, we have
had a limited time to prove that our ExVive™ Human Liver Tissue and ExVive™ Human Kidney Tissue and related services will
enable our customers to conduct drug discovery and biological research, including disease modeling, more effectively than through
the use of existing technologies. Our commercial products reflect a novel approach to preclinical testing of drug compounds and
disease modeling, and there is no assurance that they will perform as expected or as required by our customers. Our success depends
on the commercial acceptance of, and the success of our efforts to increase customer awareness and demand for, our drug discovery
and biological research tools, products and services. Some of our customers may require unique features, cell sourcing, or validation
data in order to utilize our commercial products in their drug discovery, biological research or development programs. Even if we or
our collaborators are successful in our respective efforts, we or our collaborators may not be able to discover or develop commercially
viable therapeutics or other products therefrom. If our drug discovery and biological research tools, products and services do not assist
in the discovery and development of such therapeutic products or to model diseases, our current and potential collaborators may lose
confidence in us and our drug discovery and biological research tools, products and services. Our inability to successfully develop
effective and competitive drug discovery, biological research, tools, products and services and achieve and maintain commercial
acceptance for those tools, products and services would materially adversely affect our business, financial condition and results of
operations.
11
Our technology, products and services are subject to the risks associated with new and rapidly evolving technologies and
industries.
Our proprietary tissue creation technology and our drug discovery and biological research tools, products and services and our
therapeutic tissue candidates are subject to the risks associated with new, rapidly evolving technologies and industries. We may
experience unforeseen technical complications, unrecognized defects and limitations in the development and commercialization of our
tools, products and services, including our ExVive™ Human Liver and ExVive™ Kidney Tissues. Similarly, we may experience
unforeseen difficulties in developing our therapeutic tissue candidates. In addition, our customers may request cell sources, validation
studies, or features not included in our standard commercial tissue products. These complications could materially delay or limit
customer demand for and use of those tools, products and services, substantially increase the anticipated cost of manufacturing, or
prevent us or our collaborators from implementing their drug discovery or biological research projects successfully or at all. In
addition, the process of developing new technologies, products and services is complex, and if we are unable to develop enhancements
to, and new features for, our existing products and services or acceptable new products and services that keep pace with technological
developments, customer requirements, or industry standards, our products and services may become obsolete, less marketable and less
competitive.
Our ability to successfully commercialize the drug discovery, biological research, and therapeutic tools, products and services we
develop is subject to a variety of risks.
The commercialization of our drug discovery, biological research and therapeutic tools, products and services are subject to risks and
uncertainties, including:
failing to develop products or services that are effective and competitive;
failing to demonstrate the commercial and technical viability of any products or services that we successfully develop,
failing to meet customer expectations or requirements or otherwise failing to achieve market acceptance of such products
or services;
failing to be cost effective and timely;
failing to successfully complete preclinical and clinical studies and obtain any necessary regulatory approvals;
being unable to implement features or functionality required by customers;
being difficult or impossible to manufacture on a large scale;
being unable to establish and maintain supply and manufacturing relationships with reliable third parties;
being unable to obtain a sufficient supply of human cells for our products, services and research and development
activities on a timely basis and at acceptable quality levels and costs;
failing to develop our products and services before the successful marketing of similar products and services by
competitors;
being unable to hire and retain qualified personnel; and
infringing the proprietary rights of third parties or competing with superior products marketed by third parties.
If any of these or any other risks and uncertainties occur, our efforts to commercialize our drug discovery and biological research
tools, products and services may be unsuccessful, which would harm our business and results of operations.
The near and long-term viability of our products and services will depend on our ability to successfully establish new strategic
relationships.
The near and long-term viability of our products and services will depend in part on our ability to successfully establish new strategic
collaborations with biotechnology companies, pharmaceutical companies, universities, hospitals, insurance companies and
government agencies. Establishing strategic collaborations is difficult and time-consuming. Potential collaborators may reject
collaborations based upon their assessment of our technology or product offerings or our financial, regulatory or intellectual property
position. If we fail to establish a sufficient number of new collaborations on acceptable terms, we may not be able to commercialize
our products or generate sufficient revenue to fund further research and development efforts. Even if we establish new collaborations,
these relationships may never result in the successful development or commercialization of any product or service candidates for
several reasons both within and outside of our control.
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We cannot control our collaborators’ allocation of resources or the amount of time that our collaborators devote to developing our
programs or potential products, which may have a material adverse effect on our business.
Our existing research and collaboration agreements may allow our collaborators to obtain the options to license or exclusive rights to
negotiate licenses to our new technologies. Our collaborators may have significant discretion in electing whether to pursue product
development, regulatory approval, manufacturing and marketing of the products they may develop with the help of our technology.
We cannot control the amount and timing of resources our collaborators may devote to our programs or potential products. As a result,
we cannot be certain that our collaborators will choose to develop and commercialize products utilizing our technology or that we will
realize any future milestone payments, royalties and other payments provided for in the agreements with our collaborators. In addition,
if a collaborator is involved in a business combination, such as a merger or acquisition, or if a collaborator changes its business focus,
its performance pursuant to its agreement with us may suffer. As a result, we may not generate any revenues from royalty, milestone
and similar provisions that may be included in our collaborative agreements.
In addition, our collaborative partners or other customers that utilize our research tools will be required to submit their research for
regulatory review in order to proceed with human testing of drug candidates. This review by the FDA and other regulatory agencies may
result in timeline setbacks or complete rejection of an application to begin human studies, such as an Investigative New Drug (IND)
application, or the ultimate failure to receive the regulatory approval required to commercialize the drug candidate or product. Should our
collaborative partners or other customers face such setbacks, we would be at risk of not earning any future milestone or royalty payments.
Any termination or breach by or conflict with our collaborators or licensees could harm our business.
Our research and collaboration agreements typically involve various stages in which our collaborators can make a “go” or “no-go”
decision in determining whether to continue their collaboration with us. If we or any of our existing or future collaborators or licensees
fail to renew or terminate any of our collaboration or license agreements, or if either party fails to satisfy its obligations under any of
our collaboration or license agreements or complete them in a timely manner, we could lose significant sources of revenue, which
could result in volatility in our future revenues. In addition, our agreements with our collaborators and licensees may have provisions
that give rise to disputes regarding the rights and obligations of the parties. These and other possible disagreements could lead to
termination of the agreement or delays in collaborative research, development, supply or commercialization of certain products, or
could require or result in litigation or arbitration. Moreover, disagreements could arise with our collaborators over rights to our
intellectual property or our rights to share in any of the future revenues of products developed by our collaborators. These kinds of
disagreements could result in costly and time-consuming litigation. Any such conflicts with our collaborators could reduce our ability
to obtain future collaboration agreements and could have a negative impact on our relationship with existing collaborators, adversely
affecting our business and revenues. Finally, any of our collaborations or license agreements may prove to be unsuccessful.
Our collaborators could develop competing research tools or services, reducing the available pool of potential collaborators and
increasing competition, which may adversely affect our business and revenues.
Our collaborators and potential collaborators could develop in vitro research tools similar to our own, reducing our pool of possible
collaborative parties and increasing competition. Any of these developments could harm our commercialization efforts, which could
seriously harm our business. In addition, we may pursue opportunities in fields that could conflict with those of our collaborators.
Developing products and services that compete with our collaborators’ or potential collaborators’ products and services could preclude
us from entering into future collaborations with our collaborators or potential collaborators. Any of these developments could harm
our product development efforts and could adversely affect our business and revenues.
We face intense competition which could result in reduced acceptance and demand for our products and services.
The biotechnology industry is subject to intense competition and rapid and significant technological change. We have many potential
competitors, 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 do:
research and technology development;
product identification and development;
regulatory processes and approvals;
production and manufacturing;
securing government contracts and grants to support their research and development efforts;
sales and marketing of products, services and technologies; and
identifying and entering into agreements with potential collaborators.
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Principal competitive factors in our industry include the quality, scientific and technical support, price and breadth of technology and
services; management and the execution of product development and commercialization strategies; skill and experience of employees,
including the ability to recruit and retain skilled, experienced employees; intellectual property portfolio; range of capabilities,
including product identification, development, regulatory approval, manufacturing and marketing; and the availability of substantial
capital resources to fund these activities. Please see the “Competition” section of Item 1. “Business” for a further description of the
competition for our products and services, including the identity of certain of our significant competitors.
In order to effectively compete, we will need to make substantial investments in our research and technology development, product
identification and development, testing and regulatory approval, manufacturing, customer awareness activities, publications of our
technology and results in scientific publications and sales and marketing activities. There is no assurance that we will be successful in
commercializing and gaining significant market share for any products or services we offer in part through use of our technology. Our
technologies, products and services also may be rendered obsolete or noncompetitive as a result of products and services introduced
by our competitors.
We may have product liability exposure from the sale of our research tools and therapeutic products or the services we provide.
We may have exposure to claims for product liability. Product liability coverage is expensive and sometimes difficult to obtain. There
can be no assurance that our existing insurance coverage will extend to other products in the future. Our product liability insurance
coverage may not be sufficient to satisfy all liabilities resulting from product liability claims. A successful claim may prevent us from
obtaining adequate product liability insurance in the future on commercially desirable items, if at all. Even if a claim is not successful,
defending such a claim would be time-consuming and expensive, may damage our reputation in the marketplace, and would likely
divert management’s attention.
We may be dependent on third-party research organizations to conduct some of our future laboratory testing, animal and human
studies.
We may be dependent on third-party research organizations to conduct some of our laboratory testing, animal and human studies with
respect to therapeutic tissues and other life science products that we may develop in the future. If we are unable to obtain any
necessary testing services on acceptable terms, we may not complete our product development or regulatory approval efforts in a
timely manner. If we rely on third parties for laboratory testing and/or animal and human studies, we may lose some control over these
activities and become too dependent upon these parties. These third parties may not complete testing activities on schedule or when
we so request. We may not be able to secure and maintain suitable research organizations to conduct our laboratory testing and/or
animal and human studies. We are responsible for confirming that each of our clinical trials is conducted in accordance with our
general plan and protocol. Moreover, the FDA and foreign regulatory agencies require us to comply with regulations and standards,
commonly referred to as good clinical practices, for conducting, recording and reporting the results of clinical trials to assure that data
and reported results are credible and accurate and that the trial participants are adequately protected. Our reliance on third parties does
not relieve us of these responsibilities and requirements. If these third parties do not successfully carry out their contractual duties or
regulatory obligations or meet expected deadlines, if the third parties need to be replaced or if the quality or accuracy of the data they
obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for other reasons, our pre-
clinical development activities or clinical trials may be extended, delayed, suspended or terminated, and we may not be able to obtain
regulatory approval for our future product candidates.
We will require access to a constant, steady, reliable supply of human cells to successfully develop and commercialize our tools and
products.
We require a reliable supply of qualified human cells for our commercial products and services and for our research and product
development activities. We purchase certain qualified human cells from selected third-party suppliers based on quality assurance, cost
effectiveness, and regulatory requirements. We formed our wholly-owned subsidiary, Samsara, to eventually serve as a key source of
the primary human cells we utilize in our business. We intend to utilize a combination of third party suppliers and Samsara to meet our
overall future demand for human cells. We work closely with Samsara and our third-party suppliers to assure adequate supply while
maintaining high quality and reliability. If demand for our products and services grows significantly, we may need 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 human cells at cost effective prices will harm our
business and our results of operations, and could cause us to be unable to comply with the contractual obligations we owe to our
customers and collaboration partners. Further, any failure to obtain a reliable supply of human cells may delay or harm our therapeutic
tissue development and regulatory approval efforts.
If our laboratory facilities become inoperable, we will lose access to our 3D bioprinters and tissues, and our ability to conduct our
business and comply with our contractual obligations will be harmed.
We manufacture our NovoGen Bioprinters® and our 3D Human Liver Tissues at our laboratory facilities in San Diego, California. We
also provide research services to our customers and collaboration partners and conduct our product research and development
activities at our laboratory facilities in San Diego, California. We do not currently have redundant laboratory facilities. Our San Diego,
California laboratory facilities are situated near active earthquake fault lines. Our facilities may be harmed or rendered inoperable by
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natural or manmade disasters, including earthquakes, flooding, fires, power outages and contamination, which may render it difficult
or impossible for us to continue to provide our products and services and engage in our research and development activities for some
period of time. Even if our facilities are inoperable for a short period of time, we may suffer the loss of our existing tissue and cell
inventory, and the loss of any research services and activities currently in process. Accordingly, any disruption to operations at our
laboratory facilities in San Diego, California would materially affect our business, prospects and results of operations.
We currently rely on third-party suppliers for some of our materials, including our supply of human cells, and we may rely on
third-party manufacturers in the future to produce our tools and products.
We rely on third-party suppliers and vendors for some of the human cells and other materials we utilize in our products and services
and in our research and development activities. We currently acquire our human cells from Samsara and third-party suppliers. Any
significant problem experienced by one of our suppliers could result in a delay or interruption in the supply of materials to us until
such supplier resolves the problem or an alternative source of supply is located. Any delay, interruption or inability to obtain an
adequate supply of human cells would negatively affect our operations. In addition, in the future we may require access to, or
development of, facilities to manufacture a sufficient supply of our tools and products. If we are unable to manufacture our products in
commercial quantities or the third-parties on which we rely to manufacture our tools and products fail to perform as anticipated, our
business and future growth will suffer.
We may not be successful in establishing Samsara as a profitable commercial business.
In January 2016, we announced that our wholly-owned subsidiary, Samsara, commenced commercial operations. We formed Samsara
to serve as a key source of certain of the primary human cells we utilize in our products and services and in the development of
therapeutic products. In addition to supplying human cells for our business requirements, we believe there is an opportunity for
Samsara to operate as a commercial business by selling human cells to other pharmaceutical, biotech and research organizations.
Samsara has begun selling its human cell offerings to end users both directly and through distribution partners. Operating and
developing Samsara’s business is subject to a number of risks and uncertainties, including:
failing to source a sufficient supply of high quality human organs or cells;
failing to achieve market acceptance for its human cell offerings;
failing to demonstrate the quality and reliability of its human cell offerings;
failing to be both cost effective and competitive with the products offered by third parties;
failing to obtain any necessary regulatory approvals;
failing to be able to produce its human cell offerings on a large scale;
failing to establish and maintain distribution relationships with reliable third parties;
failing to hire and retain qualified personnel; and
infringing the proprietary rights of third parties.
If any of these or any other risks and uncertainties occur, our efforts to establish Samsara as a commercial business may be
unsuccessful, which would harm our business and results of operations.
A significant portion of our sales will be dependent upon our customers’ capital spending policies and research and development
budgets, and government funding of research and development programs at universities and other organizations, which are each
subject to significant and unexpected decrease.
Our prospective customers include pharmaceutical and biotechnology companies, academic institutions, government laboratories, and
private research foundations. Fluctuations in the research and development budgets at these organizations could have a significant
effect on the demand for our products and services. Research and development budgets fluctuate due to changes in available
resources, patent expirations, mergers of pharmaceutical and biotechnology companies, spending priorities, general economic
conditions, and institutional and governmental budgetary policies, including but not limited to reductions in grants for research by
federal and state agencies as a result of the current budget crises and budget reduction measures. In addition, our business could be
seriously damaged by any significant decrease in life sciences research and development expenditures by pharmaceutical and
biotechnology companies, academic institutions, government laboratories, or private foundations.
The timing and amount of revenues from customers that rely on government funding of research may vary significantly due to factors
that can be difficult to forecast. Research funding for life science research has increased more slowly during the past several years
compared to the previous years and has declined in some countries, and some grants have been frozen for extended periods of time or
otherwise become unavailable to various institutions, sometimes without advance notice. Government funding of research and
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development is subject to the political process, which is inherently fluid and unpredictable. Other programs, such as homeland security
or defense, or general efforts to reduce the federal budget deficit could be viewed by the United States government as a higher priority.
These budgetary pressures may result in reduced allocations to government agencies that fund research and development activities.
National Institute of Health and other research and development allocations have been diminished in recent years by federal budget
control efforts. The prolonged or increased shift away from the funding of life sciences research and development or delays
surrounding the approval of government budget proposals may cause our customers to delay or forego purchases of our products or
services, which could seriously damage our business.
An inability to manage our growth or expansion of our operations could adversely affect our business, financial condition or
results of operations.
Our business operations and activities and employee headcount may grow rapidly, which could place a strain on our management and
operational systems. To effectively manage our operations and growth, we may need to expend funds to enhance our operational,
financial and management controls, reporting systems and procedures and to attract and retain sufficient numbers of talented
employees. In addition, our management will need to successfully:
expand our research and product development efforts;
implement and expand our sales, marketing and customer support programs;
expand, train and manage our employee base; and
effectively address new issues related to our growth as they arise.
We may not manage any required growth and expansion successfully, which could adversely affect our business, financial condition
and results of operations.
Our business will be adversely impacted if we are unable to successfully attract, hire and integrate key additional employees or if
we are unable to retain our executive officers and other key personnel.
Our future success depends in part on our ability to successfully integrate our recently hired key executive officers, such as Taylor
Crouch (our Chief Executive Officer) and Craig Kussman (our Chief Financial Officer), as well as the other technical, managerial and
sales and marketing personnel required to support our business. Our success will also 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. As a result, the loss of any of our executive officers or other key
personnel or our inability to timely attract and hire qualified personnel in the future (in particular skilled technical, managerial and
sales and marketing personnel) will adversely impact our ability to meet our key commercial and technical goals and successfully
implement our business plan.
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 the Company, its employees and its 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 harms, result in legal claims or proceedings, liability under laws that protect the privacy of
personal information, and/or cause reputational harm.
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We are subject to risks associated with doing business outside the United States.
We do business with customers outside the United States. We intend to continue to pursue customers and growth opportunities in
international markets, and we expect that international revenues may account for a significant percentage of our revenues in the
foreseeable future. There are a number of risks arising from our international business, including those related to:
foreign currency exchange rate fluctuations, potentially reducing the United States dollars we receive for sales
denominated in foreign currency;
general economic and political conditions in the markets we operate in;
potential increased costs associated with overlapping tax structures;
potential trade restrictions and exchange controls;
more limited protection for intellectual property rights in some countries;
difficulties and costs associated with staffing and managing foreign operations;
unexpected changes in regulatory requirements;
the difficulties of compliance with a wide variety of foreign laws and regulations; and
longer accounts receivable cycles in certain foreign countries, whether due to cultural differences, exchange rate
fluctuation or other factors.
These risks, individually or in the aggregate, could have an adverse effect on our results of operations and financial condition. For
example, we are subject to compliance with the United States Foreign Corrupt Practices Act and similar anti-bribery laws, which
generally prohibit companies and their intermediaries from making improper payments to foreign government officials for the purpose
of obtaining or retaining business. While our employees are required to comply with these laws, we cannot be sure that our internal
policies and procedures will always protect us from violations of these laws, despite our commitment to legal compliance and
corporate ethics. The occurrence or allegation of these types of risks may adversely affect our business, performance, prospects, value,
financial condition, and results of operations.
Risks Related to Government Regulation
Violation of government regulations or quality programs could harm demand for our products or services, and the evolving nature
of government regulations could have an adverse impact on our business.
To the extent that our collaborators or customers use our products in the manufacturing or testing processes for their drug and medical
device products, such end-products or services may be regulated by the FDA under Quality System Regulations (QSR) or the Centers
for Medicare & Medicaid Services (CMS) under Clinical Laboratory Improvement Amendments of 1988 (CLIA’88) regulations. The
customer is ultimately responsible for QSR, CLIA’88 and other compliance requirements for their products. However, we may agree
to comply with certain requirements, and, if we fail to do so, we could lose sales and our collaborators or customers and be exposed to
regulatory delays or objections and potential product liability claims. In addition, our customers may require that our services be
conducted pursuant to the requirements of Good Laboratory Practice (GLP) in order to provide suitable data for their INDs and other
regulatory filings. No regulatory review of data from our platform technology has yet been conducted and there is no guarantee that
our technology will be acceptable under GLP, or that we will be able to comply with GLP requirements on the timetable required by
our customers. As a result, the violation of government regulations or failure to comply with quality requirements could harm demand
for our products or services, and the evolving nature of government regulations could have an adverse impact on our business.
Any therapeutic tissues we develop will be subject to extensive, lengthy and uncertain regulatory requirements, which could
adversely affect our ability to obtain regulatory approval in a timely manner, or at all.
Any therapeutic and other life science products we develop, including our therapeutic human liver tissue, will be subject to extensive,
lengthy and uncertain regulatory approval process by the Food and Drug Administration (FDA) and comparable agencies in other
countries. The regulation of new products is extensive, and the required process of laboratory testing and clinical studies is lengthy,
expensive and uncertain. We may not be able to obtain FDA approvals for any therapeutic products we develop in a timely manner, or
at all. We may encounter significant delays or excessive costs in our efforts to secure necessary approvals or licenses. Even if we
obtain FDA regulatory approvals, the FDA extensively regulates manufacturing, labeling, distributing, marketing, promotion and
advertising after product approval. Moreover, several of our product development areas may involve relatively new technologies and
have not been the subject of extensive laboratory testing and clinical studies. The regulatory requirements governing these products
and related clinical procedures remain uncertain and the products themselves may be subject to substantial review by the FDA and
other foreign governmental regulatory authorities that could prevent or delay approval in the United States and any other foreign
country. Regulatory requirements ultimately imposed on our products could limit our ability to test, manufacture and, ultimately,
commercialize our products and thereby could adversely affect our financial condition and results of operations.
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As we continue to adapt and develop parts of our product line in the future, including tissue-based products in the field of regenerative
medicine, the manufacture and marketing of our products will become subject to government regulation in the United States and other
countries. In the United States and most foreign countries, we will be required to complete rigorous preclinical testing and extensive
human clinical trials that demonstrate the safety and efficacy of a product in order to apply for regulatory approval to market the
product. The steps required by the FDA before our proposed products may be marketed in the United States include performance of
preclinical (animal and laboratory) tests; submissions to the FDA of an IND, NDA (New Drug Application), or BLA (Biologic
License Application) which must become effective before human clinical trials may commence; performance of adequate and well-
controlled human clinical trials to establish the safety and efficacy of the product in the intended target population; and performance of
a consistent and reproducible manufacturing process intended for commercial use.
The processes are expensive and can take many years to complete, and we may not be able to demonstrate the safety and efficacy of
our products to the satisfaction of such regulatory authorities. The start of clinical trials can be delayed or take longer than anticipated
for many and varied reasons, many of which are outside of our control. Safety concerns may emerge that could lengthen the ongoing
trials or require additional trials to be conducted. Regulatory authorities may also require additional testing, and we may be required to
demonstrate that our proposed products represent an improved form of treatment over existing therapies, which we may be unable to
do without conducting further clinical studies. Moreover, if the FDA grants regulatory approval of a product, the approval may be
limited to specific indications or limited with respect to our distribution. Expanded or additional indications for approved devices or
drugs may not be approved, which could limit our revenues. Foreign regulatory authorities may apply similar limitations or may
refuse to grant any approval. Consequently, even if we believe that preclinical and clinical data are sufficient to support regulatory
approval for our product candidates, the FDA and foreign regulatory authorities may not ultimately grant approval for commercial sale
in any jurisdiction. If our products are not approved, our ability to generate revenues will be limited and our business will be adversely
affected.
Even if a product gains regulatory approval, such approval is likely to limit the indicated uses for which it may be marketed, and the
product and the manufacturer of the product will be subject to continuing regulatory review, including adverse event reporting
requirements and the FDA’s general prohibition against promoting products for unapproved uses. Failure to comply with any post-
approval requirements can, among other things, result in warning letters, product seizures, recalls, substantial fines, injunctions,
suspensions or revocations of marketing licenses, operating restrictions and criminal prosecutions. Any of these enforcement actions,
any unanticipated changes in existing regulatory requirements or the adoption of new requirements, or any safety issues that arise with
any approved products, could adversely affect our ability to market products and generate revenues and thus adversely affect our
ability to continue our business.
We also may be restricted or prohibited from marketing or manufacturing a product, even after obtaining product approval, if
previously unknown problems with the product or our manufacturer are subsequently discovered and we cannot provide assurance that
newly discovered or developed safety issues will not arise following any regulatory approval. With the use of any treatment by a wide
patient population, serious adverse events may occur from time to time that initially do not appear to relate to the treatment itself, and
only if the specific event occurs with some regularity over a period of time does the treatment become suspect as having a causal
relationship to the adverse event. Any safety issues could cause us to suspend or cease marketing of our approved products, possibly
subject us to substantial liabilities, and adversely affect our ability to generate revenues.
If restrictions on reimbursements and health care reform limit our or our collaborators’ actual or potential financial returns on
therapeutic products that we or they develop based on our platform technology, we may not be able to recover our research and
development costs and our collaborators may reduce or terminate their collaborations with us.
Our ability to recover our research and development costs and successfully commercialize any therapeutic products we develop and
our collaborators’ abilities to successfully commercialize the therapeutic and other life science products they develop through the
research tools or services that we provide them may depend in part on the extent to which coverage and adequate payments for these
products will be available from government payers, such as Medicare and Medicaid, private health insurers, including managed care
organizations, and other third-party payers. These payers are increasingly challenging the price of medical products and services.
Significant uncertainty exists as to the reimbursement status of newly approved therapeutic and other life science products, and
coverage and adequate payments may not be available for these products.
In recent years, officials have made numerous proposals to change the health care system in the U.S. These proposals included
measures to limit or eliminate payments for some medical procedures and treatments or subject the pricing of pharmaceuticals and
other medical products to government control. Government and other third-party payers increasingly attempt to contain health care
costs by limiting both coverage and the level of payments of newly approved health care products. In some cases, they may also refuse
to provide any coverage of uses of approved products for disease indications other than those for which the FDA has granted
marketing approval. Governments may adopt future legislative proposals and federal, state or private payers for healthcare goods and
services may take action to limit their payments for goods and services. Any of these events could reduce the demand for our products
and services by our collaboration partners, reduce the proceeds we receive from our arrangements with our collaboration partners
based on future sales of their therapeutic products or limit our ability to recover our research and development costs and successfully
commercialize any therapeutic products we develop.
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We use 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 involve 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 are 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 require that environmental permits and approvals
be issued by applicable government agencies. We also cannot accurately predict the extent of regulations that might result from any
future legislative or administrative action. Any of these laws or regulations could cause us to incur additional expense or restrict our
operations. Compliance with environmental laws and regulations may be expensive, and current or future environmental regulations
may impair our research, development or production efforts. If we fail 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.
Risks Related to Our Intellectual Property
If we are not able to adequately protect our proprietary rights, our business could be harmed.
Our commercial 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.
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 so competing.
19
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.
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 patent applications at risk of not issuing. Additionally, our licensors may
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 and substantial penalties. Moreover, patent disputes and related proceedings can
distract management’s attention and interfere with running the 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, and any such assertions 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 thus 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. 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.
If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.
In addition to seeking patents for some of our technology and potential products, we also rely on trade secrets, including unpatented
know-how, technology and other proprietary information, to maintain our competitive position. We seek to protect these trade secrets,
in part, by entering into non-disclosure and confidentiality agreements with parties who have access to them, such as our employees,
corporate collaborators, outside scientific collaborators, contract manufacturers, consultants, advisors and other third parties. We also
enter into confidentiality and invention or patent assignment agreements with our employees and consultants that obligate them to
assign their inventions to us. Despite these efforts, any of these parties may breach the agreements and disclose our proprietary
information, including our trade secrets, and we may not be able to obtain adequate remedies for these breaches. Alternatively, if a
third party alleges that any of our employees or consultants has breached confidentiality obligations to our benefit, we may have to
defend against allegations of trade secret misappropriation.
20
Enforcing or defending a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-
consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or
unwilling to protect trade secrets. Further, if any of our trade secrets were to be lawfully obtained or independently developed by a
competitor, we would have no right to prevent that competitor from using that technology or information to compete with us. If any of
our trade secrets were to be disclosed to or independently developed by a competitor, our competitive position would be harmed.
We rely in part on trademarks to distinguish our products and services from those of other entities. Trademarks may be opposed or
cancelled and we may be involved in lawsuits or other proceedings to protect or enforce our trademarks.
We rely on trademarks, in the United States and in certain foreign jurisdictions, to distinguish our products and services in the minds
of consumers and our business partners from those of other entities. Third parties may challenge our pending trademark applications
through opposition proceedings in the U.S., or comparable proceedings in foreign jurisdictions, in which they seek to prevent
registration of a mark. Our registered trademarks may be subject to cancellation proceedings in the U.S., or comparable proceedings in
foreign jurisdictions, in which a third party seeks to cancel an existing registration. To enforce our trademark rights, we may be
involved in lawsuits or other proceedings which could be expensive, time-consuming and uncertain.
Risks Related to Our Common Stock and Liquidity Risks
We have a limited trading history and there is no assurance that an active market in our common stock will continue at present
levels or increase in the future.
There is limited trading history in our common stock, and although our common stock is now traded on the NASDAQ Global Market,
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.
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. 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 of 2002 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 (the “Act”) requires that we evaluate and determine the effectiveness of our internal control
over financial reporting and requires an attestation and report by our external auditing firm on our internal control over financial
reporting. We believe our system and process evaluation and testing comply with the management certification and auditor attestation
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, especially as we grow our business. 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 or our independent
registered public accounting firm identifies 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.
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:
actual or anticipated variations in our operating results;
announcements of developments by us or our competitors, including new product and service offerings;
results of our preclinical studies and regulatory actions regarding our therapeutic products;
reduced government funding for research and development activities;
announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital
commitments;
21
adoption of new accounting standards affecting our industry;
additions or departures of key personnel;
introduction of new products by us or our competitors;
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 150,000,000 shares of common stock and 25,000,000 shares of preferred stock. As of March 31, 2018,
there were an aggregate of 129,467,796 shares of our common stock issued and outstanding on a fully diluted basis and no shares of
preferred stock outstanding. That total for our common stock includes 14,674,466 shares of our common stock that may be issued
upon the exercise of outstanding stock options or is available for issuance under our equity incentive plans, 1,285,103 shares of
common stock that may be issued through our Employee Stock Purchase Plan (“ESPP”), and 220,000 shares of our common stock that
may be issued upon the exercise of outstanding warrants.
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 Global 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.
Our common stock is subject to trading risks created by the influence of third party investor websites.
Our common stock is widely traded and held by retail investors, and these investors are subject to the influence of information
provided by third party investor websites and independent authors distributing information on the internet. This information has
become influential because it is widely distributed and links to it appear as top company headlines on commonly used stock quote and
finance websites, or through services such as Google alerts. These emerging information distribution models are a consequence of the
emergence of the internet. Some information and content distribution is by individuals through platforms that mainly serve as hosts
seeking advertising revenue. As such, we believe an incentive exists for these sites to increase advertising revenue by increasing page
views, and for them to post or allow to be posted inflammatory information to achieve this end. It has been our experience that a
significant portion of the information on these websites or distributed by independent authors about our Company is false or
misleading, and occasionally, we believe, purposefully misleading. These sites and internet distribution strategies also create
opportunity for individuals to pursue both “pump and dump” and “short and distort” strategies. We believe that many of these
websites have little or no requirements for authors to have professional qualifications. While these sites sometimes require disclosure
of stock positions by authors, as far as we are aware these sites do not audit the accuracy of such conflict of interest disclosures. We
believe that many of these websites have few or lax editorial standards, and thin or non-existent editorial staffs. Despite our best
efforts, we have not and may not be able in the future to obtain corrections to information provided on these websites about our
Company, including both positive and negative information, and any corrections that are obtained may not be achieved prior to the
majority of audience impressions being formed for a given article. These conditions create volatility and risk for holders of our
common stock and should be considered by investors. We can make no guarantees that regulatory authorities will take action on these
types of activities, and we cannot guarantee that legislators will act responsively, or ever act at all, to appropriately restrict the
activities of these websites and authors.
22
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 and 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 the 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;
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.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
The Company leases its main facility at 6275 Nancy Ridge Drive, San Diego, CA 92121. The lease consists of approximately 45,580
rentable square feet containing laboratory, clean room, and office space. The lease term for 14,685 of the total rentable square footage
expires on December 15, 2018. The remainder of the rentable square footage expires on September 1, 2021, with the Company having
an option to terminate this lease on or after September 1, 2019.
We believe our facilities are adequate for our current and near-term needs, and will be able to locate additional facilities as needed.
Item 3. Legal Proceedings.
The Company is not involved in any material legal proceedings or legal matters at this time. See “Note 6. Commitments and
Contingencies” of the Notes to the Consolidated Financial Statements contained within this Annual Report on Form 10-K for a further
discussion of potential commitments and contingencies related to legal proceedings.
Item 4. Mine Safety Disclosures.
Not applicable.
23
PART II
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 has been quoted on The NASDAQ Global Market under the symbol “ONVO” since August 8, 2016. Prior to that
time, we traded on the NYSE MKT and the OTC. The following table sets forth, on a per share basis, for the periods indicated, the
high and low bid or sales prices of our common stock.
Year Ended March 31, 2018
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Year Ended March 31, 2017
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
High
Low
1.54 $
2.28 $
2.72 $
3.19 $
0.93
1.32
1.75
2.55
High
Low
3.92 $
4.14 $
4.99 $
3.74 $
2.76
2.48
3.68
2.11
$
$
$
$
$
$
$
$
Holders of Record
As of March 31, 2018, there were 117 holders of record of the Company’s 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.
24
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, 2018. This graph assumes the investment of $100 on March 31, 2013 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
350.00
300.00
250.00
S
R
A
L
L
O
D
200.00
150.00
100.00
50.00
0.00
Organovo Holdings, Inc.
NASDAQ Composite
NASDAQ Biotechnology
* $100 invested on March 31, 2013 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.
25
Item 6. Selected Financial Data (in thousands except per share data).
The following selected historical financial data reflects our consolidated statements of operations and consolidated balance sheets as
of and for the years ended March 31, 2018, 2017, 2016, 2015, and 2014. The data below should be read in conjunction with, and is
qualified by reference to, Item 7. “Management's Discussion and Analysis of Financial Condition and Results of Operations” and our
audited financial statements and notes thereto contained elsewhere in this annual report on Form 10-K. The following table is
presented in thousands, except per share amounts.
Selected Consolidated
Statement of Operations Data:
Revenue
Operating loss
Net loss
Loss per share, basic and
diluted
Weighted average shares
outstanding, basic and diluted
Selected Consolidated
Balance Sheet Data:
Working capital (deficit)
Total assets
Long-term liabilities
Stockholders’ equity (deficit)
$
$
$
$
$
$
$
$
Year
Ended
March 31,
2018
Year
Ended
March 31,
2017
Year
Ended
March 31,
2016
Year
Ended
March 31,
2015
Year
Ended
March 31,
2014
4,603
(35,271)
(34,803)
(0.32)
$
$
$
$
4,230
(38,575)
(38,447)
(0.39)
$
$
$
$
1,483
(38,643)
(38,575)
(0.43)
$
$
$
$
571
(30,297)
(30,082)
(0.38)
$
$
$
$
379
(20,649)
(25,848)
(0.35)
107,243,974
97,763,032
90,057,356
79,650,087
73,139,618
March 31,
2018
March 31,
2017
March 31,
March 31,
2016
2015
March 31,
2014
42,102
49,827
583
44,586
$
$
$
$
59,081
69,180
807
62,362
$
$
$
$
59,162
67,576
905
62,181
$
$
$
$
46,501
53,489
32
48,696
$
$
$
$
47,268
50,186
9
48,284
26
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 a biotechnology company pioneering a unique set of therapeutic and drug profiling capabilities based on our revolutionary
ability to 3D bioprint liver and kidney tissues which emulate human biology and disease. We are developing our in vivo liver tissues
to treat a range of life-threatening, rare diseases, for which there are few current treatment options other than organ transplantation.
Our first program, which focuses on a rare disease known as Alpha-1-anityprisin deficiency (“A1AT”), received the U.S. Food and
Drug Administration’s (“FDA”) orphan drug designation in December 2017 and is targeted for an Initial New Drug Application
(“IND”) filing in calendar-year 2020. We are also capitalizing on our foundational ability to characterize highly specialized human
cells and to build robust, functional human tissues by creating a range of novel in vitro disease modeling platforms, including a broad
set of non-alcoholic fatty liver disease (“NAFLD”) and non-alcoholic steatohepatitis (“NASH”) conditions. Our clients are accessing
these diseased tissue platforms through a growing number of collaborative, revenue-generating agreements.
We aim to grow revenue through product sales and fee-based service agreements and collaborations for our invitro tissues to help
provide a portion of the required cash flow to support our therapeutics development program. Our in vitro and in vivo tissues are both
built upon the same proprietary 3D bioprinting technology and our highly specialized cells, providing valuable synergies in advancing
each of our businesses. We are striving to change the face of medicine by enabling more relevant and translational drug discovery and
by launching novel approaches to treating disease.
In the near-term, we will focus on several value-driving inflection points including:
Partnering with the FDA and expert advisers to finalize the confirmatory animal studies and scientific validation path
leading to a successful pre-IND meeting for our first liver therapeutic tissue indication, A1AT;
Validating a second unmet disease area using the same healthy liver therapeutic tissue patch and moving into an additional
IND-track program;
Deploying a broad range of proof-of-concept disease modeling capabilities in NASH to enable steady-state, high content
screening collaborations with current and prospective clients;
Growing our Samsara division’s cell-based product revenue, as well as continuing to generate revenue from grant and
licensing agreements; and
Continuing to present and publish major scientific findings of our tissue platform.
Over the long-term, we will focus on achieving the following key milestones:
One or more successful IND submissions, leading to the initiation of Phase I clinical studies involving implantation and
functional evaluation of our liver therapeutic tissue patch in target disease patients;
Achieving key FDA designations associated with tissue-based approaches that address serious unmet medical needs in
rare disease indications, which can include Regenerative Medicine Advanced Therapy (“RMAT”), Orphan Disease, Fast
Track and Breakthrough designations;
Achieving operational breakeven profitability for our commercial business by securing significant revenue-generating fee-
based service agreements and collaborations and creating business opportunities which may lead to valuable spin-out
and/or partnering opportunities; and
Continuing academic, partner and internal research programs to generate additional, high value tissue applications and
therapeutics pipeline opportunities in other organ and disease areas.
27
Critical Accounting Policies
Our discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which
we have prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements
requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the consolidated financial statements, as well as the reported revenues and expenses during the
reporting periods. On an ongoing basis, we evaluate such estimates and judgments, including those described in greater detail below.
We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent
from other sources. Our actual results may differ from these estimates under different assumptions or conditions.
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. 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.
Revenue recognition
Our revenues are derived from research service agreements, product sales, and collaborative agreements with pharmaceutical and
biotechnology companies, grants from the National Institutes of Health (“NIH”) and private not-for-profit organizations, and license-
payments from academic institutions.
We recognize revenue when the following criteria have been met: (i) persuasive evidence of an arrangement exists; (ii) services have
been rendered or product has been delivered; (iii) price to the customer is fixed and determinable; and (iv) collection of the underlying
receivable is reasonably assured.
Billings to customers or payments received from customers are included in deferred revenue on the balance sheet until all revenue
recognition criteria are met. As of March 31, 2018 and March 31, 2017, we had approximately $687,000 and $640,000, respectively,
in deferred revenue related to our licenses, collaborative agreements, and research service agreements.
Revenue arrangements with multiple deliverables
We follow ASC 605-25 Revenue Recognition – Multiple-Element Arrangements for revenue arrangements that contain multiple
deliverables. Judgment is required to properly identify the accounting units of the multiple deliverable transactions and to determine
the manner in which revenue should be allocated among the accounting units. Moreover, judgment is used in interpreting the
commercial terms and determining when all criteria of revenue recognition have been met for each deliverable in order for revenue
recognition to occur in the appropriate accounting period. For multiple deliverable agreements, consideration is allocated at the
inception of the agreement to all deliverables based on their relative selling price. The relative selling price for each deliverable is
determined using vendor-specific objective evidence (“VSOE”) of selling price or third-party evidence of selling price if VSOE does
not exist. If neither VSOE nor third-party evidence of selling price exists, we use our best estimate of the selling price for the
deliverable.
While changes in the allocation of the arrangement consideration between the units of accounting will not affect the amount of total
revenue recognized for a particular sales arrangement, any material changes in these allocations could impact the timing of revenue
recognition, which could affect our results of operations.
We periodically receive license fees for non-exclusive research licensing associated with funded research projects. License fees under
these arrangements are recognized over the term of the contract or development period as it has been determined that such licenses do
not have stand-alone value.
Revenue from research service agreements
For research service agreements that contain only a single or primary deliverable, we defer any up-front fees collected from customers,
and recognizes revenue for the delivered element only when it determines there are no uncertainties regarding customer acceptance.
For agreements that contain multiple deliverables, we follow ASC 605-25 as described above.
28
Research and development revenue under collaborative agreements
Our collaboration revenue consists of license and collaboration agreements that contain multiple elements, which may include non-
refundable up-front fees, payments for reimbursement of third-party research costs, payments for ongoing research, payments
associated with achieving specific development milestones and royalties based on specified percentages of net product sales, if any.
We consider a variety of factors in determining the appropriate method of revenue recognition under these arrangements, such as
whether the elements are separable, whether there are determinable fair values and whether there is a unique earnings process
associated with each element of a contract.
We recognize revenue from research funding under collaboration agreements when earned on a “proportional performance” basis as
research services are provided or substantive milestones are achieved. We recognize revenue that is contingent upon the achievement
of a substantive milestone in its entirety in the period in which the milestone is achieved. A milestone is considered substantive when
the consideration payable to us for the milestone (i) is consistent with our performance necessary to achieve the milestone or the
increase in value to the collaboration resulting from our performance, (ii) relates solely to our past performance and (iii) is reasonable
relative to all of the other deliverables and payments within the arrangement. In making this assessment, we consider all facts and
circumstances relevant to the arrangement, including factors such as the risks that must be overcome to achieve the milestone, the
level of effort and investment required to achieve the milestone and whether any portion of the milestone consideration is related to
future performance or deliverables.
We initially defer revenue for any amounts billed or payments received in advance of the services being performed, and recognize
revenue pursuant to the related pattern of performance, using the appropriate method of revenue recognition based on our analysis of
the related contractual element(s).
In November 2014, we entered into a collaborative non-exclusive research affiliation with a university medical school and a non-profit
medical charity, under which we received a one-time grant from the charity towards the placement of a NovoGen Bioprinter® at the
university for the purpose of developing bioprinted tissues for surgical transplantation research. We have recorded $0 and $32,000 for
the twelve months ended March 31, 2018 and 2017, respectively, in revenue related to this collaboration in recognition of the
proportional performance achieved. We completed our obligations under this agreement as of November 30, 2016.
In April 2015, we entered into a research collaboration agreement with a third party to develop custom tissue models for fixed fees.
Based on the proportional performance achieved under this agreement, $150,000 and $117,000 in collaboration revenue was recorded
for the twelve months ended March 31, 2018 and 2017, respectively. We have completed our obligations under this agreement as of
March 31, 2018.
Also in April 2015, we entered into a multi-year research agreement with a third party to develop multiple custom tissue models for
use in drug development. Approximately $0 and $835,000 were recorded as revenue in recognition of the proportional performance
achieved under this agreement during the twelve months ended March 31, 2018 and 2017, respectively.
In June 2016, we entered into another collaborative non-exclusive research affiliation with a university medical school and a non-
profit medical charity, under which we received a one-time grant from the charity towards the placement of a NovoGen Bioprinter® at
the university for the purpose of developing bioprinted tissues for skeletal disease research. We received an up-front payment in June
2016, which was initially recorded as deferred revenue. Revenue of $65,000 and $34,000 has been recorded under this agreement
during the twelve months ended March 31, 2018 and 2017, respectively.
In December 2016, we entered into another collaborative non-exclusive research affiliation with a university medical school and a
non-profit medical charity, under which we received a one-time grant from the charity towards the placement of a NovoGen
Bioprinter® at the university for the purpose of developing an architecturally correct kidney for potential therapeutic applications. We
received an up-front payment in January and March of 2017, which has been recorded as deferred revenue. Revenue of approximately
$39,000 and $3,000 has been recorded under this agreement for the twelve months ended March 31, 2018 and 2017, respectively.
In April 2017, we entered into a collaborative non-exclusive research affiliation with a university, under which we received a one-time
non-refundable payment toward the placement of a NovoGen Bioprinter® at the university for the purpose of specific research projects
mutually agreed upon by the university and us in the field of volumetric muscle loss. We received an up-front payment in May of
2017, which has been recorded as deferred revenue. Revenue of approximately $43,000 has been recorded under this agreement for
the twelve months ended March 31, 2018, beginning subsequent to the installation of the printer in July of 2017. In addition, during
April of 2017, we signed a non-exclusive patent license agreement with the university including an annual fee of $75,000 for each of
the two years for the license to our patents for research use limited to the field of volumetric muscle loss. We received the first annual
payment of $75,000 in April of 2017, which was initially recorded as deferred revenue. We recorded revenue of $75,000 under this
agreement for the twelve months ended March 31, 2018.
29
In September 2017, we entered into an agreement with a company, under which we received a one-time non-refundable payment of
$50,000 for limited use of a Company patent in reference to four bioprinters developed and placed at research and academic facilities.
We have recorded $50,000 in revenue for the twelve months ended March 31, 2018.
Product revenue
We recognize product revenue at the time of delivery to the customer, provided all other revenue recognition criteria have been met.
We expect to establish a reserve for estimated product returns that will be recorded as a reduction to revenue. This reserve will be
maintained to account for future return of products sold in the current period. The reserve will be reviewed quarterly and will be
estimated based on an analysis of our historical experience related to product returns.
Grant revenue
During August 2013, we were awarded a research grant by a private, not-for-profit organization for up to $251,700, contingent on
go/no-go decisions made by the grantor at the completion of each stage of research as outlined in the grant award. Revenues from the
grant are based upon internal costs incurred that are specifically covered by the grant, plus an additional rate that provides funding for
overhead expenses. Revenue is recognized when we incur expenses that are related to the grant. Revenue recognized under this grant
was approximately $0, $41,000, and $43,000 for the twelve months ended March 31, 2018, 2017, and 2016, respectively. We have
completed our obligations under this agreement as of March 31, 2017.
During September of 2014, the NIH awarded the Company a research grant totaling approximately $222,000. Revenues from the grant
are based upon internal costs incurred that are specifically covered by the grant, plus an additional rate that provides funding for
overhead expenses. Revenue is recognized when the Company incurs expenses that are related to the grant. Revenue recognized under
this grant was approximately $148,000 for the twelve months ended 2016. The Company completed its obligations under this
agreement during the year ended March 31, 2016.
During July 2017, the NIH awarded us a research grant totaling approximately $1,657,000. Revenues from the grant are based upon
internal costs incurred that are specifically covered by the grant, plus an additional rate that provides funding for overhead expenses.
Revenue is recognized when the Company incurs expenses that are related to the grant. Revenue is recognized upon completion of
substantive milestones. Revenue recognized under this grant was approximately $554,000 and $0 for the twelve months ended March
31, 2018 and 2017, respectively.
Cost of revenues
We reported approximately $1.0 million and $1.0 million in cost of revenues for the twelve months ended March 31, 2018 and 2017,
respectively. Cost of revenues for the twelve months ended March 31, 2016 was immaterial and was therefore included in research
and development expenses. Cost of revenues consists of our costs related to manufacturing and delivering our product and service
revenue.
Derivative Financial Instruments
We do not use derivative instruments to hedge exposures to cash flow, market or foreign currency risks.
We review the terms of convertible debt and equity instruments it issues to determine whether there are derivative instruments,
including an embedded conversion option that is required to be bifurcated and accounted for separately as a derivative financial
instrument. In circumstances where the convertible instrument contains more than one embedded derivative instrument, including the
conversion option, that is required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound
derivative instrument. Also, in connection with the sale of convertible debt and equity instruments, we may issue freestanding
warrants that may, depending on their terms, be accounted for as derivative instrument liabilities, rather than as equity.
Derivative instruments are initially recorded at fair value and are then revalued at each reporting date with changes in the fair value
reported as non-operating income or expense. When the convertible debt or equity instruments contain embedded derivative
instruments that are to be bifurcated and accounted for as liabilities, the total proceeds allocated to the convertible host instruments are
first allocated to the fair value of all the bifurcated derivative instruments. The remaining proceeds, if any, are then allocated to the
convertible instruments themselves, usually resulting in those instruments being recorded at a discount from their face value.
30
Fair Value Measurements
We had issued warrants, of which some were classified as derivative liabilities as a result of the terms in the warrants that provide for
down round protection in the event of a dilutive issuance. We used Level 3 inputs (unobservable inputs that are supported by little or
no market activity, and that are significant to the fair value of the assets or liabilities) for our valuation methodology for the warrant
derivative liabilities. The estimated fair values were determined using a Monte Carlo option pricing model based on various
assumptions. Our derivative liabilities were adjusted to reflect estimated fair value at each period end, with any increase or decrease in
the estimated fair value being recorded in other income or expense accordingly, as adjustments to the fair value of the derivative
liabilities. Various factors are considered in the pricing models we used to value the warrants, including our current stock price, the
remaining life of the warrant, the volatility of our stock price, and the risk-free interest rate. The remaining warrants expired as of
March 31, 2017 and were removed from the Balance Sheet.
Stock-Based Compensation
For purposes of calculating stock-based compensation, we estimate the fair value of stock options and shares acquirable under our
2016 Employee Stock Purchase Plan (the “ESPP”) 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. The expected volatility is based on the historical
common stock volatility of our peer group over the most recent period commensurate with the estimated expected term of the stock
options or ESPP, as the case may be. 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.
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.
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, is 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 the Company. The expense for PBRSUs with pre-defined
performance criteria is adjusted with the probability of achievement of such performance criteria at each period end.
Results of Operations
Comparison of the Years Ended March 31, 2018, 2017, and 2016
The following table summarizes our results of operations for the years ended March 31, 2018, 2017, and 2016 (in thousands):
Year Ended March 31,
2017
2016
2018
Revenues
Cost of revenues
Research and development
Selling, general and administrative
Other income
$
$
$
$
$
4,603 $
1,030 $
17,956 $
20,888 $
470 $
4,230 $
956 $
19,545 $
22,304 $
151 $
1,483 $
— $
18,008 $
22,118 $
71 $
2017 to 2018
2016 to 2017
$
373
74
(1,589)
(1,416)
319
%
9 % $
8 % $
(8 %) $
(6 %) $
211 % $
$
2,747
956
1,537
186
80
%
185%
—
8%
1%
112%
Revenues
Revenues of $4.6 million for the year ended March 31, 2018 increased approximately $0.4 million, or approximately 9%, over
revenues of $4.2 million for the year ended March 31, 2017. This change reflects increases of $0.5 million and $0.5 million in product
and service revenue and grant revenue, respectively, over the year ended March 31, 2017, due to an increase in primary human cell-
based products and the commencement of our NIH SBIR grant. These increases offset a $0.6 million decrease in collaboration
revenue resulting from the completion of two collaborations that concluded during fiscal year 2017. Revenues of $4.2 million for the
year ended March 31, 2017 increased approximately $2.7 million, or more than 180%, over revenues of $1.5 million for the year
ended March 31, 2016. This change reflects an increase of $2.4 million in product and service revenue over the year ended March 31,
2016, due to an increasing number of customer contracts for our tissue research services. In addition, collaboration revenue increased
$0.5 million due to substantial milestone achievements under collaboration agreements with multiple partners to develop custom
tissue models. These increases were offset by a decrease in grant revenue by $0.2 million primarily related to a grant that concluded
during fiscal year 2016.
31
Costs and Expenses
Cost of Revenues
Cost of product and service revenues, which reflects expenses related to manufacturing our products and delivering services was $1.0
million and $1.0 million for the years ended March 31, 2018 and 2017, respectively. The resulting improvement in our product and
service gross margin is due to an increased proportion of higher margin revenues from the sales of primary human cell-based products.
Cost of product and service revenues was $1.0 million for the year ended March 31, 2017, compared to zero for the year ended March
31, 2016 as cost of revenues for the year ended March 31, 2016 was immaterial and was therefore included in research and
development expenses.
Research and Development Expenses
The following table summarizes our research and development expenses for the years ended March 31, 2018, 2017, and 2016 (in
thousands):
Year ended March 31,
2017
2016
2018
Research and development
Non-cash stock-based compensation
Depreciation and amortization
Total research and development expenses $
$
16,130 $
1,174
652
17,956 $
17,332 $
1,646
567
19,545 $
16,280 $
1,248
480
18,008 $
2017 to 2018
2016 to 2017
$
(1,202)
(472)
85
(1,589)
%
(7 %) $
(29 %)
15 %
(8 %) $
$
1,052
398
87
1,537
%
6%
32%
18%
8%
Research and development expenses decreased $1.6 million, or 8%, from approximately $19.5 million for the year ended March 31,
2017 to approximately $18.0 million for the year ended March 31, 2018 as we sharpened the focus of our research staff activities to
emphasize development of disease modeling research services and reduced our product development staff utilized to support
obligations under collaborative research agreements that expired in fiscal 2017. Full-time research and development staffing
decreased from an average of eighty full-time employees during the year ended March 31, 2017 to an average of seventy-one full-time
employees during the year ended March 31, 2018, resulting in decreases of $1.3 million and $0.6 million in staffing expense and lab
services and supply expenses, respectively. These decreases offset a $0.3 million increase in facility allocation costs. Research and
development expense increased $1.5 million, or 8%, from approximately $18.0 million for the year ended March 31, 2016 to
approximately $19.5 million for the year ended March 31, 2017 as we increased our research staff activities to support development of
commercial research services and expanded our product development staff to support obligations under existing collaborative research
agreements. Full-time research and development staffing increased from an average of sixty-eight full-time employees during the year
ended March 31, 2016 to an average of eighty full-time employees during the year ended March 31, 2017, resulting in increases in
staffing expense of approximately $1.5 million.
Selling, General and Administrative Expenses
The following table summarizes our selling, general and administrative expenses for the years ended March 31, 2018, 2017, and 2016
(in thousands):
Selling, general and administrative
Non-cash stock-based compensation
Depreciation and amortization
Total selling, general and administrative
expenses
Year ended March 31,
2017
2016
2018
$
14,544 $
5,729
615
15,976 $
5,746
582
14,475 $
7,308
335
2017 to 2018
2016 to 2017
$
(1,432)
(17)
33
%
(9 %) $
(0 %)
6 %
$
1,501
(1,562)
247
%
10%
(21%)
74%
$
20,888 $
22,304 $
22,118 $
(1,416)
(6 %) $
186
1%
Selling, general and administrative expenses decreased approximately $1.4 million, or 6%, from $22.3 million for the year ended
March 31, 2017 to approximately $20.9 million for the year ended March 31, 2018. The decrease was primarily driven by a reduction
in legal and patent costs of approximately $0.8 million, a reduction in facility costs of $0.3 million and a decrease in compensation
costs due to reduced cash incentive payments and a headcount decrease from an average of thirty-six full-time employees during the
year ended March 31, 2017 to an average of thirty-three full-time employees during the year ended March 31, 2018, resulting from a
sharpened strategic focus and the prioritization of projects. Selling, general and administrative expenses increased approximately $0.2
million, or 1%, from $22.1 million for the year ended March 31, 2016 to approximately $22.3 million for the year ended March 31,
2017. This increase was primarily driven by an increase in staffing-related expenses of approximately $1.1 million due to a headcount
increase from an average of twenty-eight full-time employees during the year ended March 31, 2016 to an average of thirty-six full-
time employees during the year ended March 31, 2017, to provide strategic infrastructure in developing collaborative relationships and
the commercializing of research-derived product introductions. Additionally, the increase was related to higher executive recruiting
costs of $0.3 million, and outside services in the amount of $0.2 million. This increase was offset by a $1.6 million decrease in share-
based compensation related to the absence of non-recurring expenses for two departed executives.
32
Other Income (Expense)
Other income was approximately $0.5 million for the year ended March 31, 2018, and consisted primarily of interest income. For the
year ended March 31, 2017, other income of approximately $0.2 million consisted primarily of interest income. Interest income
increased from fiscal 2017 due to higher average yields. For the year ended March 31, 2016, other income of approximately $0.1
million consisted primarily of interest income. Interest income increased from fiscal 2016 due to higher average yields.
Financial Condition, Liquidity and Capital Resources
We have primarily devoted our efforts to developing and commercializing a platform technology to produce and study living tissues
that emulate key aspects of human biology and disease, raising capital and building infrastructure.
As of March 31, 2018, we had cash and cash equivalents of $43.7 million and an accumulated deficit of $234.1 million. We also had
negative cash flows from operations of $28.9 million, $29.2 million, and $29.4 million for the years ended March 31, 2018, 2017 and
2016, respectively.
At March 31, 2018, we had total current assets of $46.8 million and current liabilities of $4.7 million, resulting in working capital of
$42.1 million. At March 31, 2017, we had total current assets of $65.1 million and current liabilities of $6.0 million, resulting in
working capital of $59.1 million.
The following table sets forth a summary of the primary sources and uses of cash for the years ended March 31, 2018, 2017, and 2016
(in thousands):
Net cash (used in) provided by:
Operating activities
Investing activities
Financing activities
Effect of currency exchange rate
Net increase (decrease) in cash and cash equivalents
Operating activities
2018
Year ended March 31,
2017
2016
$
$
(28,857) $
(292)
10,113
11
(19,025) $
(29,185 ) $
(1,391 )
31,247
(11 )
660 $
(29,368)
(2,135)
43,452
—
11,949
Net cash used by operating activities was approximately $28.9 million, $29.2 million, and $29.4 million for the years ended March 31,
2018, 2017, and 2016, respectively. This $0.3 million decrease, for the year ended March 31, 2018, is a result of a $3.2 million
improvement in operating cost offset by a $2.9 million increase in working capital requirements.
Investing activities
Net cash used in investing activities was approximately $0.3 million, $1.4 million, and $2.1 million for the years ended March 31,
2018, 2017, and 2016, respectively. The majority of net cash used in investing activities to date has been for capital purchases,
including laboratory equipment purchases and the expansion and buildout of our facilities related to our expanded research capabilities
and the commercialization of our products.
Financing activities
Net cash provided by financing activities was approximately $10.1 million, $31.2 million, and $43.5 million for the years ended
March 31, 2018, 2017 and 2016, respectively.
Operations funding requirements
During the year ended March 31, 2018, we raised net proceeds of approximately $9.2 million through the sale of 5,307,105 shares of
our common stock in “at-the-market” offerings and approximately $0.8 million through stock option exercises and $0.2 million
through the sale of shares through the ESPP, which were offset by $0.1 million of payroll taxes paid by the Company related to the
vesting of restricted stock units where vested shares were withheld by us to satisfy employee withholding tax obligations.
During the year ended March 31, 2017, we raised net proceeds of approximately $25.7 million from our public offering of 10,065,000
shares of our common stock in October 2016, approximately $4.5 million through the sale of 997,181 shares of our common stock in
“at-the-market” offerings and approximately $1.1 million through warrant exercises, stock option exercises and the sale of shares
through the ESPP.
33
During the year ended March 31, 2016, we raised net proceeds of approximately $43.1 million through the sale of 10,838,750 shares
of our common stock. In addition, we raised approximately $0.3 million from stock option exercises during the year ended March 31,
2016.
Through March 31, 2018, we have financed our operations primarily through the sale of convertible notes, the private placement of
equity securities, the sale of common stock through public offerings, and from revenue derived from products and research-based
services, grants, and collaborative research agreements. Based on our current operating plan and available cash resources, we have
sufficient resources to fund our business for at least the next twelve months.
We will need additional capital to further fund the development of our therapeutic tissues and the implementation of our business plan.
We intend to cover our future operating expenses through cash on hand, revenue derived from research service agreements, product
sales, grants, and collaborative research agreements and through the issuance of additional equity or debt securities. 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 have an effective shelf registration statement on Form S-3 (File No. 333-222929), or the 2018 Shelf, that expires on February 22,
2021. As of March 31, 2018, we are authorized to offer and sell under the 2018 Shelf, in one or more offerings, common stock,
preferred stock, warrants to purchase common stock, preferred stock, or any combination of the foregoing, either individually or as
units compromised one or more of the other securities. On March 16, 2018, we filed a prospectus supplement to the 2018 Shelf to
register the sale of up to $50.0 million of shares of our common stock that may be issued in at-the-market offerings pursuant to an
equity offering sales agreement we entered into with two investment banking firms as of the same date. During the twelve months
ended March 31, 2018, we sold 5,307,105 shares of common stock in at-the-market offerings, with net proceeds of approximately $9.2
million under its 2015 Shelf, which expired on March 17, 2018.
Based on our use of the 2018 Shelf through March 31, 2018, we cannot raise more than an aggregate of $100.0 million in future
offerings under the 2018 Shelf, including through our at-the-market program.
Having insufficient funds may require us to delay, scale back, or eliminate some or all of our development programs or 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.
As of March 31, 2018, we had 111,032,957 total issued and outstanding shares of common stock and 220,000 warrants with remaining
terms between one and two years and exercise prices between $6.84 and $7.62 per share.
In addition, our 2008 Equity Incentive Plan provides for the issuance of up to 896,256 shares of common stock upon the exercise of
outstanding stock options and the 2012 Equity Incentive Plan, as amended, provides for the issuance of up to 17,553,986 shares of our
common stock, of which 4,595,021 shares remain available for issuance as of March 31, 2018, to executive officers, directors,
advisory board members, employees and consultants. Additionally, 1,500,000 shares of common stock have been reserved for
issuance under the 2016 ESPP, of which 1,285,103 shares remain available for future issuance as of March 31, 2018. Lastly,
2,288,682 shares of common stock have been reserved for issuances under Inducement Award Agreements. In aggregate, issued and
outstanding common stock, shares underlying outstanding warrants, and shares issuable under outstanding equity awards or reserved
for future issuance under the 2008 and 2012 Equity Incentive Plans, the Inducement Award Agreements, and the 2016 ESPP total
129,501,208 shares of common stock as of March 31, 2018.
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 warrants and 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.
34
Contractual Obligations
In the normal course of business, we enter into contracts and commitments that obligate us to make payments in the future. The table
below sets forth our significant contractual obligations and related scheduled payments as of March 31, 2018 (in thousands):
Operating lease obligations (A)
Total
$
$
4,030 $
4,030 $
1,385 $
1,385 $
2,177
2,177
$
$
(A) Operating lease obligations include the remaining payments due under our facility leases.
Total
2019
2020 to
2021
2022 to
2023
2024 and
thereafter
—
—
468 $
468 $
Recent Accounting Pronouncements
For information regarding recently adopted and issued accounting pronouncements, see “Note 12. Recent Accounting
Pronouncements” in the Notes to Consolidated Financial Statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
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.
35
Item 8. Consolidated Financial Statements.
Organovo Holdings, Inc.
Index to Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of March 31, 2018 and March 31, 2017
Consolidated Statements of Operations and Other Comprehensive Loss for the years ended March 31, 2018, 2017 and
2016
Consolidated Statements of Stockholders’ Equity from March 31, 2015 through March 31, 2018
Consolidated Statements of Cash Flows for the years ended March 31, 2018, 2017 and 2016
Notes to Consolidated Financial Statements
..........................................................................................................................................
F-2
F-4
F-5
F-6
F-7
F-9
Page
Number
...................................................................................................................................................................................................
............................................................
.....................................................
.............................................................................................
................................................................................................................
F-1
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, 2018
and 2017, and the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for each
of the years in the three year period ended March 31, 2018, 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,
2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended March 31, 2018, in
conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
Company’s internal control over financial reporting as of March 31, 2018, based on criteria established in the 2013 Internal Control -
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report
dated May 31, 2018 expressed an unqualified opinion.
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.
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.
/s/ Mayer Hoffman McCann P.C.
We have served as the Company's auditor since 2011.
San Diego, California
May 31, 2018
F-2
Report of Independent Registered Public Accounting Firm
To the Board of Directors and
Stockholders of Organovo Holdings, Inc.:
Opinion on Internal Control over Financial Reporting
We have audited Organovo Holdings, Inc.’s (“Company”) internal control over financial reporting as of March 31, 2018, based on
criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO criteria). In our opinion, the Company maintained, in all material respects, effective internal control
over financial reporting as of March 31, 2018, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(“PCAOB”), the consolidated balance sheets of the Company as of March 31, 2018 and 2017, and the related consolidated statements
of operations and comprehensive loss, stockholders’ equity and cash flows for each of the years in the three year period ended March
31, 2018, and our report dated May 31, 2018, expressed an unqualified opinion.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment
of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal
Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial
reporting based on our audit. We are a public accounting firm registered with the 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control
based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s 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 for external purposes in accordance with accounting principles generally
accepted in the United States of America. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of
the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could
have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Mayer Hoffman McCann P.C.
San Diego, California
May 31, 2018
F-3
ORGANOVO HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands except per share data)
March 31, 2018
March 31, 2017
Assets
Current Assets
Cash and cash equivalents
Accounts receivable
Grant receivable
Inventory, net
Prepaid expenses and other current assets
Total current assets
Fixed assets, net
Restricted cash
Other assets, net
Total assets
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable
Accrued expenses
Deferred revenue
Deferred rent
Total current liabilities
Deferred revenue, net of current portion
Deferred rent, net of current portion
Total liabilities
Commitments and Contingencies
Stockholders' Equity
Common stock, $0.001 par value; 150,000,000 shares authorized,
111,032,957 and 104,551,466 shares issued and outstanding at
March 31, 2018 and March 31, 2017, respectively
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive income (loss)
Total stockholders' equity
Total Liabilities and Stockholders' Equity
$
$
$
$
$
43,726
883
145
842
1,164
46,760
2,788
127
152
49,827
464
3,341
668
185
4,658
19
564
5,241
111
278,595
(234,120 )
—
44,586
49,827
$
$
$
$
$
62,751
647
—
550
1,144
65,092
3,840
127
121
69,180
1,171
4,101
582
157
6,011
58
749
6,818
104
261,586
(199,317)
(11)
62,362
69,180
The accompanying notes are an integral part of these consolidated financial statements.
F-4
ORGANOVO HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE LOSS
(in thousands except per share data)
Revenues
Products and services
Collaborations and licenses
Grants
Total Revenues
Cost of revenues
Research and development expenses
Selling, general, and administrative expense
Total costs and expenses
Loss from Operations
Other Income (Expense)
Change in fair value of warrant liabilities
Gain (loss) on fixed asset disposals
Interest income
Other income (expense)
Total Other Income (Expense)
Income Tax Expense
Net Loss
Net loss per common share—basic and diluted
Weighted average shares used in computing net
loss per common share—basic and diluted
Comprehensive Loss:
Net Loss
Currency Translation Adjustment
Comprehensive Loss
Year Ended
March 31,
2018
Year Ended
March 31,
2017
Year Ended
March 31,
2016
$
$
$
$
$
3,627 $
422
554
4,603
1,030
17,956
20,888
39,874
(35,271)
—
4
478
(12)
470
(2)
(34,803) $
(0.32) $
3,167 $
1,022
41
4,230
956
19,545
22,304
42,805
(38,575 )
4
(51 )
198
—
151
(23 )
(38,447 ) $
(0.39 ) $
806
486
191
1,483
—
18,008
22,118
40,126
(38,643)
(17)
—
88
—
71
(3)
(38,575)
(0.43)
107,243,974
97,763,032
90,057,356
(34,803) $
11
(34,792) $
(38,447 ) $
(11 )
(38,458 ) $
(38,575)
—
(38,575)
The accompanying notes are an integral part of these consolidated financial statements.
F-5
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands)
ORGANOVO HOLDINGS, INC.
Balance at March 31, 2015
Issuance of common stock from warrant exercises,
net
Restricted stock forfeitures
Issuance of common stock from public offering, net
Stock-based compensation expense
Warrant liability removed due to exercises of
warrants
Stock option exercises
Issuance of warrants to consultant
Expense related to potential equity bonus issuance
Net loss
Balance at March 31, 2016
Issuance of common stock from warrant exercises,
net
Issuance of common stock under employee and
director stock option, RSU and purchase plans
Stock-based compensation expense
Issuance of common stock from public offering, net
Net loss
Currency translation adjustment
Balance at March 31, 2017
Stock option exercises
Issuance of common stock under employee and
director stock option, RSU and purchase plans
Stock-based compensation expense
Issuance of common stock from public offering, net
Net loss
Currency translation adjustment
Balance at March 31, 2018
Common Stock
Shares
81,537 $
Amount
Additional
Paid-in
Capital
Accumulated
Other
Accumulated Comprehensive
Income (Loss)
Deficit
Total
82 $ 170,909 $ (122,295 ) $
— $ 48,696
32
(132)
10,839
—
—
116
—
—
—
92,392 $
—
—
10
—
—
—
43,127
8,556
—
—
—
—
—
139
—
—
320
—
—
38
—
—
(130)
—
—
(38,575 )
—
92 $ 222,959 $ (160,870 ) $
—
—
—
—
—
—
43,137
8,556
139
—
320
—
38
—
(130)
—
—
(38,575)
— $ 62,181
700
1
335
—
—
336
397
—
11,062
—
—
104,551 $
500
675
—
5,307
—
—
111,033 $
—
705
—
—
7,392
—
—
30,195
11
(38,447 )
—
—
—
—
—
104 $ 261,586 $ (199,317 ) $
—
825
1
—
113
1
—
6,903
—
—
9,168
5
(34,803 )
—
—
—
—
—
111 $ 278,595 $ (234,120 ) $
—
—
—
705
7,392
30,206
(38,447)
(11)
(11)
(11) $ 62,362
826
—
114
—
6,903
—
9,173
—
(34,803)
—
11
11
— $ 44,586
The accompanying notes are an integral part of these consolidated financial statements.
F-6
ORGANOVO HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Year Ended
March 31, 2018
Year Ended
March 31, 2017
Year Ended
March 31, 2016
$
(34,803) $
(38,447 ) $
(38,575)
Cash Flows From Operating Activities
Net loss
Adjustments to reconcile net loss to net cash used
in operating activities:
Amortization of deferred financing costs
(Gain) loss on disposal of fixed assets
Depreciation and amortization
Change in fair value of warrant liabilities
Stock-based compensation
Donation of fixed assets
Increase (decrease) in cash resulting from changes in:
Accounts receivable
Grants receivable
Inventory
Prepaid expenses and other assets
Accounts payable
Accrued expenses
Deferred rent
Deferred revenue
Net cash used in operating activities
Cash Flows From Investing Activities
Deposits released from restriction (restricted cash deposits)
Purchases of fixed assets
Proceeds from disposals of fixed assets
Purchases of intangible assets
Net cash used in investing activities
Cash Flows From Financing Activities
Proceeds from issuance of common stock and exercise of
warrants, net
Proceeds from exercise of stock options
Principal payments on capital lease obligations
Net cash provided by financing activities
Effect of currency exchange rate changes on cash and cash
equivalents
Net Increase in Cash and Cash Equivalents
Cash and Cash Equivalents at Beginning of Period
Cash and Cash Equivalents at End of Period
Supplemental Disclosure of Cash Flow Information:
Interest
Income Taxes
$
$
$
—
(4)
1,267
—
6,903
25
(236)
(145)
(292)
5
(707)
(760)
(157)
47
(28,857)
—
(226)
4
(70)
(292)
9,287
826
—
10,113
11
(19,025)
62,751
43,726 $
— $
2 $
—
56
1,149
(4 )
7,392
—
(388 )
—
(216 )
(154 )
384
1,651
(138 )
(470 )
(29,185 )
(48 )
(1,354 )
11
—
(1,391 )
30,665
582
—
31,247
(11 )
660
62,091
62,751 $
— $
23 $
(92)
—
815
17
8,556
—
(259)
—
(268)
83
(600)
193
(89)
851
(29,368)
—
(2,114)
14
(35)
(2,135)
43,137
320
(5)
43,452
—
11,949
50,142
62,091
—
3
The accompanying notes are an integral part of these consolidated financial statements.
F-7
Supplemental Disclosure of Noncash Investing and Financing Activities ($ in thousands):
During the year ended March 31, 2016, the warrant liability was reduced by approximately $139 as a result of warrant exercises.
During the year ended March 31, 2016, approximately $374 of leasehold improvements were funded by the Company’s landlord as a
lease incentive. The Company capitalized these costs as property, plant and equipment, with a corresponding increase in deferred rent
that will be amortized over the remaining lease term.
The accompanying notes are an integral part of these consolidated financial statements.
F-8
Organovo Holdings, Inc.
Notes to Consolidated Financial Statements
1. Description of Business and Summary of Significant Accounting Policies
A summary of significant accounting policies, consistently applied in the preparation of the accompanying consolidated financial
statements follows:
Nature of operations and basis of presentation
References in these notes to the consolidated financial statements to “Organovo Holdings, Inc.,” “Organovo Holdings,” “we,” “us,”
“our,” “the Company” and “our Company” refer to Organovo Holdings, Inc. and its consolidated subsidiaries. Our consolidated
financial statements include the accounts of the Company as well as its wholly-owned subsidiaries, with all material intercompany
accounts and transactions eliminated in consolidation. In December 2014, we established a wholly-owned subsidiary, Samsara
Sciences, Inc., to focus on the acquisition of qualified cells in support of our commercial and research endeavors. In September 2015,
we established another wholly-owned subsidiary in the United Kingdom, Organovo U.K., Ltd., for the primary purpose of establishing
a sales presence in Europe. At March 31, 2018, the U.K. operations have been combined with Organovo, Inc.’s operations.
Since its inception, the Company has devoted its efforts primarily to developing and commercializing a proprietary platform
technology to produce and study living tissues that emulate key aspects of human biology and disease, raising capital and building
infrastructure. We provide client access to our proprietary ExVive™ tissue platform to facilitate drug discovery and development
through a range of research services, collaborative agreements, licenses, and grants. We also are applying our therapeutic tissue
expertise to progress multiple Investigational New Drug (“IND”) Application track therapeutic programs, focusing on critical unmet
medical needs in the liver disease space, including our lead program for NovoTissues® targeting Alpha-1 antitrypsin deficiency, for
which we have received orphan drug designation (“ODD”) from the Food and Drug Administration (“FDA”).
The Company’s activities are subject to significant risks and uncertainties including failing to successfully develop products and
services based on its technology, failing to achieve regulatory approvals for its therapeutic candidates, and failing to achieve the
market acceptance necessary to generate sufficient revenues to achieve and sustain profitability.
NASDAQ listing
On August 8, 2016, the Company moved its stock exchange listing to the NASDAQ Global Market, under the “ONVO” ticker
symbol. From July 11, 2013 through August 5, 2016, the Company listed its shares on the NYSE MKT. Prior to July 11, 2013, the
Company’s shares were quoted on the OTC QX.
Liquidity
As of March 31, 2018, the Company had cash and cash equivalents of approximately $43.7 million and an accumulated deficit of
approximately $234.1 million. The Company also had negative cash flows from operations of approximately $28.9 million during the
year ended March 31, 2018.
Through March 31, 2018, the Company has financed its operations primarily through the sale of convertible notes, 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, grants, and licenses. During the year ended
March 31, 2018, the Company issued 5,307,105 shares of its common stock through its ATM facility and received net proceeds of
approximately $9.2 million.
Based on its current operating plan and available cash resources, the Company believes it has sufficient resources to fund its business
for at least the next twelve months.
The Company will need additional capital to further fund the development of its proprietary platform to produce and study living
tissues that emulate key aspects of human biology and disease that can be used to facilitate drug discovery and development, as well
as its therapeutic tissues focusing on critical unmet medical needs in the liver disease space. The Company intends to cover its future
operating expenses through cash on hand, through revenue derived from research service agreements, product sales, collaborative
agreements, grants and license payments, and through the issuance of additional equity or debt securities. 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.
F-9
Having insufficient funds may require us to delay, scale back, or eliminate some or all of our development programs or 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.
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 recognized under the proportional performance model, the valuation of stock-based compensation expense, and the valuation
allowance on deferred tax assets.
Financial instruments
For certain of the Company’s financial instruments, including cash and cash equivalents, inventory, prepaid expenses and other assets,
accounts payable, accrued expenses, deferred revenue, and capital lease obligations, 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.
Derivative financial instruments
The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency. At March 31, 2018
and at March 31, 2017, the Company did not have any derivative liabilities measured on a fair value basis.
Historically, the Company reviewed the terms of convertible debt and equity instruments it issued to determine if they were derivative
instruments, including an embedded conversion option that is required to be bifurcated and accounted for separately as a derivative
financial instrument. In circumstances where a host instrument contains more than one embedded derivative instrument, including a
conversion option, that is required to be bifurcated, the bifurcated derivative instruments were accounted for as a single, compound
derivative instrument. Also, in connection with the sale of convertible debt and equity instruments, the Company may have issued
freestanding warrants that may, depending on their terms, have been accounted for as derivative instrument liabilities, rather than as
equity.
Derivative instruments were initially recorded at fair value and were revalued at each reporting date with changes in the fair value
reported as non-operating income or expense. When the convertible debt or equity instruments contain embedded derivative
instruments that were to be bifurcated and accounted for as liabilities, the total proceeds allocated to the convertible host instruments
were first allocated to the fair value of all the bifurcated derivative instruments. The remaining proceeds, if any, were then allocated to
the convertible instruments themselves, usually resulting in those instruments being recorded at a discount from their face value.
Foreign Currency
The functional currency of our wholly owned subsidiary in the United Kingdom is the pound sterling. Accordingly, all assets and
liabilities of this subsidiary are translated to US dollars based on the applicable exchange rate on the balance sheet date. Revenue and
expense components are translated to US dollars at the exchange rates in effect during the period. Gains and losses resulting from
foreign currency translation are reported as a separate component of accumulated other comprehensive income or loss in the equity
section of our consolidated balance sheets.
Foreign currency transaction gains and losses, which are primarily the result of remeasuring US dollar-denominated receivables and
payables, are recorded in our Consolidated Statements of Operations and Other Comprehensive Loss. For the years ended March 31,
2018, 2017 and 2016, we recognized foreign currency translation losses of approximately $1,000, $11,000 and $0, respectively.
As of March 31, 2018, we realized $12,000 of cumulative foreign currency translation losses as Other Expense on the Consolidated
Statement of Operations and Other Comprehensive Loss for the year ending March 31, 2018. No further foreign currency translation
losses will be recorded as Organovo U.K., Ltd. operations have been combined with Organovo, Inc.’s operations.
F-10
Restricted cash
As of March 31, 2018 and 2017, the Company had approximately $127,000 of restricted cash, deposited with a financial institution.
The entire amount is held in certificates of deposit to support a letter of credit agreement related to the Company’s facility lease.
Inventory
Inventories are stated at the lower of the cost or market (first-in, first-out). Inventory at March 31, 2018 consists of approximately
$578,000 in raw materials, approximately $26,000 in work-in-process inventory, and approximately $238,000 in finished goods net of
reserve. Inventory at March 31, 2017 consisted of approximately $467,000 in raw materials, approximately $83,000 in work-in
progress inventory, and approximately $0 in finished goods.
Fixed assets and depreciation
Property and equipment 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 property and equipment 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, 2018.
Fair value measurement
Financial assets and liabilities are measured at fair value, which is defined as the exchange price that would be received for an asset or
paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction
between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of
observable inputs and minimize the use of unobservable inputs. The following is a fair value hierarchy based on three levels of inputs,
of which the first two are considered observable and the last unobservable, that may be used to measure fair value:
Level 1 — Quoted prices in active markets for identical assets or liabilities.
Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar
assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated
by observable market data for substantially the full term of the assets or liabilities.
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value
of the assets or liabilities.
The Company had issued warrants, of which some were classified as derivative liabilities as a result of the terms in the warrants that
provide for down round protection in the event of a dilutive issuance. The Company used Level 3 inputs (unobservable inputs that are
supported by little or no market activity, and that are significant to the fair value of the assets or liabilities) for its valuation
methodology for the warrant derivative liabilities. The estimated fair values were determined using a Monte Carlo option pricing
model based on various assumptions. The Company’s derivative liabilities were adjusted to reflect estimated fair value at each period
end, with any increase or decrease in the estimated fair value being recorded in other income or expense accordingly, as adjustments
to the fair value of the derivative liabilities. Various factors were considered in the pricing models the Company used to value the
warrants, including the Company’s current stock price, the remaining life of the warrant, the volatility of the Company’s stock price,
and the risk-free interest rate.
During the years ended March 31, 2017 and 2016, the Company valued its derivative liabilities in accordance with ASC 820. The
remaining warrants expired as of March 31, 2017 and were removed from the Balance Sheet. The Company does not have any
financial assets or liabilities measured on a fair value basis as of March 31, 2018.
F-11
The following table presents the activity for liabilities measured at estimated fair value using unobservable inputs for the years ended
March 31, 2018 and 2017:
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Balance at March 31, 2016
Issuances
Adjustments to estimated fair value
Warrant liability removal due to settlements
Balance at March 31, 2017
Issuances
Adjustments to estimated fair value
Warrant liability removal due to settlements
Balance at March 31, 2018
Research and development
Warrant
Derivative
Liability
(in thousands)
4
—
(4)
—
—
—
—
—
—
$
$
$
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.
Revenue recognition
The Company’s revenues are derived from research service agreements, product sales, and collaborative agreements with
pharmaceutical and biotechnology companies, grants from the National Institutes of Health (“NIH”) and private not-for-profit
organizations, and license-payments from academic institutions.
The Company recognizes revenue when the following criteria have been met: (i) persuasive evidence of an arrangement exists; (ii)
services have been rendered or product has been delivered; (iii) price to the customer is fixed and determinable; and (iv) collection of
the underlying receivable is reasonably assured.
Billings to customers or payments received from customers are included in deferred revenue on the balance sheet until all revenue
recognition criteria are met. As of March 31, 2018 and 2017, the Company had approximately $687,000 and $640,000, respectively, in
deferred revenue related to its commercial products and research service agreements, grants, and collaborative research programs.
Revenue arrangements with multiple deliverables
The Company follows ASC 605-25 Revenue Recognition – Multiple-Element Arrangements for revenue arrangements that contain
multiple deliverables. Judgment is required to properly identify the accounting units of the multiple deliverable transactions and to
determine the manner in which revenue should be allocated among the accounting units. Moreover, judgment is used in interpreting
the commercial terms and determining when all criteria of revenue recognition have been met for each deliverable in order for revenue
recognition to occur in the appropriate accounting period. For multiple deliverable agreements, consideration is allocated at the
inception of the agreement to all deliverables based on their relative selling price. The relative selling price for each deliverable is
determined using vendor-specific objective evidence (“VSOE”) of selling price or third-party evidence of selling price if VSOE does
not exist. If neither VSOE nor third-party evidence of selling price exists, the Company uses its best estimate of the selling price for
the deliverable.
F-12
While changes in the allocation of the arrangement consideration between the units of accounting will not affect the amount of total
revenue recognized for a particular sales arrangement, any material changes in these allocations could impact the timing of revenue
recognition, which could affect the Company’s results of operations.
The Company periodically receives license fees for non-exclusive research licensing associated with funded research projects. License
fees under these arrangements are recognized over the term of the contract or development period as it has been determined that such
licenses do not have stand-alone value.
Revenue from research service agreements
For research service agreements that contain only a single or primary deliverable, the Company defers any up-front fees collected
from customers, and recognizes revenue for the delivered element only when it determines there are no uncertainties regarding
customer acceptance. For agreements that contain multiple deliverables, the Company follows ASC 605-25 as described above.
Research and development revenue under collaborative agreements
The Company’s collaboration revenue consists of license and collaboration agreements that contain multiple elements, including non-
refundable up-front fees, payments for reimbursement of third-party research costs, payments for ongoing research, payments
associated with achieving specific development milestones and royalties based on specified percentages of net product sales, if any.
The Company considers a variety of factors in determining the appropriate method of revenue recognition under these arrangements,
such as whether the elements are separable, whether there are determinable fair values and whether there is a unique earnings process
associated with each element of a contract.
The Company recognizes revenue from research funding under collaboration agreements when earned on a “proportional
performance” basis as research services are provided or substantive milestones are achieved. The Company recognizes revenue that is
contingent upon the achievement of a substantive milestone in its entirety in the period in which the milestone is achieved. A
milestone is considered substantive when the consideration payable to us for the milestone (i) is consistent with our performance
necessary to achieve the milestone or the increase in value to the collaboration resulting from our performance, (ii) relates solely to
our past performance and (iii) is reasonable relative to all of the other deliverables and payments within the arrangement. In making
this assessment, we consider all facts and circumstances relevant to the arrangement, including factors such as the risks that must be
overcome to achieve the milestone, the level of effort and investment required to achieve the milestone and whether any portion of the
milestone consideration is related to future performance or deliverables.
The Company initially defers revenue for any amounts billed or payments received in advance of the services being performed, and
recognizes revenue pursuant to the related pattern of performance, using the appropriate method of revenue recognition based on its
analysis of the related contractual element(s).
In November 2014, the Company entered into a collaborative nonexclusive 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 bioprinted tissues for surgical transplantation research. The Company
completed its obligations under this agreement during the year ended March 31, 2017. The Company recorded approximately $0,
$32,000, and $50,000 for the years ended March 31, 2018, 2017, and 2016, respectively, in revenue related to this collaboration in
recognition of the proportional performance achieved.
In April 2015, the Company entered into a research collaboration agreement with a third party to develop custom tissue models for
fixed fees. Based on the proportional performance achieved under this agreement for the years ended March 31, 2018, 2017, and 2016,
the Company has recorded approximately $150,000, $117,000, and $352,000, respectively, in collaboration revenue. The Company
has completed its obligations under this agreement as of March 31, 2018.
Also in April 2015, the Company entered into a multi-year research agreement with a third party to develop multiple custom tissue
models for use in drug development. Approximately $0, $835,000, $80,000, under this agreement was recognized as revenue in
recognition of the proportional performance achieved during the years ended March 31, 2018, 2017, and 2016, respectively.
In June 2016, the Company announced it had entered into another collaborative nonexclusive 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 bioprinted tissues for skeletal disease research.
The Company received an up-front payment in June 2016, which has initially been recorded as deferred revenue. Revenues of $65,000
and $34,000 were recognized under this agreement during the years ended March 31, 2018 and 2017, respectively.
F-13
In December 2016, the Company signed another collaborative nonexclusive 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 an architecturally correct kidney for potential therapeutic applications. The
Company received up-front payments in January and March of 2017, which has been recorded as deferred revenue. Revenues of
$39,000 and $3,000 have been recorded under this agreement during the years ended March 31, 2018 and 2017, respectively.
In April 2017, the Company signed a collaborative non-exclusive research affiliation with a university, under which the Company
received a one-time nonrefundable payment toward the placement of a NovoGen Bioprinter at the university for the purpose of
specific research projects mutually agreed upon by the university and the Company in the field of volumetric muscle loss. The
Company received an up-front payment in May 2017, which has been recorded as deferred revenue. Revenue of approximately
$43,000 has been recorded during the year ended March 31, 2018, beginning subsequent to the installation of the printer in July of
2017. In addition, during April 2017, the Company signed a non-exclusive patent license agreement with the university including an
annual fee of $75,000 for each of two years for the license to Company patents for research use limited to the field of volumetric
muscle loss. The Company received the first annual payment of $75,000 in April 2017, which was initially recorded as deferred
revenue. Revenue of $75,000 has been recorded under this agreement during the year ended March 31, 2018.
In September 2017, the Company entered into an agreement with a company, under which the Company received a one-time non-
refundable payment of $50,000 for limited use of a Company patent in reference to four bioprinters developed and placed at research
and academic facilities. The Company has recorded $50,000 in revenue during the year ended March 31, 2018.
Product revenue
The Company recognizes product revenue at the time of delivery to the customer or distributor, provided all other revenue recognition
criteria have been met.
As our commercial sales increase, we expect to establish a reserve for estimated product returns that will be recorded as a reduction to
revenue. That reserve will be maintained to account for future return of products sold in the current period. The reserve will be
reviewed quarterly and will be estimated based on an analysis of our historical experience related to product returns.
Cost of revenue
The Company reported $1.0 million in cost of revenue for the years ended March 31, 2018 and 2017. Cost of revenues consists of our
costs related to manufacturing and delivering our product and service revenue. Cost of revenue for the year ended March 31, 2016 was
minimal and was included in research and development expense.
Grant revenues
During August of 2013, the Company was awarded a research grant by a private, not-for-profit organization for up to $251,700,
contingent on go/no-go decisions made by the grantor at the completion of each stage of research as outlined in the grant award.
Revenues from the grant are based upon internal costs incurred that are specifically covered by the grant, plus an additional rate that
provides funding for overhead expenses. Revenue is recognized when the Company incurs expenses that are related to the grant. The
Company completed its obligations under this agreement during the year ended March 31, 2017. Revenue recognized under this grant
was approximately $0, $41,000 and $43,000 for the years ended March 31, 2018, 2017 and 2016, respectively.
During September of 2014, the NIH awarded the Company a research grant totaling approximately $222,000. Revenues from the grant
are based upon internal costs incurred that are specifically covered by the grant, plus an additional rate that provides funding for
overhead expenses. Revenue is recognized when the Company incurs expenses that are related to the grant. Revenue recognized under
this grant was approximately $148,000 for the year ended 2016. The Company completed its obligations under this agreement during
the year ended March 31, 2016.
During July 2017, the NIH awarded the Company a research grant totaling approximately $1,657,000. Revenues from the grant are
based upon internal costs incurred that are specifically covered by the grant, plus an additional rate that provides funding for overhead
expenses. Revenue is recognized when the Company incurs expenses that are related to the grant. Revenue recognized under this grant
was approximately $554,000 during the year ended March 31, 2018.
Stock-based compensation
The Company accounts for stock-based compensation in accordance with the Financial Accounting Standards Board’s ASC Topic
718, Compensation — Stock Compensation, which establishes accounting for equity instruments exchanged for employee services.
Under such provisions, stock-based compensation cost is measured at the grant date, based on the calculated fair value of the award,
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).
F-14
The Company accounts for equity instruments, including restricted stock or stock options, issued to non-employees in accordance with
authoritative guidance for equity based payments to non-employees. Stock options issued to non-employees are accounted for at their
estimated fair value determined using the Black-Scholes option-pricing model. The fair value of options granted to non-employees is
re-measured as they vest, and the resulting increase in value, if any, is recognized as expense during the period the related services are
rendered. Restricted stock issued to non-employees is accounted for at its estimated fair value as it vests.
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, 2018, 2017 and 2016, the comprehensive loss was materially equal to the net loss, and consisted of net loss and
foreign currency translation. As of March 31, 2018, unrealized foreign currency translation previously recorded in other
comprehensive loss was realized and recorded to other expense.
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, and shares subject to repurchase as the effect would be anti-dilutive. No
dilutive effect was calculated for the years ended March 31, 2018, 2017 and 2016 as the Company reported a net loss for each
respective period and the effect would have been anti-dilutive. Total common stock equivalents that were excluded from computing
diluted net loss per share were approximately 12.6 million, 12.4 million, and 10.7 million for the years ended March 31, 2018, 2017
and 2016, respectively.
2. Fixed Assets
Fixed assets consisted of the following (in thousands):
Laboratory equipment
Leasehold improvements
Computer software and equipment
Furniture and fixtures
Vehicles
Less accumulated depreciation
March 31,
2018
March 31,
2017
$
$
3,695 $
2,177
656
319
9
6,856
(4,068 )
2,788 $
3,727
2,045
656
319
9
6,756
(2,916)
3,840
Depreciation expense for the years ended March 31, 2018, 2017 and 2016 was approximately $1,253,000, $1,139,000, and $805,000,
respectively.
3. Accrued Expenses
Accrued expenses consisted of the following (in thousands):
Accrued compensation
Accrued legal and professional fees
Other accrued expenses
March 31,
2018
March 31,
2017
2,735 $
99
507
3,341 $
3,318
572
211
4,101
$
$
F-15
4. Derivative Liability
During 2011 and 2012, the Company issued 22,847,182 five-year warrants to purchase the Company’s common stock in connection
with financing transactions. The exercise price of the warrants was protected against down-round financing throughout the term of the
warrants. Pursuant to ASC 815-15 and ASC 815-40, the fair value of the warrants was recorded as a derivative liability on the
issuance dates.
The Company revalued the warrants as of the end of each reporting period. There were no warrants classified as derivative liabilities
outstanding as of March 31, 2018 or 2017. The change in fair value of the derivative liabilities for the year ended March 31, 2017 was
a decrease of $4,000. The change in fair value of the derivative liabilities for the year ended March 31, 2016 was an increase of
$17,000. These changes are included in other income (expense) in the statements of operations.
During the years ended March 31, 2018 and 2017, no warrants classified as derivative liabilities were exercised. During the year
ended March 31, 2017, 3,350 warrants expired. As of March 31, 2017, all warrants subject to derivative treatment were exercised or
have expired.
5. Stockholders’ Equity
Stock-based compensation expense and valuation information
Stock-based compensation expense for all stock awards consists of the following (in thousands):
Research and development
General and administrative
Total
Year Ended
March 31, 2018
1,174
5,729
6,903
$
$
$
Year Ended
March 31, 2017
1,646
5,746
7,392
$
$
$
Year Ended
March 31, 2016 (1)
1,248
$
7,308
$
8,556
$
(1)
Included in total stock-based compensation for the year ended March 31, 2016 is additional expense resulting from
acceleration of the vesting schedule to fully vest options held by a terminated executive as pursuant to the 2012 Equity
Incentive Plan. Additionally, as part of the severance agreement, a modification was made to extend the exercise period of
the fully vested options, resulting in an incremental expense.
The total unrecognized compensation cost related to unvested stock option grants as of March 31, 2018 was approximately $5,650,000
and the weighted average period over which these grants are expected to vest is 2.42 years.
The total unrecognized stock-based compensation cost related to unvested restricted stock units (not including performance-based
restricted stock units) as of March 31, 2018 was approximately $4,281,000, which will be recognized over a weighted average period
of 2.76 years.
The total unrecognized stock-based compensation cost related to unvested performance-based restricted stock units as of March 31,
2018 was approximately $308,000, which will be recognized over a weighted average period of 2.00 years.
The total unrecognized stock-based compensation cost related to unvested employee stock purchase plan (“ESPP”) shares as of March
31, 2018 was approximately $19,000, which will be recognized over a period of 5 months.
The Company calculates the grant date fair value of all stock-based awards in determining the stock-based compensation expense.
Stock-based awards include (i) stock options, (ii) restricted stock units, (iii) performance-based restricted stock units, and (iv) rights to
purchase stock granted under the 2016 Employee Stock Purchase Plan (“ESPP”).
F-16
The Company uses the Black-Scholes valuation model to calculate the fair value of stock options. 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 assumptions:
Dividend yield
Volatility
Risk-free interest rate
Expected life of options
Weighted average grant date fair value
Year Ended
March 31, 2018
—
76.86%
1.81%
Year Ended
March 31, 2017
—
72.17 %
1.16 %
6.00 years
6.00 years
$
1.73 $
2.41 $
Year Ended
March 31, 2016
—
73.96%
1.57%
6.00 years
2.52
The assumed dividend yield was based on the Company’s expectation of not paying dividends in the foreseeable future. Due to the
Company’s limited historical data, the estimated volatility incorporates the historical and implied volatility of comparable companies
whose share prices are publicly available, in addition to our own. The risk-free interest rate assumption was based on the 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. Certain options granted to consultants are subject to variable accounting treatment and
are required to be revalued until vested.
The fair value of each restricted stock unit 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:
Dividend yield
Volatility
Risk-free interest rate
Expected term
Grant date fair value
Year Ended
March 31, 2018
—
43.0% - 74.7%
0.79% - 1.85%
6 months
$ 0.30 - $1.04
Year Ended
March 31, 2017
—
72.9% - 74.7%
0.47% - 0.79%
6 months
$ 1.04 - $1.22
The assumed dividend yield was based on the Company’s expectation of not paying dividends in the foreseeable future. For the first
full year of ESPP offering periods, beginning September 1, 2016, due to the Company’s limited historical data as an early-stage
commercial business, the estimated volatility incorporates the historical and implied volatility of comparable companies whose share
prices are publicly available. As of September 1, 2017 and the beginning of the second year of ESPP offering periods, the Company is
using our Company-specific volatility rate. 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 of Directors of the Company approved the 2008 Equity Incentive Plan (the “2008 Plan”). The 2008 Plan
authorized the issuance of up to 1,521,584 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 terminates on July 1, 2018. No
shares have been issued under the 2008 Plan since 2011, and the Company does not intend to issue any additional shares from the
2008 Plan in the future.
F-17
In January 2012, the Board of Directors of the Company approved the 2012 Equity Incentive Plan (the “2012 Plan”). The 2012 Plan
authorized the issuance of up to 6,553,986 shares of common stock for awards of incentive stock options, non-statutory stock options,
stock appreciation rights, restricted stock, restricted stock units, performance units, performance shares, and other stock or cash
awards. The Board of Directors 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 5,000,000 shares. In addition, the Board of
Directors and stockholders of the Company approved an amendment to the 2012 Plan in August 2015 to further increase the number
of shares of common stock that may be issued under the 2012 Plan by 6,000,000 shares, bringing the aggregate shares issuable under
the 2012 Plan to 17,553,986. The 2012 Plan as amended and restated became effective on August 20, 2015 and terminates ten years
after such date. As of March 31, 2018, 4,595,021 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 SEC authorizing the issuance of 2,297,034 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 “Inducement Award Agreements”).
The Company filed a shelf registration statement on Form S-3 (File No. 333-189995), or the 2013 Shelf, with the SEC on July 17,
2013 authorizing the offer and sale in one or more offerings of up to $100,000,000 in aggregate of common stock, preferred stock,
debt securities, or warrants to purchase common stock, preferred stock or debt securities, or any combination of the foregoing, either
individually or as units comprised of one or more of the other securities. This 2013 Shelf was declared effective by the SEC on
July 26, 2013.
A shelf registration statement on Form S-3 (File No. 333-202382), or the 2015 shelf, was filed with the SEC on February 27, 2015
authorizing the offer and sale in one or more offerings of up to $190,000,000 in aggregate of common stock, preferred stock, debt
securities, warrants to purchase common stock, preferred stock or debt securities, or any combination of the foregoing, either
individually or as units comprised of one or more of the other securities. The 2015 shelf was declared effective by the SEC on March
17, 2015.
In December 2014, the Company entered into an equity offering sales agreement (“2014 Sales Agreement”) with an investment
banking firm. Under the terms of the sales agreement, the Company was eligible to offer and sell shares of its common stock, from
time to time, through the investment bank in at-the-market offerings, as defined by the SEC, and pursuant to the Company’s 2013
Shelf. During the years ended March 31, 2018, 2017, and 2016, the Company issued 5,307,105, 997,181, and 0 shares of common
stock in at-the-market offerings under the sales agreement with net proceeds of $9.2 million, $4.6, and $0 million, respectively. As of
March 31, 2018, the Company had sold an aggregate of 7,304,286 shares of common stock in at-the-market offerings under the 2014
Sales Agreement, with net proceeds of approximately $19.9 million.
On July 20, 2016, the Company filed a prospectus supplement to move the remaining shares of common stock that previously could
have been sold pursuant to the 2014 Sales Agreement under the 2013 Shelf to the 2015 Shelf. On the same date, the Company filed a
post-effective amendment to the 2013 Shelf de-registering all remaining securities that could have been offered by the Company
pursuant to the 2013 Shelf.
On June 18, 2015, the Company entered into an Underwriting Agreement with Jefferies LLC and Piper Jaffray & Co., acting as
representatives of the underwriters named in the 2015 Underwriting Agreement and as joint book-running managers, relating to the
issuance and sale of 9,425,000 shares of the Company’s common stock, par value $0.001 per share (the “2015 Offering”). The price to
the public in the 2015 Offering was $4.25 per share, and the Underwriters agreed to purchase the shares from the Company pursuant
to the 2015 Underwriting Agreement at a price of $3.995 per share. Under the terms of the 2015 Underwriting Agreement, the
Company granted the Underwriters an option, exercisable for 30 days, to purchase up to an additional 1,413,750 shares. The Company
issued 10,838,750 shares of common stock pursuant to the 2015 Underwriting Agreement, including shares issuable upon the exercise
of the over-allotment option, with net proceeds of approximately $43.1 million, after deducting underwriting discounts and
commissions and expenses payable by the Company. The shares were issued pursuant to the 2015 Shelf.
On October 25, 2016, the Company closed the issuance and sale of 10,065,000 shares (the “2016 Offering”) of its common stock. The
2016 Offering was effected pursuant to an Underwriting Agreement (the “2016 Underwriting Agreement”) with Jefferies LLC (the
“Representative”), acting as representative of the underwriters named in the 2016 Underwriting Agreement. The price to the public in
the 2016 Offering was $2.75 per share, and the underwriters purchased the shares from the Company pursuant to the 2016
Underwriting Agreement at a price of $2.585 per share. The net proceeds to the Company from the 2016 Offering were approximately
$25.7 million after deducting underwriting discounts and commissions and expenses payable by the Company. The 2016 Offering was
made pursuant to the Company’s 2015 Shelf.
F-18
The Company has an effective shelf registration statement on Form S-3 (File No. 333-222929) and the related prospectus previously
declared effective by the Securities and Exchange Commission (the “SEC”) on February 22, 2018, as supplemented by a prospectus
supplement, dated March 16, 2018 (the “2018 Shelf”), that expires on February 22, 2021. This replaces the 2015 Shelf which expired
on March 17, 2018.
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”), 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 $50,000,000 (the “Shares”). Any shares offered and sold will be issued pursuant to the Company’s 2018 Shelf.
As of March 31, 2018, the Company cannot raise more than an aggregate of $100.0 million in future offerings under the 2018 Shelf
including $50.0 million remaining for future issuance through its at-the-market program under the 2018 Sales Agreement. The
Company intends to use the net proceeds raised through any at-the-market sales for general corporate purposes, general administrative
expenses, and working capital and capital expenditures.
In addition, during the years ended March 31, 2018, 2017, and 2016, the Company issued 0, 700,379, and 32,914 shares of common
stock upon exercise of 0, 822,903, and 43,796 warrants, respectively.
During the years ended March 31, 2018, 2017, and 2016, the Company issued 500,000, 245,271, and 116,001 shares of common stock
upon exercise of 500,000, 245,271, and 116,001 stock options, respectively.
Restricted stock units
During the year ended March 31, 2018, the Company issued restricted stock units for an aggregate of 1,996,478 shares of common
stock to its employees and directors. These shares of common stock will be issued upon vesting of the restricted stock units.
A summary of the Company’s restricted stock unit activity for the year ended March 31, 2018 is as follows:
Unvested at March 31, 2017
Granted
Vested
Canceled / forfeited
Unvested at March 31, 2018
Performance-based restricted stock units
Number of
Shares
Weighted
Average Price
1,178,114 $
1,996,478 $
(578,605 ) $
(560,642 ) $
2,035,345 $
3.57
2.59
3.22
2.91
2.89
On April 24, 2017, the Company issued a Performance-Based Restricted Stock Unit Award for 208,822 shares of common stock (the
“PBRSU”) to its newly hired Chief Executive Officer. The PBRSU was issued outside of the 2012 Plan, in the Inducement Award
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 of Directors formally approved the vesting criteria for the PBRSU. The vesting of the
PBRSU is divided into five separate tranches each with independent vesting criteria. The first four tranches have performance criteria
related to annual revenue goals with measurement at the end of fiscal year 2018 (20 percent), fiscal year 2019 (20 percent), fiscal year
2020 (20 percent), and fiscal year 2021 (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 ultimately vest for each tranche will
range from 0 percent to 120 percent of the target amount, not to exceed 208,822 in aggregate. As of March 31, 2018, no tranches had
vested, but 120% of the Negative Adjusted EBITDA tranche is expected to vest in a future year.
The grant date fair value of the PBRSU was $393,000 of which one-fifth is being recognized over each tranches’ service period. The
Company began recording stock-based compensation expense for these tranches after the August 23, 2017 grant date when the
financial performance goals were established and approved. As of March 31, 2018, the Negative Adjusted EBITDA tranche is
expected to vest in the amount of 41,766 shares.
F-19
A summary of the Company’s performance-based restricted stock unit activity from March 31, 2017 through March 31, 2018 is as
follows:
Unvested at March 31, 2017
Awarded at target
Vested
Canceled / forfeited
Unvested at March 31, 2018
Stock options
Number of
Shares
—
208,822
—
(41,764)
167,058
Maximum Number
of
Shares Eligible to
be Issued
Weighted
Average Price
$
—
$
208,822
$
—
(8,352) $
$
200,470
—
1.88
—
1.88
1.88
During the year ended March 31, 2018 under the 2012 Equity Incentive Plan, 281,956 stock options were issued at various exercise
prices.
In addition, on April 24, 2017, the Company granted a stock option for 2,088,212 shares of common stock to its newly hired Chief
Executive Officer. This stock option award was issued outside of the 2012 Plan, in the Inducement Award Agreement, as an
“inducement award” 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.
The following table summarizes stock option activity for the year ended March 31, 2018:
Outstanding at March 31, 2017
Options granted
Options canceled
Options exercised
Outstanding at March 31, 2018
Vested and Exercisable at March 31, 2018
Options
Outstanding
10,956,201
2,370,168
(2,694,057)
(500,000)
10,132,312
6,211,427
$
$
$
$
$
$
Weighted-
Average
Exercise Price
4.63
2.64
5.78
1.65
4.01
4.54
$
$
$
$
$
$
Aggregate
Intrinsic
Value
4,876,437
—
—
235,000
591,082
591,082
The weighted-average remaining contractual term of stock options exercisable and outstanding at March 31, 2018 was approximately
5.91 years.
Employee Stock Purchase Plan
In June 2016, our Board of Directors adopted, and in August 2016 stockholders subsequently approved, the 2016 Employee Stock
Purchase Plan (“ESPP”). We reserved 1,500,000 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 10,000 shares per employee per 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, 2018, 162,340 shares were issued under the ESPP. At March 31, 2018, there were 1,285,103 shares
remaining available for the purchase under the ESPP.
Warrants
During the years ended December 31, 2012 and 2011, the Company issued warrants to investors to purchase 21,347,182 and
2,909,750 shares, respectively, of its common stock.
During the years ended March 31, 2018, 2017 and 2016, 0, 353,093 and 0 of these warrants were exercised for cash proceeds of
approximately $0, $336,000 and $0, respectively, and 0, 469,000 and 43,796 of these warrants were exercised through a cashless
exercise for issuance of 0, 347,286 and 32,914 shares of common stock, respectively.
F-20
In 2012, the Company issued a total of 650,000 warrants to purchase common stock, in connection with consulting agreements, at
prices ranging from $1.70 to $3.24, with lives ranging from two to five years, to be earned over service periods of up to six months.
During the years ended March 31, 2018, 2017, and 2016, no warrants held by consultants were exercised. As of March 31, 2018,
220,000 of these warrants are outstanding.
Additionally, during September 2014, the Company issued 50,000 warrants to a consultant in recognition of services previously
provided. These warrants were classified as equity instruments because they do not contain any anti-dilution provisions. As of
December 31, 2014, the full amount of the warrants related to these services, approximately $237,000 had been recognized.
In November 2014, in connection with a consulting agreement, the Company issued 145,000 warrants to purchase common stock, at a
price of $6.84, with a life of five years, to be earned over a seventeen month service period ended on March 31, 2016. The final
number of vested warrant shares was 95,000, based on management’s judgment of the satisfaction of specific performance metrics.
The fair value of the warrants was estimated to be approximately $74,000, which was revalued and amortized over the term of the
consulting agreement. These warrants were classified as equity instruments because they do not contain any anti-dilution provisions.
The Black-Scholes model, using a volatility rate of 73.4% and a risk-free interest rate factor of 1.21%, was used to determine the value
as of March 31, 2016. The Company recognized approximately $6,000 during the year ended March 31, 2016 related to these services.
As of March 31, 2016, these warrants were fully expensed.
The following table summarizes warrant activity for the year ended March 31, 2018:
Balance at March 31, 2017
Granted
Expired / Canceled
Exercised
Balance at March 31, 2018
Warrants
Weighted-Average
Exercise Price
221,370 $
—
(1,370 ) $
—
220,000 $
7.16
—
2.28
—
7.19
The warrants outstanding at March 31, 2018 are immediately exercisable at prices between $6.84 and $7.62 per share, and have a
weighted average remaining term of approximately 1.21 years.
Common stock reserved for future issuance
Common stock reserved for future issuance consisted of the following at March 31, 2018:
Common stock warrants outstanding
Common stock options outstanding under the 2008 Plan
Common stock options outstanding under the 2012 Plan
Common stock reserved under the 2012 Plan
Common stock reserved under the 2016 Employee Stock Purchase Plan
Restricted stock units outstanding under the 2012 Plan
Common stock options outstanding and reserved under the Incentive Award Agreement
Restricted stock units outstanding under the Incentive Award Agreement
Total
220,000
622,192
7,421,908
4,595,021
1,285,103
2,035,345
2,088,212
200,470
18,468,251
6. Commitments and Contingencies
Operating leases
Since July 2012, the Company has leased its main facilities at 6275 Nancy Ridge Drive, San Diego, CA 92121. The lease, as amended
in 2013, 2015 and 2016, consists of approximately 45,580 rentable square feet containing laboratory, clean room and office space.
Monthly rental payments are currently approximately $120,000 per month with 3% annual escalators. The lease term for 14,685 of the
total rentable square footage expires on December 15, 2018, with the remainder of the rentable square footage expiring on September
1, 2021, with the Company having an option to terminate this lease on or after September 1, 2019.
From February 1, 2015 through January 31, 2018 the Company leased a second facility consisting of 5,803 rentable square feet of
office and lab space located at 6310 Nancy Ridge Drive, San Diego, CA 92121, with a monthly rent of $12,000, which increased by
3% each 12-month anniversary of the 36 month lease.
The Company also previously leased a third facility from February 1, 2016 through January 31, 2017, consisting of 12,088 rentable
square feet of office space located at 6166 Nancy Ridge Drive, San Diego, California 92121 with a monthly rent of $15,000.
F-21
The Company records rent expense on a straight-line basis over the life of the leases and records the excess of expense over the
amounts paid as deferred rent. In addition, one of the leases provides for certain improvements made for the Company’s benefit to be
funded by the landlord. Such costs, totaling approximately $518,000 to date, have been capitalized as fixed assets and included in
deferred rent.
Rent expense was approximately $1,458,000, $1,295,000, and $1,088,000 for the years ended March 31, 2018, 2017 and 2016, respectively.
Future minimum rental payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of
one year as of March 31, 2018, are as follows (in thousands):
Fiscal year ended March 31, 2019
Fiscal year ended March 31, 2020
Fiscal year ended March 31, 2021
Fiscal year ended March 31, 2022
Fiscal year ended March 31, 2023
Thereafter
Total
Legal matters
1,385
1,073
1,104
468
—
—
4,030
$
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. 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 highly
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 such 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.
7. Licensing Agreements and Research Contracts
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 a minimum annual royalty of $25,000 in January 2017 for the
calendar year 2017 and of $25,000 in January 2018 for the calendar year 2018, which is credited against royalties due during the
subsequent twelve months. The license agreement terminates upon expiration of the patents licensed and is subject to certain
conditions as defined in the license agreement, which are 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 is 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 terminates upon expiration of the patents licensed and is subject to certain conditions as
defined in the license agreement.
F-22
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 is 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. The annual minimum royalty is creditable against royalties owed
during the same calendar year.
Capitalized license fees consisted of the following (in thousands):
License fees
Less accumulated amortization
License fees, net
March 31,
2018
March 31,
2017
$
$
218 $
(67 )
151 $
148
(53)
95
The above license fees, net of accumulated amortization, are included in Other Assets in the accompanying balance sheets and are
being amortized over the life of the related patents. Amortization expense of licenses was approximately $13,600, $10,300, and $9,700
for the years ended March 31, 2018, 2017 and 2016, respectively. At March 31, 2018, the weighted average remaining amortization
period for all licenses was approximately 12 years. The annual amortization expense of licenses for the next five years is estimated to
be approximately $14,300 per year.
8. Income Taxes
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, 2018, March 31, 2017, and March 31, 2016 (in thousands):
Deferred tax assets:
Net operating loss carry forwards
Research and development credits
Depreciation and amortization
Accrued expenses and reserves
Stock compensation
Other, net
Total deferred tax assets
Valuation allowance
March 31,
2018
March 31,
2017
March 31,
2016
$
$
—
—
25
1,050
3,753
8
4,836
(4,836)
—
$
$
—
—
(71)
1,373
6,720
7
8,029
(8,029)
—
$
$
—
—
(105)
862
5,584
12
6,353
(6,353)
—
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 our net operating
loss and research tax credit carryforwards to offset taxable income may be limited based on cumulative changes in ownership. We
have not completed an analysis to determine whether any such limitations have been triggered as of March 31, 2018. Until this
analysis is completed, we have removed the deferred tax assets related to net operating losses and research credits from our 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 $3,193,000 and increased by approximately $1,676,000 for the years ended March 31, 2018
and 2017, respectively.
The Company had federal, state, and foreign net operating loss carryforwards of approximately $146,320,000 and $78,034,000,
respectively, as of March 31, 2018. The federal and state net operating loss carryforwards (“NOLs”) will begin to expire in 2028,
unless previously utilized.
F-23
In March 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Updated No. 2016-09, Compensation
– Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). The Company
adopted ASU 2016-09 on April 1, 2017. Under the new guidance, companies will no longer record excess tax benefits and certain tax
deficiencies related to share-based payments to employees in additional paid in capital. Instead, the Company will recognize all income tax
effects of awards in its income statement when awards vest or are settled. All excess tax benefits not previously recognized were to be
recorded to retained earnings as a cumulative effect adjustment upon adoption. No adjustment to retained earnings was necessary upon
adoption; however, as the Company has removed the deferred tax assets related to net operating losses from its deferred tax asset schedule as
well as the Company’s valuation allowance position. Approximately $2,331,000 attributable to excess tax benefits on stock compensation
that had not previously been recognized would have been added to the deferred tax asset for NOLs with a corresponding increase to the
valuation allowance.
The Company had federal and state research tax credit carryforwards of approximately $3,404,000 and $3,105,000 at March 31, 2018 and
March 31, 2017, respectively. The federal research tax credit carryforwards begin expiring in 2028. The state research tax credit
carryforwards do not expire.
The Tax Cuts and Jobs Act (“the Act”) was enacted on December 22, 2017. The Act (i) reduces the US federal corporate tax rate from a top
marginal rate of 35% to a flat rate of 21%, (ii) generally reduces a company’s ability to utilize accumulated net operating losses, an (iii)
requires the calculation of a one-time transition tax on certain previously unrepatriated foreign earnings and profits (“E&P”). The Act also
impacts the valuation of a company’s deferred tax assets and liabilities. In accordance with Staff Accounting Bulletin No. 118, as of March
31, 2018, we have not completed our accounting for the tax effects of enactment of the Act; however, in certain cases, as described below, we
have made a reasonable estimate of the effects on our existing deferred tax balances and the one-time transition tax. In other cases, we have
not been able to make a reasonable estimate and continue to account for those items based on our existing accounting under ASC 740,
Income Taxes, and the provisions of the tax laws that were in effect immediately prior to the enactment. For the items for which we were able
to determine a reasonable estimate, we recognized a provisional amount of $2.7 million. In all cases, we will continue to refine our
calculations as additional analysis is completed. In addition, our estimates may also be affected as we gain a more thorough understanding of
the tax law.
Deferred tax assets and liabilities: We remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to
reverse in the future, which is generally 21%. However, we are still analyzing certain aspects of the Act and refining our calculations, which
could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. The provisional amount
recorded related to the remeasurement of our deferred tax balance was $2,700,000, which was fully offset by a decrease in our valuation
allowance.
Foreign tax effects: The one-time transition tax is based on the total post-1986 earnings and profits (E&P) previously deferred from US
income taxes. The Company has a deficit in post-1986 E&P from its foreign subsidiary resulting in no increase to income tax expense. No
amounts have been provided for any additional outside basis difference inherent in this entity, as these amounts continue to be indefinitely
reinvested in foreign operations.
In 2009, the Company adopted the accounting guidance for uncertainty in income taxes pursuant to ASC 740-10. The adoption of this
guidance did not have a material impact on the Company’s consolidated financial statements. The Company did not record any
accruals for income tax accounting uncertainties for the year ended March 31, 2018.
The Company’s policy is to recognize interest and penalties that would be assessed in relation to the settlement value of unrecognized
tax benefits as a component of income tax expense. The Company did not accrue either interest or penalties from inception through
March 31, 2018.
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, in various state jurisdictions, and in the United Kingdom. As of March 31, 2018,
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.
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 primarily 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.
F-24
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, 2018.
10. Related Parties
The Company has entered into two agreements with related parties in the ordinary course of its business and on terms and conditions it
believes are as fair as those it offers and receives from independent third parties. Each agreement was ratified by the Company’s
Board of Directors or a committee thereof pursuant to its related party transaction policy. In August 2017, the Company entered into a
services agreement with Cirius Tx, Inc., an entity for which Robert Baltera, Jr., a director of the Company, serves as Chief Executive
Officer. Under this agreement and its amendments, the Company has provided ExVive™ Liver Tissue Services for Cirius amounting
to $161,000 recognized as revenue in the year ended March 31, 2018. The agreement contains another $7,000 of ExVive™ Liver
Tissue Services to be completed in the first quarter of fiscal 2019.
In November 2017, the Company entered into a collaboration agreement with Viscient Biosciences, an entity for which Keith Murphy,
a former director and former Chief Executive Officer of the Company, serves as Chief Executive Officer. Under this agreement, the
parties intend to develop a custom research platform for studying liver disease. The Company expects the platform to expand its
current service portfolio for compound screening in disease models, which aids the drug discovery work for other customers. Viscient
intends to target early discovery work for non-alcoholic fatty liver disease (“NAFLD”) and non-alcoholic steatohepatitis (“NASH”).
Under this agreement and its amendments, the Company provided research services to Viscient amounting to $358,000 recognized as
revenue in the year ended March 31, 2018. Additionally, Viscient purchased primary human cell-based products from our subsidiary,
Samsara, in the amount of $13,500 recognized as revenue in the year ended March 31, 2018.
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, 2018, 2017, and 2016 were approximately $337,000,
$352,000, and $277,000, respectively.
12. Recent Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, which
requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services
to customers. The standard will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The
new standard was originally effective for public companies for annual reporting periods beginning after December 15, 2016, with no
early application permitted. In August 2015, the FASB issued ASU No. 2015-14 that defers by one year the effective date for all
entities, with application permitted as of the original effective date. The updated standard becomes effective for us on April 1, 2018.
The standard permits the use of either the retrospective or cumulative effect transition method. The Company adopted the new
standard for the fiscal year beginning April 1, 2018 using the modified retrospective application method. The Company has
substantially completed its assessment of the new standard and the Company believes that there will not be a material impact on its
financial statements or disclosures.
In February 2016, the FASB issued ASU 2016-02, Leases, which requires an entity to recognize lease assets and lease liabilities on the
balance sheet for leases with terms of more than 12 months and to disclose key information about leasing arrangements. This new
guidance is effective for us on April 1, 2019, with early adoption permitted in any interim or annual period. The Company is currently
evaluating the impact that this guidance will have on its financial statements and related disclosures.
In March 2016, the FASB issued ASU 2016-09, Compensation-Stock Compensation (Topic 718), which requires an entity recognize
excess tax benefits and deficiencies as income tax expense or benefit, the cash flows of which should be included as operating activity
in the statement of cash flows. An entity is allowed to either continue accruing compensation cost based on expected forfeitures or to
begin recognizing expense as forfeitures occur. In addition, an entity may withhold the maximum statutory tax, increasing the
allowable cash settlement portion of awards. The cash paid by an employer when directly withholding shares for tax purposes should
be included in the financing activity section of the statement of cash flows. This new guidance was effective for us on April 1, 2017.
The requirements of ASU 2016-09 did not have a significant impact on our consolidated financial statements.
In May 2017, the FASB issued ASU No. 2017-09, Compensation - Stock Compensation: Scope of Modification Accounting, which
provides clarity and guidance around which changes to the terms or conditions of a stock-based payment award require an entity to
F-25
apply modification accounting in Topic 718. The standard is effective for annual reporting periods beginning after December 15,
2017, and interim periods within those annual reporting periods. The adoption of this guidance will have no impact on our financial
statements unless we have modification accounting in accordance with Topic 718.
In July 2017, the FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic
480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part
II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and
Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. These amendments simplify the accounting for
certain financial instruments with down round features. The amendments require companies to disregard the down round feature when
assessing whether the instrument is indexed to its own stock, for purposes of determining liability or equity classification. Companies
that provide earnings per share (EPS) data will adjust their basic EPS calculation for the effect of the feature when triggered (i.e.,
when the exercise price of the related equity-linked financial instrument is adjusted downward because of the down round feature) and
will also recognize the effect of the trigger within equity. This standard is effective for fiscal years, and interim periods within those
fiscal years, beginning after December 15, 2018. The adoption of this guidance will have no impact on our financial statements as the
Company’s only derivative liabilities were all exercised or expired as of March 31, 2017 and were removed from the Balance Sheet.
In December 2017, the United States (“U.S.”) enacted the Tax Cuts and Jobs Act (the “Act”), which changes existing U.S. tax law and
includes various provisions that are expected to affect public companies. The Act (i) reduces the US federal corporate tax rate from a top
marginal rate of 35% to a flat rate of 21%, (ii) generally reduces a company’s ability to utilize accumulated net operating losses, and (iii)
requires the calculation of a one-time transition tax on certain previously unrepatriated foreign earnings and profits (“E&P”). The Act also
impacts the valuation of a company’s deferred tax assets and liabilities. In accordance with Staff Accounting Bulletin No. 118, as of March
31, 2018, we have not completed our accounting for the tax effects of enactment of the Act; however, in certain cases we have made a
reasonable estimate of the effects on our existing deferred tax balances and the one-time transition tax. In other cases, we have not been able
to make a reasonable estimate and continue to account for those items based on our existing accounting under ASC 740, Income Taxes, and
the provisions of the tax laws that were in effect immediately prior to the enactment. For the items for which we were able to determine a
reasonable estimate, we recognized a provisional amount of $2.7 million. In all cases, we will continue to refine our calculations as
additional analysis is completed. In addition, our estimates may also be affected as we gain a more thorough understanding of the tax law.
13. Quarterly Financial Data (unaudited)
The following quarterly financial data, in the opinion of management, fairly presents the results for the periods presented (in
thousands, except per share data):
Year Ended March 31, 2018
Revenue
Net loss
Net loss per common share - basic and diluted
Weighted average shares used in computing net
loss per common share—basic and diluted
Revenue
Net loss
Net loss per common share - basic and diluted
Weighted average shares used in computing net
loss per common share—basic and diluted
14. Subsequent Events
$
First Quarter
990 $
(10,102)
(0.10)
Second Quarter Third Quarter
1,355 $
(9,461 )
(0.09 )
1,153 $
(7,791)
(0.07)
Fourth Quarter
1,105
(7,449)
(0.07)
104,689,391
106,297,699 107,345,623
110,690,335
Year Ended March 31, 2017
$
First Quarter
Second Quarter Third Quarter
1,376 $
(9,442 )
(0.10 )
1,151 $
(9,581)
(0.09)
Fourth Quarter
812
(10,657)
(0.10)
891 $
(8,767)
(0.09)
92,391,964
93,185,400 101,174,734
104,385,617
On April 17, 2018, the Company undertook the second phase of its business restructuring to better focus and align resources, reducing
approximately 13 positions, or 15% of its overall workforce. This second phase of restructuring allows the Company to improve its
operational efficiency, consolidate overlapping positions, and streamline its management structure. As a result, the Company expects
to record a restructuring charge in the fiscal first quarter of approximately $0.4 million, primarily related to employee severance and
benefits costs. The actions associated with the restructuring announcement are anticipated to be complete by the end of fiscal first
quarter 2019, with liabilities anticipated to be paid by the end of fiscal fourth quarter 2019.
F-26
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
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 Securities Exchange Act of 1934, as amended (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 principal executive officer and our principal financial and accounting officer, as appropriate, to
allow timely decisions regarding required disclosure.
Under the supervision of our Chief Executive Officer 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 principal executive officer 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 on Form 10-K.
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 and the report of our independent registered public accounting firm is included on page F-3 of this Annual Report on Form 10-K.
Management’s 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 Board of Directors
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 Chief Executive Officer and our Chief Financial Officer, assessed the effectiveness of
our internal control over financial reporting as of March 31, 2018. 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, 2018.
Auditor’s Attestation Report on Internal Control Over Financial Reporting
Mayer Hoffman McCann P.C., our independent registered public accounting firm, has audited our consolidated financial statements
included in this Annual Report on Form 10-K and has issued an attestation report, included herein, on the effectiveness of our internal
control over financial reporting as of March 31, 2018.
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) of the Exchange Act) that occurred
during the fourth quarter of the fiscal year ended March 31, 2018 to which this report relates that has materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting.
36
Inherent Limitations on Effectiveness of Controls
Our management, including our Chief Executive Officer 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.
None.
37
PART III
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 2018 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.
Information relating to executive compensation will be included in the proxy statement for the 2018 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 and Management and Related Stockholder Matters.
The following table summarizes information about the Company’s equity compensation plans by type as of March 31, 2018:
Plan category
(A)
(B)
(C)
Number of
securities to be
issued upon
exercise/vesting
of outstanding
options, warrants,
units and rights (2)
Weighted average
exercise price
of outstanding
options, warrants,
units and rights
Number of
securities available
for future issuance
under Equity
Compensation Plans
(excluding securities
reflected in
column (A)) (3)
Equity compensation plans approved by security holders (1)
Equity compensation plans not approved by security holders (4)
10,299,445 $
2,288,682 $
3.55
2.49
5,880,124
—
(1)
(2)
(3)
(4)
Includes the 2008 Equity Incentive Plan, the 2012 Equity Incentive Plan, and the 2016 Employee Stock Purchase Plan.
Includes stock options and warrants to purchase 8,044,100 shares of common stock with a per share weighted-average
exercise price of $4.34. Also includes 2,035,345 restricted stock units with no exercise price.
Includes 1,285,103 shares of common stock available for purchase under the ESPP as of March 31, 2018.
Includes 2,088,212 stock options with a per share exercise price of $2.73 and 200,470 performance-based restricted stock
units with no exercise price, collectively, the “Inducement Award Agreements,” granted to the Chief Executive Officer
upon commencement of his employment. 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.
Information relating to the beneficial ownership of our common stock will be included in the proxy statement for the 2018 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, and Director Independence.
Information relating to certain relationships and related transactions and director independence will be included in the proxy statement
for the 2018 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 Accountant Fees and Services.
Information relating to principal accountant fees and services will be included in the proxy statement for the 2018 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.
38
Item 15. Exhibits, Financial Statement Schedules.
(a). The following documents have been filed as part of this annual report on Form 10-K:
PART IV
1.
2.
3.
Consolidated Financial Statements: The information required by this item is included in Item 8 of Part II of this annual
report.
Financial Statement Schedules: Financial statement schedules required under the related instructions are not applicable for
the years ended March 31, 2018 and 2017 and have therefore been omitted.
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 on
Form 10-K.
39
Exhibit No.
3.1
3.2
10.1+
10.2+
10.3+
10.4+
10.5†
10.6†
10.7†
10.8
EXHIBIT INDEX
Description
Certificate of Incorporation of Organovo Holdings, Inc. (Delaware) (incorporated by reference from Exhibit 3.1 to the
February 2012 Form 8-K)
Bylaws of Organovo Holdings, Inc. (Delaware) (incorporated by reference from Exhibit 3.2 to the February 2012 Form 8-K)
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)
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)
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)
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)
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)
License Agreement dated as of March 12, 2010 by and between the Company and 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)
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)
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+
10.12+
10.13+
10.14+
10.15+
10.16+
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)
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)
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)
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)
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)
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)
10.17+
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)
Exhibit No.
10.18+
10.19+
10.20+
10.21+
21.1
23.1
24.1
31.1
Description
Continued Service, Consulting and Separation Agreement, dated April 7, 2017, by and between Organovo Holdings, Inc.
and Keith Murphy (incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K, as filed
with the SEC on April 11, 2017)
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)
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)
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)
Subsidiaries of Organovo Holdings, Inc. (incorporated by reference from Exhibit 21.1 to the Company’s Current Report
on Form 8-K, as filed with the SEC on February 13, 2012)
Consent of Independent Registered Public Accounting Firm*
Power of Attorney (included on signature page hereto)*
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.
Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
Report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
ORGANOVO HOLDINGS, INC.
By:
/s/ Taylor Crouch
Taylor Crouch
Chief Executive Officer and President
Date: May 31, 2018
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Taylor
Crouch and Jennifer Bush, and each of them individually, as the undersigned’s true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for the undersigned and in the undersigned’s name, place, and stead, in any and all capacities,
to sign any and all amendments to this Report, and to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming that all said attorneys-in-fact and
agents, or any of them or their respective substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the
capacities and on the dates indicated.
Signature
Title
Date
/s/ Taylor Crouch
Taylor Crouch
/s/ Craig Kussman
Craig Kussman
/s/ Kirk Malloy
Kirk Malloy
/s/ Robert Baltera, Jr.
Robert Baltera, Jr.
/s/ James Glover
James Glover
/s/ Tamar Howson
Tamar Howson
/s/ Mark Kessel
Mark Kessel
/s/ Richard Maroun
Richard Maroun
Chief Executive Officer
and President (Principal Executive Officer)
Chief Financial Officer
(Principal Financial Officer)
May 31, 2018
May 31, 2018
Chairman of the Board
May 31, 2018
Director
Director
Director
Director
Director
May 31, 2018
May 31, 2018
May 31, 2018
May 31, 2018
May 31, 2018
Corporate Information
BOARD OF DIRECTORS
GENERAL INFORMATION
INVESTOR INFORMATION
Corporate Headquarters
6275 Nancy Ridge Drive
San Diego, CA 92121
(858) 224‑1000
www.organovo.com
Transfer Agent and Registrar
Continental Stock Transfer
and Trust Company
1 State Street Plaza, 30th Floor
New York, NY 10004
(800) 509‑5586
www.continentalstock.com
Independent Registered Public
Accounting Firm
Mayer Hoffman McCann P.C.
10616 Scripps Summit Court
San Diego, CA 92131
(858) 795‑2000
www.mhmcpa.com
Stock Exchange
NASDAQ Global Market
Common Stock (ONVO)
Information Requests
Copies of the Company’s Annual Report on
Form 10‑K and other investor information
are available to stockholders upon written
request to:
Organovo Holdings, Inc.
Attention: Investor Relations
6275 Nancy Ridge Drive
San Diego, CA 92121
Investor Inquiries
Steve E. Kunszabo
Vice President, Investor Relations and
Corporate Communications
(858) 224‑1092
ir@organovo.com
www.organovo.com
2018 Annual Meeting
The Annual Meeting of Stockholders will be
held on July 26, 2018 at 9:00 a.m. local time at
Green Acre Campus Pointe, 10300 Campus
Point Drive, San Diego, CA, 92121
Kirk Malloy, Ph.D.
Chairman of the Board
Chief Executive Officer, Verogen, Inc.
Founder and Principal, BioAdvisors, LLC
Robert Baltera, Jr.
Chief Executive Officer,
Cirius Therapeutics, Inc.
Entrepreneur‑in‑Residence,
Frazier Healthcare Partners
Taylor J. Crouch
President and Chief Executive Officer
James T. Glover
Former Chief Financial Officer,
Anadys Pharmaceuticals, Inc.
and Beckman Coulter, Inc.
Tamar D. Howson
Former Executive Vice President of
Corporate and Business Development,
Lexicon Pharmaceuticals
Mark Kessel
Co‑Founder and Partner,
Symphony Capital, LLC
Of Counsel, Shearman & Sterling LLP
Richard Maroun
Executive Partner, Frazier Healthcare Partners
MANAGEMENT TEAM
Taylor J. Crouch
President and Chief Executive Officer
Craig Kussman
Chief Financial Officer
Sharon Collins Presnell, Ph.D.
Chief Scientific Officer
President, Samsara Sciences, Inc.
Paul Gallant
General Manager
Jennifer Kinsbruner Bush, J.D.
General Counsel, Corporate Secretary
and Compliance Officer
For more information, visit our online annual report at www.organovo.com.
Changing the Shape of Medical Research and Practice
Organovo is a biotech platform company that has developed a leadership
position with its revolutionary ability to 3D bioprint tissues with human
functionality. The Company is pursuing multiple IND‑track programs to develop
its NovoTissues transplantable tissues to address a number of serious unmet
medical needs in adult and pediatric populations, initially focusing on liver
disease. Organovo’s first IND‑track program for Alpha‑1‑antitrypsin deficiency
recently received orphan drug designation from the FDA, and the Company
expects to file its first IND in 2020. In order to help fund its plan to initiate
multiple IND‑track programs, the Company is providing access to its ExVive™
in vitro tissue disease modeling platform to facilitate high value drug discovery
and development collaborations. Organovo’s wholly‑owned subsidiary,
Samsara Sciences, Inc. provides the Company and its clients with high quality
human liver and kidney cells for research applications.
Organovo
6275 Nancy Ridge Drive
San Diego, CA 92121
(858) 224‑1000
www.organovo.com
© Copyright 2018 Organovo Holdings, Inc. All rights reserved. Organovo is a registered mark of Organovo
Holdings, Inc. All other trademarks and service marks are the property of their respective holders.
Information is subject to change without notice.
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For more information, visit our online annual report at www.organovo.com.