Major Missteps of Organovo’s Board: Letter to Shareholders from Company’s Founder

  • Organovo’s Board has a track record of bad decisions and poor business judgment since mid-2017
  • The Board members selected and hired a CEO who failed shareholders. This and other results suggest that the Board doesn’t understand what’s needed for success in the public market
  • The Board retained the failing CEO despite terrible performance and a lack of relevant expertise when it the company switched to its therapeutic tissue-only business model
  • Starting mid-2018, the Board allowed the company to run as a therapeutic company with a single pipeline project, an inappropriate strategy with an early phase program that was likely to not proceed on the best-case timeline
  • Given the terrible 2017-present track record of this Board and its decisions and recommendations, shareholders would be wise to reject its plans today and vote AGAINST the merger with Tarveda

SAN DIEGO, CA / ACCESSWIRE / March 10, 2020 / Organovo Founder Keith Murphy sent the following letter to company shareholders:

Organovo’s Board is in the process of asking shareholders to support its proposal to merge with Tarveda, a company with uninspiring science and few other financial options. However, there have been a number of decisions and actions from the Organovo Board that suggest that their judgment and recommendations should not be trusted at all. After my departure in 2017, the decisions made by the Organovo Board call into question why anyone would vote for a plan that they propose at all. Time and again, they have demonstrated that the best course for shareholders is more likely to vote against them and take over the decision making ourselves.

The Board’s first independent decision was itself a questionable one that turned out terribly for shareholders: hiring Taylor Crouch to run Organovo despite a troubling track record as a public company CEO. The outcome for his previous public company, Variagenics, will startle investors and sound familiar: Variagenics stock dropped during his short leadership, and the company dropped development efforts while holding a lot of remaining cash ($60 million), and sought a merger. The story sounds just like what just happened to Organovo. One would think that Mr. Crouch’s history at Variagenics, having failed to engage investors sufficiently and showing a lack of vision to find a way forward even with tens of millions in cash, revealed inherent problems with his leadership style. And yet, the very Directors who now ask shareholders to vote in favor of their plan made the decision to hire Crouch anyway, ignoring the likely pitfalls of doing so, and shareholders 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, itself followed the same downward path, failing and then running another merger process in turn. Organovo shareholders may have such a fate in store if they blindly follow the recommendations of the current Organovo 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 CEO Crouch despite a background that implies that he was hired to oversee the company’s existing pipeline of commercial products – not to refocus 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 CEO in his role with the following facts in front of them:

  • The Board brought in a commercially focused CEO to deliver revenue growth.
  • The CEO announced a major commercial focus shift to disease models right after he got started
  • The shift and the CEO’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 CEO had no background in therapeutic tissues.
  • Failing to foresee this, the CEO had shortly before laid off key manufacturing leadership with ability to make therapeutic tissues successful.

Dropping the CEO entirely was the only right move at that point, but the Board instead did nothing, letting the Company and shareholders 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. Biotech 101 teaches that a company needs to have a pipeline of products in order to be stable to timeline disruptions or outright product failures, which happen regularly. About one in three drug programs at that early stage later make it to clinical trials, so a company needs to have a pipeline rather than a single asset. For a company with a more risky 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, Organovo’s Board chose to shutter operations. They probably thought of this as a responsible decision made for shareholders, but shareholders should recognize that this result was the fruit of the outright dereliction of the Organovo Board failing to have backup 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 results of not having one are a stain on the Board’s performance, and yet another indictment of their judgment and, likely, violation of fiduciary duties.

Organovo’s Board is asking shareholders 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 that the Board’s business judgment and recommendations should not be trusted at all. Rather than blindly supporting the Board’s recommendations, shareholders need to vote AGAINST the Tarveda merger, and push the Board to engage with active shareholders on an option that will lead to a better outcome.


Keith Murphy

SOURCE: Multi Dimensional Bio Insight LLC

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