Organovo’s Merger Deal with Tarveda Falls Through, for Now

It has been a stormy few months for the early-stage medical laboratory and research company Organovo. Since announcing a merger deal with Tarveda Therapeutics, a privately-held clinical-stage biopharmaceutical firm, last December, company directives have focused their energy on getting this deal through. Although the transaction had been approved by the boards of directors of both companies, and the merger, which they had anticipated would close in the first quarter of 2020, was subject to the approval of Organovo and Tarveda stockholders and other customary closing conditions.

Before the special meeting for stockholders took place on March 26, Organovo founder and former CEO of the company, Keith Murphy, issued two letters urging them to vote against the merger. And it appears that his warning signs were duly noted by many since now Organovo failed to receive enough votes to consummate the merger.

With the meeting adjourned and Organovo failing to receive a majority of stockholder votes in favor of its merger, Murphy, who is also Chairman Emeritus and owns 1% of Organovo stock, is now cautioning the company to call for a pause in the merger attempt and to look closely at current world events. Murphy wrote a new letter suggesting that “given world events and the need for unity and focus of efforts at this time” the company should review its priorities.

Additionally, the letter expounds on how Organovo was expected to adjourn the meeting until April 7 in an attempt to receive more votes over time to support the merger. In the end, 47.8 million shares cast votes for adjourning the meeting while there were 46.9 million votes against, close enough to indicate that this was a significant issue. If the vote to adjourn had not passed, Organovo would not have been able to keep trying to solicit votes in favor of the merger, and the merger vote would have already fallen short.

Essentially, Murphy proposes that rather than clash over these matters at this time, in the midst of the global crisis over COVID-19, both sides should pause the process and resume these matters later. Moreover, he said that “given the conditions of the global pandemic and the opportunity for 3D bioprinting technology to assist in finding cures for COVID-19,” Murphy is reaching out with a call to his former Board peers for a pause in the merger conflict.

But its not just about a follow-up meeting and a new letter from Murphy. The company now faces a new challenge: immediately after the voting session was prorogated due to a lack of required votes, the stock price of Organovo went up. As we reported previously, Organovo was one of the big driving forces behind bioprinting technology in the 2000s. However, Organovo’s stock price had been depressed for the past five years, going from USD 5.04 on June 6, 2015, to USD 0.27 on March 25, 2020. By Tuesday, March 31, the price of Organovo stock was at USD 0.41, indicating that the market was clearly in favor of dissolving the idea of the merger with Tarveda.

Shares of Organovo, trading on NASDAQ under the ticker symbol ONVO, saw unusually-high trading volume on Tuesday, April 1, when approximately 5,905,958 shares changed hands during trading, an increase of 817% from the previous session’s volume of 644,327 shares, as reported. The firm has a market capitalization of $53.50 million and according to the news outlet, institutional investors and hedge funds own 48.64% of the company’s stock, with a number of them having recently modified their holdings of the business. Essex Investment Management was buying a new position in shares of Organovo worth about $470,000. Renaissance Technologies increased its stake in shares of Organovo by 9.2%, with current ownership at 7,023,760 shares worth $2,498,000 after acquiring an additional 591,174 shares in the last quarter. Finally, ARK Investment Management increased its stake in shares of Organovo by 2.9% and now owns 19,499,439 shares of the medical research company’s stock worth $6,936,000 after acquiring an additional 550,517 shares in the last quarter.

Murphy’s letter even suggests that Organovo’s notifications regarding the special meeting of stockholders to hold the merger vote failed to follow SEC guidance and that this failure calls into question the validity of the adjournment. He even proposes that Organovo changed the location of the meeting without proper notice to stockholders, causing documented stockholder confusion that is likely to have resulted in stockholders missing the opportunity to vote.

Nonetheless, an Organovo statement claims that on March 16, Organovo mailed a notice of change of location to stockholders of record, in compliance with Delaware law, regarding Organovo moving the special meeting to a virtual meeting format. Now it appears that the adjourned meeting reconvened for April 7 will be taking place via a virtual format. The company has also posted important information about the voting session for its stockholders on its website.

“It’s in no one’s interest to get into a legal battle at this time given the global pandemic we all are facing,” said Murphy, “I’m calling on the Organovo Board to do the right thing and agree to cease activity and table these matters in light of the circumstances. With so many stockholders not voting in support of this merger and likely to consider the adjournment invalid, the Board should also now see this as the right thing for the investors.”

Murphy, who is now CEO and founder of another company called Viscient Biosciences, a biotherapeutics firm focused on using 3D bioprinting technology, considered that “Organovo is in a particularly good position to press pause, as it has already ceased major operations.”

We must admit that this news does not come as a big shock since there has been very little information about Organovo’s research, partnerships with institutions, and development of new devices since 2017.

In August 2019, Organovo announced that its Board was seeking strategic alternatives, and just two months later Viscient Biosciences announced that it had made a merger proposal for Organovo. However, the company had other plans and soon made a formal statement that it had reached a definitive merger agreement with Tarveda.

Murphy continued pitching to the public about the current situation faced by Organovo in his letter: “With capital markets in turmoil, it also seems like a poor time to launch a new public company via this type of merger. Tarveda, the merger company, intends to develop cancer compounds and launch additional clinical trials, but it would seem impossible to do so during this novel coronavirus outbreak. Indeed, many pharma and biotech companies are pausing clinical trials due to healthcare systems being overwhelmed in the critical fight against COVID-19.”

He even considers that the matter is “likely to require legal adjudication and possibly a complete restart of its proxy voting process,” since Organovo’s “insufficient notification to stockholders renders the adjournment potentially ineffective and throws its whole process into chaos.” Moreover, he indicated that “in the light of current world events, out of consideration for the safety of court personnel, and to respect both the large number of shareholders voting against and those whose votes may not have been counted, rather than attempt to push forward under such circumstances, Organovo should avoid such divisive conflict at this time.”

Facing unpredictable challenges and hardships is part of most businesses at one time or another, yet overcoming such distress now for a company is hard. If Organovo – like any other company – is going to make it out of the crisis, it is fundamental it sets its priorities and makes tough decisions to get the business out of the slump. In this sense, Murphy’s letter seems to move Organovo’s directors to ask themselves what the company really needs right now. Even more so, it seems that regardless of how big the firm’s crisis may be, it is significantly important to keep up with the current global situation, retain a customer base, as well as the stakeholder’s trust. Surely, this is not the scenario that Organovo’s current CEO, Taylor Crouch, imagined when he took over the company. Yet now, it appears that he will need to figure out his next steps to turn around this situation.