Business context and reporting period
CollPlant Biotechnologies Ltd. filed this Form 20-F for the fiscal year ended December 31, 2019; it is an annual report, not a standalone fourth-quarter report. The Israeli regenerative-medicine company develops plant-produced recombinant human collagen (rhCollagen) for 3D-bioprinting BioInk, medical aesthetics, and tissue repair. VergenixSTR and VergenixFG were marketed in Europe. Financial statements are in U.S. GAAP and U.S. dollars; the company adopted U.S. GAAP and changed its functional and presentation currency from NIS to U.S. dollars effective January 1, 2019. Share data reflect a 1-for-50 reverse split in July 2019.
Financial performance and position
Amounts below are in U.S. dollars; financial statement amounts are in thousands except per-share data.
| Metric | 2019 | 2018 | Change / context |
|---|---|---|---|
| Revenue | $2.318 million | $5.014 million | Down 54%; 2018 included $4.085 million of license-agreement revenue. |
| Cost of revenue | $1.879 million | $1.659 million | Up $220,000. |
| Gross profit / margin | $439,000 / 18.9% | $3.355 million / 66.9% | Lower principally because 2018 included high-margin license revenue. |
| R&D expense, net | $4.414 million | $3.877 million | Up $537,000, including lower grant participation and higher compensation costs. |
| General, administrative and marketing expense | $3.656 million | $3.723 million | Down $67,000. |
| Operating loss | $7.631 million | $4.245 million | Loss widened. |
| Net loss | $11.164 million | $6.249 million | Widened, including increased non-cash financial-instrument remeasurement expense. |
| Operating cash flow | $(5.703) million | $(1.217) million | Cash use increased substantially. |
| Capital expenditures / investing cash flow | $1.491 million / $(1.461) million | $832,000 / $(832,000) | 2019 spending primarily supported the Rehovot headquarters and R&D facilities. |
| Cash and cash equivalents at year-end | $3.791 million | $5.354 million | Declined; cash plus restricted deposits totaled $3.971 million at year-end 2019. |
| Total assets / liabilities / equity | $10.752 million / $6.664 million / $4.088 million | $8.752 million / $3.332 million / $5.420 million | Liabilities increased, including lease liabilities recognized under the new lease standard. |
2019 revenue comprised $1.949 million from goods and $369,000 from services; no license revenue was recognized that year. Excluding 2018 license payments, management reported approximately $1.4 million of year-over-year growth in goods and services revenue. One customer accounted for $1.374 million, about 59% of 2019 revenue. Year-end current assets were $5.040 million and current liabilities were $3.457 million. Total operating lease liabilities were $3.594 million; the filing also reports a $24,000 current loan balance. The filing’s selected-data table lists 2018 cash as $1.580 million, but the audited balance sheet reports $5.354 million; this summary uses the audited balance sheet figure.
Material changes, outlook and risks
- Going concern and funding: The auditor included a going-concern explanatory paragraph, and management said existing resources were insufficient to meet liquidity needs for the following 12 months. The company estimated year-end cash plus a subsequent $4.45 million private placement completed in March 2020 would fund its plan into the first quarter of 2021. This is not a guarantee; management warned that failure to raise further capital could require expense reductions, delayed development, asset licensing or sale, or cessation of operations.
- Financing and dilution: 2019 financing cash flow was $5.410 million. Convertible loans totaling $6.5 million were converted in October 2019 into ADSs at $4 per ADS, with warrants issued to investors. Anti-dilution terms generated additional share issuances and substantial fair-value remeasurement expense. The March 2020 placement added $4.45 million, but further financing may be needed.
- Development and commercial prospects: The company depends on collaboration, product development, regulatory progress, and scaling manufacturing; it reported no ongoing clinical trials at the time of the filing. Its Lung Biotechnology agreement includes potential options, milestones, supply fees and royalties, but the partner may terminate on 30 days’ notice. In January 2020, CollPlant also announced a joint development agreement with 3D Systems.
- Key risks: Continuing losses and cash burn; dependence on external capital and collaborators; product, clinical and regulatory uncertainty; limited commercial-scale manufacturing experience and a single small-scale rhCollagen production site; customer concentration; competition, intellectual-property challenges and dilution. COVID-19 was identified as a developing risk to operations, manufacturing and fundraising. Israeli operating conditions, currency fluctuations and IIA restrictions on transferring funded know-how or manufacturing outside Israel are also material risks.
- Unusual items and contingencies: Financial expenses included $3.230 million of financial-instrument remeasurement expense. The company received $10.1 million in aggregate IIA grants; royalties of 3%–6% on qualifying sales may be due, with a maximum stated balance of approximately $8.6 million before interest. A VAT assessment was settled in February 2020 for $116,000; a $145,000 provision had been recorded at year-end 2019. No material litigation was reported. Management assessed disclosure controls and internal control over financial reporting as effective; the auditor did not attest to internal-control effectiveness because of the emerging-growth-company exemption.
Most important facts for investors to verify
- Reconcile the filing’s inconsistent 2018 cash figures to the audited statements and review cash, restricted deposits, burn rate and post-year-end financing proceeds.
- Assess the going-concern disclosure, the assumptions behind runway into Q1 2021, and the timing and terms of any additional financing.
- Review revenue composition, the dependence on a major customer, and whether product and collaboration sales can grow enough to offset operating costs.
- Track partner performance, termination rights, milestone conditions, regulatory plans, and evidence of manufacturing scale-up and product adoption.
- Review the dilution and exercise effects of outstanding warrants, anti-dilution provisions and equity awards, along with IIA royalty and know-how restrictions.