Good afternoon and welcome to the Organovo Fiscal Third Quarter 2016 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference call over to Steve Kunszabo, Head of Investor Relations. Please go ahead, sir.

Good afternoon, thanks for joining us. I'd like to welcome you to our fiscal third quarter 2016 earnings call. Joining me on the call this afternoon are CEO, Keith Murphy and our CFO, Barry Michaels. Today's call will begin with a discussion of the 2016 fiscal third quarter results followed by Q&A. Before I turn things over to Keith, I'd like to caution all participants that our call this afternoon may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that are not historical fact, and include statements about our future expectations, plans and prospects. Such forward-looking statements are based upon our current beliefs and expectations and are subject to risks which could cause actual results to differ from the forward-looking statements. Such risks are more fully discussed in our filings with the Securities and Exchange Commission. Our remarks today should be considered in light of such risk. Any forward-looking statements represent our views only as of today and while we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our expectations or views change. During the call, we'll also be referring to certain supplemental financial measures. These supplemental financial measures are not prepared in accordance with generally accepted accounting principles. Please refer to today's earnings release for definition of these supplemental financial measures. With that, let me turn things over to Keith.

Thanks Steve and good afternoon everyone. I'm going to jump right in by highlighting that based on what we see with the month already behind us in the fourth quarter, we’ve updated our fiscal 2016 outlook for net cash utilization and revenue recognition from our previously disclosed liver contract booking. We are making steady progress on the topline. Total revenue gained 112% versus last year’s comparable period with the primary contribution coming from service work related to our exVive3D Human Liver Tissue. Barry will cover his financial updates and trends later on in his remarks. I'll spend my time today on recent developments in the preclinical safety market, progress we're making with our collaborators and partners, the development of our kidney program, and the steps we are talking in the therapeutic tissue space. Before I dive in, it’s worth revisiting the key fundamental element that formed the foundation for our excellent long term growth prospect. First, we are serving critical unmet needs in markets with very attractive profiles. There is a clear demand for more productive preclinical tissue models, given the 100s of late stage trial clinical trial failures and drug withdrawals that have occurred over the last two decade. Of these failures and overwhelming percentage were for either toxicity, or lack of efficacy, resulting in billions of dollars in wasted drug discovery and development costs. Similarly, for our therapeutic tissue opportunities, when you consider more than 75% gap in transplant medicine between patients on a waiting list and transplants that are completed in an average year, it’s evident that we may have a long term answer by creating tissue replacement products for surgical implantation. Second, we lead the industry with the innovation in cutting-edge services that come with the first mover advantage. In short, no one else has achieved…

Thanks Keith, good afternoon, everyone. I'll begin by summarizing our key financial metrics for the fiscal third quarter and then walk you through the full year and long range financial targets, we updated today. I'll wrap up my thoughts by briefly reviewing our balance sheet and liquidity profile. Organovo recorded fiscal third quarter total revenue of $0.3 million, which was up 112% from the year ago period and 9% on a sequential basis. Total revenue benefited from a $0.2 million increase in product and services revenue. From an operating viewpoint, we generated product and service revenue of $0.3 million versus $0.1 million in the year ago period. Product and service revenue was driven largely by customer contracts for our exVive3D Human Liver Tissue research services. As Keith noted, we're seeing traction across the board with a recent top-25 global pharma win in our commercial toxicology business. Steady progress on our kidney development timeline, the anticipated completion of a key milestone for our L'Oreal contract and initial revenue recognition from our Maersk agreement. I'll focus next on operating expenses and would continue to underscore that the core driver in the forecast growth of our cash operating expenses for the foreseeable future is the people we bring onboard to grow our commercial operations and support our manufacturing, sales and administrative functions. We now have approximately 110 employees on the Organovo team. We recorded $6.2 million in selling, general and administrative expenses during the fiscal third quarter, a 60% year-over-year increase, primarily resulting from the higher non-cash, share based compensation expense and employee related costs, that is salaries, recruiting and benefits. It's worth noting that our headcount in this area has increased roughly 75% in the last 12 months as higher staffing expenses are directly tied to providing strategic infrastructure, and developing collaborative…

[Operator Instructions] The first question in the queue comes from Brandon Couillard of Jefferies.

Hi, good afternoon. This is Sachin in for Brandon, can you hear me okay?

Okay, you’re loud and clear Sachin.

Is the push-out to revenue recognition target in FY16 a function of one or multiple contracts? And was there any update around how the selling cycle or convergence cycles are playing out relative to your initial plan?

This is Barry, Sachin. No, there is not a revision to the timing in terms of how this plays out. Internally we’ve been able to respond within a timely fashion to the information and the data set that we're providing to customers. Please remember that many times we’re providing answers to questions that previously were that they didn’t have the ability to ask if you would and so in certain cases its taking some internal time in the part of our customers to assess and evaluate the next steps as they want to go through in the timing of delivering as we said before either additional compounds that were called for under a multi step agreement perhaps revaluating the doses or the timing that they want to have those doses applied in our study. And as simply as many times when we are talking about revenue recognition with a certain snap-short and time period cut off, it may simply be the difference between one week that would have a fall in one period versus having to come in two weeks later and having that revenue recognition in the following period.

Sachin, this is Keith. This is related to one large customer and as Barry said if that it’s in late March versus early April, it changes the period that it falls in. So we do expect to recognize that revenue without question but it’s just going to take a little longer because of the internal decision making and we’re always subject to the internal decision making timelines of the customer win there is a large contract like that that is – that put in place with multiple stages as Barry pointed out. We’re going to subject to when they make a decision to trigger the next stage if they want to look at their data for longer, the twin stages and things like that, to perhaps tweak the next stage, we can lack the ability to predict very well, I think that's what the challenge is.

Got it. And would that provide any numbers -

We don’t see any – I’m sorry to your second part of your question, we don’t see changes to the overall trends in turnaround timeframes and the sales and revenue recognition cycle. Still it’s quite a bit of time to end the contract and then execution as we pointed out in our prepared remarks, I think you can see that we do have some customers who have - who won a very specific office shelf set of information, the turnaround can be quicker but for these multistage programs it can take multiple months to recognize the revenue, do the work and recognize the revenue.

Got it. And would that provide numbers around specific customers or contracts, any update on the percentage of early adopters they have like been repeat orders or repeat customers?

We don’t have an update for you at this time, we’re considering doing that. We'd like to have right end, the right denominator for you. Once we have the ability to actually point to enough customers and whether or not they’ve had a time to make a decision and things like that, we prudentially can give you an update on that. But what we said it will standby. We're seeing a solid pace of repeat business, we do feel very strongly that the customer feedback has been excellent, they’re learning things that they couldn’t have learned with any other system, it’s eye opening for them and that can be good and a bad thing, it’s very good in the sense but it stimulates them to do more work. But in some cases, honestly they are learning something new about biology. So they've got to go do deep thinking and really be plan full about how they’re going to approach the problems that they’re trying to solve given that they’re just starting to understand the depth that we can give them in terms of information, and the revelation the cutting edge scientific information that we’re providing causes them to think differently even about basic aspects of liver biology. So I’ll just point to the fact that two of our customers already have posters and oral presentation, or at least oral presentation at the Society of Toxicology that’s because they are seeing new things. They are seeing scientifically interesting and important things. They are getting out there at a conference level and talking about it.

Thank you, guys.

The next question will come from Caroline Corner of Cantor Fitzgerald.

Just following up a little bit from previous questions, when you’re talking about the large customer that got rolled over into fiscal 2017, can you remind us how you're defining a large customer? I realize it’s multi-phase but are we talking about revenues over a couple of years of several million dollars or is this just a large company customer coming from a large company? How are you defining a large customer at opposed to the small customer?

Good question. We haven’t undertaken to define that, but we said it within the context of the previously disclosed 1.94 million in contract bookings, a portion of that was from a single customer and what we are seeing is that changes within our expectations, revenue recognition due to customer decision making and side back have just shifted to where we expected in early fiscal 2017. So I can't give you an exact answer. If you look at the difference, that’s representative of a portion of the contract and then I’d also note that we have already recognized revenue from that customer. We’re just talking about next stages that are remaining to be recognized.

And our next stage is on the same length order of what's previously been reported or is the next stage is bigger orders?

I don’t think it’s right to speak to that exactly, but certainly if you look at the fact that we were talking about 500,000 more and we are still saying we are expecting to recognize that. We are still looking at that being probably an increase in future quarters over what we have shown in the past quarters.

Okay. And then given the last couple of quarters, bumpy with regards to revenue recognition, I know you’re not giving 2017 outlook yet but when you do give your 2017 outlook, what can you tell us now that should give us confidence that you are going to be able to better estimate the timing of some of these orders and when you’re going to be able to actually get paid from them.

I think it’s important to recognize that we undertook to talk about the nearly 2 million contract bookings for specific reason. We are striving to give the information to the market that it wants to understand the business. And we undertook to give that $2 million number in response to request around how did the launch go? We sense there was an interest in understanding how well the market was receiving what we were doing and we put that $2 million number out there. So the slight update here recognizes that, even that is aggressive to do that, I think, we’ve got to be really cautious in our ability to predict because we are creating a new market here. We have to remember that. We are creating a new market. I’ll reiterate my previous comments. We are teaching our customer's aspects of biology that they haven’t considered before. A good example of that is the fact that our customers aren’t used to having the ability to look at tissue sections, look at a slice of this tissue under the microscope, when they are doing study, they are used to two dimensions, where they can’t actually look and get that level of information. To understand that, they have to bring entirely new people into the room, the animal pathologist to our needs to working in the animal studies and looking at that. They have to come in the room with the folks who are used to doing the work in multi [indiscernible]. And so it adds complexity to how they have to work on this information. So really it’s hard to predict, which is why we are careful about predicting. In this case, maybe we should have been more careful. But I think that it doesn’t change our overall expectation which is that, if you fundamentally change the game and solve the unmet needs of the customer, you are going to have success. And Caroline, I think you’d agree that the folks that you are preparing your information for are motivated with a lot more line understanding that you’ve looked at the science behind this, you have an understanding of why it’s ground-breaking and breakthrough technology and can impact that unmet need, then they are about $100,000 - amounts in the $100,000 moving between two quarters.

Okay. I appreciate Barry's comment about his retirement and that’s helpful. Can you talk a little bit about your CFO search in, when you expect that person to come on and is it going to be kind of a - Barry will be onboard at the same time as the new person to ease it in or how are you anticipating that happening?

Yes, good question. I’ll make a couple comments then I'll let Barry speak. We have a flexible timeline, Barry has been gracious to us in that context, there is no fixed date. We wanted to make sure we went beyond the fiscal year and that makes things little easier in the transition and the hand off for everyone. So beyond March 31, there is no fixed date. My hope is that we have some on at a pretty rapid pace in the course of several months here and that we can make that transition expeditious - very expeditious I should say because I don’t want to keep Barry from overdue rush then his ability to travel or whatever he wants to do but so far we don’t have a fixed date and then I’ll let Barry comment as well.

Yes, that perhaps somewhat guided by my wife and her interest in doing a little travelling right, so I may have to take some vacation during some of that period. But I’m facilitating and helping with the search process. The organization certainly wants to make sure that it gets the right individual in here and I have flexibility in time. So I’m happy and pleased to support that. So, it's not to rush-out the door in any sense of the imagination and although after having been in the industry for so long, I do look for to an opportunity to go out and have some flexibility in my schedule.

Okay. Thank you very much.

Next, we have a question from Mark Massaro of Canaccord Genuity.

Hi, thanks for taking the question. So you guys have a lot of interesting partners both in the pharmaceutical world and also in the cosmetic world. At a high level what is typically the run rate between when you initiate discussion with some of these perspective customers and when you bring them onboard, just talking about the earliest stage of your discussions with new potential customers.

Yes, great question. So let me address it two ways, partners can be quite variable right, because partners you're talking about a greater level of complexity like the L'Oreal deal or that can take longer simply because you agree in principle within several months but then you got to go through contracts and things like that. There is more standard contracting process for the commercial business with what I'll call customers who are using the exVive3D Human Liver Tissue, so Mark they're essentially - it’s a long process but it tends to work more in the four to six month timeframe. So from a start of a conversation with a serious customer to a signed contract takes about four to six months and then depending on the contract if it’s multiple stages and things like that, it can be a typical case not a very large customer case, it can be four to five months to recognize the revenue from that deal after signing.

Okay, great. And then with the update today with the revenue recognition lag, if we assume that the old assumption was 8 to 11 months revenue recognition, where are we now, is it more like a 9 to 12 months or 9 to 15 months period?

No I don’t think that changes it because the 8 to 11 months which is the correct - you’re summing up with the two numbers that I gave there, that's a typical - still true of the typical customer. What I would say is, just we’re going to have some customers who are atypical. The customer in question recognizes revenue within that timeframe but they have multiple stages of the contract and so the next stages are the ones that have been pushed back a bit due to their internal decision making and timelines. And so it’s when we have multiple stage contract, that's it harder to predict exactly when something is going to head especially when it’s near the end of a period.

Great, thank you. And I know you talked about how the large customer is modifying compound or looking at dosage levels, is this the case where maybe adding an additional resource on your end could potentially speed the timing of RevRac or is this more a function of the customer trying to figure things out as you mentioned, it’s a new way for them to do things. Just at a high level, I’m trying to determine what you can do internally to make sure that the customer has everything they need to move onto the next stage?

I think I understand what you’re getting to because in some cases people will have alliance mangers for larger customers and overtime I expect us to have that kind of thing for key accounts and with the targets that we have around top 25 global pharma companies, we certainly expect those to be key accounts and will be doing more and more overtime. So, we’ll continue to evaluate if it's necessary for us to have that kind of personnel onboard and I think it's a good insight that you have. What I would say is that this is more related to simply meeting to have time for them to understand what's going on, come to the next stage of the contract and move it forward in this particular case.

Great. Thank you very much.

And the next question comes from John Meckler of 3D Printing Fund Advisors.

So Caroline actually addressed my question was just about CFO search. So if I guess the only question I'd ask you is, is it possible to say whether looking at your board someone on the board perhaps to come on such as James Glover who I know has a lot of accounting expertise.

Well, I won't comment one way or the other exactly. Certainly Jim Glover has extensive expertise. He has certainly been more in a mode where he is serving as a Director of Company’s not in an active operational role but I can never rule anything out.

All right, fair enough. Thanks.

[Operator Instructions] And our next question will come from Vesselin Mihaylov of Newport Coast Securities.

Hi, Keith and Barry thanks for taking my call. Just a question about the fourth quarter here, should the midpoint of the revenue from previously announced bookings which has been pulled down by about $500,000. At the same time I heard that Barry said, the company is expected to still recognize $2000 of revenues from contracts time to later date. Therefore I was just asking for a little more clarity on Q4, can we expect sequential revenue growth here off the 220 that was recorded or not?

So, thanks for the question. Go ahead Barry sorry.

Vess, we’re not providing forward forecast on guidance on revenue in consistent with what we’ve done before. Again we have provided that guidance around bookings and so on, all we were - and we’ve provided guidance about the timing of recognizing that and what we’ve just indicated here is even though from those original bookings, there is a slip if you would in timing but no change and direction that we’ve had and how much of those that we’ve had and we’re only indicating that also remember that during his period of time, we’ve had new contracts and customers that have come onboard and we’re seeing that but we are not really prepared to provide additional guidance at this point.

I would just add to that by saying that I think you raise a question that leads to an important point to make, it would be a mistake for someone to read those numbers - the updated numbers as the total expected revenue recognition for the year. Those are of course only the percentage out of that initial contract bookings number that we gave. So we certainly as Barry said in his remark, we’re expecting 100s of 1000s of dollars more than that and that lead you to better understanding may be of the fourth quarter and I would just point out that in the Q that is now filed for the current quarter that we’re reporting on today, we did have $689,000 in product and service revenues recognized just from the nine months ended December 31, 2015 already.

Okay, very well. And then just request if you could please consider releasing fourth quarter revenue guidance to the best of your ability in the month of May, maybe middle of May because otherwise we don’t hear it from you guys until the end of June which is okay, that's what you’re required to do by law but investors are looking for little bit more clarity so if possible sometime in the month of May to preannounce the fourth quarter numbers that would be great?

Thanks for the comment. We will reserve any commitment there of course but we definitely seek to try and be proactive in forward thinking and how we can get the right level of information out there. The only caution to that is that we want to make sure people aren’t over focused on the quarterly numbers at this time. This is a business that has to grow year-over-year not necessarily quarter-over-quarter and we need to make and demonstrate steady progress towards that goal of getting it into the tens and millions but I’m hopeful that people understand the nature of this is for changing the game, we’ve got to get the products out there but the scientific demonstration that we’ve got should be much more important to people at this stage because that's what drives the revenue long-term not a short term focus on that kind of number.

Very much, so I agree with that. Now do you expect any revenues recognized in the fourth quarter from the new subsidiary Samsara?

I appreciate the comment Vess but we’re just not going to provide guidance on that at this point. I think as we indicated, we’ve got an addition to what we consume internally here at Organovo from that subsidiary, they have established a distribution, a third party distributor and so it's yet to be seen.

Okay. And Keith one final question, the peak expected revenues of approximately $100 million out of billion dollar market which itself is growing, your timeframe on that is it three to five years, is it five to seven years from now, what would you say under safe harbor?

Well let’s clarify our language on that because it’s not a prediction of revenue, it’s a statement that the market has that kind of potential. So as we make diligent efforts in developing this and commercializing it, that is the kind of potential that this market could have, the liver tissue could have - has 100 million potential and the kidney tissue separately has its own 100 million plus potential. But that has to be achieved over time and we can’t commit to that time frame of course as you can understand. However pointing again to that same guidance statement, they are very confident in this growing into the tens of millions each tissue going into the tens of millions, so we’re focused on that right now, over time it definitely has potential to be a lot bigger.

Okay, wonderful. Thank you very much for your time today and Barry thank you very much for your service and good luck in retirement.

Thanks.

And this concludes our question-and-answer session. I would like to turn the conference back over to Keith Murphy for any closing remarks.

Thank you very much. In closing, I want to thank you all for your time today and then most especially I just want to thank my friend Barry Michaels for his dedicated service to Organovo over the past 4.5 years. Great opportunity is on the road with Barry to get to know him really well and couldn't be happier to have had him at Organovo and has the benefit of his guidance throughout the past 4.5 years and we wish him nothing but the best in his retirement. Good luck Barry and we'll miss you.

Thank you, Keith.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.