CollPlant Biotechnologies Ltd. — 2018 Form 20-F
Reporting period: Fiscal year ended December 31, 2018. This is an annual filing, not a standalone fourth-quarter report. Financial statements are prepared under IFRS, with NIS as the functional and reporting currency; USD figures are convenience translations.
Business context and key financial metrics
CollPlant is an early-commercial-stage regenerative medicine company developing products based on recombinant human type I collagen (rhCollagen), produced using genetically engineered tobacco plants. Its programs include BioInk for 3D bioprinting, VergenixSTR for tendinopathy, VergenixFG for wound care, and a developing dermal filler line.
| Metric | 2018 | 2017 |
|---|---|---|
| Revenue | NIS 18.034 million ($4.812 million) | NIS 1.668 million |
| Gross profit / margin | NIS 16.608 million; approximately 92% | NIS 1.616 million; approximately 97% |
| Net research and development expense | NIS 19.440 million | NIS 14.066 million |
| General, administrative and marketing expense | NIS 12.480 million | NIS 8.303 million |
| Operating loss | NIS 15.312 million | NIS 20.753 million |
| Comprehensive loss | NIS 13.887 million ($3.704 million) | NIS 20.880 million |
| Operating cash flow | Outflow of NIS 4.665 million | Outflow of NIS 17.884 million |
| Cash and cash equivalents at year-end | NIS 20.065 million ($5.354 million) | NIS 17.817 million |
| Total assets / liabilities / equity at year-end | NIS 34.082 million / NIS 16.156 million / NIS 17.926 million | NIS 28.045 million / NIS 18.962 million / NIS 9.083 million |
Revenue included NIS 14.695 million from the United Therapeutics subsidiary Lung Biotechnology (LB) license agreement, NIS 2.657 million from product sales, and NIS 0.682 million from services. Customer A accounted for NIS 15.375 million, approximately 85% of total revenue. The filing does not report a standalone Q4 revenue or profit figure.
Cash used in investing activities was NIS 3.603 million, primarily reflecting NIS 2.983 million of property and equipment purchases and restricted deposits. Financing activities provided NIS 9.915 million, mainly from equity issuances. The filing reports no material off-balance-sheet arrangements. Year-end current assets were NIS 26.887 million and current liabilities NIS 8.417 million, but management and the auditor nevertheless identified substantial going-concern uncertainty.
Material changes versus the prior year
- Revenue rose more than tenfold, principally because of the LB agreement; the increase does not represent a comparable rise in recurring product sales.
- Gross profit increased substantially, while gross margin declined from approximately 97% to 92% as cost of revenue rose with BioInk and product activity.
- Operating loss narrowed by NIS 5.441 million. However, net R&D expense increased by NIS 5.374 million, including the effect of a change from R&D funding participation to net royalty expense.
- General, administrative and marketing expenses increased NIS 4.177 million, including higher U.S. public-company legal and professional costs, compensation and share-based compensation.
- Operating cash outflow decreased substantially, but 2018 cash flow benefited from NIS 7.309 million of increased contract liabilities under the LB agreement; cash generation from ongoing operations remains unproven.
- Capital expenditure increased, principally for the Rehovot production facility. Cash increased to NIS 20.065 million, supported by financing proceeds and the commercial agreement.
Outlook, commentary, risks and unusual items
- Going concern and funding: The auditor’s report includes a going-concern explanatory paragraph. Management said existing cash under its current plan was expected to fund activities into the first quarter of 2020, but also disclosed that additional financing is required and that failure to raise capital could force spending cuts, delays, asset licensing or sale, or cessation of operations.
- LB agreement: The 2018 agreement provided a $5 million upfront payment, options potentially worth $9 million, up to $30 million in milestone payments, and additional supply, royalty and reimbursement payments. Milestones and future sales-based royalties are contingent and are not assured. The LB license is exclusive for engineered lungs and restricts CollPlant’s activity in covered products; LB may terminate on 30 days’ notice.
- Revenue concentration and execution: The large LB contribution and concentration in one customer make reported revenue dependent on a single collaboration. Product commercialization, clinical evidence, regulatory authorization, manufacturing scale-up, distribution and market acceptance remain uncertain.
- Regulatory pathway: In January 2019, FDA staff gave a preliminary, nonbinding assessment that VergenixSTR should be a combination product assigned to CBER. CollPlant said it did not intend to pursue a U.S. regulatory pathway for VergenixSTR in 2019.
- Contingencies: CollPlant disputed an Israel Tax Authority VAT assessment increased to NIS 1.8 million, including linkage and interest, and appealed it; a preliminary court hearing was scheduled for May 2019. The filing also describes potential shareholder litigation following the Israel Securities Authority’s position that certain Meitav Dash and Ami Sagy financings should have received shareholder approval.
- IIA obligations: The company reported a NIS 1.2 million recognized royalty liability and a maximum potential royalty obligation of approximately NIS 31.8 million before interest, dependent on product sales. IIA funding also restricts certain transfers of know-how and manufacturing outside Israel.
- Intellectual property: Three challenged European collagen-producing-plant patents were revoked or abandoned in 2017–2018. CollPlant reported other patent families, but patent protection and freedom to operate remain risks.
- Other risks and unusual items: Results include NIS 14.695 million of license-related revenue and NIS 1.425 million of net financial income, including fair-value remeasurement and foreign-exchange effects. Operations are exposed to currency changes and dependence on tobacco-plant supply and limited manufacturing capacity.
Most important facts for investors to verify
- How much of 2018 revenue and cash receipts came from LB, and what portion of the NIS 7.309 million year-end contract liability is expected to convert to revenue and when.
- Current cash, burn rate, financing completed after year-end, and the actual runway relative to the disclosed going-concern warning.
- Whether LB meets facility, production and development milestones, exercises any options, and continues the collaboration.
- Latest regulatory and clinical status, commercial sales and collections for VergenixSTR and VergenixFG, and progress in BioInk and dermal filler development.
- Outcome and financial exposure from the VAT assessment and any claims or proceedings concerning the Meitav Dash and Ami Sagy financings.
- Potential dilution from outstanding warrants, pre-paid warrants, options and anti-dilution provisions, as well as the remaining IIA royalty and technology-transfer obligations.