Collplant Biotechnologies Ltd

NASDAQ:CLGN

Earnings Call Analysis

CollPlant Faces Revenue Decline but Advances Groundbreaking Implant Technology

In Q3 2024, CollPlant's revenues plummeted to $4,000, sharply down from $43,000 the previous year, largely due to a lack of deliveries to a key customer. For the first nine months, revenue fell to $351,000 from $10.7 million, missing a $10 million milestone payment from 2023. Operating expenses slightly decreased to $4.3 million, influenced by salary cuts, but research investments surged. Despite a net loss of $12.7 million, the company is focused on its innovative breast implant technology, projecting continued progress into 2025, with potential partnerships anticipated next year.

CollPlant Biotechnologies Faces Revenue Challenges

CollPlant Biotechnologies finds itself navigating a significant dip in revenues for Q3 2024, reporting only $4,000 compared to $43,000 in the same quarter of the previous year. This decline largely stems from a contractual agreement with a major customer regarding their rhCollagen product, with no deliveries made in the quarter as planned. For the nine months ending September 30, 2024, revenues plummeted to $351,000 from $10.7 million last year, primarily due to a one-time $10 million milestone payment received in 2023 related to their collaboration with AbbVie.

Financial Losses and Operational Adjustments

The company's gross dynamics indicate persistent struggles, with a GAAP gross loss of $1 million for the nine months, contrasting sharply with a gross profit of $9.4 million during the same period last year. Additionally, the overall operating expenses slightly decreased by $100,000 to $4.3 million for Q3 2024, but the broader nine-month operating expenses rose to $12.3 million compared to $11.9 million the previous year, largely due to increased development activities related to their breast implant project. Cash reserves as of September 30, 2024, stood at $15.4 million, which management believes will sustain operations through at least the end of 2025.

Promising Developments in Breast Implant Technology

CollPlant is actively improving its regenerative breast implant technology, completing preclinical studies with promising results. These implants, utilizing proprietary rhCollagen bioinks, have shown significant vascularization and tissue ingrowth at a growth rate of approximately 1 centimeter per month. Three months post-implementation, the implants demonstrated effective integration with host tissue, which is vital for clinical viability. The company emphasizes that these implants could significantly change standards in aesthetic and reconstructive surgery, targeting a lucrative market projected to grow from $3 billion to $6.5 billion by 2033.

Strategic Collaborations and Future Growth

CollPlant is focused on securing additional partnerships to subsidize clinical testing costs as it seeks to validate its technology in the market. Discussions are ongoing with multiple companies for collaboration opportunities utilizing its collagen technology. The goal is to finalize at least one additional agreement during 2025, which could provide a much-needed boost to the company's revenue streams and market presence.

Outlook and Market Positioning

Going forward, CollPlant aims to capitalize on both the dermal filler development in partnership with AbbVie, and the successful advancement of its breast implants towards human studies. The executives emphasized a commitment to refining their technology and minimizing expenses, which will be critical as they navigate through these financially challenging times.

Earnings Call Transcript 2024-Q3

[Operator]

Greetings, and welcome to the CollPlant Biotechnologies Third Quarter 2024 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce Dory Kurowski with LifeSci Advisors. Thank you. You may begin.

[Dory Kurowski]

I would like to welcome everyone to CollPlant Biotechnologies Financial Results Conference Call to discuss the results for the third quarter ended September 30, 2024, where management will also provide a 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 associated updates; and Eran Rotem, Deputy CEO and Chief Financial Officer, who will provide a summary of CollPlant financial results for the second quarter ending September 30, 2024. Both will be able to answer questions at the end of the call.

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, November 27, 2024, and should not be relied upon as representing the company's views as of any subsequent date. CollPlant's 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.

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

[Yehiel Tal, executive]

Good morning, everyone, and thank you for joining us today on CollPlant's investor conference call to discuss our third quarter 2024 financial results and corporate development as we pursue our mission to be a leader in the field of regenerative medicine.

I will start with an update on the regenerative breast implant program. This quarter, we continued to advance our preclinical study that includes 200 cc commercial-sized breast implants composed of our proprietary rhCollagen based bioinks and printed with the Stratasys' 3D printer. This study is critical to advancing our technology towards a marketed product and creating significant shareholder value. This most recent preclinical study launched in Q3 using clinical size implants has been designed to assess product performance and safety and is implementing a new and more suitable animal model, refined surgical protocol and optimized implant design and formulation.

Specifically, the implant has been designed to enable controlled degradation kinetics, which means that the implant degrades over time in full synchronization with new tissue ingrowth, allowing for structural stability throughout the tissue regeneration process. Furthermore, the implant now has enhanced durability and its design has been optimized to enable minimally invasive administration of the implant through a smaller incisions as well as providing natural fill. All these improvements significantly contribute to the procedure's efficiency.

I'm happy to update today that the study shows good results 3 months post implementation. So far, we have seen significant implant vascularization and rapid ingrowth of native tissue. Both are critical factors which enable an effective integration of the implant with the host tissue and support long-lasting regenerative processes.

In terms of follow-up, an MRI as well as histopathology serve as the primary tools to follow up for tissue ingrowth as well as implant integrity and degradation over time. This study is intended to mark the completion of the development phase, and we are now one step closer to advancing to the human studies. It is also important to note that this data will enhance our position in discussions with potential partners. Our recombinant human collagen technology, which is the backbone of our programs, including the regenerative breast implant has the same molecular identity as human collagen.

As shown here, our collagen has been fully characterized for its molecular, biological and physical properties and therefore serves as an ideal scaffolding molecule for tissue regeneration without eliciting immune response. It is considered to be the most characterized collagen in the regenerative medicine market. Our regenerative breast implant product candidate could be revolutionary for both women undergoing aesthetic enhancements as well as cancer patients undergoing breast reconstruction, since it has the potential to overcome the challenges of existing breast implants made of silicon, saline or autologous fat tissue.

Additionally, breasts regenerated from the patient's own tissue may eliminate the need for future procedures or corrections. We know that the global breast implant market is extremely lucrative and estimated at approximately $3 billion with breast reconstruction and augmentation procedures, representing the second most common plastic surgery procedure performed worldwide today. This market also has attractive growth characteristics and is projected to grow to approximately $6.5 billion by 2033.

Based on historical safety concerns and worries about future surgical corrections, we believe that the organic demand for natural, newly grown human tissue breast implants could be significant. As we have noted previously, current implant materials can cause immunogenic reactions and has been associated with anaplastic large cell lymphoma, a rare form of cancer. The availability of a regenerative breast implant could be transformational for aesthetic and reconstructive procedures to minimize the adverse events related to currently available implants.

Our collaboration with AbbVie continues, and it is currently focused on the development of a dermal and soft tissue filler product for the medical aesthetics market. This product candidate offers both wrinkle filling properties as well as the ability to regenerate skin tissue and therefore has its own potential to create a paradigm shift in the aesthetics market. The filler market is valued approximately $5.5 billion and is expected to grow 10% by year.

We fully support capitalized path towards clinical testing of our implants. Therefore, we are prioritizing being able to secure nondilutive cash for the company through forming additional collaboration partnerships. There is a continuous demand for our bioinks and other applications for our recombinant human collagen. Along these lines, we have had additional interest from a wide range of companies that want to gain access to our rhCollagen and are engaged in discussions. We are also streamlining existing operations and being prudent about reducing our annual burn rate.

And lastly, during November 10 to 13 CollPlant showcased at the Annual Meeting of the International Society for Biofabrication, ISBF. ISBF is a professional society promoting biofabrication research and development for medical applications. During the conference, we presented our technology platform for the mass production of human collagen and biofabrication of innovative regenerative breast implants. Our presentation has gained a wide interest from the audience and opened new collaboration opportunities with academic institutes.

That concludes my initial remarks. Now I'll 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, executive]

Thank you, Yehiel. Good morning, everyone. I will now review our financial results for the 3 and 9 months periods ending September 30, 2024. The GAAP revenues for the third quarter ended September 30, 2024, were $4,000 compared to $43,000 for the third quarter ended September 30, 2023. The decrease we see is mainly related to sales of our rhCollagen to CollPlant's largest customer. The deliveries to this customer are in accordance with the development plan of the customer. And in the third quarter, no deliveries were planned or made. In accordance with the plan, CollPlant is prepared to supply rhCollagen to this customer this quarter during December 2024.

GAAP revenues for the 9 months ended September 30, 2024 were $351,000 compared to $10.7 million for the 9 months ended September 30, 2023. In 2023, We achieved a milestone with respect to the AbbVie agreement, which triggered a $10 million payment in 2023. This is the main reason for the decrease we see in revenues between these periods.

GAAP cost of revenues for Q3 2024 was $272,000 compared to $278,000 in Q3 2023. GAAP cost of revenues for the 9 months ended September 30, 2024, was $1.4 million compared to $1.2 million for the 9 months ended September 30, 2023. The increase in cost of revenues in the amount of approximately $200,000 mainly comprised of $452,000 in inventory impairments, offset by $308,000 ounce in royalty expenses to the IIA, mainly related to the milestone payment received from AbbVie in 2023.

GAAP gross loss for Q3 2024 was $268,000 compared to $235,000 in Q3 2023. GAAP gross loss for the 9 months ended September 30, 2024, was $1 million compared to a gross profit of $9.4 million in the 9 months ended September 30, 2023.

GAAP operating expenses for Q3 2024 were $4.3 million compared to $4.4 million in Q3 2023. The decrease of approximately $100,000 is mainly related to a decrease of $213,000 in employees' salaries and to share-based compensation expenses, offset by an increase of $358,000 in development activities, mainly related to the breast implant products. On a non-GAAP basis, operating expenses for Q3 2024 were $3.8 million compared to $3.9 million in Q3 2023. Non-GAAP measures exclude certain noncash expenses.

GAAP operating expenses for the 9 months ended September 30, 2024, were $12.3 million compared to $11.9 million for the 9 months ended September 30, 2023. The increase of approximately $400,000 is mainly related to development activities in the breast implants project. On a non-GAAP basis, operating expenses for the 9 months ended September 30, 2024, were $11 million compared to $10.6 million for the 9 months ended September 30, 2023.

GAAP financial income, net, for Q3 2024 totaled $216,000 compared to $225,000 in Q3 2023. GAAP financial income, net, for the 9 months ended September 30, 2024, totaled $546,000 compared to $114,000 in the 9 months ended September 30, 2023. The increase in financial income is due to interest received from the company's short-term cash deposits and exchange rate differences.

GAAP net loss for Q3 2024 was $4.3 million or $0.38 basic loss per share compared to a net loss of $4.4 million or $0.38 basic loss per share for Q3 2023. Non-GAAP net loss for Q3 2024 was $3.8 million or $0.33 loss per share compared to a net loss of $4 million or $0.35 basic loss per share for Q3 2023.

GAAP net loss for the 9 months ended September 30, 2024, was $12.7 million, or $1.11 basic loss per share, compared to a net loss of $2.3 million or $0.20 basic loss per share for the 9 months ended September 30, 2023. The main differences between the periods of the financial performance arises from CollPlant's achievement in 2023 upon reaching a milestone in the dermal fill development plan. Achieving the milestone, as you already know, led to a payment of $10 million from AbbVie to CollPlant in 2023.

Non-GAAP net loss for the 9 months ended September 30, 2024, was $11.5 million, or $1 loss per share, compared to a net loss of $1.2 million or $0.11 basic loss per share for the 9 months ended September 30, 2023.

Cash and cash equivalents as of September 30, 2024, were $15.4 million. The cash balance represents the company cash runway, which is expected to satisfy the company's operations requirements, at least until the end of 2025 based on currently contemplated operations and plans. Cash used in operating activities during the 9-month period ended September 30, 2024, was $10.6 million, compared to $418,000 for the 9 months ended September 30, 2023.

Cash used in investing activities during the 9 months ended September 30, 2024, was $481,000 compared to $784,000 for the 9 months ended September 30, 2023 and related finally to purchase of property and equipment.

Cash provided by financing activities during the 9 months ended September 30, 2024, was $9,000 compared to $1.1 million for the 9 months ended September 30, 2023. The period last year included proceeds from the exercise of the loss warrants that the company granted to investors in previous years.

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

[Operator]

I would now like to turn the floor back over to Eran Rotem to go over the Q&A session.

[Eran Rotem, executive]

Thank you. So we have a couple of questions from the audience. And the first one is regarding the breast implants. Can you please elaborate on the meaning of the results you have reported from your preclinical studies?

[Yehiel Tal, executive]

Okay. So There are many challenges in developing a breast implant. Among these challenges, I would say that with respect to the patient, the implant should be or should enable natural filling. And during the healing process, it's like a dynamic condition. So the stiffness of the implant plus the newly generated tissue is changing. So one of the things -- one of the challenges is to control it.

Secondly, from the surgeon point of view, the implant handling as well as the implant administration through a very small incisions are also challenges that we needed to address. And the procedure should be very simple.

Third challenge is the formation of fat tissue, and we also need to control the degradation kinetics of the implant. So the growth of the new tissue should be synchronized with the degradation of the implant. And of course, there is the safety challenge for these implants that should not induce immune response as well as be fatigue free.

So the purpose of the study was to basically to see how the implants, which are optimized in terms of formulation and design and the printing process are basically performing in large animals. We are testing the implant degradation over time. We had checked the structural stability throughout the tissue regeneration process. The implant should be intact during this regeneration process, should not fail. We are also checking the ability to administer the implant through a very small incision. The size of the incision which is usually used in augmentation processes is about 2 inch and not more than that. So the implant should be able to be folded and basically enable easy administration. And of course, the natural fill of the implant during this regeneration process.

So in this study, we tested optimized formulation and optimized design. And what we saw in the study so far is significant implant vascularization and the rapid ingrowth of new native tissue. This ingrowth is in the rate of 1 centimeter per month. So basically, the implant will be fully populated in the space, the open spaces of the implant with a newly grown tissue after 3 months.

So we saw this tissue ingrowth in the implant. By the way, as I mentioned in my talk earlier, the way that we assess the tissue ingrowth is using MRI and later on histopathology just to confirm this data. So we also checked the integration between the implant and the host issue. We should not see any foreign tissue reaction to the implant. So this is what we saw in the study so far. And of course, we continue to monitor the animals. We have -- it's a large study with many subjects and hopefully, in our next call, we should be able to report additional results from the study.

[Eran Rotem, executive]

Thank you, Yehiel. Another question that we have is as follows. Today, you mentioned that you are in dialogue with companies in the medical and aesthetics fields regarding the collagen. Can you elaborate and estimate when will we see another agreement announced?

So our collagen technology is indeed of interest of many companies, who are interested in developing a product in their field with the college. And the collagen is indeed -- we are indeed in a dialogue, in consideration with a number of companies today regarding various products, as mentioned. It is difficult to estimate when the next agreement will be signed. And it takes time to finish examining the technologies and reach an agreement. However, it is on our top objectives to sign another agreement during 2025 next year.

So that concludes the questions from the audience. And I will now turn the call back to Yehiel Tal, CollPlant's Chief Executive Officer, for any closing remarks. Yehiel?

[Yehiel Tal, executive]

Thank you, Eran. So our CollPlant's mission is to discover, develop and deliver collagen technology in regenerative medicine products to improve and prolong lives. We continue to carefully focus on our core programs and our supportive partners to advance this mission with the goal of creating products that enable the regeneration of tissues and organs. Our vision is to be the leaders in regenerative medicine, helping people live longer and better through our innovative collagen technology.

In closing, I want to reiterate our goals as we conclude 2024 and enter 2025, we plan to focus on advancing the development of the dermal filler program with AbbVie, generate additional safety and efficacy data related to our regenerative breast implants in support of future clinical studies and commercialization of this product candidate, continue to form collaborations with industry leaders for utilizing our rhCollagen and bioink technologies and continued discussions related to potential collaborations on our existing programs and products.

Thank you, everyone, for your time this morning and for joining us for today's conference call. I want to thank our very important and valued CollPlant team members who have contributed to another successful and productive quarter.

[Operator]

Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.