Organovo Founder Issues Letter to Stockholders Regarding Major Missteps and Misjudgment of the Company’s Board of Directors...
March 19 2020 - 2:36PM
Keith Murphy, founder and former Chief Executive Officer of
Organovo Holdings, Inc. (NASDAQ: ONVO) (“Organovo” or the
“Company”), has issued the following letter to stockholders in
connection with the Company’s prospective merger with Tarveda
Therapeutics, Inc. (“Tarveda”), a privately-held clinical stage
biopharmaceutical company:
Fellow Stockholders:
The Board of Directors (the “Board”) of Organovo
Holdings, Inc. (“Organovo” or the “Company”) is in the process of
asking stockholders to support its proposal to merge with Tarveda
Therapeutics, Inc. (“Tarveda”), a company with uninspiring science
and few other financial options. However, there have been a
number of decisions and actions from the Board that suggest that
its judgment and recommendations should not be trusted at all.
After my departure in 2017, the decisions made by the Board call
into question why anyone would vote for a plan that it
proposes. Time and again, the current mix of directors have
demonstrated that the best course for stockholders is to avoid
trusting the Board.
It is important to highlight that the Board’s
first independent decision—hiring Taylor Crouch to run Organovo
despite a troubling track record as a public company Chief
Executive Officer—was a questionable one that turned out terribly
for stockholders. The outcome for his previous public
company, Variagenics, Inc. (“Variagenics”), will startle investors
and sound familiar: Variagenics’ stock price dropped during his
short leadership and the company dropped development efforts while
holding a lot of remaining cash ($60 million) before seeking a
merger. The story sounds like what just happened to Organovo. One
would think that Mr. Crouch’s history at Variagenics—failing to
engage investors sufficiently and showing a lack of vision to find
a way forward even with tens of millions of in cash—revealed
inherent problems with his leadership style. And yet, the very
directors, who now ask stockholders to vote in favor of their plan,
made the decision to hire Crouch anyway, ignoring the likely
pitfalls of doing so, and stockholders have suffered as a
result.
The next phase of the story of Variagenics may
be Organovo’s future as well: the resulting company from its
merger, Nuvelo, Inc. (“Nuvelo”), itself followed the same downward
path, failing and then running another merger process in
turn. Organovo stockholders may have such a fate in store if
they blindly follow the recommendations of the current Board.
The Board’s troubling performance becomes even
more evident when one considers the circumstances around the
Company’s switch to a therapeutic tissue business model. In August
2018, the Company became primarily a therapeutic tissue company,
with a preclinical liver tissue as its only real pipeline product,
along with modest commercial operations.
The Board retained Mr. Crouch despite a
background that implies that he had been hired to oversee the
Company’s existing pipeline of commercial products—not to re-focus
the Company to an area where he and existing senior management
lacked qualifications and experience. And yet, Organovo’s Board,
through inaction or a poor decision, kept the Chief Executive
Officer in his role with the following facts in front of them:
- The Board brought in a commercially-focused Chief Executive
Officer to deliver revenue growth.
- The Chief Executive Officer announced a major commercial focus
shift to disease models right after he got started.
- The shift and the Chief Executive Officer’s execution resulted
in annual revenue growth slipping from ~175% (FY2017 revenue was
2.75x that of FY2016) to 6%. In other words, growth
flatlined.
- As a result of the revenue problems, the Company effectively
had to abandon its commercial plan and switched to a therapeutic
tissue play.
- Yet, the Chief Executive Officer had no background in
therapeutic tissues.
- Failing to foresee this, the Chief Executive Officer had
already laid off key manufacturing leadership with the ability to
make therapeutic tissues successful.
Dropping the Chief Executive Officer entirely
was the only right move at that point, but the Board instead did
nothing, letting the Company and stockholders down. Given
the current merger proposal with Tarveda, the question is why would
shareholders today follow the recommendation of a Board with a
track record leading to such poor outcomes?
There was another deficiency in the Board’s
planning that is even more obvious to shareholders and others
outside the Company. It greatly magnified the timeline issue
with the therapeutic liver tissue. Biotech 101 teaches that a
company needs to have a pipeline of products in order to be stable
during timeline disruptions or outright product failures, which
happen regularly. About one in three drug programs at that
early stage ultimately make it to clinical trials, so a company
needs to have a pipeline rather than a single asset. For a
company with a riskier play such as a therapeutic tissue, which
could be expected to have an even lower success rate, a pipeline is
even more imperative. Yet that is not the strategy Organovo’s
Board elected to follow, with devastating consequences.
Having no fallback option or closely following
program to elevate to top status, the Board chose to shutter
operations. The directors probably thought of this as a responsible
decision made for stockholders, but stockholders should recognize
that this result was the fruit of the outright dereliction of the
Organovo Board failing to have back-up programs in place to weather
such storms. The fact that the Company failed with $30
million in the bank makes this even more problematic, as there was
plenty of capital to have put another program in place. The
absence of a multi-product pipeline for Organovo in 2019 is
evidence of a near total lack of innovative, entrepreneurial, and
strategic thinking. The result of not having an alternative
strategy is a stain on the Board’s performance, and yet another
indictment of its judgment and, likely, violation of fiduciary
duties.
Organovo’s Board is asking stockholders to
support its proposal to merge with Tarveda, a company with
uninspiring science and few other financial options. However,
a simple review of this Board’s performance and decisions after
mid-2017 reveals a track record that suggests the Board’s business
judgment and recommendations should not be trusted at all. Rather
than blindly supporting the Board’s recommendations, I am voting
AGAINST the Tarveda merger, and will continue to push the Board to
engage with active stockholders on an option that will lead to a
better outcome.
Sincerely,
Keith Murphy
FORWARD-LOOKING STATEMENTS
Any statements contained herein that do not
describe historical facts, including future operations, are neither
promises nor guarantees and may constitute “forward-looking
statements” as that term is defined in the U.S. Private Securities
Litigation Reform Act of 1995. Such forward-looking
statements may include words such as “may,” “might,” “will,”
“should,” “expects,” “plans,” “anticipates,” “believes,”
“estimates,” “predicts,” “potential” or “continue,” the negative of
these terms and other comparable terminology. Any such
forward-looking statements contained herein are based on current
assumptions, estimates and expectations, but are subject to a
number of known and unknown risks and significant business,
economic and competitive uncertainties that may cause actual
results to differ materially from expectations. Numerous
factors could cause actual future results to differ materially from
current expectations expressed or implied by such forward-looking
statements, including the risks and other risk factors detailed in
various publicly available documents filed by the Company from time
to time with the Securities and Exchange Commission (SEC), which
are available at www.sec.gov, including but not limited to, such
information appearing under the caption “Risk Factors” in the
Company’s Annual Report on Form 10-K filed with the SEC on June 3,
2019. Any forward-looking statements should be considered in
light of those risk factors. Mr. Murphy cautions readers not to
rely on any such forward-looking statements, which speak only as of
the date they are made. Mr. Murphy disclaims any intent or
obligation to publicly update or revise any such forward-looking
statements to reflect any change in Company expectations or future
events, conditions or circumstances on which any such
forward-looking statements may be based, or that may affect the
likelihood that actual results may differ from those set forth in
such forward-looking statements.
Contacts
For Media:
ProfileGreg Marose / Ashley
Areopagita347-343-2999gmarose@profileadvisors.com /
aareopagita@profileadvisors.com
Organovo (NASDAQ:ONVO)
Historical Stock Chart
From Aug 2024 to Sep 2024
Organovo (NASDAQ:ONVO)
Historical Stock Chart
From Sep 2023 to Sep 2024