CollPlant Biotechnologies - Q4 2023

Transcript

Operator (participant)

Greetings, and welcome to the CollPlant Biotechnologies Investor Conference Call to discuss financial results for the full year and fourth quarter of 2023 and corporate updates. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. Now I'll turn the call over to Dory Kurowski of LifeSci Advisors. Please go ahead.

Dory Kurowski (Managing Director)

I would like to welcome everyone to CollPlant Biotechnologies' Financial Results Conference Call to discuss the results for the full year and fourth quarter ended December 31st, 2023, and 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's financial results for the full year and fourth quarter ending December 31st, 2023. Both will be available 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, April 4th, 2024, and should not be relied upon as representing the company's views as of any subsequent date. 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. Now let me turn the call over to Yehiel Tal, Chief Executive Officer of CollPlant Biotechnologies. Please go ahead, sir.

Yehiel Tal (CEO)

Good morning, everyone, and thank you for joining us today on CollPlant's Investor Conference Call to discuss our full year and fourth quarter of 2023 financial results and corporate developments. As you know, the wars that began last October very unfortunately continues. However, CollPlant's main development programs and production plan thankfully continue to be minimally affected as a result of the war. The morale of our employees these days continues to be admirable according to these circumstances, and I want to take this opportunity to say that I am extremely thankful for our dynamic and resilient workforce. CollPlant's mission is to discover, develop, and deliver collagen technology and 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.

We are extremely pleased with the momentum we gained last year and have maintained through the beginning of this year to advance our innovative programs in the fields of regenerative and aesthetic medicine. Allow me now to recap a summary of what we accomplished. On this slide is the dermal filler product candidate that we are partnering with AbbVie, specifically its Allergan division, for development. Throughout 2023, we made significant progress with AbbVie to advance this candidate towards commercialization. In June of last year, we announced the achievement of an important milestone under this collaboration, which triggered a $10 million payment from AbbVie to CollPlant. Per CollPlant's agreement with AbbVie, CollPlant has the potential to receive additional milestones and option product payments as well as receive meaningful royalties on product sales.

In their full year and fourth quarter conference call, AbbVie stated that they expect meaningful growth in the aesthetics market and that, importantly, a ramping up is now anticipated after multiple quarters of decline in the U.S. filler market. The dermal filler product candidate, which is our top focus, is now in the clinical phase of development and has the potential to create a paradigm shift in the dermal fillers market since, in addition to tissue filling, it is expected to impart regenerative properties to the skin tissue. In addition to our partnered program with AbbVie, we have another version of a dermal filler under development. In the fourth quarter of 2023, we announced that a U.S. patent was granted related to our photocurable dermal filler product candidate being developed by CollPlant for the aesthetics market.

This patent is related to the method of use of CollPlant's photocuring technology and serves as the basis of its photocurable dermal filler product candidate. We believe that the patent will strengthen our position in the aesthetics market for many years to come. Furthermore, we received a notice of allowance for a patent application which covers the use of this product candidate in Brazil, another important market in medical aesthetics, valued at $741 million with a compounded annual growth rate of 10.7%. It should be noted that CollPlant has granted its partner AbbVie the right of first negotiation to obtain a worldwide exclusive license to this product candidate. Now I will discuss our other in-house development programs that are our core focus. Our next leading program is our regenerative breast implants.

These implants, that are comprised of our proprietary non-animal-derived rhCollagen and other biomaterials, are intended to promote tissue regeneration and degrade in synchronization with the development of natural breast tissue. In 2023, the global breast implant market size reached $2.6 billion, and the market is expected to reach $4.1 billion by 2032, exhibiting a compounded annual growth rate of 3.7% during 2024-2032. We have begun an additional large animal study with clinically relevant commercial-size implants. These studies' results are intended to be used for the design of a pivotal large animal study. This study follows the completion of our first large animal study, the results of which were announced in January 2023. This study demonstrated progressive stages of tissue regeneration after three months, as highlighted by the formation of maturing connective tissue and neovascular networks within the implant, with importantly no adverse events reported.

Since then, during 2023, CollPlant also conducted additional large animal studies that were intended to further optimize the implant design and composition. In these studies, new tissue formation and neovascularization with no adverse tissue reactions were demonstrated, confirming previous results. We look forward to reporting results from these animal studies in the fourth quarter of this year and the first quarter of 2025. We cannot stress enough the improvement that a regenerative breast implant could provide, given the adverse events associated with currently available silicone implants. Use of the silicone implants carries an increased risk of developing breast implant-associated anaplastic large cell lymphoma, which is a type of cancer. Every year in the U.S. alone, hundreds of thousands of people experience adverse events that range from autoimmune symptoms to these most serious side effects.

Our breast implants are expected to regenerate breast tissue without eliciting immune response and thus may provide a revolutionary alternative for aesthetic and reconstructive procedures. The additional safety and efficacy data that we will generate from the recently initiated large animal study is intended to be used to optimize the development of our regenerative breast implants, and combined with data from all previous studies, is expected to support future regulatory submissions and clinical studies. In April of last year, we announced a joint development and collaboration agreement with Stratasys to collaborate on the development of a printing solution to biofabricate human tissues and organs using Stratasys P3 technology-based bioprinter and CollPlant's rhCollagen-based bioinks. The first project under this agreement is to devise a process for industrial-scale bioprinting of CollPlant's breast implants.

Here is an example of a breast implant printed with our collaborators at Stratasys using CollPlant's rhCollagen-based bioinks. Now I want to draw your attention to a decision that we recently made related to our Gut-on-a-Chip program. In the spirit of being good stewards of our own capital and with our focus on the medical aesthetics arena and collaboration with AbbVie, we have decided to put our resources directed to this program on hold. I want to emphasize that this program is important to CollPlant and that it is still very much a focus of ours. However, we made this decision for now since we felt it wouldn't be responsible to continue after assessing the projected timeline to progress the tissue model. Anyway, once resources are secured at the appropriate time, we do plan to reinitiate this program.

In 2023, we bolstered our commitment to ESG, environmental, social, and governance initiatives by appointing a dedicated expert to lead our efforts. Following the endorsement of our company's sustainability roadmap for the upcoming year, we embarked on a series of bold initiatives aimed at significantly reducing CollPlant's carbon footprint while harmonizing with our overarching sustainability objectives. Through meticulous analysis and prioritization of key topics, we have finalized the ESG strategy and goals, ensuring their integration into our corporate framework. In September of 2023, we proudly announced our participation in the United Nations Global Compact, a prominent initiative for sustainable and responsible corporate governance. By aligning ourselves with this esteemed platform, CollPlant reaffirms its unwavering dedication to bioprinting sustainable practices, further solidifying our mission to revolutionize regenerative and aesthetic medicine with sustainable alternatives.

Furthermore, we are set to unveil our inaugural formalized ESG report for 2023 during the second quarter of this year. This report will showcase our bold commitments to environmental, social, and governance facets, including ambitious targets in climate action and energy and efficiency, comprehensive workforce health and safety initiatives, and the integration of ESG considerations into our governance structure. These commitments underscore CollPlant's unwavering dedication to responsible and sustainable business practices, promising long-term value creation for our stakeholders. That concludes my initial remarks. 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 (Deputy CEO and CFO)

Thank you, Yehiel. Good morning, everyone. I will now review our financial results for the three months and the full year period ending December 31, 2023. GAAP revenues for Q4 2023 were $299,000 and included mainly income from sales of our rhCollagen products, an increase of $241,000 compared to the $58,000 in Q4 2022. GAAP revenues for the year ended December 31, 2023, were $11 million and included mainly revenues from AbbVie, CollPlant's business partner. Revenues increased by $10.7 million compared to $299,000 in the same period last year. The increase is mainly related to the achievement of milestones with respect to the AbbVie agreement, which triggered a $10 million payment to CollPlant and, in addition, an increase in income from sales of CollPlant's rhCollagen product.

As we previously said, according to CollPlant's 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 manufacturing supply of the rhCollagen once the dermal filler product will be in the commercial phase. GAAP cost of revenues for the fourth quarter of 2023 was $773,000 compared to $62,000 in Q4 2022. Cost of revenues includes mainly the cost of the company's rhCollagen-based products, royalties to the Israel Innovation Authority or the IIA for the company's sales, and inventory write-offs. GAAP cost of revenues for the full year ended December 31, 2023, was $2 million compared to $400,000 in the full year ended December 31, 2022.

The increase in the amount of approximately $1.6 million is mainly comprised of $320,000 in royalty expenses to the IIA, mainly related to the milestone payment received from AbbVie, $711,000 relating to the sales of bioinks, Vergenix Flowable Gel, and rhCollagen, and approximately $500,000 related to the inventory write-offs. GAAP operating expenses for Q4 2023 were $4.6 million compared to $4.7 million in Q4 2022. Operating expenses include G&A expenses and R&D expenses that are related to supporting the company's development efforts in different programs, including the regenerative breast implants and Gut-on-a-Chip programs. The decrease of approximately $100,000 is mainly related to G&A expenses. On a non-GAAP basis, operating expenses for Q4 2023 were $4 million compared to $4.2 million for Q4 2022. Non-GAAP measures exclude certain non-cash expenses.

GAAP operating expenses for the full year period ended December 31, 2023, were $16.5 million compared to $17 million for the year 2022. The decrease of approximately $500,000 includes a $745,000 decrease in G&A, mainly comprised of a $224,000 decrease in employee salaries expenses and a $364,000 decrease in share-based compensation expenses, and $140,000 income from insurance indemnification, all of that deducted with an increase of $229,000 in R&D expenses. On a non-GAAP basis, the operating expenses for the year 2023 were $14.5 million compared to $15.2 million in the year ended December 31, 2022. GAAP financial income net for the fourth quarter of 2023 totaled $379,000 compared to $275,000 in the fourth quarter of 2022. GAAP financial income net for the year ended December 31, 2023, was $493,000 compared to $172,000 in the year 2022.

The increase is attributed to an increase in interest rates and interest received from the company's short-term cash deposit. GAAP net loss for Q4 2023 was $4.7 million or $0.41 basic loss per share compared to a net loss of $4.4 million or $0.39 basic loss per share for Q4 2022. Non-GAAP net loss for Q4 2023 was $3.9 million or $0.35 loss per share, similar to the loss the company recognized in the fourth quarter of 2022. GAAP net loss for the year ended December 31, 2023, was $7 million or $0.62 basic loss per share compared to a net loss of $16.7 million or $1.53 basic loss per share for the year ended December 31, 2022.

Non-GAAP net loss for the year ended December 31, 2023, was $5.2 million or $0.45 basic loss per share compared to a $15.2 million loss or $1.37 basic loss per share for the year ended December 31, 2022. In this period of continued weakness in the global capital markets, the war situation in Israel, and uncertainties in general, we continue to carefully maintain CollPlant's war plan while keeping goals for the progress of the main programs. Cash and cash equivalents as of December 31, 2023, were $26.7 million. We believe this cash balance represents, as of today, April 4, a company cash runway that will satisfy our operational requirements at least until the end of 2025, based on our currently contemplated operations and plans.

Cash used in operating activities during the fourth quarter of 2023 was $2.3 million compared to cash used in operating activities of $3.3 million during the fourth quarter of 2022. Cash used in operating activities during the year ended December 31, 2023, was $2.8 million compared to $13.7 million during the year ended December 31, 2022. There was no cash provided by financing activities during the fourth quarter of 2023 compared to $400,000 cash provided by financing activities during the fourth quarter of 2022. Cash provided by financing activities during the year ended December 31, 2023, was $1.1 million compared to $1.9 million during the year ended December 31, 2022. Cash provided by financing activities is mainly attributed to proceeds from the exercise of options and warrants into shares. This now concludes the financial summary. Operator, I believe that we can now open the call for questions.

Operator (participant)

Thank you. We will now be conducting a question-and-answer session. If you are with us on the phone lines and would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Our first question comes from a line of Swayampakula Ramakanth with H.C. Wainwright. Please proceed with your question.

Ramakanth Swayampakula (Managing Director and Senior Healthcare Analyst)

Thank you. Good afternoon, Yehiel and Eran. A couple of quick questions. The first one being on the breast implant study in the large animals. For the timing of the data publication, you said late fourth, I mean, late this year, which is fourth quarter, or early next year, first quarter. So what needs to get done and why you are unsure about the timing?

Yehiel Tal (CEO)

Yeah, great. Thank you, RK, for the question. We have a series of studies that is currently being held with the purpose to optimize different components of the implant, including the formulation, including the design, eliminating fatigue points, things like that. And of course, degradation kinetics, which is very, very important. So we design our studies accordingly, and we have a battery of studies in large animals that is intended to provide us, on the time axis, all the information needed. So when we come to the second quarter of next year, we will be in a position to launch a GLP pivotal animal study, which its results will serve us for the purpose of the meetings with the FDA later on to determine the regulatory pathway for the product. So this is why we have here, basically, two time points.

The fourth quarter of this year, where we will have the first group of information from some of the studies, and then Q1, which will provide the rest of the information.

Ramakanth Swayampakula (Managing Director and Senior Healthcare Analyst)

Thank you. Thanks for that. And then regarding the collaboration with AbbVie, since the study is going into clinic, would you get a milestone payment now, or would it be once it is successful?

Eran Rotem (Deputy CEO and CFO)

Thanks, RK. So yeah, as you know, we achieved one milestone last year, which triggered a $10 million payment. What we can say about next payments, as we said before, that they are associated with certain developments and clinical trials and regulatory approvals and commercial milestones. So this is what we are allowed to say by our partners, and at this stage, we are unable to share more information about it.

Ramakanth Swayampakula (Managing Director and Senior Healthcare Analyst)

Okay. No issues at all. Thanks. Thanks for taking my question.

Yehiel Tal (CEO)

Thank you, R.K.

Eran Rotem (Deputy CEO and CFO)

Thank you.

I think we have one more or a few more, two more questions from the public, the other participants. So one question is quite similar to what you just said, what we can say about the collaboration, about the collaboration with AbbVie. So of course, yes, this is our most important collaboration is with AbbVie. As we all know, we are developing; AbbVie is developing, and we are part of it, a dermal filler product that is a combination of AbbVie's technology, which is using also CollPlant's rhCollagen. And besides what we said so far, this is what we are allowed to say. We are not allowed; we cannot share when the other milestones are coming. And what we can say is that we are in the development. It's in a clinical phase, in clinical studies. And this is where we are at.

Another question that we have is, do you think there is a potential for a new expansion to new markets like addressing Ozempic face, which is the condition that causes hollowed face and lower muscle tone from taking Ozempic?

Yehiel Tal (CEO)

Yes, definitely, there is a potential. We basically have two different platform technologies. The first one is the injectables, including the photocurable filler, which enables to, in addition to the skin lifting and the regeneration of new tissue, also to do contouring of the skin. This product, which is administered same as a regular dermal filler, and later on, there is a light source that illuminates from the outside, and basically, the product will cross-link in situ under the skin. This product can definitely address indications like Ozempic face. We also see a big opportunity in 3D bioprinted facial implants, like, for example, for the chin, the nose, the cheeks, which is basically leveraging all the technologies that we developed for the breast implant.

We have either the injectables in one hand with the photocuring option, and then on the other hand, we have the 3D bioprinted breast soft tissue implants.

Eran Rotem (Deputy CEO and CFO)

Okay. The last question that we have is, so we're trying to get a feel for how big the biofabrication market for human tissues and organs is. How do you think about this market opportunity?

Yehiel Tal (CEO)

Yeah. 3D bioprinting of tissues and organs holds a huge market opportunity. If we look on the market, we can identify clearly five different segments, and I will tell these segments in the order of time to market, so in complexity. So the first one is in drug discovery and personalized medicine. The second one is scaffolds. The third one is tissues. The fourth one is endocrine glands, and the fifth one is life-saving organs. If we look on each one of these segments, we can break it down to different indications. For example, talking about tissues, the breast implant that we are developing is under this category. We can also bring under this category heart valves, which are 3D bioprinted. If we just look on the market potential of these two indications, it's a multibillion-dollar market opportunity for each one of them.

We can take another example of scaffolds for spinal fusion, which can be bioprinted, and scaffolds for spinal fusion, the market potential annually today in the U.S. alone is about $1 billion market opportunity. So if we add some of them together, it's tens of billions of dollars per annum in terms of potential. And CollPlant, basically, is having a strategy that drug discovery and personalized medicine, scaffolds, and tissues, we are aiming to develop products in these segments in-house. And endocrine glands, which may be, for example, pancreas, a thyroid gland, things like that, this is something that we will seek for a partner, and same is for life-saving organs. So the bottom line is that there is a huge market opportunity.

Eran Rotem (Deputy CEO and CFO)

Thank you. So this was the last question, and that concludes our questions from the audience. We'll now turn the call back to Yehiel Tal, CollPlant's Chief Executive Officer, for any closing remarks. Yehiel?

Yehiel Tal (CEO)

Thank you, Eran. Our vision is to be the leaders in regenerative medicine, helping people live longer and better through our innovative collagen technology. Consequently, our goal is to create better alternatives and options for the future, such as novel products for regenerative aesthetic medicine applications, an unlimited supply of spare parts for the human body, including life-saving organs, and drugs developed without the need for animal testing. In closing, I want to reiterate our upcoming goals for this year.

For the remainder of 2024, we plan to focus on advancing the development of a paradigm-shifting regenerative dermal and soft tissue filler program with AbbVie, expand our large animal studies with commercial-sized breast implants to generate additional safety and efficacy data to support future clinical studies, and commercialization of this program, and continue to form collaborations with industry leaders for utilizing our rhCollagen and BioInk technologies, and continue discussions related to our existing programs and products. Thank you, everyone, for your time this morning and for joining us for today's conference call. I will leave you with this closing slide featuring our very important and valued CollPlant team members.

Operator (participant)

Thank you. That concludes today's conference call.