CollPlant Biotechnologies Ltd Q1 FY2023 Earnings Call

Welcome to the CollPlant Biotechnologies Investor Conference Call to discuss Financial Results for the First Quarter of 2023 and Corporate Updates. I'd now like to turn the call over to your host, Dory Kurowski of LifeSci Advisors. Please go ahead.

Good morning. I would like to welcome everyone to CollPlant Biotechnologies' financial results conference call for the first quarter ending March 31, 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 first quarter ending March 31, 2022. 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, May 24, 2023, and should not be relied upon as representing the company's views as of any subsequent dates. And CollPlant management specifically disclaims any obligation to update or revise any of these forward-looking statements. With that, let me turn the call over to Yehiel Tal, Chief Executive Officer of CollPlant Biotechnologies. Please go ahead, sir.

Good morning, everyone. We are very pleased to have you join us today on CollPlant's investor conference call to discuss our first quarter 2023 financial results and corporate developments. CollPlant is developing collagen technology and regenerative medicine products to improve and prolong life. We are committed to becoming the leaders in regenerative medicine and supporting a more sustainable ecosystem that benefits all stakeholders including patients, our shareholders, our employees, as well as providing innovation to the life science industry. At the heart of our business is our novel proprietary recombinant human collagen technology. Collagen is the building block for all human and mammalian tissues and serves as the primary scaffolding molecule in the body's connective tissues and organs. It is our goal to become a global leader in regenerative medicine by applying our non-animal derived recombinant human collagen or rhCollagen to novel medical and aesthetic products. The hallmark of our technology is both its regenerative properties and its ability to serve as a tissue filler. We are applying our technology to dermal filler product candidates. There are long-term collaborations with our global pharmaceutical partner in this area. The dermal filler candidates have the ability to shift the filler market, since they would provide regenerative properties in addition to acting as tissue fillers. This program is our top focus and it continues to move forward according to plan. CollPlant has the potential to earn additional milestones and option payments from AbbVie related to this program, as well as royalties on the dermal filler sales once this product candidate obtains approval. AbbVie continues to advance the filler program and as stated previously, CollPlant expects that the first milestone could be achieved in 2023. Additionally, we continue to advance the development of state-of-the-art photocurable thermal and soft tissue filler. Our goal is to create an innovative filler product with three capabilities: lifting capacity, regeneration of new tissue, and contouring capabilities. As we are making these improvements to the filler product that exist today, we refer to this as a third-generation filler. We believe that this filler has the potential to be highly competitive by providing refined and natural-looking aesthetic results, as well as uniquely regenerative long-term benefits. Furthermore, this technology could also be augmented to include facial and body contouring applications. CollPlant has granted AbbVie the right of first negotiation to obtain a worldwide exclusive license to this product candidate. Now let's turn toward the regenerative breast implant program. At the beginning of this year, we announced positive results from the preclinical study evaluating our regenerative implants in a large animal model. We are very encouraged by these results, which demonstrated progressive stages of tissue regeneration after three months as highlighted by the formation of maturing connective tissue and vascular networks within the implants with no adverse events reported. This study forms the basis for our subsequent trial in the second large animal model evaluating larger implants that we plan to initiate in the second half of this year. We are currently preparing the infrastructure to support this trial. No regenerative breast implant currently exists in the market and this implant would be the first of its kind, also having official regenerative properties. Importantly, just recently in April, we announced a joint development and commercialization agreement with Stratasys, a world leader in additive manufacturing and a leader in 3D printing technology after pioneering this technology decades ago. With Stratasys, we are collaborating on the development of a solution to biofabricate human tissues and organs. This collaboration combines the Stratasys DLP 3D printer that is utilized with a unique programmable photo polarization P3 technology together with CollPlant's rhCollagen-based BioInk and 3D bio-printing capabilities. The first of our collaborative projects will focus on the development of an industrial-scale solution for CollPlant's regenerative breast implants program. An effective solution for scaling up these implants will be important to support clinical trials and commercialization. Here you can see an example of a breast implant that was printed with Stratasys' DLP 3D printer utilizing its P3 technology in combination with CollPlant's rhCollagen-based inks. In other agreements, both companies have also agreed to cross-promote each other's bio-printed products. We do have strategic collaborations for bioprinting with multiple partners, and as we have said in the past, our strategy is to utilize different printing technologies to serve different indications being solved. For example, a product that would need to have the use of multiple materials or for the printing of constructs with very small features such as gut-on-a-chip or lung-on-a-chip tissue models. The bioprinting aspect of our business has applicability in multiple areas. CollPlant's implants are designed to regenerate breast tissue without eliciting an immune response and therefore have the potential to become a revolutionary alternative to 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 or BIA-ALCL. The additional safety and efficacy data that we will generate from this study would be used for the optimization of the regenerative implant and are important in support of future regulatory submissions and clinical studies. We look forward to reporting these results from the study next year. Shifting to our gut-on-a-chip program, this is an area where we have the opportunity to disrupt the options that have traditionally existed in life sciences. Here, we are developing a diagnostic tool for use in personalized medicine and we expect that this approach could be a groundbreaking improvement over the existing use of animal models for drug development. In November last year, we signed a collaboration agreement with Tel-Aviv University and Sheba Medical Center for our gut-on-a-chip program. I should add that we are fortunate that the university and medical centers are close to us, only 10 miles away. So we get to collaborate with our partners face-to-face quite frequently enabling a strong relationship. Our agreement with both institutions is to co-develop a bio-printed human intestine model for drug discovery and personalized treatment of ulcerative colitis. The 3D bioprinted model is designed to emulate the human intestine tissue in order to allow medical professionals to identify drug targets and personalized therapeutic responses that can lead to improved patient outcomes. Should the gut-on-a-chip receive approval, CollPlant has exclusive rights to commercialize the product. Now let me turn to our commercial portfolio of BioInks. This platform was established in 2021 with the launch of Collink.3D-50. Following this, we launched Collink.3D-90, which offers increased mechanical properties and Collink.3D-50L, our first BioInk available in powder form to provide enhanced operational flexibility. The entire platform allows our biopharma and academia customers to streamline their process of new product development by utilizing an animal-free alternative that delivers improved bio-functionality, safety and reproducibility. CollPlant remains engaged in partnering discussions with several additional industry leaders interested in CollPlant's technology and expertise in 3D bioprinting to develop therapeutics and medical applications. We have also developed a proprietary aseptic process to mass-produce sterile rhCollagen. The sterile collagens that we are now producing will be utilized in our pipeline products as well as by our partners. Furthermore, it can serve as an ideal substrate for stem cells, induced pluripotent stem cells, and all kinds of primary human cells since our collagen will not elicit an immune response and will accelerate cell proliferation. Finally, this collagen will also address production processes where collagen as a major constituent should be sterilized.

Thank you, Yehiel. Good morning, everyone. I will now review our financial results for the three months period ending March 31, 2023. This quarter, we saw a significant increase in revenues compared to last year. For the first quarter ended March 31, 2023, GAAP revenues increased by $367,000 to $433,000 compared to $66,000 in the first quarter of 2022. Revenues from this quarter included income from sales of CollPlant BioInk and rhCollagen, and the increase of more than 600% resulted mainly from an increase in sales of our rhCollagen to CollPlant's business partner. As we said previously, according to the agreement with AbbVie, CollPlant has the potential to receive additional milestone payments based on product development milestones achieved, and CollPlant expects that the first of these milestones could be achieved in 2023. GAAP cost of revenues for Q1, 2023 was $325,000 compared to $31,000 in the first quarter of 2022. Cost of revenue includes mainly the cost of the company's rhCollagen-based products and royalties to the Israel Innovation Authority for the company's sales. GAAP gross profit for Q1, 2023 was $108,000, an increase of $73,000 compared to gross profit of $35,000 in Q1, 2022. The company kept approximately the same GAAP operating expenses level as of last year during this quarter. Operating expenses in the first quarter of 2023 were $3.5 million compared to $3.8 million for the first quarter of 2022. On a non-GAAP basis, the operating expenses for the first quarter of 2023 were $3.1 million, a 9% reduction compared to $3.4 million for the first quarter of 2022. Non-GAAP measures exclude certain non-cash expenses. GAAP financial expenses net for the first quarter of 2023 totaled $196,000 compared to $92,000 in the first quarter of 2022. The increase in financial expenses net is mainly attributed to an increase in exchange rate expenses from cash and cash equivalents and a decrease in interest income received from the company's short-term cash deposits compared to the first quarter of 2022. GAAP net loss for the first quarter of 2023 was $3.7 million, or $0.33 basic loss per share compared to a net loss of $3.9 million, or $0.36 basic loss per share for the first quarter of 2022. Non-GAAP net loss for the first quarter of 2023 was $3.3 million or $0.29 basic loss per share compared to a $3.5 million loss or $0.32 basic loss per share for the first quarter of 2022. We have maintained a strong cash position and have carefully contained CollPlant's operating expenses during Q1. Cash, cash equivalents, and short-term deposits as of March 31, 2023, were $26.5 million. Cash used in operational activities during the first quarter of 2023 was $3.4 million compared to $3.2 million during the first quarter of 2022. Cash provided by financing activities during the first quarter of 2023 was $803,000 compared to $1.4 million provided by financing activities during the first quarter of 2022. The decrease is mainly attributed to fewer proceeds from the exercise of warrants into shares compared to last year during the same period. This now concludes the financial summary. Operator, I believe that we can now open the call for questions.

Thank you. Our first question comes from Ben Haynor with Alliance Global Partners. Please proceed with your question.

Good day, gentlemen. Thanks for taking the questions. First off from me, I just wanted to touch on the Stratasys agreement. I'm not entirely sure on how or whether the Stratasys printed implants are going to be the ones used in the second large animal studies in the second half of this year. Can you provide some clarification on that?

Yes. Thank you, Ben, for the question. Let me elaborate on the Stratasys collaboration further. We are collaborating on the development of a solution to biofabricate human tissues and organs. This collaboration will be based on the Stratasys 3D bioprinter that is utilizing unique programmable photo-polarization, P3 technology. The first of our collaborative projects will focus on the development of an industrial-scale solution for CollPlant's regenerative breast implant program. An effective solution for scaling up these implants will be very important to support the clinical trials and commercialization. We are now already in a stage where we are able to print the implants of different sizes, including clinical-size implants with the Stratasys printer, and we are still optimizing the process, but the plan is to leverage this printer in the large implant studies that we will conduct in the second half of this year and basically bring the implants to the study with this printer.

Okay, great. So the optimization will be complete before that occurs. And then remind me, could the second large animal study be used for the registration study to submit to the FDA?

That's a good question. The sequence is as follows: We are going to have two studies this year. Both will be used for optimizing the formulation and the structure of the implant and the biodegradation kinetics. These two studies will serve these purposes. With these results, at the beginning of next year, we plan to launch a pivotal study, which will be used for the submission of the package to the regulatory authorities.

Okay, great. And then just if you could tell me how meaningful the cross-promotion portion of the agreement with Stratasys is; I mean, it seems to me that having a turnkey sort of offering from Stratasys to bring to their customers would be fairly important and just curious on how you see that playing out?

Yes, okay. The cross-promotion is working in different ways. One way is that when we enter the collaboration with a third party requiring us to develop a product, we definitely prefer to do this development work and later on the commercialization with the Stratasys printer. This would be the first choice for us. Conversely, if Stratasys processes sell their printers to users in the market, either academic or commercial companies, they will promote our biological inks. This is the basic nature of the collaboration. There may also be situations where we jointly co-develop a product for a third-party collaborator.

Okay, great. That's helpful. And then when should we expect to hear more about the third-generation photocurable soft tissue filler? My recollection was that you had submitted some data, I was just curious about that.

Yes. First of all, regarding the dermal filler program, it is progressing according to plan. We expect the milestone achievement for the first product that we are working on together this year in 2023. The photocurable filler is another product currently under development. We refer to it as a third-generation filler because there is a sequence of products in the market. The current gold standard is hyaluronic acid based products. The second generation is a regenerative implant, a dermal filler implant combining collagen and hyaluronic acid. The third generation is the photocurable product. If we decide to trigger these options and bring it to market, we will provide updates accordingly.

Okay, I understand. Lastly, I don't recall you mentioning body contouring applications for the photocurable product. Could you elaborate on that and discuss the potential obvious applications you see?

Sure. This product can be expanded into various areas in contouring, first of all, facial contouring, and later on body contouring. Different uses exist for it. The nice aspect of the product is that the stiffness of the implant can be controlled by the illumination process. We also developed a unique light source that can penetrate through the soft tissue and reach the implant to facilitate the final cross-linking process. This enables us to expand its use to a variety of contouring indications, whether body or facial.

Okay. So, what would be an example application outside of facial contouring? For instance, if I want to address a crease in my armpit, is that a possibility, or what are the other non-facial applications?

First of all, it's facial shaping. For example, if someone has a recess in the nose, we can fill in those recesses and regenerate additional tissue toward the recess. This is just one example. The second would be on the cheeks, modifying shapes; the nice feature is that the physician can sculpt the tissue with their fingers to achieve the desired shape, then photocure it so it locks in the mold afterward. Thank you.

Thank you, Ben.

Our next question is from Swayampakula Ramakanth with H.C. Wainwright. Please proceed with your question.

Thank you. I have a couple of questions. The first one is on the research program, the gut-on-the-chip program. With your relationship with the universities there, what are you planning to show at least in '23 to see if you can get outside partnerships so that you can commercialize this product?

Sure. Thank you for the question. We have developed a roadmap for this product. First of all, regarding the collaboration, we are like the system integrators in the process. We have Tel Aviv University more related to the development of the chip itself with the nano electronics part. The Sheba Hospital is contributing by providing organoids from patients along with clinical support. We have a gastroenterologist who is an expert in this area as part of our team. What we are doing is basically starting with the development of a healthy tissue model and then inducing colitis in this model. The idea here is that by the end of '24, we will have a proof-of-concept of this model. The partners might include different organizations, potentially big pharma companies for drug discovery, but our main target is to personalize medicine, which is a much larger market opportunity. In this case, we believe that service providers will receive a printed chip mimicking the tissue structure, extract patient cells from biopsies, incubate them together and effectively optimize drug dosages or check various drug responses, eventually arriving at the best solution for the patient. Following colitis, we plan to expand the use to metabolism and also to colon cancer. This is the plan; by the end of 2024, we want to have a demonstration of a working gut-on-a-chip tissue model.

Fantastic. And then on those BioInks that you're talking about in your commercial portfolio, with the one currently in the market, the 3D-50L, what are you learning in terms of how people are using it and how do you see that growing in terms of revenues, not only for this product but also the later products that you're looking at, the 3D-50 and the 3D-90?

Yes. First of all, let me mention something about our strategy. We are now positioning our BioInks technology as a gold standard in the industry. We are creating building blocks for BioInks; for each indication, you need to use proprietary customized biological ink formulations. For this reason, we allow researchers—in academia or companies in various developmental stages—to choose from a menu of building blocks, which they can assemble into their own BioInk. So far, we've received very positive feedback from our academic customers using it across a variety of 3D technologies. The users vary; some work on soft tissue applications, some on hard tissue, and some are involved in drug discovery. We also see increasing sales of this product.

Okay, very good. That's all I have for you folks. Thank you.

Thank you.

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

Thank you. I have currently two questions. I'll address them. The first one is coming from Mr. Levy regarding the increase in revenues. We see that revenues are up compared to last year. Can you elaborate why, who was the customer and what do you expect the trend will be? The revenues in the first quarter included income from the sales of the company's rhCollagen, which saw a significant ramp-up from last year. The majority of the sales are from a strategic business partner of CollPlant. Note that in 2022, CollPlant did not receive any milestone payments. We expect to receive the first milestone in 2023. Unfortunately, I cannot disclose the name of the customer, but it's a strategic partner responsible for the majority of our sales. The second question is regarding what will trigger the right of first negotiation for the filler application product, which AbbVie has been granted by the company. Is there a time expiration for this right? As previously mentioned by Mr. Tal, the third generation dermal filler, which is the photocurable one, has the right of first negotiation. There is a mechanism in the agreement that includes timelines; however, we cannot disclose more specific details at this stage. As you can see, over the past year, we have been updating the market regarding our development progress. We will reach a point where we will have news about these rights being exercised. Currently, we are making progress in development.

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