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Description of Business and Summary of Significant Accounting Policies (Policies)

12 Months Ended

Mar. 31, 2020

Nature of operations and basis of presentation

Organovo Holdings, Inc. (“Organovo Holdings,” “Organovo,” and “the Company”) is an early-stage biotechnology company that has historically been focused on pioneering the development of bioprinted human tissues that emulate key aspects of human biology and disease. Organovo has focused on developing its in vivo liver tissues to treat end-stage liver disease and a select group of life-threatening, orphan diseases, for which there are limited treatment options other than organ transplantation. Organovo has also explored the development of other potential pipeline in vivo tissue constructs in-house and through collaborations with academic and government researchers. The Company’s current limited operations include managing certain collaborations with research institutions and universities with respect to its NovoGen Bioprinters® for research purposes. Organovo’s NovoGen Bioprinters^® are automated devices that enable the fabrication of 3D living tissues comprised of mammalian cells. The Company believes that the use of its bioprinting platform by major research institutions may help to advance the capabilities of the platform and generate new applications for bioprinted tissues. In some instances, an academic institution or other third party has provided funding to support the academic collaborator’s access to the Company’s technology platform. This funding is typically reflected as collaboration revenues in its financial statements; however, the Company is not currently generating any revenues from these collaborations. The Company’s research collaborations typically involve both the Company and the academic partner contributing resources directly to projects, but also involves sponsored research agreements where the Company funds specific research programs. The Company also continues to retain certain key management, employees and consultants, its core intellectual property and licenses, and proprietary equipment.

Strategic Alternatives Process

In August 2018, following a pre-pre-Investigational New Drug application (“IND”) meeting with the Food and Drug Administration (the “FDA”) regarding its lead liver therapeutic candidate, Organovo announced that it was concentrating its financial resources around supporting its healthy liver therapeutic tissue development, and that it would continue to opportunistically generate revenue to support its therapeutics program by leveraging its cell and in vitro tissue platform including providing funded access to its developmental in vitro liver tissue platform to clients for their own R&D programs.

In August 2019, after a rigorous assessment of its liver therapeutic tissue program, Organovo concluded that the variability of biological performance and related duration of potential benefits no longer supported an attractive opportunity due to redevelopment challenges and lengthening timelines to compile sufficient data to support an IND filing. As a result, Organovo suspended development of its lead program and all other related in-house pipeline development activities. The Organovo board of directors also engaged a financial advisory firm to explore its available strategic alternatives, including evaluating a range of ways to generate value from its technology platform and intellectual property, its commercial and development capabilities, its listing on The Nasdaq Capital Market, and its remaining financial assets. These strategic alternatives included possible mergers and business combinations, sales of part or all of Organovo’s assets, and licensing and partnering arrangements. Organovo implemented various restructuring steps to manage its resources and extend its cash runway, including reducing commercial activities related to its liver tissues, except for sales of primary human cells out of inventory, negotiating an exit from its long-term facility lease, selling various assets, and reducing its workforce. Additionally, in November 2019, Organovo sold certain inventory and equipment and related proprietary information held by its wholly owned subsidiary, Samsara Sciences, Inc. (“Samsara”), and as a result of such sale, Samsara ceased its operations in March 2020.

After conducting a diligent and extensive process of evaluating strategic alternatives for Organovo and identifying and reviewing potential candidates for a strategic acquisition or other transaction, which included the receipt of more than 27 non-binding indications of interest from interested parties and careful evaluation and consideration of those proposals, and following extensive negotiation with Tarveda Therapeutics, Inc. (“Tarveda”), on December 13, 2019, Organovo and Tarveda entered into an agreement and plan of merger agreement (the “Merger Agreement”). Pursuant to the Merger Agreement, and subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, a wholly-owned merger subsidiary of Organovo would merge (the “Merger”) into Tarveda, with Tarveda surviving the Merger. The Merger Agreement included various conditions to the consummation of the Merger, including approval by Organovo’s stockholders at a special meeting of stockholders (the “Special Meeting”).

On April 7, 2020 at the Special Meeting, the Merger was not approved by Organovo stockholders. As a result, Organovo is currently reconsidering its strategic alternatives and may pursue one of the following courses of action, which include but are not limited to the following actions:

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Pursue another strategic transaction similar to the Merger. Organovo may resume its process of evaluating other candidate companies interested in pursuing a strategic transaction and, if a candidate is identified, focus its attention on negotiating and completing such strategic transaction with such candidate.

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Continue to operate and expand its business. Organovo could elect to continue to operate and expand its business and pursue licensing or partnering transactions or utilize its intellectual property and platform technology to pursue the redevelopment of its liver tissues or the development of therapeutic tissues currently being studied by its collaborators. Due to the early development stage of Organovo’s, and its collaborators’, potential therapeutic tissues, any such redevelopment or development efforts would require a significant amount of time and financial resources, and would be subject to all the risk and uncertainties involved in the development of novel, early stage therapeutic products, research tools, and drug screening technologies. There is no assurance that Organovo could raise sufficient capital to support these efforts, that its development efforts would be successful commercially in the case of research applications or that it could successfully obtain any required regulatory approvals required to market any therapeutic product it pursued. The Company would also need to increase qualified scientific, sales and marketing, and administrative staffing, lease a suitable facility and make other expenditures necessary to support these efforts.

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Dissolve and liquidate its assets. If Organovo is unable, or does not believe that it will be able, to find a suitable candidate for another strategic transaction or continue to operate its business, Organovo may dissolve and liquidate its assets, subject to approval by Organovo’s stockholders. In that event, Organovo would be required to pay all of its debts and contractual obligations and to set aside certain reserves for potential future claims. If Organovo dissolves and liquidates its assets, there can be no assurance as to the amount or timing of available cash that will remain for distribution to Organovo’s stockholders after paying Organovo’s debts and other obligations and setting aside funds for its contingent liabilities.

Except where specifically noted or the context otherwise requires, references to “Organovo Holdings,” “the Company,” and “Organovo” in these notes to the consolidated financial statements refers to Organovo Holdings, Inc. and its wholly owned subsidiaries, Organovo, Inc., Samsara Sciences, Inc, and Opal Merger Sub, Inc.

COVID-19

In December 2019 a respiratory illness caused by a novel strain of coronavirus, SARS-CoV-2, causing the Coronavirus Disease 2019, also known as COVID-19 or coronavirus emerged. While initially the outbreak was largely concentrated in China it has spread globally. Global health concerns relating to the COVID-19 pandemic have been weighing on the macroeconomic environment, and the pandemic has significantly increased economic volatility and uncertainty. The pandemic has resulted in government authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter-in-place or stay-at-home orders, and business shutdowns.

The extent to which the coronavirus impacts the Company’s operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak and travel bans and restrictions, quarantines, shelter-in-place or stay-at-home orders, and business shutdowns. In particular, the continued coronavirus pandemic could adversely impact the Company’s operations, including among others, the timing and ability to pursue strategic alternatives, given the impact it may have on the manufacturing and supply chain, sales and marketing and clinical trial operations of potential strategic partners, and the ability, if we elect to do so, to advance our research and development activities and pursue development of any of our pipeline products, each of which could have an adverse impact on the Company’s business and financial results.

Nasdaq listing

On June 25, 2019, the Company received a notice letter from the Listing Qualifications Staff of the Nasdaq Stock Market LLC (“Nasdaq”) indicating that, based upon the closing bid price of our common stock for the last 30 consecutive business days, the Company no longer met the requirement to maintain a minimum closing bid price of $1 per share, as set forth in Nasdaq Listing Rule 5450(a)(1). On December 26, 2019, the Company obtained an additional compliance period of 180 calendar days by electing to transfer to The Nasdaq Capital Market to take advantage of the additional compliance period offered on that market. On March 26, 2020, the Company obtained shareholder approval to effect a reverse stock split in a range from 20:1 to 40:1, which remains subject to the approval of the Company’s board of directors (such final ratio, as determined by our board of directors, the “Reverse Stock Split Ratio” such reverse stock split, the “Reverse Stock Split”). On April 17, 2020, the Company received an additional notice letter from Nasdaq indicating that based on extraordinary market conditions, Nasdaq has determined to toll the compliance periods for bid price and market value of publicly held shares requirements (collectively, the “Price-based Requirements”) through June 30, 2020. Accordingly, since the Company had 66 calendar days remaining in the compliance period as of April 16, 2020, the Company will, upon reinstatement of the Price-based Requirements, still have 66 calendar days from July 1, 2020, or until September 4, 2020, to regain compliance. The Company can regain compliance, either during the suspension or during the compliance period resuming after the suspension, by evidencing compliance with the Price-based Requirements for a minimum of 10 consecutive trading days. The Company intends to comply with the Price-based Requirements by effecting the Reverse Stock Split. To qualify, the Company would be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for The Nasdaq Capital Market.

Liquidity

As of March 31, 2020, the Company had cash and cash equivalents of approximately $27.4 million and no restricted cash. The Company had an accumulated deficit of approximately $279.5 million. The Company also had negative cash flows from operations of approximately $14.9 million during the year ended March 31, 2020.

Through March 31, 2020, the Company has financed its operations primarily through the sale of convertible notes, warrants, the private placement of equity securities, the sale of common stock through public and at-the-market (“ATM”) offerings, and through revenue derived from product and research service-based agreements, collaborative agreements, licenses, and grants. During the year ended March 31, 2020, the Company issued 6,087,382 shares of its common stock through its ATM facility and received net proceeds of approximately $5.0 million.

Throughout the strategic alternatives assessment process, the Company has taken steps to manage its resources and extend its cash runway including reducing commercial activities related to its liver tissues, except for sales of primary human cells out of inventory, negotiating an exit from its long-term facility lease, selling various assets, and reducing its workforce to the minimum level necessary to explore and support these strategic alternatives as well as to support the remainder of the Company’s on-going business activities and assets, including its intellectual property platform and collaborations with research institutions and universities. As a result, the Company terminated the employment of 52 employees, or 90% of its workforce and recorded a restructuring charge during the year ended March 31, 2020 of approximately $2.7 million, related to employee severance and benefits costs, of which $1.7 million was paid out during the fiscal second quarter, $0.9 million was paid out during the fiscal third quarter, and $0.1 million was paid out during the fiscal fourth quarter.

While the Company believes that it can maintain its current operations for at least the next 12 months, based on its current plans and available resources, the assessment by the Company discussed above with respect to its strategic alternatives raises uncertainty over the Company’s ability to successfully finance itself on a long-term basis. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Use of estimates

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Significant estimates used in preparing the consolidated financial statements include those assumed in revenue recognition, the measurement of operating lease right-of-use assets and lease liabilities, the valuation of stock-based compensation expense, the valuation of impairment of long-lived assets, our assessment of contingent liabilities that would require the establishment of a reserve, and the valuation allowance on deferred tax assets. On an ongoing basis, management reviews these estimates and assumptions. Though the impact of the COVID-19 pandemic to our business and operating results presents additional uncertainty, we continue to use the best information available to inform our critical accounting estimates.

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.

Restricted cash

As of March 31, 2020 and 2019, the Company had approximately $0 and $79,000 of restricted cash, respectively, deposited with a financial institution. The entire amount was held in certificates of deposit to support a letter of credit agreement related to the Company’s facility lease, which was terminated in November 2019.

Inventory

Inventories are stated at the lower of the cost or net realizable value (first-in, first-out). The Company had no inventory at March 31, 2020. Inventory at March 31, 2019 consists of approximately $361,000 in raw materials, no work-in-process inventory, and approximately $129,000 in finished goods net of reserve.

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 ASC 360-10, the Company records an impairment loss on long-lived assets used in operations when events and circumstances indicate that long-lived assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets (i.e. not able to be recovered). During the second quarter of fiscal 2020, the Company announced the restructuring of its operations. This event required the reevaluation of the recoverability of the gross carrying value of its long-lived assets. Upon the Company’s announcement and at each quarter-end, the Company performed an asset impairment analysis on its long-lived asset group, consisting primarily of licensed intangible assets, computer equipment, and software following the completion of various asset sales prior to March 31, 2020, which concluded that the carrying amount is not recoverable. However, the Company’s analysis indicated that carrying amount of the asset group did not exceed its fair value. As such, no impairment loss is required to be recognized. Nonetheless, it is reasonably possible that the impairment analysis may change in the near term resulting in the need to write down those assets to fair value. The Company will continue to monitor assets for impairment.

Assets Held For Sale

Assets held for sale

The Company classifies assets held for sale if all held for sale criteria is met pursuant to ASC 360-10. Assets classified as held for sale are not depreciated and are measured at the lower of their carrying amount or fair value less cost to sell. Further, assets held for sale are presented as current assets on the consolidated balance sheet.

Research and development

Research and development expenses, including direct and allocated expenses, consist of independent research and development costs, as well as costs associated with sponsored research and development. Research and development costs are expensed as incurred.

Income taxes

Deferred income taxes are recognized for the tax consequences in future years for differences between the tax basis of assets and liabilities and their financial reporting amounts at each year end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the combination of the tax payable for the year and the change during the year in deferred tax assets and liabilities. The Company’s policy regarding uncertainty in income taxes is pursuant to ASC 740-10. Interest and penalties that would be assessed in relation to the settlement value of unrecognized tax benefits is recognized as a component of income tax expense.

Revenue recognition

The Company has generated revenues from payments received from research service agreements, product sales, collaborative agreements with partners including pharmaceutical and biotechnology companies and academic institutions, licenses, and grants from the National Institutes of Health (“NIH”) and private not-for-profit organizations.

Billings to customers or payments received from customers are included in deferred revenue on the consolidated balance sheet until all revenue recognition criteria are met. As of March 31, 2020 and 2019, the Company had approximately $0 and $525,000, respectively, in deferred revenue related to its research service agreements, collaborative agreements, and licenses within the scope of Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (“Topic 606”). In the year ended March 31, 2020, the Company recognized revenue on approximately $525,000, of which $490,000 related to the expiration of an agreement with a non-refundable up-front fee, that had been recorded as deferred revenue at March 31, 2019.

Service revenues

The Company’s service-based business, Organovo, Inc., utilized its NovoGen® bioprinting platform to provide customers access to its highly specialized tissues that model human biology and disease, and to in vitro testing services based on that technology. These contracts with customers contained multiple performance obligations including: (i) bioprinting tissues for the customer, (ii) reporting the results of tests performed on the printed tissues pursuant to the agreed upon work plan through exposure of the tissue to various factors (including the customer’s proprietary compound), and (iii) delivering specific byproduct study materials, which were satisfied, respectively, at each of the following points in time: (i) upon completion of manufacturing of the bioprinted tissue for the customer, (ii) upon delivery of the report on tests performed on the tissue, and (iii) upon making certain study materials generated from the aforementioned testing process available to the customer. The customer did not have access or control of any performance obligation prior to the point in time of full completion of the corresponding performance satisfying event as defined above. Furthermore, although the service could be customized for each customer, it was not so highly customized as to not have an alternative use either to other customers or to the Company without significant economic consequences or rework. Accordingly, the Company’s service-based business utilized point-in-time recognition under Topic 606.

For service contracts, the Company allocates the transaction price to each performance obligation based on the estimated relative standalone selling prices of the promised products or services underlying each performance obligation. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations. The transaction price for service business contracts is a fixed consideration.

In connection to the Company’s decision to pursue its strategic alternatives, the Company halted commercial activities related to its liver tissues. The Company is expected to continue to maintain its external research collaborations and its intellectual property portfolio.

Product sales, net

The Company’s product-based business, Samsara, produced high-quality cell-based products for use in Organovo’s 3D tissue manufacturing and for use by life science customers. The Company recognizes product revenue when the performance obligation is satisfied, which is at the point in time the customer obtains control of the Company’s product, typically upon delivery. Product revenues are recorded at the transaction price, net of any estimates for variable consideration under Topic 606. The Company’s process for estimating variable consideration does not differ materially from its historical practices. Variable consideration is estimated using the expected value method which considers the sum of probability-weighted amounts in a range of possible amounts under the contract. Product revenue reflects the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of the individual contracts. Actual amounts of consideration ultimately received may differ from the Company’s estimates. If actual results vary materially from the Company’s estimates, the Company will adjust these estimates, which will affect revenue from product sales and earnings in the period such estimates are adjusted.

The Company provides no right of return to its customers except in cases where a customer obtains authorization from the Company for the return. To date, there have been no product returns.

On November 7, 2019, the Company entered into an agreement to sell substantially all of the Samsara inventory and associated assets for $1.5 million, which was recorded to other income. As a result, the Company will have no further product sales of cells nor tissues beyond what it sold prior to the November2019 sale. In March 2020, the Company dissolved Samsara.

Collaborative research, development, and licenses

The Company has entered into collaborative agreements with partners that typically include one or more of the following: (i) non-exclusive license fees; (ii) non-refundable up-front fees; (iii) payments for reimbursement of research costs; (iv) payments associated with achieving specific development milestones; and (v) royalties based on specified percentages of net product sales, if any. At the initiation of an agreement, the Company has analyzed whether it results in a contract with a customer under Topic 606 or in an arrangement with a collaborator subject to guidance under ASC 808, Collaborative Arrangements (“Topic 808”).

The Company has considered a variety of factors in determining the appropriate estimates and assumptions under these arrangements, such as whether the elements are distinct performance obligations, whether there are determinable stand-alone prices, and whether any licenses are functional or symbolic. The Company has evaluated each performance obligation to determine if it can be satisfied and recognized as revenue at a point in time or over time. Typically, non-exclusive license fees, non-refundable upfront fees, and funding of research activities have been considered fixed, while milestone payments have been identified as variable consideration which must be evaluated to determine if it has been constrained and, therefore, excluded from the transaction price.

The Company’s collaborative agreements that were not completed at the implementation of Topic 606 on April 1, 2018, consisted of research collaboration and limited technology access licenses. These agreements provide the licensee with a non-exclusive, non-transferable, limited, royalty-free technology license, including access to Organovo’s proprietary bioprinter platform, training, and continued support by means of consumables and consultation throughout the duration of the contract. The Company has determined that the intellectual property license is not distinct from the continued support promised under the agreement and is therefore a single combined performance obligation. The Company recognized revenue for these combined performance obligations over time for the duration of the license period, as the combined performance obligation would not be fully satisfied until the end of the contract.

For the year ended March 31, 2020, all collaborations and licenses revenue was within the scope of Topic 606 and recognized accordingly. As of September 30, 2019, the Company completed its obligations under the existing agreements with respect to receipts of revenue and does not anticipate recording any further revenue. See “Note 4. Collaborative Research, Development, and License Agreements” for more information on the Company’s collaborative agreements.

Grant revenues

In July 2017, the NIH awarded the Company a “Research and Development” grant totaling approximately $1,657,000 of funding over three years. The Company has concluded this government grant is not within the scope of Topic 606, as government entities do not meet the definition of a “customer” as defined by Topic 606, as there is not considered to be a transfer of control of goods or services to the government entity funding the grant. Additionally, the Company has concluded this government grant does meet the definition of a contribution and is a non-reciprocal transaction, however, Subtopic 958-605, Not-for-Profit-Entities-Revenue Recognition does not apply, as the Company is a business entity and the grant is with a governmental agency.

Revenues from this grant have been based upon internal costs incurred that are specifically covered by the grant, plus an additional rate that provides funding for overhead expenses. Revenue has been recognized as the Company incurs expenses that are related to the grant. The Company believes this policy is consistent with the overarching premise in Topic 606, to ensure that it recognizes revenues to reflect the transfer of promised goods or services to customers in an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services, even though there is no “exchange” as defined in the Financial Accounting Standards Board’s Accounting Standards Codification (“ASC”). The Company believes the recognition of revenue as costs are incurred and amounts become earned/realizable is analogous to the concept of transfer of control of a service over time under Topic 606.

Revenue recognized under this grant was approximately $52,000 and $587,000 during the years ended March 31, 2020 and 2019, respectively.

In connection to the Company’s decision to pursue its strategic alternatives, specific to the NIH grant, all internal research activities have been halted and transferred to the University of California, San Diego, leaving a remaining available balance of approximately $0.5 million that will not be utilized by the Company.

Cost of revenues

Cost of revenue

The Company reported $0.3 million and $0.5 million in cost of revenue for the years ended March 31, 2020 and 2019, respectively, which includes an inventory write-off during the current year fiscal second quarter of approximately $0.2 million consisting of raw materials related to the Company’s bioprinting and testing services and is a result of the Company’s decision to pursue its strategic alternatives. Cost of revenues consists of our costs related to manufacturing and delivering our product and service revenue.

Stock-based compensation

The Company accounts for stock-based compensation in accordance with the ASC Topic 718, Compensation — Stock Compensation, which establishes accounting for equity instruments exchanged for employee 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).

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. As of April 1, 2019, the fair value of options granted to non-employees is consistent with the measurement and classification of share-based payment to employees. 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, 2020 and 2019, the comprehensive loss was equal to the net loss.

Net loss per share

Basic and diluted net loss per share has been computed using the weighted-average number of shares of common stock outstanding during the period. The weighted-average number of shares used to compute diluted loss per share excludes any assumed exercise of stock options and warrants, shares reserved for purchase under the Company’s 2016 Employee Stock Purchase Plan (“ESPP”), the assumed release of restriction of restricted stock units, and shares subject to repurchase as the effect would be anti-dilutive. No dilutive effect was calculated for the years ended March 31, 2020 and 2019 as the Company reported a net loss for each respective period and the effect would have been anti-dilutive.

Common stock equivalents excluded from computing diluted net loss per share were approximately 12.1 million shares and 14.4 million shares for the years ended March 31, 2020 and 2019, respectively.