Collplant Biotechnologies Ltd

NASDAQ:CLGN

Earnings Call Analysis

Earnings Call Transcript 2023-Q2

[Operator]

Welcome to the CollPlant Biotechnologies Investor Conference Call to discuss Financial Results for the Second Quarter of 2023 and Corporate Updates. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Dory Kurowski of LifeSci Advisors. Please go ahead.

[Dory Kurowski, Investor Relations]

I would like to welcome everyone to CollPlant Biotechnologies’ financial results conference call for the second quarter ended June 30, 2023 and corporate business update. With us on the call today from CollPlant are Yehiel Tal, Chief Executive Officer, who will provide an overview of the company’s programs and forthcoming updates; and Eran Rotem, Deputy CEO and Chief Financial Officer, who will provide a summary of CollPlant’s financial results for the second quarter ended June 30, 2023.

Before we get started, I would like to remind everyone that statements made on this conference call may include forward-looking statements. Actual events or results could differ materially from those expressed or implied by any forward-looking statements as a result of various risks, uncertainties and other factors, including those set forth in the Risk Factors section of CollPlant’s filings with the Securities and Exchange Commission. These filings can be found at www.sec.gov or on CollPlant’s website at www.collplant.com. In addition, any forward-looking statements made on this call represent CollPlant’s views only as of today, August 24, 2023 and should not be relied upon as representing the company’s views as of any subsequent dates. CollPlant management specifically disclaims any obligation to update or revise any of these forward-looking statements.

Finally, CollPlant management will refer to certain financial measures not reported in accordance with GAAP on this call. You can find reconciliations of these non-GAAP financial measures to the GAAP financial measures in the earnings press release that CollPlant published earlier today and which is available on CollPlant’s website at ir.collplant.com.

With that, let me turn the call over to Yehiel Tal, Chief Executive Officer of CollPlant Biotechnologies. Please go ahead, sir.

[Yehiel Tal, Chief Executive Officer]

Good morning, everyone. We are very pleased to have you join us today on Collplant investor conference call to discuss our second quarter 2023 financial results and corporate developments. CollPlant is developing collagen technology and regenerative medicine products to improve and prolong lives. We are committed to becoming the leaders in regenerative medicine and supporting more sustainable ecosystems that benefit all stakeholders, including patients, our shareholders and our employees as well as providing innovation to the life science industry.

And now, on to our development programs. Our goal is to create advanced organ and tissue solutions through use of our novel proprietary non-animal derived recombinant human collagen technology that we are applying to novel medical and aesthetic products. Our rhCollagen is an advancement both due to its regenerative properties and also because it is xeno tissue free, which means it is not derived from animals. Instead CollPlant products – CollPlant produces this recombinant human collagen in genetically engineered tobacco plants.

In the second quarter, we announced the achievement of a very important company milestone related to the dermal and soft tissue filler product candidate in development with our partner, AbbVie. This product is in the clinical phase and the achievement of the milestone triggered a $10 million payment to CollPlant. CollPlant has the potential to receive additional milestone payments as well as future royalties in accordance with its long-term collaboration with AbbVie for its dermal filler. The dermal filler product candidate with AbbVie has the potential to create a paradigm shift in the fillers market since it would provide regenerative properties for new skin growth in addition to tissue filling. This program is our top focus and as planned, AbbVie continues to advance the filler program.

Our next leading program is our regenerative breast implants. One of our upcoming milestones we will be initiating by year end a second large animal study to evaluate our regenerative breast implants. We have already established the trial infrastructure and look forward to providing an update as soon as we conclude the study. This study follows the completion of our first large animal study, the result of which were announced in January of this year. That preclinical study demonstrated progressive stages of tissue regeneration after 3 months as highlighted by the formation of maturing connective tissue and neovascular networks within the implants with importantly, no adverse events reported.

CollPlant’s breast implants that are comprised of its proprietary blend derived rhCollagen and other biomaterials are expected to regenerate breast tissue without eliciting immune response and thus may provide a revolutionary alternative for aesthetic and reconstructive procedures with the reconstructive feature of our recombinant human collagen being key for breast cancer patients during the post-mastectomy period.

In the second quarter, we announced a joint development and commercialization collaborative agreement with Stratasys, the world leader in additive manufacturing and leader in 3D printing technology. With Stratasys, we are collaborating on the development of a printing solution to biofabricate human tissues and organs. Initially, our collaborative project will focus on the development of an industrial scale solution for Collplant’s regenerative breast implants. This collaboration between the two companies combines the Stratasys DLP 3D printer with – that is utilizing a unique Programmable PhotoPolymerization P3technology, together with Collplant’s state-of-the-art rhCollagen-based bioinks and 3D bioprinting capabilities. Having an effective solution for scale-up of our regenerative breast implants will be important to support related clinical trials and commercialization.

By combining Stratasys and Collplant’s technologies, the companies will be able to print scaffolds that accurately mimic the physical properties of human tissues and organs that are expected to have high resolution scalability and reproducibility. The combined proprietary technologies will allow for 3D tissue and organ fabrication. It also possesses differentiated regenerative properties. Other than agreement, both companies have also agreed to cross promote each other’s bioprinted products. Here you can see an example of a breast implant that was printed with Stratasys DLP printer utilizing its bit rate technology in combination with Collplant’s collagen-based bioinks. It is our objective that our bioinks become the gold standard for use in fabricating tissues and organs. Collaborations such as the one formed with Stratasys are therefore important to us to allow the opportunity to determine which of our different types of bioinks are best suited for use with different advanced technologies so that we may refine the production of different organs or tissues that we are fabricating in accordance with optimal properties.

As we have mentioned previously, our strategy is to utilize different printing technologies to serve different indications being sold and therefore we have collaborations with multiple parties. For example, we would need to have use of multiple materials or needs to be able to print construct with very small features for products such as gut-on-a-chip and lung-on-a-chip tissue models. The bioprinting aspect of our business has applicability in multiple areas such as cardiology, ophthalmology, and orthopedics. As such, Collplant looks to produce a wide range of organs and tissues and remains engaged in partnering discussions with several industry leaders and academic institutions interested in the company’s rhCollagen technology and expertise in 3D bioprinting to develop therapeutics and medical applications.

But back to our breast implant that are currently in development, Collplant implants are designed to regenerate breast tissue without eliciting immune response and therefore have the potential to become a revolutionary alternative for both aesthetic and reconstructive procedures, including post-mastectomy for cancer patients. According to the U.S. Food and Drug Administration, approximately 350,000 Americans have reported adverse events involving breast implants between 2009 and 2019. Reports range from autoimmune symptoms to breast implant associated anaplastic large cell lymphoma. The additional safety and efficacy data that we will generate from this upcoming large animal study will be used to optimize the development or the regenerative implant and are important to support future regulatory submissions and clinical studies. We look forward to reporting results from the study next year.

Lastly, we will mention our gut-on-a-chip program, which is an area where we have the opportunity to disrupt the options that have traditionally existed in life sciences. Collplant is developing together with Tel Aviv University and Sheba Medical Center, a 3D bioprinted model that is designed to emulate the tissue of the human intestine to assay drug response metabolism and other factors in humans. A device such as this would allow medical professionals to identify drug targets and personalize therapeutic responses that could lead to improved patient outcomes to provide a predictive personalized platform.

Tissue-on-a-chip devices are typically comprised of chambers or channels that recapitulate the distinct compartments and structures of the targeted organ. Our system being developed enhances the physiological relevance of the human gut to provide a predictive personalized platform. Collplant mimics the gut structure by 3D printing the gut tissue geometry in high resolution using its unique rhCollagen based BioInk formulation. The system then can be used to evaluate therapy response in patients suffering from ulcerative colitis. The multi-array chip design is intended to support high throughput therapy screening. Recently, Collplant team managed to successfully grow epithelial cells on the 3D printed scaffolds.

In various areas of personalized medicine, we expect that this approach could be groundbreaking improvement over the existing use of animal models for drug developments. This will be a sustainable means for drug development and patient diagnosis without the use of animals. And we remind you this program is also very much in line with our ESG initiatives. So the gut-on-a-chip received regulatory approval, CollPlant has exclusive rights to commercialize the product. We hope to provide an update on the next steps for this program by the end of the year. As mentioned, CollPlant remains engaged in partnering discussions with several additional industry leaders interested in the CollPlant’s technology and expertise in 3D bioprinting for therapeutic and medical applications.

In line with being part of this mission to support sustainable ecosystems, we wanted to highlight that we have made commitment to advance our ESG or environmental, social and governance initiatives. Our first step to do this, which is implemented in the second quarter, was hiring dedicated expert to lead our ESG effort. Our ESG manager is responsible for identifying CollPlant strengths in the areas of ESG that are already in line with our mission. Importantly, she will lead with communicating these practices to business partners and to the public. Being able to communicate our initiatives was a mandate for us after we conducted a formal analysis of our current operations and identified what we are doing correctly or where we can further improve. We look forward to working on this initiative and being able to communicate our ESG efforts both as they relate to our company mission as well as they relate to our day-to-day operations and company values and culture.

This concludes my initial remarks about our very promising programs. Now, I will turn the call over to our Deputy CEO and Chief Financial Officer, Eran Rotem to provide a recap of the financial results. Eran?

[Eran Rotem]

Thank you, Yehiel. Good morning, everyone. I will now review our financial results for the 3 months period ending June 30, 2023. This quarter, we saw a significant increase in revenues versus last year. For the second quarter ended June 30, 2023, GAAP revenues were $10.2 million compared to $66,000 in the second quarter ended June 30, 2022. Revenues increased by $10.1 million, is mainly related to the achievement of a milestone with respect to the AbbVie agreement, which triggered a $10 million payment. Revenues from this quarter included also income from sales of CollPlant’s BioInk and rhCollagen that are serving different companies and academic institutes in the development of 3D bioprinting products and other products. As stated previously, according to the agreement with AbbVie, CollPlant is also eligible to receive up to an additional $26 million in milestone payments for the dermal filler product as well as royalty payments and fees for the manufacture and supply of rhCollagen once the product will be in the commercial phase.

Gut cost of revenues for the second quarter ended June 30, 2023 was $615,000 compared to $43,000 in the second quarter of 2022. Cost of revenues includes mainly the cost of the company’s rhCollagen based products and royalties to the Israel Innovation Authority or IIA for the company’s sales. The gross profit in the second quarter of ‘23 was positively affected by the achievement of the milestone with AbbVie and GAAP gross profit accumulated to $9.6 million compared to gross profit of $23,000 in the second quarter of 2022.

GAAP operating expenses for the second quarter of 2023 were $3.9 million, a 7% decrease compared to $4.2 million for the second quarter of 2022. Operating expenses include research and development or R&D expenses and sales general and administrative or SG&A expenses.

R&D expenses related to supporting the company’s development efforts in different programs, including the regenerative breast implant and gut-on-a-chip programs. R&D expenses for the second quarter of 2023 and 2022 remained unchanged at $2.6 million. The GAAP SG&A expenses for the second quarter of 2023 were $1.3 million, a 19% decrease compared to a $1.6 million for the second quarter of 2022. The reduction is mainly attributable to salary related cost for the company’s employees.

On a non-GAAP basis, the operating expenses for the second quarter of 2023 were $3.6 million, an 8% reduction compared to $3.9 million for the second quarter of 2022. Non-GAAP measures exclude certain non-cash expenses. GAAP financial income net for the second quarter of 2023 totaled $85,000 compared to financial expenses net of $100,000 in the second quarter of 2022. The increase in financial income net in Q2 2023 is attributed mainly to interest received from the company’s short-term cash deposits and exchange rate differences.

GAAP net income for the second quarter of 2023 was $5.8 million or $0.51 basic income per share compared to a net loss in Q2 2022 of $4.3 million or $0.39 basic loss per share. Non-GAAP net income for the second quarter of ‘23 was $6 million or $0.53 basic income per share compared to the second quarter of 2022 that ended with a $4 million loss or $0.36 basic loss per share. We have maintained a strong cash position and have carefully contained CollPlant’s operating expenses.

Cash, cash equivalents and restricted cash as of Jun 30, ‘23 were $22.4 million. Note that this amount does not include the $10 million milestone payment, which was received from AbbVie in July 2023. A reminder, we have no outstanding debt on our balance sheet. Cash used in operating activities during the second quarter of 2023 was $3.8 million compared to $4 million during the second quarter of 2022. Cash provided by financing activities during the second quarter of 2023 was $89,000 compared to non-cash from financing activities in second quarter of 2022.

This now concludes the financial summary. Operator, I believe that we can now open the call for questions.

[Operator]

Thank you. [Operator Instructions] Our first question comes from Swayampakula Ramakanth with H.C. Wainwright. Please proceed with your question.

[Swayampakula Ramakanth, H.C. Wainwright]

Thank you. This is RK from H.C. Wainwright. Good morning, folks. A couple of quick questions from me. On the breast implant program, what’s the regulatory pathway and what additional studies do you need to do before getting on to the regulatory pathway?

[Yehiel Tal, Chief Executive Officer]

The regulatory pathway. Hi, RK, thank you for the question. The regulatory pathway for the breast implant is going to be probably a PMA pathway and we are not sure yet who is going to be the jurisdiction authority, but it looks like it will be a combination of CDRH and CBER. Probably, CBER will be the leading and then CDRH will be a consultancy role to the process. Regarding your second question on what other preclinical studies will be needed. So, first of all regarding the upcoming study, this upcoming study is a very important one, because it is going to focus on and this is the first time on clinically relevant size implants. And this study is going to check obviously safety and efficacy. Also it is going to be used for verifications that the quality of the tissue that is being regenerated is really a fat tissue as the host tissue. We are also going to practice the surgical protocol, the formulation will be selected, the final formulations and also the implant design will be optimized and then this will be the basis for the other studies that will follow, which is going to be a pivotal study. And hopefully, this study would be the last for clinical study.

[Swayampakula Ramakanth, H.C. Wainwright]

Thank you for that. So when do you think you can start the PMA process or can you start it as you are getting through your next animal study?

[Eran Rotem]

It is at this point of time premature for us to come up with the time for the PMA study because we need to interface the FDA and we should discuss with them the regulatory pathway and verify the requirements for the clinical study. So, we are not there yet. We are trying to conclude this upcoming study first. So we will be in a much better position to know exactly what is going to be the implant in terms of formulation, have a complete surgical procedure in place and then we will be in a position to start the discussions and get the inputs from the FDA about the duration of the study and the other requirements.

[Swayampakula Ramakanth, H.C. Wainwright]

Okay, thanks for that. And then on the gut-on-a-chip program, how do you plan to monetize this? Is this going to be a transaction for the platform itself or do you think you – either you or a collaborator – or you along with a collaborator can be providing this as a service to the drug developer market?

[Yehiel Tal, Chief Executive Officer]

Thank you for the question. It’s a great question. The concept is the following. We will produce the scaffolds as it will mimic the gut tissue and we will gather with the microfluidic chip and the matrix cells that we will develop, so we can do a multi-channel kind of testing. We will provide all of this to our collaborator, which should be a CRO that will take the biopsies from the patient, collect the biopsies and save the scaffolds and do the testing, so this is the concept.

[Swayampakula Ramakanth, H.C. Wainwright]

Okay. Thanks. Thanks for taking the questions.

[Yehiel Tal, Chief Executive Officer]

You’re welcome.

[Operator]

Our next question comes from Steve Perry with Airco Industries [ph]. Please proceed with your question.

[Unidentified Analyst]

Hey. First of all, thank you for taking me in. Great quarter, you guys just came in with. My questions are around timing. Just wondering for the dermal filler market, when does the study, actual study begin and what’s the timing and the length of that study that it’s going to take to commercialize that product if you have any idea or what’s your thoughts on that?

[Eran Rotem]

Hi. Thanks for the question. This is Eran Rotem. The product is being led by AbbVie and Allergan. This is a product of AbbVie, CollPlant is not dictating the timelines and is not allowed to disclose what – you are not allowed to be disclosed by AbbVie. I am mentioning that because usually, companies will disclose it. So, what we told to the public so far, this is what we are allowed and we are developing with AbbVie, that product, which is in a clinical phase, we are developing that product. If you do the math and look at their publications, it’s 4 years down the road. It means that we are developing it already 4 years and it’s in the clinical phase. Beyond that, we are not allowed to say today, anything. We achieved the milestone. It came with a $10 million check, which means that this program is moving forward. And we keep on saying the sentence, which is, this product is moving according to the plan. So, I hope that is the satisfying answer for you.

[Unidentified Analyst]

No, it is. And so quick question on size of the market. As far as dermal fillers go, I have read some different numbers that the worldwide size of the dermal filler marked is about $5.5 billion, but I have also read that that can go as high as $9 billion or $10 billion. Where do you think the size of that market is?

[Yehiel Tal, Chief Executive Officer]

So, we are familiar with the current num bill, which is $5.5 billion annual sales globally. And this is based on a public research that is out there. We are also familiar with a 10% annual growth. And I think part of the research is talking about, what will happen in 4 years or 5 years from now and maybe that is where the $9 billion is coming. We are familiar with current global size of $5.5 billion.

[Unidentified Analyst]

Got it. Okay. Alright.

[Yehiel Tal, Chief Executive Officer]

Yes. And ultimately, by the way, Allergan is what is the major of a key company in that area and that is selling that product. They are selling between $1.5 billion to sometimes they almost reached $2 billion annual sales of rejuvenation product. So, if you – so they are leading that market.

[Unidentified Analyst]

So and I don’t know if you can disclose this or not with – in retrospect to Allergan in the rejuvenation market. This product gets approved, does it become 100% accepted and used exclusively by Allergan replacing its current dermal filler, or is it going to be in combination and offering both different products?

[Yehiel Tal, Chief Executive Officer]

Well, Allergan is in charge on – they have the market strategy, we are not be allowed to talk about it and that’s it.

[Unidentified Analyst]

Okay. Alright. Well, I appreciate your time, guys. Thank you so much.

[Yehiel Tal, Chief Executive Officer]

Yes. Thank you.

[Operator]

Our next question comes from Ben Haynor with Alliance Global Partners. Please proceed with your question.

[Ben Haynor, Alliance Global Partners]

Good morning. Gentlemen, thanks for taking the questions and congrats on the milestone payments from – or payment from AbbVie. First off, for me, I know we are happy there was an upfront clinical and regulatory commercial milestones associated with it are there more clinical milestones or is regulatory kind of the next one that we should be looking at?

[Yehiel Tal, Chief Executive Officer]

So, that information was not disclosed. I can say that regarding the dermal filler product, we are expecting additional $26 million in additional milestones, but we cannot refer to what exactly are the milestones.

[Ben Haynor, Alliance Global Partners]

So, okay, so you can’t share whether the next one might be of a certain type.

[Yehiel Tal, Chief Executive Officer]

Correct.

[Ben Haynor, Alliance Global Partners]

Okay. That’s fair enough, I understand. And then just the secondary for me on the cross promotion that you guys have been or Stratasys, any initial returns so far, how has that been going expectations there, just curious on the BioInk side of things, and the relationship with Stratasys.

[Yehiel Tal, Chief Executive Officer]

Ben, can you please repeat the question?

[Ben Haynor, Alliance Global Partners]

Sure. I was just wondering on the cross promotion that you guys are doing with Stratasys if there have been any, I guess maybe not initial successes there, but how are those conversations going, any expectations on what that could lead to down the road with Stratasys?

[Yehiel Tal, Chief Executive Officer]

Okay, I see. So, we have struggled, it’s first of all, we are working with their printers that is called Origin One, which is utilizing a very unique technology for PhotoPolymerization. And we are working together with them in developing the printing process for the breast implant. At this point of time, we are already printing implants of 100 TC with their printer and we are optimizing the process. And of course, the intention is this is the first focus of us in this collaboration is to develop a scalable biofabrication solution for the breast implant, which later on can be extended to other tissues and organs, including an automated process. And regarding the bulk of the sales of the BioInk that you are referring to, this will come in the later stage once they will have the relevant printer in the market, there we will see the kind of the sales that you are asking about.

[Ben Haynor, Alliance Global Partners]

Okay. So, that’s still a little ways off.

[Yehiel Tal, Chief Executive Officer]

Right.

[Ben Haynor, Alliance Global Partners]

Okay. Understood. Excellent. Well, thanks for taking the questions gentlemen and again, congrats on the AbbVie milestone.

[Eran Rotem]

Thank you.

[Yehiel Tal, Chief Executive Officer]

Thank you, Ben.

[Operator]

I believe that is the last question from our live audience participants. So, I will turn it back to Mr. Rotem for any questions that came in online.

[Eran Rotem]

Sure, thank you. So, the first question that came online is regarding the cash balance of the company and it’s the $22 million that we earned, that we had in the bank as of June 30. Does it includes the $10 million from Allergan’s milestone achievement or it doesn’t. So, the $10 million gain in July after the balance sheet – after the date of the balance sheet. So now, the $22 million is not including the $10 million. So, at the end of July, the company had above $30 million in cash, which also apply to the kind of cash that we have. This is relating to another question that came regarding for how long the cash that the company has we lost. And so if we had last month, more than $30 million and as you know from if you are taking a look at the historical financial performance, for example, this year, the company was using for operation about $7 million for six months. So, you can understand that if the cash that the company has we have money for a more than at least 2 years. So, this was one question. The second one was ASCII addressed by the other questions that were raised. So, it is asking about when will the company have a commercial sale on products and can we give some more details regarding the schedule of the collaboration with Allergan. So, for the second part, I believe we addressed it, we are disclosing whatever we can about the program with Allergan. This program is 4 years now and the milestone achievement is demonstrating the progress of the program. And regarding the commercial sales, the company is selling its BioInk and rhCollagen for the development industry. This is an industry that is in development phase and we cannot – we never gave the forecasts regarding the commercial sales, so we will not do it as well now. That was the last question that we received by mail system. So, that concludes our questions from the audience. So, I will now turn it back to Yehiel Tal, CollPlant’s Chief Executive Officer for any closing remarks. Yehiel?

[Yehiel Tal, Chief Executive Officer]

Yes. Thank you, Eran. As I have stated, we at CollPlant aspire to become the leaders in regenerative medicine, helping people live longer and better, and creating improvements in science through our regenerative technologies. Our goal is to create better alternatives and options for the future such as an unlimited supply of spare parts for the human body, including life saving organs, medical treatment tailored to the individual characteristics of each patient, and the drugs are developed without the need for animal testing. Our vision is to enable a world with unlimited organ supply, regenerative tissue products, and novel drugs and diagnostics that do not rely on animals.

In closing, I want to reiterate our upcoming goals for the remainder of 2023 and through the first half of 2024. We plan to continue to advance development of the paradigm shifting regenerative dermal and soft tissue filler program with AbbVie, initiate a study in large animals with commercial size breast implants to generate additional safety and efficacy data in support of commercialization of this program. Announce next steps for the development of the gut-on-the-chip tissue model of drug discovery and personalized treatment of diseases beginning with ulcerative colitis. Continue to expand our commercial portfolio of rhCollagen based BioInks. And finally form new collaborations with industry leaders to co-develop new medical therapies and applications using our regenerative recombinant human collagen technology.

Thank you everyone for your time this morning and for joining us today for today’s conference call.

[Operator]

This concludes today’s conference call. You may disconnect your lines at this time and we thank you for your participation.