Organovo Holdings, Inc. v. Dimitrov, C.A. No. 10536–VCL

CourtCourt of Chancery of Delaware
Writing for the CourtLASTER, Vice Chancellor.
Citation162 A.3d 102
Parties ORGANOVO HOLDINGS, INC., a Delaware Corporation Plaintiff, v. Georgi DIMITROV, Defendant.
Docket NumberC.A. No. 10536–VCL
Decision Date05 June 2017

162 A.3d 102

ORGANOVO HOLDINGS, INC., a Delaware Corporation Plaintiff,
Georgi DIMITROV, Defendant.

C.A. No. 10536–VCL

Court of Chancery of Delaware.

Date Submitted: March 3, 2017
Date Decided: June 5, 2017

162 A.3d 104

John L. Reed, Ethan H. Townsend, Harrison S. Carpenter, DLA PIPER LLP, Wilmington, Delaware; Grant P. Alexander, DLA PIPER LLP, Los Angeles, CA, Counsel for Organovo Holdings, Inc.

David L. Finger, FINGER & SLALINA, LLC, Counsel for Georgi Dimitrov.


LASTER, Vice Chancellor.

Defendant Georgi Dimitrov moved to vacate the entry of default judgment against him. His motion is granted.


The facts are drawn from the Verified Complaint (the "Complaint") and the materials submitted by the parties during post-default proceedings. A default judgment "deem[s] admitted all the well-pleaded

162 A.3d 105

facts in the complaint."1 This decision also takes judicial notice of previous proceedings in a related action.

A. The Parties

Plaintiff Organovo Holdings, Inc. ("Organovo" or the "Company") is a Delaware corporation with its headquarters in San Diego, California. The Company designs and creates functional human tissues through its use of proprietary three-dimensional bioprinting technology. In July 2013, the Company listed its common stock on the New York Stock Exchange. In the months following its initial listing, the Company's stock price fluctuated widely. Between October 2013 and March 2014, the Company's stock price ranged between $5.55 per share and $12.75 per share, with an average trading price of $8.78.

Dimitrov is a man of mystery. In February 2014, he formed non-party Simeon Research, LLC ("Simeon"), a Delaware limited liability company. Shortly afterwards, he created a website for Simeon at the URL He also secured for Simeon the Twitter handle @SimeonResearch. Simeon's Twitter bio described its feed as "long/short analytical equity research."2

Simeon engaged in a single activity: publishing negative information about the Company. In March and April 2014, Dimitrov published two reports in Simeon's name. Dimitrov called attention to these reports by posting sixty-five comments on Simeon's Twitter account.

B. The March Report

In March 2014, Dimitrov posted a fifty-seven page report on Simeon's website titled "Organovo: Dissecting the Fairy Tale—Full Report" (the "March Report").3 Dimitrov styled the March Report to look like work product from a professional equity research firm. He created official-looking letterhead and included a standard anti-reliance disclaimer. The report claimed to be the product of "hundreds of hours of intensive research from hundreds of journal publications, never-before seen primary sources, and extensive industry interviews."4 It contained 189 footnotes citing public filings, news articles, and academic papers. It included numerous pictures and charts. Less professionally, it made extensive use of bold and underlined typeface, which this decision omits.

The beginning of the March Report summarized its key points.

• "Organovo's bioprinting technology is not pivotal to tissue engineering or organ fabrication. Simeon Research publishes for the first time to the public the views expressed by Organovo's scientific founder: bioprinting—‘it's nothing, it's a stupid exercise.’ "

• "Organovo has misled investors in multiple instances about its technology, its competitive position, and what it can deliver."

• "A number of companies and academics have developed bioprinters that have better capabilities than those of Organovo's NovoGen bioprinter."

• "Organovo has failed to deliver on its promises a number of times in the past, and has experienced a wash-out of material partnerships."
162 A.3d 106
• "Organovo's liver tissue data is years behind competitors in the 3D liver toxicology market."

• "Organovo's intellectual capital has deteriorated significantly, as the founder exited and key scientistis left."

• "The scientific consensus on organ printing is that the media has hyperbolized it far and above reality while the public has bought in ...."

• "Organovo has experienced a rabid run-up in price that is incongruent with its real valuation, which we believe to be $1.35/share."5

The bulk of the March Report focused on the bioprinting industry's lack of commercial promise and the Company's technical inferiority to competitors in that field. It mixed in accusations that the Company's management had misled investors and engaged in self-dealing.

Only the last three pages of the March Report analyzed the value of the Company's stock. Much of this final section consisted of quotes from outside analysts. The only original valuation work appeared in the final two pages. Simeon ultimately valued Organovo based on an asset-based approach described in a single paragraph:

We have demonstrated that Organovo lacks a competitive moat—its bioprinting technology is just a "stupid exercise" in the words of its scientific founder and it has been eclipsed by other bioprinting manufacturers while its liver tissue is inferior to the product offerings of other companies. Given this, we think it would be fairly easy to replicate every tangible asset on which Organovo's valuation is based—it thus makes a good basis for valuing the company. Bioprinters from a competing company. A warehouse. 35 scientists. $50M in cash. We will grant the exceedingly generous 5x multiple to Organovo's $13.5M in R & D spent since inception. All of this brings us to ~ $120M. At the current diluted share count, Organovo would be valued at $1.35/share. We think this is a fair value and even generous given the cascade of red flags about the company and its management.6

The Company responded to the March Report on its website. Among other things, the Company asserted that the report "was issued by or at the request of a short seller or short-sellers."7

C. The April Report

The March Report portended further publications. "This report encompasses roughly a third of the information Simeon Research has uncovered. Additional reports will follow in the coming weeks."8 In April 2014, Simeon published a second report on its website titled "Bargaining with the Devil: How Organovo Used Fraudulent Brokers and Promoters to Sell its Shares and Story" (the "April Report").9 Dimitrov prepared the April Report in the same style as the March Report.

The April Report asserted that the Company was defrauding its investors. The first sentence of the April Report stated, "Organovo has carried out one of the most successful penny stock promotions currently listed on a major exchange."10 The April Report summarized its support for this assertion as follows:

162 A.3d 107
• "Organovo paid millions to brokers with fraudulent histories to promote shares to individual investors."

• "Organovo paid for stock promotion services without disclosing the payments—it enlisted ProActive Capital, which has been accused of paying a cadre of authors to write promotional articles covering client stocks without SEC-required disclosures."

• "During the course of this stock promotion, we believe that pro-Organovo articles may have been published in exchange for compensation without any disclosure."

• "Organovo has spent nearly 3x as much on selling shares and promoting its stock as it has on Research & Development since the company was founded."11

The April Report claimed that Simeon had "submitted [its] findings to the SEC and look forward to their response."12 It touted that Organovo's stock price had fallen 9.3% since the publication of the March Report.

The April Report responded to the Company's claim that Simeon was working on behalf of short-sellers. It stated: "We want to make unequivocally clear that our research and publications are in no way whatsoever the result of a ‘request’ or compensation by any third party. Our reports represent Simeon Research's original investigations and analysis. ... [W]e stand by our work and believe in its accuracy."13 The April Report also claimed that "Organovo has, in the past, attempted to smear critical research of its valuation by calling negative views ‘short and distort’ tactics."14

D. The Tweets

Dimitrov called attention to Simeon's two reports through the Company's Twitter account. After releasing the reports, Simeon sent out at least sixty-five tweets, all of which concerned the Company. For example, two tweets on April 8, 2014 stated, "Simeon Research reiterates $1.35 price target for Organovo shares ...." and "[Organovo] is down 4% today and 12% since our first report in March. We believe downside exists to $1.35/share."15

E. The Simeon Action

On April 21, 2014, the Company filed a lawsuit against Simeon in this court (the "Simeon Action").16 Because the Company did not yet know who controlled Simeon, the Company included "unnamed...

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