CollPlant(CLGN) - 2023 Q4 - Annual Report

Introduction CollPlant specializes in regenerative and aesthetic medicine, leveraging rhCollagen for 3D bioprinting and dermal fillers through key collaborations - CollPlant is a regenerative and aesthetic medicine company specializing in 3D bioprinting of tissues and organs. Its core technology is a proprietary plant-based genetic engineering method to produce recombinant human collagen (rhCollagen)[16] - The company has a significant development and commercialization agreement with Allergan (an AbbVie company) for dermal and soft tissue fillers. A milestone achievement in June 2023 triggered a $10 million payment from AbbVie[32] - In 2023, CollPlant launched Collink.3D 50L, its first rhCollagen-based bioink in powder form, expanding its product line for 3D-bioprinting applications[17] - The company strengthened its commitment to sustainability by joining the United Nations Global Compact in September 2023, aligning with its use of plant-based technology as an ethical alternative to animal-derived collagen[18][33] Cautionary Note Regarding Forward-Looking Statements This section outlines forward-looking statements and key risk factors that could cause actual results to differ from projections - This report contains forward-looking statements concerning the company's objectives, plans, and projections for operational results and financial conditions. These statements are identified by words like "may," "will," "expect," and "anticipate"[21][37] - Key factors that could cause actual results to differ from forward-looking statements include the timing and cost of clinical trials, market acceptance of products, the ability to maintain strategic partnerships, reliance on third-party manufacturing, and competition[22][23] - The company also faces risks related to its history of significant losses, the need for additional capital, intellectual property protection, and the political and security situation in Israel[38][39] PART I This part details the company's key risks, business operations, financial performance, and corporate governance ITEM 3. KEY INFORMATION CollPlant faces significant risks including financial losses, reliance on novel rhCollagen products, third-party dependence, and challenges in clinical development and intellectual property protection Risk Factors Principal risks facing the company are categorized into financial, commercialization, clinical/regulatory, third-party reliance, operational, intellectual property, and ownership-related factors - The company has a history of significant losses, incurring a total comprehensive loss of $7.0 million in 2023 and having an accumulated deficit of $96.7 million as of December 31, 2023[44][104] - Future success is heavily dependent on medical aesthetics and 3D bioprinting product candidates, which require successful development, regulatory approval, and commercialization[49] - The company relies on third-party collaborators for sales and manufacturing, and strategic partnerships for development and commercialization, which introduces risks related to performance and potential termination of agreements[51][75][76] - Significant risks are associated with protecting the company's extensive worldwide patent portfolio and trade secrets for its rhCollagen technology[59][82] - Operations are primarily located in Israel, exposing the company to potential political, economic, and military instability, including the ongoing war with Hamas[85][103] ITEM 4. INFORMATION ON THE COMPANY CollPlant's business overview details its history, operations, proprietary rhCollagen platform for 3D bioprinting and medical aesthetics, key collaborations, product pipeline, and market opportunities History and Development of the Company The company's corporate history includes its Israeli incorporation, 2010 merger, Nasdaq listing since 2021, and capital expenditures for laboratory and production facilities - CollPlant Biotechnologies Ltd was incorporated in Israel in 1981 and became public on the TASE in 1993. It merged with its subsidiary CollPlant Ltd in 2010[435] - The company's ordinary shares began trading on the Nasdaq Global Market on June 4, 2021, under the symbol "CLGN", following a mandatory cancellation and exchange of its previous ADSs[407] Capital Expenditures | Year | Capital Expenditures (USD) | | :--- | :--- | | 2023 | $954,000 | | 2022 | $1.3 million | | 2021 | $1.4 million | Business Overview The company focuses on regenerative and aesthetic medicine using plant-derived rhCollagen, with key programs including AbbVie collaboration, 3D-bioprinted breast implants, and Collink.3D bioinks - The company is collaborating with AbbVie to develop and commercialize dermal and soft tissue fillers. A milestone payment of $10 million was received from AbbVie in July 2023[409][414] - CollPlant is developing 3D-bioprinted regenerative breast implants designed to be replaced by the patient's own tissue. A large-animal study was initiated in December 2023 to evaluate commercial-size implants[380][415] - The company commercially launched its Collink.3D™ bioink platform, including Collink.3D™ 50, Collink.3D™ 90, and the powder-form Collink.3D™ 50L, for use in 3D bioprinting of tissues and organs[381][416] - The estimated market size for the company's bioink and medical aesthetics product candidates exceeded $10 billion in 2021 and is projected to reach $18 billion by 2026[412][447] - The company's rhCollagen technology is positioned as superior to tissue-derived collagens, offering better bio-functionality, high homogeneity, and an improved safety profile without the risk of immune response or disease transmission[423][424][452] Organizational Structure The company's corporate structure includes its wholly-owned Israeli subsidiary, CollPlant Ltd, and CollPlant Inc, a Delaware corporation wholly-owned by CollPlant Ltd - The company has two subsidiaries: CollPlant Ltd (wholly-owned, incorporated in Israel) and CollPlant Inc (wholly-owned by CollPlant Ltd, incorporated in Delaware)[584] Property, Plants and Equipment The company's main facilities, including corporate headquarters, research labs, and production sites, are leased in Israel, primarily in Rehovot and Yessod Hama'ala - Corporate headquarters and research labs are located in a leased 16,250 sq. ft. facility in Weizmann Science Park, Rehovot, Israel, with the lease expiring in April 2024 and an automatic five-year extension[585] - The company leases approximately 64,583 sq. ft. in Yessod Hama'ala for plant research and rhCollagen extraction, with the lease expiring in April 2027[586][587] - An additional 6,329 sq. ft. production facility is leased in Rehovot, with the lease expiring in December 2026[588] ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS This section analyzes the company's financial condition and operating results, highlighting a significant 2023 revenue increase from an AbbVie milestone payment, net loss, and current liquidity Operating Results The company's 2023 operating results show a substantial revenue increase to $11.0 million, primarily from an AbbVie milestone, leading to a narrowed net loss of $7.0 million Results of Operations (USD in thousands) | Statement of operations data: | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Revenues | $10,959 | $299 | $15,641 | | Cost of revenues | $1,991 | $400 | $2,005 | | Gross profit (loss) | $8,968 | ($101) | $13,636 | | Research and development expenses | $10,484 | $10,255 | $7,631 | | General, administrative, and marketing expenses | $5,996 | $6,741 | $5,940 | | Total operating income (loss) | ($7,512) | ($17,097) | $65 | | Financial income, net | $493 | $172 | $172 | | Net income (loss) | ($7,019) | ($16,925) | $237 | - 2023 vs. 2022: Revenue surged to $11.0 million in 2023 from $299,000 in 2022, mainly due to a $10 million milestone payment from AbbVie. Net loss narrowed significantly to $7.0 million from $16.9 million[967] - 2022 vs. 2021: Revenue dropped to $299,000 in 2022 from $15.6 million in 2021. The 2021 revenue was primarily driven by a $14 million upfront payment from the AbbVie license agreement[996] - Research and development expenses were $10.5 million in 2023, a slight increase from $10.3 million in 2022, driven by higher employee-related costs for new product development[970] - General, administrative, and marketing expenses decreased to $6.0 million in 2023 from $6.7 million in 2022, mainly due to lower employee salary and share-based compensation expenses[971] Liquidity and Capital Resources As of December 31, 2023, the company held $26.7 million in cash, funding operations through sales and partnerships, with sufficient liquidity for the next 12 months - The company held $26.7 million in cash and cash equivalents as of December 31, 2023, compared to $29.7 million at the end of 2022[1022] Consolidated Statement of Cash Flows (USD in thousands) | Net cash provided by (used in): | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Operating activities | ($2,763) | ($13,698) | $2,501 | | Investing activities | ($1,156) | $28,922 | ($31,556) | | Financing activities | $1,108 | $1,874 | $38,760 | - Net cash used in operating activities decreased to $2.8 million in 2023 from $13.7 million in 2022, primarily due to the $10 million milestone payment received[1024][1025] - The company believes its existing cash of $26.7 million is sufficient to fund operating expenses and capital expenditures for at least the next 12 months[1009] ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES This section details the company's leadership, workforce, and governance practices, including executive and director compensation and board committee structures Compensation Compensation for senior management and directors totaled approximately $2.6 million in salaries and fees, plus $1.7 million in options granted for 2023 Aggregate Compensation for Senior Management and Directors (2023) | Compensation Type | Amount (USD in thousands) | | :--- | :--- | | Salaries, fees, commissions, and bonuses | $2,602 | | Value of Options Granted | $1,672 | - The Chairman of the Board receives a monthly consulting fee of $14,584, while other non-employee directors receive an annual fee of $25,000 and a per-meeting fee of $800[1049][1077] Employees As of March 20, 2024, CollPlant had 75 employees in Israel, distributed across R&D, manufacturing, and general/administrative roles - As of March 20, 2024, the company had 75 employees, with 14 holding MDs or PhDs[619] - Employee distribution is as follows: 23 in R&D, 39 in manufacturing, and 13 in general/administrative roles[619] ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS This section discloses beneficial ownership of ordinary shares, with senior management and directors holding 10.8%, and details related party transactions Beneficial Ownership of Ordinary Shares (as of March 20, 2024) | Shareholder Group | Percentage Beneficially Owned | | :--- | :--- | | All senior management and directors as a group (12 persons) | 10.8% | | Ami Sagy | 17.0% | | Loewenbaum Group | 11.2% | - The company has entered into employment, indemnification, and option agreements with its directors and senior management[505][506] ITEM 8. FINANCIAL INFORMATION The report includes consolidated financial statements, and the company does not anticipate paying cash dividends, intending to reinvest earnings - The company has never paid cash dividends and does not anticipate doing so in the foreseeable future, as it intends to reinvest earnings[1176] - There have been no material legal proceedings involving the company[622][1204] ITEM 10. ADDITIONAL INFORMATION This section provides supplementary details on share capital, articles of association, material contracts, and applicable Israeli and U.S. tax considerations - The company may be eligible for reduced corporate tax rates in Israel under the "Preferred Enterprise" or "Preferred Technological Enterprise" programs if it generates taxable income in the future[367][518][543] - Grants received from the Israel Innovation Authority (IIA) require royalty payments on future revenues and impose restrictions on transferring manufacturing and know-how outside of Israel[545] - The company does not believe it was a Passive Foreign Investment Company (PFIC) for U.S. federal income tax purposes for the 2023 taxable year, but notes that this status is an annual determination and cannot be guaranteed for future years[372][402] PART II This part details the company's internal controls, disclosure procedures, and corporate governance practices, including auditor fees ITEM 15. CONTROLS AND PROCEDURES Management concluded the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2023, with an unqualified auditor opinion - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2023[615] - Based on the COSO framework, management concluded that the company's internal control over financial reporting was effective as of December 31, 2023[668] - The independent registered public accounting firm, Kost Forer Gabbay & Kasierer (a member of EY Global), issued an attestation report concurring with management's assessment of effective internal control over financial reporting[669] ITEM 16. [RESERVED] This section covers corporate governance, including audit committee expertise, accountant fees, foreign private issuer practices, and cybersecurity risk management - The board has determined that Dr. Elan Penn is an audit committee financial expert[671] Principal Accountant Fees (USD in thousands) | Fee Type | 2023 | 2022 | | :--- | :--- | :--- | | Audit fees | $261 | $230 | | Tax fees | $12 | $12 | | All other fees | $63 | $54 | | Total | $336 | $296 | - As a foreign private issuer, the company follows Israeli home country practices for certain governance matters, such as a 20% quorum requirement for shareholder meetings, instead of the 33.3% required by Nasdaq rules[360][653] - The company has a cybersecurity risk management program that is integrated into its overall risk management system and is managed internally[658] PART III This part confirms the inclusion of consolidated financial statements and lists all exhibits filed with the report ITEM 17. FINANCIAL STATEMENTS The company has elected to provide financial statements and related information as required by Item 18 - The company has elected to provide financial statements pursuant to Item 18[708] ITEM 18. FINANCIAL STATEMENTS The consolidated financial statements and related notes are included in the Annual Report, beginning on page F-1 - The consolidated financial statements and related notes are included in the report starting from page F-1[660] ITEM 19. EXHIBITS This section lists exhibits filed with the Annual Report on Form 20-F, including corporate documents, material contracts, and share ownership plans - The report includes key corporate documents as exhibits, such as the Amended and Restated Articles of Association and the Form of Letter of Indemnification Agreement[687] - Exhibits also include the company's 2010 and 2024 Share Ownership and Option Plans, employment agreements with key executives, and the Amended and Restated Compensation Policy[710] Consolidated Financial Statements This section presents the company's audited consolidated financial statements, including balance sheets, operations, cash flows, and notes, with the independent auditor's report Report of Independent Registered Public Accounting Firm The independent auditor issued an unqualified opinion on the consolidated financial statements and internal control, highlighting liquidity as a critical audit matter - The auditor issued an unqualified opinion, stating the financial statements are fairly presented in accordance with U.S. GAAP[694] - An unqualified opinion was also issued on the effectiveness of the company's internal control over financial reporting as of December 31, 2023[703] - The critical audit matter highlighted was the management's subjective judgments regarding liquidity and the company's ability to continue as a going concern, given its history of losses and negative cash flow from operations[696][697][719] Consolidated Balance Sheets The consolidated balance sheets show a decrease in total assets and shareholders' equity, and a slight increase in total liabilities from 2022 to 2023 Consolidated Balance Sheet Data (USD in thousands) | | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $26,674 | $29,653 | | Total current assets | $28,022 | $31,658 | | Total non-current assets | $6,104 | $6,110 | | Total assets | $34,126 | $37,768 | | Liabilities and Shareholders' Equity | | | | Total current liabilities | $3,251 | $3,105 | | Total non-current liabilities | $2,535 | $2,382 | | Total liabilities | $5,786 | $5,487 | | Total shareholders' equity | $28,340 | $32,281 | Consolidated Statements of Operations The consolidated statements of operations detail the company's financial performance, showing 2023 revenues of $11.0 million and a net loss of $7.0 million Consolidated Statement of Operations Highlights (USD in thousands) | | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Revenues | $10,959 | $299 | $15,641 | | Gross profit (loss) | $8,968 | ($101) | $13,636 | | Total operating income (loss) | ($7,512) | ($17,097) | $65 | | Net income (loss) | ($7,019) | ($16,925) | $237 | | Basic net income (loss) per share | ($0.62) | ($1.53) | $0.02 | Consolidated Statements of Changes in Shareholders' Equity This statement shows a decrease in total shareholders' equity from $32.3 million in 2022 to $28.3 million in 2023, primarily due to the net loss - Shareholders' equity decreased by $4.0 million during 2023, from $32.3 million to $28.3 million[1429] - The main drivers of the change in 2023 were the net loss of $7.0 million, offset by $1.1 million from the exercise of warrants and options, and $2.0 million in share-based compensation[1429] Consolidated Statements of Cash Flows This statement details cash flows, showing net cash used in operating activities of $2.8 million in 2023, with a $3.0 million decrease in cash Consolidated Cash Flow Summary (USD in thousands) | | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Net cash from operating activities | ($2,763) | ($13,698) | $2,501 | | Net cash from investing activities | ($1,156) | $28,922 | ($31,556) | | Net cash from financing activities | $1,108 | $1,874 | $38,760 | | Net change in cash | ($2,981) | $16,380 | $9,848 | Notes to the Consolidated Financial Statements The notes provide detailed explanations of accounting policies and figures, covering revenue recognition, commitments, leases, property, and share capital - The company recognized $10 million in revenue in 2023 from a milestone payment achieved under the AbbVie Development Agreement[1313] - As of December 31, 2023, the company has a maximum remaining royalty obligation of approximately $7.0 million to the Israel Innovation Authority (IIA) for past R&D grants[1344] - In August 2023, the company repriced outstanding options for 969,886 ordinary shares to an exercise price of $6.39 per share, resulting in an incremental fair value of $579,000 to be expensed over the vesting period[1367][1368] - The company recorded inventory write-downs of $866,000 in 2023, which were included in the cost of revenues[1328]