- Organovo chose to shut down rather than find a way forward
itself with bioprinting
- Organovo is proposing a reverse merger with Tarveda, a
non-strategic option that is a complete investor mismatch; Tarveda,
which is in the cancer-drug space, would not use the Organovo
bioprinting intellectual property at all
- After more than $100 million in investment, Tarveda stumbled
and has not been successful in raising venture capital (VC) funding
or executing on an initial public offering (IPO) in a bull biotech
market
- The likelihood of the post-merger company being successful in
the future is slim; per investment bankers familiar with the
situation, approximately 20% of companies in this position have
been successful
- Organovo shareholders can take action and contact the company
now to oppose the merger; if Organovo moves forward anyway, a vote
against this deal will stop it from taking effect and causing a
massive selloff
Organovo Founder Keith Murphy sent the following letter to
company shareholders:
Organovo, pointing to hurdles and timeline changes in the
development of its human liver tissue for transplant, announced in
August 2019 that it would seek strategic alternatives. For those
unfamiliar with that process, it basically means that Organovo’s
Board has decided the company has hit a wall and needs to either
sell itself or come up with a creative option to move forward.
On December 16, 2019, Organovo announced that its strategic
alternatives review had identified Tarveda Therapeutics as its
chosen merger partner. Unfortunately, Tarveda was exactly what
Organovo shareholders had to fear most. Organovo would basically
turn their cash and the trading stock over to Tarveda, meaning the
company would stop developing bioprinting technology completely.
Tarveda is a company completely unrelated to Organovo’s bioprinting
business. Worse, Tarveda is down on its luck and with limited other
financing options. The key things Organovo shareholders need to
know about Tarveda are that:
- Tarveda is a mismatch with Organovo’s shareholder base that
would leave investors running for the exits; and
- Tarveda is a company with a technology so unexciting to its own
previous investors that it has not been able to raise additional VC
funding or execute an IPO in a bull biotech market and is now
seeking other financing options.
Because of the problems with Tarveda, both as a company and as a
choice for a merger given Organovo’s shareholder base, Organovo
stockholders must prepare to vote against the Tarveda merger and
force Organovo’s Board to go back to the beginning of the process
and deliver what the shareholders demand: a deal that makes use of
Organovo’s unique bioprinting technology, not a deal that bails out
the VC investors of a failing cancer drug company.
Tarveda is a company headquartered in Massachusetts that’s had
greater than $113 million invested in it, according to Crunchbase.
It currently stands in early-stage clinical trials, with its most
advanced program listed as a combined Phase 1/2a. That’s not a lot
of progress for the kind of money invested to date in Tarveda, and
it will take millions more to get pivotal clinical trial data. It
will likely take hundreds of millions more and significant investor
dilution to move Tarveda forward.
But much worse is that Tarveda is looking for its capital
through a merger with Organovo. Typically, a company at this stage
is headed to one of two steps next: 1) additional VC funding to
push it forward into Phase 2 data, or 2) an IPO for its next
financing. Either of those steps, which have been taken by many
biotech companies in 2019 because the overall finance environment
was very supportive, would have indicated significant promise.
Unfortunately, that’s the kind of potential that Tarveda doesn’t
have.
Apparently, its VCs agree that Tarveda lacks potential: they
themselves are not making the required investment to proceed with
further clinical trials. They once gave it ample funding but have
not chosen to provide the needed funds for its next phase. A
company with solid scientific and clinical trial results would be a
no-brainer for additional VC funding at this stage, but Tarveda
apparently is not that in the judgment of the very people who
initially launched it. They are not willing to risk fully funding
Tarveda to its next clinical milestone and are looking to Organovo
shareholders to do that.
Furthermore, Tarveda has not attracted investment dollars
through an IPO. The 2019 biotech market has been both active and
successful, with companies like Cortexyme, 10X Genomics, and Oyster
Point Pharma finding success. Tarveda stands in stark contrast to
such success stories.
Tarveda instead has been shopping for a reverse merger type deal
as a way to back into being a public company for some time. In
fact, they appear on lists of companies that Wall Street investment
bankers have prepared that are looking for this kind of deal –
companies that can’t get a traditional IPO done and have few other
financing options. Prior to entering into a deal with Organovo,
Tarveda was running out of money. As of mid-October, per the S-4
filing on December 23, their money on hand was about three months
of operations. They likely would have shut down in the near term,
but the Organovo deal is a lifeline for them.
Organovo shareholders don’t need to dig deeply into Tarveda’s
science to get the picture on how unattractive it is, because the
above facts form a clear pattern. Tarveda’s VCs are no longer
willing to provide the company with its needed funding (except a
token amount to assure they can complete the Organovo deal, which
allows the VCs to unlock hundreds of millions of dollars in
liquidity), and the company can’t get IPO investors to bite either.
If these groups who have looked hardest at Tarveda and can best
judge the future of its science aren’t interested, how can
Organovo’s Board possibly ask Organovo shareholders to place faith
in its chances of success?
Investment bankers familiar with the situation confirm that they
see Tarveda the same way described above: a private company that
had good VC backing, but that the VCs likely do not see as worthy
of further investment due to unpromising results thus far. These
bankers – who know the biotech space well and are familiar with and
often run the type of transaction Organovo and Tarveda are seeking
to close – see this merger as highly unpromising.
Per statistics from investment banks, comparable deals to this
merger result in a successful turnaround for a company like Tarveda
only about 20% of the time, with the other 80% of cases being
situations where investors suffer significant losses as the stock
drops and dilution piles up. The bankers note that the biggest
challenge for such deals is shareholder base mismatch – such deals
fail because there is a significant exodus out of the stock after
the merger. This departure is driven by the fact that the investors
for the old company don’t have any ties or particular interest in
the business of the new company.
The investor mismatch problem is uniquely acute in the case of
Organovo. While many biotech companies have an investor base that
might have interest in a different therapeutic drug play, the
majority of Organovo’s shareholders care more deeply about the core
technology of bioprinting and want to see it succeed. They put
their money to work with a belief that bioprinting would lead to
both impressive advances as well as investment returns.
Organovo’s Board failed the shareholders on investment returns,
and now proposes to kick the shareholders again by denying them the
opportunity to have their money invested in bioprinting at all. The
Board is proposing this despite hearing clearly from investors that
they wanted Organovo’s Board to prioritize a continuing role for
bioprinting with their investment dollars. These entreaties come
from a wide set of communications from investors, from passionate
investor voices at the annual shareholder meeting in September, to
retail investor emails over the past several months, to major
institutional funds expressing that they wanted the company to take
such a path. Organovo’s Board so far is choosing to ignore
shareholders but cannot expect shareholders to continue to tolerate
such neglect.
Organovo shareholders have to act now, because if the Tarveda
merger proceeds, the impact on the stock would be devastating.
Multiple types of shareholders would be rapidly seeking to divest
their shares in the company.
For example, Organovo’s largest shareholder, ARK Invest, which
holds tens of millions of shares, boldly proclaims that it invests
in disruptive innovation. Their interest in Organovo is driven by
an interest in 3D bioprinting, and in fact they specifically run a
fund focused on 3D printing. In their offices in New York City, a
very large bull statue sits near the reception desk and has written
on the side in block letters: “3D PRINTING”, a reference to their
investment interest and the related fund they run. They are not
biotech generalists but invest on specific themes like 3D
bioprinting and innovative sequencing technology. It stands to
reason that, if the merger goes through, their approximately 15%
stake in Organovo may be sold due to the thematic mismatch alone.
In reality, nearly all of Organovo’s investors may act this way, as
most of Organovo’s retail investors also invested specifically in
the promise of 3D bioprinting.
Adding to this selling pressure, another type of shareholder
that would be looking to exit in the post-merger deal is Tarveda’s
shareholder base, which is mainly three venture capital firms that
collectively hold about 90% of the company’s current shares. They
are not the kind of venture firms known to maintain long term
positions once their portfolio companies go public. To the
contrary, they most likely will be looking to sell and squeeze
something back out of their investment.
In an IPO, companies successfully bring in new investors from
the ranks of large public equity funds to offset the VC selling,
but as we know Tarveda has been unable to become appealing to these
types of public investors. They likely have already been up and
down Wall Street seeking a traditional IPO, and investors didn’t
buy into the story. So, there is little hope of stimulating much
buying to counterbalance all of the selling. It’s current Organovo
stockholders that will be left in the dust if this merger goes
forward.
Ultimately, Organovo shareholders simply have to ask where their
interests lie. Are they interested in funding work outside their
own interests that the original VCs had given up on, bailing out a
failing company, and allowing those VCs access to hundreds of
millions of dollars in liquidity? Or do they prefer to demand to
the Organovo Board that their investment dollars be used for their
original intention – unlocking the potential of 3D bioprinting?
If they do insist on that, a merger with a different company can
ultimately be successful. The Board can support the kind of
strategic merger with a bioprinting focus that will retain the
interest and the investment of current shareholders. If a growing
and promising entity with something to prove is chosen, rather than
a company in a downward death spiral, a whole set of new investors
can be attracted to the stock to the benefit of all.
It’s a simple and stark choice. Investors have the opportunity
now to contact the company and let them hear how loud their voices
can be. Otherwise, Organovo is expected to soon file the paperwork
indicating the timing of the vote, which will likely take place in
February or March. Investors would then have the opportunity
through a vote against the merger with Tarveda to register their
unhappiness with Organovo’s performance and the proposal.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200121005374/en/
Jessica Yingling, Ph.D., Little Dog Communications,
jessica@litldog.com
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