Earnings Call Transcript - CLGN Q1 2024

Operator, Operator

Welcome to the CollPlant Biotechnology Investor Conference Call to discuss Financial Results for the First Quarter of 2024 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. 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, LifeSci Advisors

I would like to welcome everyone to CollPlant Biotechnologies' financial Results conference call to discuss the results for the first quarter ended March 31st, 2024, 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 first quarter ending March 31st, 2024. 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, May 29, 2024, 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. Now 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, and thank you for joining us today on CollPlant's conference call to discuss our first quarter 2024 financial results and corporate developments. 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 tissue and organs. Since last year, we have been steadily advancing our innovative programs in the field of regenerative and aesthetic medicine. The thermal filler product that AbbVie, our business partner, developed with our collagen technology is in clinical phase and our regenerative breast implant program is in the preclinical phase. On this slide is the dermal filler that we are partnering with AbbVie. This product candidate is our top focus. Though the dermal filler market has lacked somewhat, we and AbbVie, as stated in their quarterly conference calls, expect a ramp-up in growth of the US fillers market. A rebound has also been evident as recently reported publicly by other companies in the injectables aesthetics arena. Aside from overall growth in this area, this particular product candidate has its own 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 June last year, we announced the achievement of an important milestone, added to this collaboration, which triggered a $10 million payment from AbbVie to CollPlant. Our CollPlant agreement with AbbVie has the potential to receive additional milestones and option product payments, as well as receive meaningful royalties on product sales. In addition to our partnered program with AbbVie, we have another version of a dermal filler under development, our photocurable dermal filler. During the last year, CollPlant was granted patents in the US, Brazil, Australia, and Israel that relate to its photocuring technology that serves as the basis for its photocurable dermal filler product candidate. Under the agreement with AbbVie, CollPlant has granted AbbVie the right of first negotiation to obtain a worldwide exclusive license to the photocurable dermal filler product candidate. Now, I will discuss the latest developments with our other lead candidate or regenerative breast implant program. The regenerative breast implants that we are developing are comprised of our proprietary non-animal derived RH collagen and other biomaterials. Their uniqueness can be attributed to their design to both promote tissue regeneration and degrade in synchronization with the growth of natural breast tissue. This is a market that has been underserved in terms of safety and performance for decades. In 2023, the global breast implant market size reached $2.9 billion, and the market is expected to reach $4.1 billion by 2032, exhibiting a compound annual growth rate of 3.7% during 2024 to 2032. You may recall the positive results from our first large animal study announced in January of last year, which demonstrated progressive stages of tissue regeneration after three months, highlighted by the formation of maturing connective tissue and neovascular networks within the implants, with importantly no adverse events reported. Following this study, CollPlant conducted additional large animal studies last year that were intended to further optimize the implant design and composition. In these studies, new tissue formation and vascularization were demonstrated, confirming previous results. We are currently conducting our latest large animal study evaluating clinically relevant commercial size implants that we began in December 2023. These study results are intended to be used for the design of a pivotal large animal study, the details of which we plan to discuss with the FDA. We look forward to reporting results from these animal studies in the fourth quarter of this year and the first quarter of 2025. We have said previously that it bears repeating: we cannot stress enough the improvement that the regenerative breast implant could provide given the adverse events associated with currently available silicone implants, such as 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 more serious side effects. Our breast implants are expected to regenerate breast tissue without eliciting an immune response and thus may provide a revolutionary alternative for aesthetic and reconstructive procedures. Through the development of regenerative breast implants, CollPlant is establishing the technological building blocks that are essential for tissue and organ manufacturing. We believe this will position CollPlant as a market leader in the field of regenerative medicine, in accordance with the company's vision statement. Regarding ESG, environmental, social, and governance, since last year we have embarked on a series of bold initiatives aimed at significantly reducing CollPlant’s carbon footprint and harmonizing these initiatives with broader overarching sustainability objectives. Following our ESG strategy, we have prepared our inaugural report that we plan on publishing this quarter. The report reflects CollPlant's commitment to fostering environmental sustainability, enhancing human health, as well as advancing social and corporate governance objectives. Here in this slide, you see our areas of focus represented by material pillars that span from climate action and energy efficiency to health and safety and sustainable sourcing. Our commitments in these material areas 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 Rotem, Deputy CEO and Chief Financial Officer

Thank you, Yehiel. Good morning everyone. I will now review our financial results for the three-month period ending March 31st, 2024. GAAP revenues for the first quarter ended March 31st, 2024 were $98,000, a decrease of $335,000 compared to the $433,000 in the first quarter ended March 31st, 2023, and included mainly income from sales of our rhCollagen products. GAAP cost of revenue for the first quarter ended March 31st, 2024 was $545,000 compared to $325,000 in the first quarter ended March 31st, 2023. Cost of revenues includes mainly the cost of the company's average collagen-based products, royalty to the Israeli Innovation Authority for the company's sales, and inventory write-offs. The $220,000 increase in cost of revenues is mainly attributed to the fixed cost of operating and maintaining our production facilities against the quarter with relatively low revenues. GAAP operating expenses for Q1 2024 were $3.9 million compared to $3.6 million for the Q1 2023. 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. The increase of $255,000 is mainly comprised of $74,000 in employee sales and share-based compensation expenses, including recruitment of new employees, and $193,000 in research and development activities, mainly related to the breast implants project. On a non-GAAP basis, operating expenses for the first quarter of 2024 were $3.6 million compared to $3.1 million for the first quarter ended March 31st, 2023. Non-GAAP measures exclude certain non-cash expenses. GAAP financial income net for the first quarter of 2024 totaled $134,000 compared to financial expenses net of $196,000 in the first quarter of 2023. The increase is attributed to an increase in the interest rates and interest received from the company's short-term cash deposits in Q1 2024. GAAP net loss for Q1 2024 was $4.2 million or $0.37 basic loss per share, compared to a net loss of $3.7 million or $0.33 basic loss per share for Q1 2023. Non-GAAP net loss for Q1 2024 was $4 million or $0.35 loss per share compared to a net loss of $3.3 million or $0.29 basic loss per share for Q1 2023. Cash and cash equivalents as of March 31st, 2024 were $23.2 million, and we have no debts on our balance sheet. We believe this cash balance, as of today, May 29th, 2024, represents a company cash runway that will satisfy our operations requirements at least until the end of 2025 based on our currently contemplated operations and plans. Net cash used in operating activities during the first quarter of 2024 was $3.3 million compared to net cash used in operating activities of $3.4 million during the first quarter of 2023. Net cash provided by financing activities was $9,000 for the first quarter of 2024 compared to $803,000 in the first quarter of 2023. Cash provided by financing activities in Q1 2023 is attributed to proceeds from the exercise of warrants. As of today, the company has no outstanding warrants. This now concludes the financial summary. Operator, I believe that we can now open the call for questions.

Operator, Operator

Our first question comes from Swayampakula Ramakanth with H.C. Wainwright. Please go ahead with your question.

Swayampakula Ramakanth, Analyst

Thank you. This is RK from H.C. Wainwright. A few questions from me. The first one is on the large animal trials that you initiated in December. Do you have a timeline for the publication of the data from that specific study? And what sort of data should we expect from this large animal study that will help you design the pivotal one?

Yehiel Tal, Chief Executive Officer

Hi, RK. Thank you for the question. This is Yehiel. We have basically two time points that we are planning to report on this study. The first one is Q4 of 2024. The second one will be Q1 of ‘25. The type of information will include the formation of new tissue in animal, formation of angiogenesis. We will make sure that there is no foreign body response to the implants. Most importantly, we will also be able to check the quality of the newly formed tissue, which should be fat tissue. So basically, the goal is to create adipogenesis in the tissue. So, these are the key objectives. And of course, in addition to that, we are also checking the surgical protocol to make sure that it's fully optimized. So, this will make the ground for the following studies.

Swayampakula Ramakanth, Analyst

And then in terms of the pivotal study, which is also a large animal study. I know you have not really decided anything with the FDA yet, but how different would that be from this large animal work that you're doing? And does the FDA require any long-term safety metrics from that study, especially since you were talking about the tissue-caused lymphoma that you're just referencing with the current breast implants?

Yehiel Tal, Chief Executive Officer

That's a great question. First of all, in our studies, we are checking different aspects, including the implant's fatigue. We are assembling a package of information regarding simulation and modeling, which is able to mimic the behavior of the implant in vivo. This will serve as part of the submission package to the FDA. Generally speaking, there is no draft guidance today from the FDA for regenerative breast implants. I would say that we are writing the book here. We are building the standards and what we are doing now is assembling a draft guidance that we will submit to the FDA, and hopefully it will be accepted. This is why we are collecting so much data because there are so many new technological building blocks that did not exist before, including the bioprinting of large implants. By the way, in the PR that you will see today, there is an image of a 200 cc implant. This is something new. The testing we are conducting aims to assess the impact of implant size on performance. We are planning everything so that by the time we submit, we will have a comprehensive package of information that satisfies their expectations, including safety and efficacy.

Swayampakula Ramakanth, Analyst

Okay. Then in terms of the aesthetic products that AbbVie is developing, what sort of expectations should we have in terms of data publication from them and what's the next major milestone payment that you could receive from AbbVie?

Eran Rotem, Deputy CEO and Chief Financial Officer

Good morning, RK. This is Eran. We are not actually allowed to talk about the timelines of AbbVie. Currently, we don't know when they will hit their next milestones, and we could not disclose it today. I'm sorry to disappoint you on that one, but it is still confidential.

Swayampakula Ramakanth, Analyst

So, that's understandable. That's not an issue. Outside of that, I don't have any specific questions. Thank you.

Eran Rotem, Deputy CEO and Chief Financial Officer

Thank you for joining us, RK.

Operator, Operator

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

Yehiel Tal, Chief Executive Officer

Thank you, Operator. We do have one question from the audience for Mr. Rotem. As it relates to the balance sheet in which you have $23 million in cash, you mentioned you have at least until the end of 2025. Does this runway include future partnership revenue? Can you walk me through what your quarterly cash burn expectations are?

Eran Rotem, Deputy CEO and Chief Financial Officer

So yes, this cash runway guidance does not include any potential partnership revenues. As RK was referring to, the cash runway is not including that. With the current cash position that we are holding, we will be able to finance our operations at least until the end of 2025. As it relates to the future, the quarterly burn of CollPlant's cash rates is not linear. In this quarter, we saw a use of $3.2 million for operating activities, and in subsequent quarters, we will see varying rates where, for example, in a quarter with a large animal study, we will see higher expenses and vice versa. Beyond that, we as management are aware of the state of the financial markets, and accordingly, we are carefully monitoring cash usage in the company.

Operator, Operator

That concludes our questions from the audience. I will now turn the call back to Yehiel Tal, Chief Executive Officer, for any closing remarks. Yehiel?

Yehiel Tal, Chief Executive Officer

Thank you, Operator. Our vision is to be leaders in regenerative medicine, helping people live longer and better through our innovative collagen technology. In closing, I want to reiterate our upcoming goals for this year; for the remainder of 2024 and into the beginning of 2025, we plan to focus on advancing the development of the paradigm shift in our regenerative, dermal, and soft tissue filler program with AbbVie. We will expand our large animal studies with commercial size breast implants to generate additional safety and efficacy data in support of future clinical studies and commercialization of this product candidate. We will continue to form collaborations with industry leaders for utilizing our collagen and biotechnologies, 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. As always, we want to thank our very important and valued CollPlant team members.

Operator, Operator

Thank you. That now concludes today's conference call and you may all disconnect.