Collplant Biotechnologies Ltd annual report, Q4 FY2021

Business context and reporting period

CollPlant Biotechnologies Ltd. filed its annual report on Form 20-F for the fiscal year ended December 31, 2021. This is a full-year filing, not a standalone fourth-quarter report. The Israeli regenerative and aesthetic medicine company develops products based on plant-produced recombinant human collagen (rhCollagen), including BioInk for 3D bioprinting, medical-aesthetics candidates, and products for wound healing and tendinopathy. Financial statements are prepared under U.S. GAAP and presented in U.S. dollars.

Financial performance and position

Revenue mix and earnings quality: 2021 revenue included $14.00 million from licensing agreements, $1.60 million from goods, and $0.05 million from services. The licensing revenue primarily reflected AbbVie’s $14 million upfront payment; the filing also reports $14.77 million of revenue from one major customer, without identifying that customer in the table. Product sales and service revenue declined from 2020. The small 2021 profit followed significant losses in prior years; accumulated deficit was $72.8 million.

Cash, liquidity, and obligations: At year-end, cash and cash equivalents were $13.15 million and short-term cash deposits were $30.15 million, or $43.30 million combined. Current assets were $45.09 million versus current liabilities of $3.01 million. Cash from financing was $38.76 million, including $32.74 million net proceeds from the 2021 share offering and $6.02 million from option and warrant exercises. Investing cash outflow was $31.56 million, mainly the placement of $30 million in short-term deposits; property and equipment purchases were $1.43 million. Lease liabilities totaled $3.61 million, including $0.52 million current and $3.09 million non-current. The balance sheet reports no conventional borrowings; lease liabilities are the principal disclosed financing-type obligation.

Management stated that approximately $43 million in cash and short-term deposits was expected to fund operating expenses and capital expenditures for at least the next 12 months from the report date, based on assumptions that may prove incorrect. Near-term contractual obligations included $0.76 million of lease payments and $2.5 million of trade and other payables.

Material changes versus prior periods

• Revenue increased sharply, chiefly because of the AbbVie agreement’s $14 million upfront payment. Licensing revenue was $14.0 million, compared with $3.6 million in 2020; goods revenue fell to $1.60 million from $2.11 million.
• R&D expense rose to $7.63 million from $4.07 million, primarily reflecting product development, preclinical work, subcontractors, materials, and increased staffing. General, administrative, and marketing expense rose to $5.94 million from $4.67 million, including approximately $410,000 of one-time costs related to ending the ADS program and listing ordinary shares on Nasdaq Global Market.
• Operating cash flow turned positive, while the company raised substantial equity capital. Year-end cash and deposits increased from $3.33 million in cash and cash equivalents in 2020 to $43.30 million combined in 2021.
• CollPlant terminated its Lung Biotechnology agreement in 2021. The company also launched its first commercially available rhCollagen BioInk, Collink.3D, and entered into a co-development agreement with 3D Systems for a regenerative soft-tissue matrix.

Outlook, commentary, and risks

Management expects significant R&D spending and operating losses to continue as the company advances its pipeline, develops manufacturing capacity, and pursues regulatory and commercial opportunities. No quantified revenue or earnings guidance is provided. Breast-implant and soft-tissue-matrix programs were preclinical; management planned large-animal studies in 2022. A U.S.-based 3D bioprinting center of excellence was planned to be operational in the first quarter of 2023. Management said existing rhCollagen production could support development and sales through 2025, while noting plans to upgrade Israeli production capacity.

• Development and regulation: The company reported that it was not conducting clinical trials at the report date. Product candidates face uncertain clinical outcomes, regulatory pathways, timing, costs, and market acceptance.
• Partner dependence: The AbbVie agreement grants worldwide exclusivity for specified filler products; AbbVie may terminate its rights on 60 days’ notice for any or no reason. Milestone and option-product payments are contingent, not assured.
• Funding and dilution: Despite the reported cash runway, the company expects to need additional capital in the future; financing may be unavailable or dilute shareholders.
• Manufacturing and geographic exposure: Production depends on tobacco plants and a limited number of Israeli facilities. Scale-up, supply disruption, political or military instability in Israel, and currency fluctuations could affect operations.
• Government grant conditions: IIA funding imposes royalty obligations and restrictions on transferring funded know-how or manufacturing outside Israel. The filing reports approximately $10.1 million of gross grants received and a maximum remaining royalty amount of approximately $7.3 million, before interest.
• Unusual item: The company discontinued further development of its COVID-19 antiviral program in December 2021 to prioritize other programs.

The independent auditor issued an unqualified opinion on the 2021 and 2020 financial statements. Management concluded internal control over financial reporting was effective as of year-end; the auditor did not provide an internal-control attestation because the company qualified for the emerging-growth-company exemption.

Investor verification priorities

1. Verify how much of 2021 revenue and operating cash generation is recurring product or service business versus upfront or other licensing revenue, and identify the major customer reported at $14.77 million.
2. Review the AbbVie agreement’s exclusivity, termination provisions, development obligations, and conditions for milestone and option payments.
3. Assess cash burn, liquidity runway, planned capital spending, and potential future financing needs against the stated runway estimate.
4. Track clinical and regulatory progress, particularly the planned 2022 large-animal studies, and verify progress toward the planned U.S. center opening in 2023.
5. Check manufacturing scale-up, IIA royalty and know-how restrictions, and the status of relevant Israeli business licenses.
6. Reconcile share-count disclosures: the cover page and balance sheet report 10,772,024 shares at December 31, 2021, while the statement of shareholders’ equity appears to show 10,722,024.