UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
OR
For the fiscal year ended
OR
OR
Date of event requiring this shell company report ____________
For the transition period from ____________ to ____________
Commission File No.:
(Exact name of registrant as specified in its charter)
Translation of registrant’s name into English: Not applicable
| State of | Tel: +972 73 232 5600 | |
| (Jurisdiction of incorporation or organization) | (Address of principal executive offices) |
Chief Executive Officer
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
| Title of each class to be registered | Trading Symbol(s) | Name of each exchange on which each class is to be registered | ||
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Number of outstanding shares
of each of the issuer’s classes of capital or common stock as of December 31, 2023:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act of 1934.
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company.
| Large accelerated filer | ☐ | ☒ | Non-accelerated filer | ☐ | |
| Emerging Growth Company | |||||
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) Exchange Act. ☐
Indicate by check mark whether
the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that
prepared or issued its audit report.
If securities are registered
pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing
reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing.
International Financial Reporting Standards as issued by the International Accounting Standards Board ☐
Other ☐
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
☐ Item 17 ☐ Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company.
Yes ☐ No
TABLE OF CONTENTS
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INTRODUCTION
We are a regenerative and aesthetic medicine company focused on 3D bioprinting of tissues and organs, and medical aesthetics. Our products are based on our recombinant human collagen (rhCollagen) produced with our proprietary plant based genetic engineering technology. These products address indications for the diverse fields of tissue repair, aesthetics and organ manufacturing, and are ushering in a new era in regenerative and aesthetic medicine.
In February 2021, we entered into a development and global commercialization agreement with Allergan, an AbbVie company, or the AbbVie Development Agreement, pursuant to which we and AbbVie are collaborating in the development and commercialization of dermal and soft tissue filler products for the medical aesthetics market, using our rhCollagen technology and AbbVie’s technology. In June 2023, we announced the achievement of a milestone with respect to the clinical phase dermal and soft tissue filler product, which triggered a $10 million payment from AbbVie to us. The dermal and soft tissue filler product candidate is currently undergoing testing in clinical trials, which trials are designed, planned, and executed by AbbVie, in accordance with the AbbVie Development Agreement.
In the field of medical aesthetics, we are developing 3D-bioprinted breast implants for regeneration of breast tissue. The implants in development are printed and loaded with our rhCollagen-based bioink in combination with other proprietary biomaterials. These implants are expected to regenerate breast tissue without eliciting immune response, and thus may provide a revolutionary alternative for aesthetic and reconstructive procedures. In December 2023 we initiated a pre-clinical trial to evaluate commercial-size, 3D-bioprinted, regenerative breast implants. This study will be used to obtain data to support subsequent human studies and future product commercialization.
In January 2023, we commercially launched Collink.3D 50L in powder form, which is our first bioink available in powder form, joining Collink.3D 90 and Collink.3D 50 launched in 2022 and 2021, respectively. Collink.3D is our rhCollagen-based bioink platform, which is ideal for 3D-bioprinting of tissues and organs for regenerative medicine applications. These rhCollagen-based bioink products are designed to allow the scalable and reproduceable biofabrication of scaffolds, tissues and organ transplants.
Our rhCollagen production process utilizes plant-based genetic engineering technology. This approach eliminates the need for traditional animal-derived collagen sources, reducing the environmental strain associated with traditional methods and promoting more ethical and sustainable practices.
In the second quarter of 2023, CollPlant hired a dedicated expert to lead our Environment, Social and Governance (ESG) effort. In line with this initiative, in September 2023, we announced that we joined the United Nations Global Compact, the world's largest initiative for sustainable and responsible corporate governance. As a new participant of this voluntary leadership platform, CollPlant strengthens its commitment to operate sustainably as it is also producing sustainable alternatives to the regenerative and aesthetics medicine products and technologies that currently exist.
On May 25, 2021, our ordinary shares were approved for trading on the Nasdaq Global Market and began trading at the open of market on June 4, 2021. At such time, our American Depositary Shares, or ADSs, each representing one ordinary shares, were mandatorily cancelled and exchanged for ordinary shares at a one-for-one ratio. Prior to that, our ADSs were quoted on the OTCQX from March 2015 to May 25, 2017, on the OTCQB from May 26, 2017 to January 30, 2018 and on the Nasdaq Capital Market from January 31, 2018 to June 3, 2021 under the symbol “CLGN”. In 2018, we delisted our ordinary shares from trading on the Tel Aviv Stock Exchange, or TASE, and the last date of trading of our ordinary shares on the TASE was on October 29, 2018.
Unless the context requires otherwise, the terms “CollPlant,” “we,” “us,” “our,” “the Company,” and similar designations refer to CollPlant Biotechnologies Ltd. and its subsidiaries, CollPlant Ltd. and CollPlant Inc. References to “ordinary shares”, “warrants” and “share capital” refer to our ordinary shares, warrants and share capital, respectively, of CollPlant Biotechnologies Ltd.
References to “U.S. dollars” and “$” are to currency of the United States of America, and references to “NIS” are to New Israeli Shekels. References to “ordinary shares” or “our ordinary shares” are to the ordinary shares of CollPlant Biotechnologies Ltd., par value NIS 1.50 per share. We report financial information under generally accepted accounting principles in the United States of America or U.S. GAAP.
The functional and presentation currency of the Company in this annual report on Form 20-F, or the Annual Report, is the U.S. dollar.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain information included or incorporated by reference in this Annual Report on Form 20-F may be deemed to be “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. Forward-looking statements are often characterized by the use of forward-looking terminology such as “may,” “will,” “expect,” “anticipate,” “estimate,” “continue,” “believe,” “should,” “intend,” “project” or other similar words, but are not the only way these statements are identified.
These forward-looking statements may include, but are not limited to, statements relating to our objectives, plans and strategies, statements that contain projections of results of operations or of financial condition, expected capital needs and expenses, statements relating to the research, development, completion and use of our products, and all statements (other than statements of historical facts) that address activities, events or developments that we intend, expect, project, believe or anticipate will or may occur in the future.
Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties. We have based these forward-looking statements on assumptions and assessments made by our management in light of their experience and their perception of historical trends, current conditions, expected future developments and other factors they believe to be appropriate.
Important factors that could cause actual results, developments and business decisions to differ materially from those anticipated in these forward-looking statements include, among other things:
| ● | our history of significant losses, and our need to raise additional capital and our inability to obtain additional capital on acceptable terms, or at all; |
| ● | our expectations regarding the timing and cost of commencing pre-clinical and clinical trials with respect to rhCollagen based products in 3D bioprinting and medical aesthetics; |
| ● | ours or our strategic partners’ ability to obtain favorable pre-clinical and clinical trial results; |
| ● | regulatory action with respect to rhCollagen based products in 3D bioprinting and medical aesthetics, including but not limited to acceptance of an application for marketing authorization, review and approval of such application, and, if approved, the scope of the approved indication and labeling; |
| ● | commercial success and market acceptance of rhCollagen based products in 3D bioprinting and medical aesthetics; |
| ● | our ability to establish sales and marketing capabilities or enter into agreements with third parties and our reliance on third party distributors and resellers; |
| ● | our ability to establish and maintain strategic partnerships and other corporate collaborations; |
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| ● | our reliance on third parties to conduct some or all aspects of our product manufacturing; |
| ● | the scope of protection we are able to establish and maintain for intellectual property rights and our ability to operate our business without infringing the intellectual property rights of others; |
| ● | current or future unfavorable economic and market conditions and adverse developments with respect to financial institutions and associated liquidity risk; |
| ● | the impact of competition and new technologies; |
| ● | the overall global economic environment; |
| ● | statements as to the impact of the political and security situation in Israel on our business, including due to the current war between Israel and Hamas; |
| ● | projected capital expenditures and liquidity; |
| ● | changes in our strategy; |
| ● | litigation and regulatory proceedings; and |
| ● | those factors referred to in “Item 3.D. Risk Factors,” “Item 4. Information on the Company,” and “Item 5. Operating and Financial Review and Prospects”, as well as in this Annual Report on Form 20-F generally. |
Readers are urged to carefully review and consider the various disclosures made throughout this Annual Report on Form 20-F which are designed to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.
You should not put undue reliance on any forward-looking statements. Any forward-looking statements in this annual report on Form 20-F are made as of the date hereof and are expressly qualified in their entirety by the cautionary statements included in this Annual Report. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
In addition, the section of this Annual Report on Form 20-F entitled “Item 4. Information on the Company” contains information obtained from independent industry sources and other sources that we have not independently verified.
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EXPLANATORY NOTE
Market data and certain industry data and forecasts used throughout this Annual Report on Form 20-F were obtained from internal company surveys, market research, consultant surveys commissioned by the Company, publicly available information, reports of governmental agencies and industry publications and surveys. Industry surveys, publications, consultant surveys commissioned by the Company and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable. However, this information may prove to be inaccurate because of the method by which some of the data for the estimates is obtained or because this information cannot always be verified with complete certainty due to the limits on the availability and reliability of raw data, the voluntary nature of the data gathering process and other limitations and uncertainties. As a result, the market and industry data and forecasts included or incorporated by reference in this annual report, and estimates and beliefs based on that data, may not be reliable. We have relied on certain data from third-party sources, including internal surveys, industry forecasts and market research, which we believe to be reliable based on our management’s knowledge of the industry. However, we have not ascertained the underlying economic assumptions relied upon therein. Forecasts are particularly likely to be inaccurate, especially over long periods of time. In addition, we do not necessarily know what assumptions regarding general economic growth were used in preparing the forecasts we cite. Statements as to our market position are based to the best of our knowledge on the most currently available data. While we are not aware of any misstatements regarding the industry data presented in this Annual Report, our estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under the heading “Risk Factors” in this Annual Report.
Statements made in this Annual Report on Form 20-F concerning the contents of any agreement, contract or other document are summaries of such agreements, contracts or documents and are not a complete description of all of their terms. If we filed any of these agreements, contracts or documents as exhibits to this Report or to any previous filing with the Securities and Exchange Commission, or SEC, you may read the document itself for a complete understanding of its terms.
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PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY INFORMATION
A. Reserved.
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
You should carefully consider the risks described below, together with all of the other information in this Annual Report on Form 20-F. The risks and uncertainties described below are those significant risk factors, currently known and specific to us, that we believe are relevant to an investment in our securities. Additional risks and uncertainties not currently known to us or that we now deem immaterial may also harm us. If any of these risks materialize, our business, results of operations or financial condition could suffer, and the price of our ordinary shares could decline substantially.
Summary Risk Factors
Investing in our ordinary shares involves a high degree of risk, as fully described below. The principal factors and uncertainties that make investing in our ordinary shares risky, include, among others:
Risks Related to Our Financial Position and Capital Requirements
| ● | We have generally incurred significant losses since our inception and anticipate that we will continue to incur losses for the foreseeable future. |
| ● | We will need to raise additional funding, which may not be available on acceptable terms, or at all. Failure to obtain additional capital when needed may force us to delay, limit, or terminate our product development efforts or other operations. |
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Risks Related to Commercialization of Our Products
| ● | The commercial success of any current or future product, if approved, will depend upon the degree of market acceptance by physicians, patients, third-party payors, pharma companies and others in the medical community. |
| ● | We have only limited clinical data to support sales of our products, which may make physicians, patients, third-party payors, and others in the medical community reluctant to accept or purchase our products. |
| ● | We have low scale experience in producing our rhCollagen, and if we are unable to manufacture our rhCollagen in high commercial quantities successfully and consistently to meet demand, our growth will be limited. |
| ● | If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell any of our products that obtain regulatory approval, we may be unable to generate material revenue. |
| ● | We face competition and rapid technological change and the possibility that our competitors may develop therapies or products that are more advanced or effective than ours, which could impair our ability to successfully commercialize our products. |
Risks Related to the Clinical Development and Regulatory Approval of Our Products
| ● | We currently depend heavily on the future success of our medical aesthetics and 3D bioprinting product candidates and bioink. Any failure to successfully develop, obtain regulatory approval for, and commercialize these products or their end products, independently or in cooperation with a third-party collaborator, or the experience of significant delays in doing so, would compromise our ability to generate revenue and become profitable. |
| ● | Our products are based on novel technology, which makes it difficult to predict the time and cost of product development and potential regulatory approval. |
| ● | We or our strategic partners may find it difficult to enroll patients in future clinical trials, and patients could discontinue their participation in our future clinical trials, which could delay or prevent clinical trials of our products and product candidates. |
| ● | Clinical trials may not be successful or may be delayed. |
| ● | Even if we or our strategic partners obtain regulatory approval for a product, our products will remain subject to regulatory scrutiny. |
| ● | In addition to the level of commercial success of our products, our future prospects are also dependent on our ability to successfully develop a pipeline of additional products, and we may not be successful in our efforts in using our platform technologies to identify or discover additional products. |
Risks Related to Our Reliance on Third Parties
| ● | We may not be successful in establishing and maintaining strategic partnerships, which could adversely affect our ability to develop and commercialize our rhCollagen based products in 3D bioprinting and medical aesthetics, including 3D-bioprinted breast implants and bioinks. |
| ● | We expect to depend upon third-party collaborators, distributors and resellers for a significant portion of our sales. |
| ● | We expect to rely on third parties to conduct some aspects of our product manufacturing, protocol development, research, and preclinical and clinical testing, and these third parties may not perform satisfactorily. |
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Risks Related to Our Business Operations
| ● | Our future success depends on our ability to retain senior management, consultants, and advisors and to attract, retain, and motivate qualified personnel. |
| ● | Our collaborations with outside scientists and consultants may be subject to restriction and change. |
| ● | Our business and operations would suffer in the event of computer system failures or security breaches. |
| ● | Our development and production of rhCollagen relies upon the continued availability of tobacco plants, and any interruption in availability or supply of tobacco plants may delay production and adversely affect commercial utilization of our rhCollagen-based products. |
| ● | If our existing rhCollagen production sites or any new facilities are damaged or destroyed, or production at these facilities is otherwise interrupted, our business and prospects would be negatively affected. |
| ● | If we fail to comply with environmental, health, and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse impact on the success of our business. |
| ● | We may use our financial and human resources to pursue a particular research program or product and fail to capitalize on programs or products that may be more profitable or for which there is a greater likelihood of success. | |
| ● | Our business, operating results and growth rates may be adversely affected by current or future unfavorable economic and market conditions and adverse developments with respect to financial institutions and associated liquidity risk. | |
| ● | Environmental, social and corporate governance (ESG) issues, including those related to climate change and sustainability, may have an adverse effect on our business, financial condition and results of operations and damage our reputation. |
Risks Related to Our Intellectual Property
| ● | We have an extensive worldwide patent portfolio. The cost of maintaining our worldwide patent protection is high and requires continuous review and compliance with procedural and documentary requirements. We may not be able to effectively maintain our intellectual property position throughout the major markets of the world. |
| ● | If we are unable to obtain or protect intellectual property rights related to our products and product candidates, we may not be able to obtain exclusivity for our products or prevent others from developing similar competitive products. |
Risks Related to the Ownership of our Ordinary Shares
| ● | The market price of our ordinary shares may be highly volatile. |
| ● | We may not be able to maintain our listing on the Nasdaq Global Market. |
| ● | Our principal shareholders, management and directors beneficially own a significant percentage of our ordinary shares and will be able to exert significant influence over matters subject to shareholder approval. |
| ● | If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As a result, our shareholders could lose confidence in our financial and other public reporting, which would harm our business and the trading price of our ordinary shares. |
| ● | Sales of a substantial number of our ordinary shares in the public market could cause our share price to fall. |
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Risks Related to Our Operations in Israel
| ● | We are a “foreign private issuer” and intend to follow certain home country corporate governance practices, and our shareholders may not have the same protections afforded to shareholders of companies that are subject to all corporate governance requirements under the listing rules of the Nasdaq Stock Market LLC, or the Nasdaq Listing Rules. |
| ● | Potential political, economic, and military instability in the State of Israel, where the majority of our senior management and our research and development facilities are located, may adversely impact our results of operations. |
Risks Related to Our Financial Position and Capital Requirements
We have generally incurred significant losses since our inception and anticipate that we will continue to incur losses for the foreseeable future.
We are a regenerative and aesthetic medicine company focused on 3D bioprinting of tissues and organs, and medical aesthetics. Except for the year and December 31, 2021, we have incurred losses in each year since our inception in 2004. We incurred a total comprehensive loss of $7.0 million for the year ended December 31, 2023 and a total comprehensive loss of $16.9 million for the year ended December 31, 2022. As of December 31, 2023, we had an accumulated deficit of $96.7 million.
We have devoted most of our financial resources to research and development, including our clinical and preclinical development activities. In recent years, we have financed our operations primarily with revenues from sales of our products, licensing of our technology, development milestone achievement payments from strategic partners as well as from net proceeds from private and public offerings. Prior to this, we financed our operations primarily from public offerings of our securities on the TASE, participation of business partners in product development collaborations, and government grants from the Israeli Innovation Authority, or the IIA. The amount of our future net losses will depend, in part, on the success of our collaborations and on the rate of our future expenditures. If and when we or our strategic partners will obtain regulatory approval to market products, our future revenues will depend upon the size of any markets in which the products have received approval, and the ability to achieve sufficient market acceptance, reimbursement from third-party payors and adequate market share for the products in those markets.
We expect to continue to incur significant expenses and operating losses in the foreseeable future. We anticipate that our expenses will increase substantially if and as we:
| ● | continue our research and preclinical and clinical development of our products and product candidates; |
| ● | initiate additional preclinical, clinical, or other studies for our products and product candidates; |
| ● | seek marketing approvals for any of our products and product candidates that successfully complete clinical trials; |
| ● | further develop and expand the manufacturing process for our products and product candidates; |
| ● | establish a sales, marketing, and distribution infrastructure to commercialize our products and product candidates for which we may obtain marketing approval; |
| ● | seek to identify and validate additional products and product candidates; |
| ● | maintain, protect, and expand our intellectual property portfolio; |
| ● | attract and retain skilled personnel; |
| ● | create additional infrastructure to support our operations as a public company; and |
| ● | experience any delays or encounter issues with any of the above. |
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The net losses we incur may fluctuate significantly from quarter to quarter and year to year, such that a period-to-period comparison of our results of operations may not be a good indication of our future performance. In any particular quarter or quarters, our operating results could be below the expectations of securities analysts or investors, which could cause our share price to decline.
We will need to raise additional funding, which may not be available on acceptable terms, or at all. Failure to obtain additional capital when needed may force us to delay, limit, or terminate our product development efforts or other operations.
We are conducting preclinical development of our products and product candidates, and we intend to continue advancing their development. Developing medical products is expensive, and we expect our research and development expenses to continue to be a material part of our expenses and may increase substantially in connection with our ongoing activities, particularly as we or our strategic partners advance our products or product candidates in clinical trials.
As of December 31, 2023, our cash and cash equivalents together with short-term cash deposits accumulated to $26.7 million. Except for the year December 31, 2021, in which we incurred a total comprehensive income of $237,000, we had recurring losses from operations and negative operating cash flows since our inception. In February 2021, we closed a registered direct offering resulting in gross proceeds of $35 million and received an upfront payment of $14 million from AbbVie, as part of the AbbVie Development Agreement. Subsequently, in June 2023, we announced the achievement of a milestone with respect to the clinical phase dermal filler product under the AbbVie Development Agreement, which triggered a $10 million payment from AbbVie to us. We will nevertheless need to raise additional capital in the future to support our operations and product development activities and there can be no assurance that we will receive any further payments under the AbbVie Development Agreement.
Our operating plan may change as a result of many factors currently unknown to us, and we may need to seek additional funds sooner than planned, through public or private equity or debt financings, third-party funding, marketing and distribution arrangements, and other collaborations, strategic alliances, and licensing arrangements, or a combination of these approaches. Even if we believe we have sufficient funds for our current or future operating plans, we may seek additional capital if market conditions are favorable or if we have specific strategic considerations. Conversely, we may need to seek additional funds at times when the market conditions for doing so are less favorable, noting, for example, the effect of inflation on the economy in the United States and global markets. For more information, see “—Risks Related to Our Business Operations—Our business, operating results and growth rates may be adversely affected by current or future unfavorable economic and market conditions and adverse developments with respect to financial institutions and associated liquidity risk.” Any debt financing obtained by us could involve restrictive covenants relating to financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities and could require us to use a portion of our cash flows to make debt service payments, which could place us at a competitive disadvantage relative to our less leveraged peers. If we raise additional funds through further issuances of equity, convertible debt securities, or other securities convertible into equity, our existing stockholders could suffer significant dilution in their percentage ownership of our company, and any new equity securities we issue could have rights, preferences, and privileges senior to those of holders of our common stock, including registration rights. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to support our business and to respond to business challenges could be significantly limited, and our business, operating results, financial condition, and prospects could be harmed.
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Any additional fundraising efforts may divert our management from their day-to-day activities, which may compromise our ability to develop and commercialize our products and product candidates. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. Moreover, the terms of any financing may adversely affect the holdings or the rights of our shareholders, and the issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price of our ordinary shares to decline. The sale of additional equity or convertible securities would dilute all of our shareholders. The incurrence of indebtedness would result in increased fixed payment obligations, and we may be required to agree to certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell, or license intellectual property rights, and other operating restrictions that could adversely impact our ability to conduct our business. We could also be required to seek funds through arrangements with collaborative partners or otherwise at an earlier stage than otherwise would be desirable, and we may be required to relinquish rights to some of our technologies or products or otherwise agree to terms unfavorable to us.
If additional capital is not available to us when needed or on acceptable terms, we may be required to significantly curtail, delay, or discontinue one or more of our research or development programs or the commercialization of any products or product candidates, and we may be unable to expand our operations or otherwise capitalize on our business opportunities, as desired.
The IIA grants we have received in the past for research and development expenditures may restrict our ability to manufacture products and transfer IIA funded know-how outside of Israel and require us to satisfy specified conditions.
Our research and development efforts have been financed, in part, through the grants that we have received in the past from the IIA. We, therefore, must comply with the requirements of, and are subject to certain restrictions under, the Israeli Encouragement of Research, Development and Technological Innovation in the Industry Law of 1984, or the Innovation Law and the IIA’s rules and guidelines with respect to the use of intellectual property and other know-how resulting, directly or indirectly, in whole or in part, in accordance with or as a result of, research and development activities made according to a research and development program funded by the IIA, or the Approved Program, as well as any rights associated with such know-how (including later developments, which derive from, are based on, or constitute improvements or modifications of such know-how), or the IIA Funded Know-How. These restrictions involve obligations relating to royalty payments, reporting and local manufacturing, and limitations on the transfer of IIA Funded Know-How and the licensing of IIA Funded Know-How for research and development, or R&D, purposes.
Such restrictions may impair our ability to perform or outsource manufacturing rights outside of Israel, granting licenses for R&D purposes or otherwise transfer outside of Israel our IIA Funded Know-How. These restrictions may also require us to obtain the approval of the IIA for certain actions and transactions and pay additional royalties and other amounts to the IIA. We cannot be certain that any approval of the IIA will be obtained on terms that are acceptable to us, or at all. Furthermore, the consideration available to our shareholders in a transaction involving the transfer outside of Israel of IIA Funded Know-How (such as a merger or similar transaction) or a transaction involving the licensing of IIA Funded Know-How for R&D purposes outside of Israel, may be reduced by any amounts that we are required to pay to the IIA.
If we fail to comply with the requirements of the Innovation Law, we may be subject to financial sanctions, to mandatory repayment of grants received by us (together with interest and penalties), as well as expose us to criminal proceedings. For additional information regarding the Innovation Law and the IIA, see “Item 4.B. Business Overview—Other Approvals—The Innovation Law and the IIA”.
Until 2019 we have applied and received grants from the IIA as part of the research and development programs for our rhCollagen technology and our products. These IIA grants are subject to repayment through future royalty payments on any products resulting from these research and development programs, including VergenixSTR and VergenixFG. Under the IIA’s rules and guidelines royalties of 3% on the income deriving from products and from related know-how and services developed in whole or in part, directly or indirectly, under the Approved Programs are payable to the IIA, up to the total amount of grants received, linked to the U.S. dollar plus interest at an annual rate based on based on LIBOR. The total gross amount of grants actually received by us from the IIA as of December 31, 2023 totaled approximately $10.1 million. As of December 31, 2023, we paid royalties to the IIA in the total amount of $3.1 million.
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We may not be able to correctly estimate or control our future operating expenses, which could lead to cash shortfalls.
Our operating expenses may fluctuate significantly in the future for various reasons, many of which are outside of our control. These reasons may include:
| ● | the time, resources, and expenses required to conduct pre-clinical and clinical trials of, seek regulatory approvals for, manufacture, market, and sell our current products and any additional products we may develop; |
| ● | the time, resources, and expenses required to research and develop additional indications of our current products; |
| ● | the costs of preparing, filing, prosecuting, defending, and enforcing patent claims and other patent-related costs, including litigation costs or the results of such litigation; |
| ● | any product liability or other lawsuits related to our products and the costs associated with defending them or the results of such lawsuits; |
| ● | the costs to attract and retain personnel with the skills required for effective operations; and |
| ● | the costs associated with being a public company in the United States. |
It is difficult to forecast our future performance, which may cause our financial results to fluctuate unpredictably.
Because we do not yet have an established commercial operating history, and because the market for our products and product candidates may rapidly evolve, it is hard for us to predict our future performance. A number of factors, many of which are outside of our control, may contribute to fluctuations in our financial results assuming that we receive marketing authorizations and begin selling our products. These factors may include variations in:
| ● | market demand for, and acceptance of, our products; |
| ● | our ability to obtain or maintain regulatory approvals; |
| ● | our sales and marketing operations, or the effectiveness of these operations; |
| ● | performance of our third-party contractors; |
| ● | the availability of procedures or products that compete with our products; |
| ● | media coverage of our technologies, the procedures or products of our competitors or our industry; and |
| ● | natural disasters and political and economic instability, including wars, terrorism, political unrest, results of certain elections and votes, emergence of a pandemic, or other widespread health emergencies (or concerns over the possibility of such an emergency), boycotts, adoption or expansion of government trade restrictions, and other business restrictions). |
Risks Related to Commercialization of Our Products
The commercial success of any current or future product, if approved, will depend upon the degree of market acceptance by physicians, patients, third-party payors, pharma and medical device companies and others in the medical community.
Even if we obtain the requisite regulatory approvals, the commercial success of our products will depend in part on physicians, patients, third party payors, pharma and medical device companies and others in the medical community accepting our products as medically useful, cost-effective, and safe. Any product that we bring to the market may not gain market acceptance by physicians, patients, third-party payors, and others in the medical community. If these products do not achieve an adequate level of acceptance, we may not generate significant product revenue and may not become profitable. The degree of market acceptance of these products, if approved for commercial sale, will depend on a number of factors, including:
| ● | the cost, safety, efficacy, and convenience of our products in relation to alternative treatments and products; |
| ● | the ability of third parties to enter into relationships with us without violating their existing agreements; |
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| ● | the effectiveness of our sales and marketing efforts; |
| ● | the prevalence and severity of any side effects, including any limitations or warnings contained in a product’s approved labeling; |
| ● | the prevalence and severity of any side effects resulting from the procedure by which our products are administered; |
| ● | the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies; |
| ● | the strength of marketing and distribution support for, and timing of market introduction of, competing products; |
| ● | publicity concerning our products or competing products and treatments; and |
| ● | sufficient third-party insurance coverage or reimbursement. |
Even if a potential product displays a favorable safety and efficacy profile in clinical trials, market acceptance of the product will not be known until after it is launched. Our efforts or those of our strategic partners to educate the medical community and third-party payors on the benefits of the products may require significant resources and may never be successful. Such efforts to educate the marketplace may require more resources than are required by conventional technologies.
We have only limited clinical data to support sales of our products, which may make physicians, patients, third-party payors, and others in the medical community reluctant to accept or purchase our products.
Physicians, patients, third party payors, and others in the medical community will only accept or purchase our products if they believe them to be safe and effective, with advantages over competing products or procedures. To date, we have collected only limited clinical data with which to assess the clinical and economic value of VergenixFG and VergenixSTR. The collection of clinical and economic data and the process of generating peer review publications in support of our product and procedure is an ongoing focus for us. If future publications of clinical studies indicate that procedures using our products, or other products that contains our rhCollagen, are less safe or less effective than competing products or procedures, patients may choose not to undergo our procedure, and physicians or others in the medical community may choose not to use our products. Furthermore, unsatisfactory patient outcomes or patient injury could cause negative publicity for our products, particularly in the early phases of product introduction.
We have low scale experience in producing our rhCollagen, and if we are unable to manufacture our rhCollagen in high commercial quantities successfully and consistently to meet demand, our growth will be limited.
We have experience manufacturing limited quantities of rhCollagen, the recombinant human type I collagen used for development with collaborators and in our products and product candidates. Our manufacturing capabilities will need to be further improved to meet the standard requirements for future clinical studies and for commercialization of our products and product candidates. To manufacture our rhCollagen in quantities that we believe will be sufficient to produce our end products and meet anticipated market demand, we will need to increase manufacturing capacity, which will involve significant challenges. In addition, the development of commercial-scale, regulation-compliant manufacturing capabilities will require us to invest substantial additional funds and hire and retain the technical personnel who have the necessary manufacturing experience. We may not successfully complete any required increase to existing manufacturing processes in a timely manner, or at all.
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If there is a disruption to our internal manufacturing operations, we will have no other means of production for the components and products from such operations until we restore the affected facilities or develop alternative manufacturing facilities, which would delay our or our strategic partners’ clinical trials or cause us to be unable to meet commercial demand for our products. In such case, we may need to arrange for third-party manufacturing of our components and products, which would be expensive and time consuming, assuming we can identify an appropriate third party manufacturer. Additionally, any damage to or destruction of our facilities or equipment may significantly impair our ability to manufacture our components and products on a timely basis.
If we are unable to produce our products in sufficient quantities to meet anticipated customer demand, our revenues, business, and financial prospects would be harmed. The lack of experience we have in producing commercial quantities of our components and products may also result in quality issues and product recalls. Any product recall could be expensive and generate negative publicity, which could impair our ability to market our products and further affect our results of operations. Manufacturing delays related to quality control could negatively impact our ability to bring our technologies to market, harm our reputation, and decrease our revenues.
If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell any of our products, we may be unable to generate material revenue.
We have limited experience in selling and marketing our products or any other products. To successfully commercialize our products, we will need to develop these capabilities, either on our own or with others. We are seeking to enter commercial alliances with third-party collaborators and distributors to utilize their development, marketing and distribution capabilities, but we may be unable to do so on favorable terms, if at all. If any future collaboration or distribution partners do not commit sufficient resources to commercialize our future products, and if we are unable to develop the necessary marketing capabilities on our own, we will be unable to generate sufficient product revenue to sustain our business. We will be competing with many companies that currently have extensive and well-funded marketing and sales operations. Without an internal team or the support of a third party to perform marketing and sales functions, we may be unable to compete successfully against these more established companies or successfully commercialize any of our products.
We face competition and rapid technological change and the possibility that our competitors may develop therapies or products that are more advanced or effective than ours, which could impair our ability to successfully commercialize our products.
We operate in the regenerative and aesthetic medicine fields, which are rapidly changing. We have competitors both in the United States and internationally, including major multinational pharmaceutical companies, biotechnology companies, medical technology companies, and universities and other research institutions.
Many of our potential competitors have substantially greater financial, technical and other resources, such as larger research and development staff and experienced marketing and manufacturing organizations. Competition may increase further as a result of advances in the commercial applicability of technologies and greater availability of capital for investment in these industries. Our potential competitors may succeed in developing, acquiring, or licensing on an exclusive basis, products that are more effective or less costly than any products that we may develop, or achieve earlier patent protection, regulatory approval, product commercialization, and market penetration than us. Additionally, technologies developed by others may render our potential products uneconomical or obsolete, and we may not be successful in marketing our products against competitors.
We are not aware of any competitors that produce collagen from plants or that produce recombinant type I human collagen.
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A variety of risks associated with international operations could harm our business.
Our intention is to market our products on a regional or worldwide basis, either alone or in collaboration with third parties. In addition, we may conduct development activities in various jurisdictions throughout the world. We expect that we will be subject to additional risks related to engaging in international operations, including:
| ● | different regulatory requirements for product approval in foreign countries; |
| ● | reduced protection for intellectual property rights; |
| ● | unexpected changes in tariffs, trade barriers, and regulatory requirements; |
| ● | economic weakness, including inflation, or political instability in particular foreign economies and markets; |
| ● | compliance with tax, employment, immigration, and labor laws for employees living or traveling abroad; |
| ● | foreign currency fluctuations, which could result in increased operating expenses and reduced revenue, and other obligations incident to doing business in another country; |
| ● | workforce uncertainty in countries where labor unrest is more common than in the United States and Israel; |
| ● | production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and |
| ● | business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters including earthquakes, typhoons, floods, fires, emergence of a pandemic, or other widespread health emergencies (or concerns over the possibility of such an emergency). |
The insurance coverage and reimbursement status of newly approved products is uncertain. Failure to obtain or maintain adequate coverage and reimbursement for any of our products could limit our ability to market those products and compromise our ability to generate revenue.
The availability of reimbursement by governmental and private payors is essential for most patients to be able to afford expensive treatments. Sales of our products will depend substantially, both in Europe and in the United States, on the extent to which the costs of our products will be paid by health maintenance organizations, managed care, pharmacy benefit managers, and similar healthcare management organizations, or reimbursed by government health administration authorities, private health coverage insurers, and other third-party payors. If reimbursement is not available, or is available only to limited levels, we may not be able to successfully commercialize our products. Even if we obtain coverage for our products, third-party payors may not establish adequate reimbursement amounts, which may reduce the demand for, or the price of, our products. If reimbursement is not available or is available only to limited levels, we may not be able to commercialize certain of our products.
Furthermore, publication of discounts by third-party payors or authorities may lead to further pressure on the prices or reimbursement levels within the country of publication and other countries. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unacceptable levels, we or our partner may elect not to commercialize our products in such countries, and our business and financial condition could be adversely affected.
Promotion of off-label uses of our products by physicians could adversely affect our business.
Any regulatory approval of our products is limited to those specific indications for which our products have been deemed safe and effective by the regulatory authorities. In addition, any new indication for an approved product also requires regulatory approval. If we produce an approved product, we will rely on physicians to use and administer it as we have directed and for the indications described on the labeling. It is not, however, uncommon for physicians to use in unapproved, or “off-label,” uses or in a manner that is inconsistent with the manufacturer’s directions. To the extent such off-label uses and departures from our administration directions become pervasive and produce results such as reduced efficacy or other adverse effects, the reputation of our products in the marketplace may suffer. In addition, off-label uses may cause a decline in our revenue or potential revenue, to the extent that there is a difference between the prices of our product for different indications.
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Furthermore, while physicians may choose to use our products for off-label uses, our ability to promote the products is limited to those indications that are specifically approved by the regulators. Although regulatory authorities generally do not regulate the behavior of physicians, they do restrict communications by companies with respect to off-label use. If our promotional activities fail to comply with these regulations or guidelines, we may be subject to warnings from, or enforcement action by, these authorities. In addition, failure to follow regulation authorities’ rules and guidelines relating to promotion and advertising can result in the regulation authorities’ refusal to approve a product, the suspension or withdrawal of an approved product from the market, product recalls, fines, disgorgement of money, operating restrictions, injunctions, or criminal prosecution.
Risks Related to the Clinical Development and Regulatory Approval of Our Products
We currently depend heavily on the future success of our medical aesthetics and 3D-bioprinting product candidates and our bioinks. Any failure to successfully develop, obtain regulatory approval for, and commercialize these products or their end products, independently or in cooperation with a third-party collaborator, or the experience of significant delays in doing so, would compromise our ability to generate revenue and become profitable.
We have invested a significant portion of our efforts and financial resources in the development of rhCollagen, medical aesthetics and 3D-bioprinting product candidates, bioinks and our Vergenix line of products. We currently depend heavily on the future success of our medical aesthetics and 3D-bioprinting product candidates and our bioinks. Our ability to generate revenues from our products and product candidates depends heavily on the successful development, approval, and commercialization of our products, which, in turn, depend on several factors, including the following:
| ● | our ability to continue and support our rhCollagen platform technology and programs; |
| ● | our ability to establish and maintain strategic partnerships, including the AbbVie Development Agreement; |
| ● | our or our strategic partners successfully initiating and completing preclinical, clinical and other studies required for our products and product candidates; |
| ● | demonstrating and maintaining the safety and efficacy of our products at a sufficient level of statistical or clinical significance and otherwise obtaining marketing approvals from regulatory authorities; |
| ● | establishing successful sales and marketing arrangements for our products; |
| ● | the availability of coverage and reimbursement by healthcare payors for our products in the jurisdictions where they may be approved; |
Our products are based on novel technology, which makes it difficult to predict the time and cost of product development and potential regulatory approval.
We have concentrated our product research and development efforts on our novel rhCollagen technology. The FDA has approved very few plant-expressed products. We may experience development challenges in the future related to our technology, which could cause significant delays or unanticipated costs, and we may not be able to solve such development challenges. We may also experience delays in developing a sustainable, reproducible, and scalable manufacturing process or transferring that process to commercial partners, if we decide to do so.
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In addition, the clinical trial requirements of European regulatory authorities, the FDA, and other regulatory authorities and the criteria these regulators use to determine the safety and efficacy of a product vary substantially according to the type, complexity, novelty, and intended use and market of the potential products. The regulatory approval process for novel products such as ours can be more expensive and take longer than for other, better known or extensively studied products. Our products may also be designated by the FDA or other regulatory authorities as combination products, which include: (1) a product comprised of two or more regulated components, e.g., drug/device, biologic/device, drug/biologic, or drug/device/biologic, that are physically, chemically, or otherwise combined or mixed and produced as a single entity; (2) two or more separate products packaged together in a single package or as a unit and comprised of drug and device products, device and biological products, or biological and drug products; (3) a drug, device, or biological product packaged separately that according to its investigational plan or proposed labeling is intended for use only with an approved individually specified drug, device, or biological product where both are required to achieve the intended use, indication, or effect and where upon approval of the proposed product the labeling of the approved product would need to be changed, e.g., to reflect a change in intended use, dosage form, strength, route of administration, or significant change in dose; or (4) any investigational drug, device, or biological product packaged separately that according to its proposed labeling is for use only with another individually specified investigational drug, device, or biological product where both are required to achieve the intended use, indication, or effect. Combination Products containing a biologic/device then may be regulated as a biologic product, resulting in a longer regulatory approval process than the regulatory approval process for a medical device alone. Approvals by any regulatory authorities may not be indicative of what the FDA or other regulatory agencies may require for approval, and vice versa.
Regulatory requirements governing medical devices and other products for medical use have changed frequently and may continue to change in the future. Also, before a clinical trial can begin, an institutional review board, or IRB, at each institution at which a clinical trial will be performed must review the proposed clinical trial to assess the safety of the trial. In addition, adverse developments in clinical trials of comparable products conducted by others may cause European regulatory authorities, the FDA, or other regulatory authorities to change the requirements for approval of any of our products.
These regulatory agencies and additional or new requirements may lengthen the regulatory review process, require us to perform additional studies, increase our development costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and commercialization of our products, or lead to significant approval and post-approval limitations or restrictions. As we advance our products, we will be required to consult with these regulatory authorities, and comply with applicable requirements. If we fail to do so, we may be required to delay or discontinue development of our products. Delay or failure to obtain, or unexpected costs in obtaining, the regulatory approval necessary to bring a potential product to market could impair our ability to generate product revenue and to become profitable.
We or our strategic partners may find it difficult to enroll patients in clinical trials, and patients could discontinue their participation in clinical trials, which could delay or prevent clinical trials of our products and product candidates.
Identifying and qualifying patients to participate in clinical trials of our products and product candidates is critical to our success. The timing of clinical trials depends on the ability to recruit patients to participate in our or our strategic partners’ clinical trials. We or our strategic partners may experience delays in patient enrollment in the future. If patients are unwilling to participate in clinical trials because of negative publicity from adverse events in the biotechnology, pharmaceutical or medical technology industries, or for other reasons, including competitive clinical trials for similar patient populations, the timeline for recruiting patients, conducting trials, and obtaining regulatory approval of potential products may be delayed. These delays could result in increased costs, delays in advancing our product development, delays in testing the effectiveness of our technology, or termination of the clinical trials altogether.
We or our strategic partners may not be able to identify, recruit, and enroll a sufficient number of patients, or those with required or desired characteristics to achieve diversity in a trial, to complete clinical trials in a timely manner, or at all. Patient enrollment is affected by factors including:
| ● | design of the trial protocol; |
| ● | size of the patient population; |
| ● | eligibility criteria for the trial in question; |
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| ● | severity of the disease/wounds under investigation; |
| ● | perceived risks and anticipated benefits of the product under study; |
| ● | proximity and availability of clinical trial sites for prospective patients; |
| ● | availability of competing therapies, products, and clinical trials; |
| ● | efforts to facilitate timely enrollment in clinical trials; |
| ● | patient referral practices of physicians; and |
| ● | ability to monitor patients adequately during and after treatment. |
While we are currently not conducting any clinical trials, the dermal and soft tissue filler product candidate for the medical aesthetics market is currently undergoing testing in clinical trials, which trials are designed, planned, and executed by AbbVie, in accordance with the AbbVie Development Agreement. We and/or our strategic partners may not be able to initiate or continue future clinical trials if a sufficient number of eligible patients to participate in the clinical trials required by European regulatory authorities, the FDA, or other regulatory authorities cannot be enrolled.
In addition, patients enrolled in ours, or our strategic partners’ clinical trials may discontinue their participation at any time during the trial as a result of a number of factors, including withdrawing their consent or experiencing adverse clinical events, which may or may not be related to our products under evaluation. The discontinuation of patients in any one of the trials may cause delay or abandonment of such clinical trial, or cause the results from that trial not to be positive or sufficient to support a filing for regulatory approval of the applicable product.
Clinical trials may not be successful or may be delayed.
Before obtaining marketing approval from regulatory authorities for the sale of our products or product candidates or any future product, we or our strategic partners must conduct clinical trials to demonstrate the safety in humans for European CE marking certification, and the safety and efficacy in humans for other regulatory authorities such as the United States. While we are currently not conducting any clinical trials, the dermal and soft tissue filler product candidate for the medical aesthetics market is currently undergoing testing in clinical trials, which trials are designed, planned, and executed by AbbVie, in accordance with the AbbVie Development Agreement. In addition, we expect to rely on a number of contract research organizations, or CROs, and other third parties, to assist in undertaking, managing, monitoring, and executing future clinical trials. Clinical trials are expensive, time consuming, and uncertain as to outcome. We cannot guarantee that any clinical trials will be conducted as planned or completed on schedule, if at all. We or our strategic partners may not receive FDA regulatory approval for the conduct of any particular clinical trial in the United States or regulatory approval for conduct of such clinical trial in other countries. A failure of one or more clinical trials can occur at any stage of testing. Events that may prevent successful or timely completion of clinical development include:
| ● | delays in reaching a consensus with regulatory agencies on trial design; |
| ● | delays in reaching agreement on acceptable terms with prospective CROs and clinical trial sites; |
| ● | delays in obtaining required IRB approval at each clinical trial site; |
| ● | delays in recruiting suitable patients to participate in our clinical trials; |
| ● | imposition of a clinical hold by regulatory agencies, including after an inspection of our clinical trial operations or trial sites; |
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| ● | failure by our strategic partners, CROs, other third parties or us to perform in accordance with clinical trial requirements or the FDA’s good clinical practices, or GCP, or applicable regulatory requirements in other countries; |
| ● | delays in the testing, validation, manufacturing, and delivery of our products to the clinical sites; |
| ● | delays in having patients complete participation in a trial or return for post-treatment follow-up; |
| ● | clinical trial sites or patients dropping out of a trial; |
| ● | occurrence of serious adverse events associated with the products that are viewed to outweigh their potential benefits; or |
| ● | changes in regulatory requirements and guidance that require amending or submitting new clinical trial protocols. |
Any inability to successfully complete preclinical and clinical development could result in additional costs to us or impair our ability to generate revenue from product sales, milestone payments or royalties. In addition, if we or our strategic partners make manufacturing or design changes to our products or product candidates, additional studies may be required to bridge our modified products to earlier versions. Clinical trial delays could also shorten any periods during which we may have the exclusive right to commercialize our products or product candidates or allow our competitors to bring products to market before we do, which could impair our ability to successfully commercialize our products.
If the results of clinical trials are inconclusive or if there are safety concerns or adverse events associated with our products or product candidates, we or our strategic partners may:
| ● | fail to obtain, or be delayed in obtaining, marketing approval for our products or product candidates; |
| ● | obtain approval for indications or patient populations that are not as broad as intended or desired; |
| ● | obtain approval with labeling that includes significant use or distribution restrictions or safety warnings; |
| ● | be required to perform additional clinical trials to support approval or be subject to additional post-marketing testing requirements; |
| ● | have regulatory authorities withdraw their approval of the product or impose restrictions on its distribution; |
| ● | be subject to the addition of labeling statements, such as warnings or contraindications; |
| ● | be sued; or |
| ● | experience damage to our reputation. |
Any of these events could prevent us from achieving or maintaining market acceptance of our products or product candidates and impair our ability to commercialize our products.
Success in early clinical trials may not be indicative of results obtained in later trials.
There is a high failure rate for medical devices, drugs, and biologics proceeding through clinical trials. A number of companies in the pharmaceutical, biotechnology, and medical technology industries have suffered significant setbacks in later stage clinical trials even after achieving promising results in earlier stage clinical trials. Data obtained from preclinical and clinical activities are subject to varying interpretations, which may delay, limit, or prevent regulatory approval. In addition, regulatory delays or rejections may be encountered as a result of many factors, including the novelty of the product and changes in regulatory policy during the period of product development.
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Even if we or our strategic partners complete the necessary preclinical studies and clinical trials, we cannot predict when or if we will obtain regulatory approval to commercialize a product, or the approval may be for a more narrow indication than we expect.
We or our strategic partners cannot commercialize a product until the appropriate regulatory authorities have reviewed and approved the product. Even if our products or product candidates demonstrate safety and efficacy in clinical trials, the regulatory agencies may not complete their review processes in a timely manner, or we may not be able to obtain regulatory approval. Additional delays may result if an FDA Advisory Committee or other regulatory authority recommends non-approval or restrictions on approval. In addition, we may experience delays or rejections based upon additional government regulation from future legislation or administrative action, or changes in regulatory agency policy during the period of product development, clinical trials, and the review process. Regulatory agencies also may approve a treatment for fewer or more limited indications than requested or may grant approval subject to the performance of post-marketing studies. In addition, regulatory agencies may not approve the labeling claims that are necessary or desirable for the successful commercialization of our treatment.
Side effects may occur following treatment with our products or product candidates which could make it more difficult for our products to receive regulatory approval.
Treatment with our products or product candidates may cause side effects or other adverse events. In addition, since our products may be administered in combination with other therapies, patients or clinical trial participants may experience side effects or other adverse events that are unrelated to our product, but may still impact the success of our clinical trials. Additionally, our products or product candidates could potentially cause other adverse events that have not yet been predicted. The experience of side effects and adverse events in our clinical trials could make it more difficult to achieve regulatory approval of our products or, if approved, could negatively impact the market acceptance of such products.
Even if we or a strategic partner obtains regulatory approval for a product, our products will remain subject to regulatory scrutiny.
Even if we or a strategic partner obtain regulatory approval in a jurisdiction, the regulatory authority may still impose significant restrictions on the indicated uses or marketing of our products, or impose ongoing requirements for potentially costly post-approval studies or post-market surveillance. Advertising and promotional materials must comply with FDA, Federal Trade Commission, or FTC, and European and other countries’ regulatory requirements and are subject to review by the FDA, FTC or other governmental authorities, in addition to other potentially applicable federal and state laws.
The laws that may affect our operations in the United States include:
| ● | the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering, or paying remuneration, directly or indirectly, to induce, or in return for, the purchase or recommendation of an item or service reimbursable under a federal healthcare program, such as the Medicare and Medicaid programs; |
| ● | federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals, or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payors that are false or fraudulent; |
| ● | the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created new federal criminal statutes that prohibit executing a scheme to defraud any healthcare benefit program and making false statements relating to healthcare matters; |
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| ● | HIPAA, as amended by the Health Information Technology and Clinical Health Act, or HITECH, and its implementing regulations, which imposes certain requirements relating to the privacy, security, and transmission of individually identifiable health information; |
| ● | the federal physician sunshine requirements under the Patient Protection and Affordable Care Act, which requires manufacturers of drugs, devices, biologics, and medical supplies to report annually to the Centers for Medicare and Medicaid Services, or CMS, information related to payments and other transfers of value to physicians, other healthcare providers, and teaching hospitals, and ownership and investment interests held by physicians and other healthcare providers and their immediate family members; and |
| ● | foreign and state law equivalents of each of the above federal laws, such as the U.S. Foreign Corrupt Practices Act, or the FCPA, and anti-kickback and false claims laws that may apply to items or services reimbursed by any third-party payor, including commercial insurers; state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the applicable compliance guidance promulgated by the federal government, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state laws that require manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways, thus complicating compliance efforts. |
The scope of these laws and our lack of experience in establishing the compliance programs necessary to comply with this complex and evolving regulatory environment increase the risks that we may violate the applicable laws and regulations.
In addition, product manufacturers and their facilities are subject to continual review and periodic inspections by the European regulatory authorities, the FDA, and other regulatory authorities for compliance with cGMP or any applicable European or other governmental regulations. If we or a regulatory agency discover previously unknown problems with a product such as adverse events of unanticipated severity or frequency or problems with the facility where the product is manufactured, a regulatory agency may impose restrictions relative to that product or the manufacturing facility, including requiring recall or withdrawal of the product from the market or suspension of manufacturing.
If we fail to comply with applicable regulatory requirements following approval of any of our products, one or more regulatory authorities could:
| ● | issue a warning letter asserting that we are in violation of the law; |
| ● | seek an injunction or impose civil or criminal penalties or monetary fines; |
| ● | suspend or withdraw regulatory approval; |
| ● | suspend any ongoing clinical trials; |
| ● | seize our product; or |
| ● | refuse to allow us to enter into supply contracts, including government contracts. |
Any government investigation of alleged violations of law could require us to expend significant time and resources in response and could generate negative publicity and potentially lead to private litigation. The occurrence of any event or penalty described above may inhibit our ability to commercialize our products and generate revenues.
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We have only limited experience in regulatory affairs and intend to rely on consultants and other third parties for regulatory matters, which may affect our ability or the time we require to obtain necessary regulatory approvals.
We have limited experience in preparing and filing the applications necessary to gain regulatory approvals for our products and product candidates to the extent that we decide to make such applications ourselves. Moreover, the products that are likely to result from our development programs are based on new technologies that have not been extensively used in humans. The regulatory requirements governing these types of products may be less well defined or more rigorous than for conventional products. As a result, we may experience a longer regulatory review process in connection with obtaining regulatory approvals, if any, of products that we develop. We intend to rely on independent consultants for regulatory services and compliance and product development and filings in Europe, the United States and elsewhere. Any failure by our consultants to properly advise us regarding, or properly perform tasks related to, regulatory submission and other requirements could compromise our ability to develop and obtain regulatory approval of our products.
We and our strategic partners are subject to stringent regulation and any adverse regulatory action may materially adversely affect our financial condition and business operations.
Our and our strategic partners’ products, development activities, and manufacturing processes are subject to extensive and rigorous regulation by numerous government agencies, including European regulatory authorities, the FDA, and other regulatory authorities. To varying degrees, each of these agencies monitors and enforces our compliance with laws and regulations governing the development, testing, manufacturing, labeling, marketing, and distribution of our products. The process of obtaining marketing approval or clearance in Europe, the United States, and other countries for new products or enhancements or modifications to existing products could:
| ● | take a significant amount of time; |
| ● | require the expenditure of substantial resources; |
| ● | involve rigorous and expensive preclinical and clinical testing, as well as increased post-market surveillance; |
| ● | involve modifications, repairs, or replacements of our products; and |
| ● | result in limitations on the indicated uses of our products. |
We cannot be certain that we, or our strategic partners, will receive required approval or clearance from European regulatory authorities, the FDA, or other regulatory authorities for new products or modifications to existing products on a timely basis. The failure to receive approval or clearance for significant new products or modifications to existing products on a timely basis could have a material adverse effect on our financial condition and results of operations.
Both before and after a product is commercially released, we and our strategic partners have ongoing responsibilities under FDA regulations. For example, we are required to comply with the FDA’s Quality System Regulation, or QSR, which are the good manufacturing requirements that the FDA applies to medical devices, and which mandate that manufacturers adhere to certain requirements pertaining to, among other things, development of our products, validation of manufacturing processes, controls for purchasing product components, and documentation practices. As another example, FDA regulations require us to provide information to the FDA whenever there is evidence that reasonably suggests that a product may have caused or contributed to a death or serious injury, or that a malfunction occurred which would be likely to cause or contribute to a death or serious injury upon recurrence. Compliance with applicable regulatory requirements is subject to continual review and is monitored rigorously through, among other things, periodic inspections by the FDA, which may result in observations on Form 483 that require corrective action, and in some cases warning letters, and potentially stopping the manufacturing until issues are remedied. If the FDA were to conclude that we are not in compliance with applicable laws or regulations, or that any of our products are ineffective or pose an unreasonable health risk, the Company may withdraw or recall the product or the FDA could ban such products, detain or seize such products, order a recall, repair, replacement, or refund of such products, or require us to notify health professionals and others that the devices present unreasonable risks of substantial harm to the public health.
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The FDA has been increasing its scrutiny of the medical device, drugs, and biologics industries, and regulatory agencies are expected to continue to scrutinize the industry closely with inspections, with possible enforcement actions by the FDA or other agencies. Additionally, the FDA may restrict manufacturing and impose other operating restrictions, enjoin and restrain certain violations of applicable law pertaining to medical products, and assess civil or criminal penalties against our officers, employees, or us. The FDA may also recommend prosecution to the Department of Justice. Any adverse regulatory action, depending on its magnitude, may restrict us from effectively manufacturing, marketing, and selling our products. In addition, negative publicity and product liability claims resulting from any adverse regulatory action could have a material adverse effect on our financial condition and results of operations.
Finally, the FDA issued regulations regarding “Current Good Manufacturing Practice Requirements for Combination Products” on January 22, 2013. These regulations may apply to some of our products if they are designated by the FDA as combination products, which are products composed of two or more regulated components, such as a drug and a medical device. There have been and will be additional costs associated with compliance with the FDA Good Manufacturing Practice Requirements regulations for Combination Products.
Governmental regulations have become increasingly stringent and more common, and we may become subject to even more rigorous regulation by governmental authorities in various countries in the future. Penalties for a company’s non-compliance with governmental regulation could be severe, including revocation or suspension of a company’s business license and criminal sanctions.
The impact of healthcare reform and other changes in the healthcare industry and in healthcare spending is currently unknown, and may adversely affect our business model.
The commercial potential for our approved products, if any, could be affected by changes in healthcare spending and policy in Europe, in the United States, and in other countries. We operate in a highly regulated industry and new laws, regulations, or judicial decisions, or new interpretations of existing laws, regulations, or decisions, related to healthcare availability, the method of delivery, or payment for healthcare products and services could negatively impact our business, operations, and financial condition.
In addition to the level of commercial success of our products, our future prospects are also dependent on our ability to successfully develop a pipeline of additional products, and we may not be successful in our efforts in using our platform technologies to identify or discover additional products.
The success of our business depends primarily upon our ability to identify, develop, and commercialize products based on our platform technology. Our research programs may fail to identify other potential products for clinical development for a number of reasons. Our research methodology may be unsuccessful in identifying potential products or our potential products may be shown to have harmful side effects or may have other characteristics that may make the products unmarketable or unlikely to receive marketing approval.
If any of these events occur, we may be forced to abandon our development efforts for a program or programs. Research programs to identify new products require substantial technical, financial, and human resources. We may focus our efforts and resources on potential programs or products that ultimately prove to be unsuccessful.
Risks Related to Our Reliance on Third Parties
We may not be successful in establishing and maintaining strategic partnerships, which could adversely affect our ability to develop and commercialize rhCollagen based products in 3D bioprinting and medical aesthetics and future products for medical and aesthetics markets.
To successfully develop and commercialize our products and product candidates, we will need substantial financial resources as well as expertise and physical resources and systems. We may elect to develop some or all of these physical resources and systems and expertise ourselves, or we may seek to collaborate with another company that can provide some or all of such physical resources and systems as well as financial resources and expertise. For example, in February 2021, we entered into the AbbVie Development Agreement pursuant to which we and AbbVie agreed to collaborate in the development and commercialization of dermal and soft tissue filler products for the medical aesthetics market, using our rhCollagen technology and AbbVie’s technology.
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We face significant competition in seeking appropriate partners for our products and product candidates, and the negotiation process is time-consuming and complex. In order for us to successfully partner our products and product candidates, potential partners must view our products and product candidates as economically valuable in markets they determine to be attractive in light of the terms that we are seeking and other available products for licensing by other companies. Even if we are successful in our efforts to establish strategic partnerships, the terms that we agree upon may not be favorable to us, and we may not be able to maintain such strategic partnerships if, for example, development or approval of a product is delayed or sales of an approved product are disappointing. Any delay in entering into strategic partnership agreements related to our products could delay the development and commercialization of our products and reduce their competitiveness even if they reach the market. If we fail to establish and maintain strategic partnerships related to our products, we will bear all of the risk and costs related to the development and commercialization of our products, and we will need to seek additional financing, hire additional employees and otherwise develop expertise which we do not have and for which we have not budgeted.
The risks in a strategic partnership include the following:
| ● | the strategic partner may not apply the expected financial resources, efforts, or required expertise in developing the physical resources and systems necessary to successfully develop and commercialize a product or product candidate; |
| ● | the strategic partner may not invest in the development of a sales and marketing force and the related infrastructure at levels that ensure that sales of the products reach their full potential; |
| ● | we may be required to undertake the expenditure of substantial operational, financial, and management resources; |
| ● | we may be required to issue equity securities that would dilute our existing shareholders’ percentage ownership; |
| ● | we may be required to assume substantial actual or contingent liabilities; |
| ● | we, or our strategic partner, may not receive requisite regulatory approvals; |
| ● | strategic partners could decide to withdraw a development program, or move forward with a competing product developed either independently or in collaboration with others, including our competitors; |
| ● | disputes may arise between us and a strategic partner that delay the development or commercialization or adversely affect the sales or profitability of the product; or |
| ● | the strategic partner may independently develop, or develop with third parties, products that could compete with our products. |
In addition, a strategic partner for one or more of our products or product candidates may have the right to terminate the collaboration at its discretion. For example, AbbVie may terminate the AbbVie Development Agreement upon 60 days’ written notice to us for any or no reason. Any early termination in a manner adverse to us could have a material adverse effect on our liquidity, financial condition and results of operations. Any termination may require us to seek a new strategic partner, which we may not be able to do on a timely basis, if at all, or require us to delay or scale back our development and commercialization efforts. The occurrence of any of these events could adversely affect the development and commercialization of our products or product candidates and materially harm our business and stock price by delaying the development of our products, and the sale of any products that may be approved by the FDA or other regulatory agencies, by slowing the growth of such sales, by reducing the profitability of the product and/or by adversely affecting the reputation of the product.
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Further, in case of a breach of an agreement with us by a strategic partner, or upon termination by either party to the agreement for any reason, we may not be able to adequately protect our rights under these agreements, including intellectual property rights, or maintain exclusive rights to shared intellectual property rights. Furthermore, a strategic partner will likely negotiate for certain rights to control decisions regarding the development and commercialization of our products, if approved, and may not conduct those activities in the same manner as we would do so.
We expect to depend upon third-party collaborators, distributors, and resellers for a significant portion of our sales.
We expect to rely primarily upon sales through independent collaborators, distributors and resellers. While we are highly dependent upon acceptance of our products and solutions by such third parties and their active marketing and sales efforts relating to our products, most of our distributors and resellers will not be obligated to deal with us exclusively and are not contractually subject to minimum purchase requirements. In addition, some of our distributors and resellers may sell competing products or solutions. As a result, our distributors and resellers may give higher priority to products or services of our competitors, thereby reducing their efforts in selling our products and services.
There can be no assurance that such distributors and resellers will act as effective sales agents for us, that they will remain our partners, or that, if we terminate or lose any of them, we will be successful in replacing them. Any disruption in our distribution channels could adversely affect our business, operating results, and financial condition.
We expect to rely on third parties to conduct some aspects of our product manufacturing, protocol development, research, and preclinical and clinical testing, and these third parties may not perform satisfactorily.
We do not expect to independently conduct all aspects of our product manufacturing, protocol development, research, and preclinical and clinical testing. We currently rely, and expect to continue to rely, on third parties, including strategic partners, with respect to parts of these items.
Any of these third parties may terminate their engagements with us at any time or upon advance notice. If we need to enter into alternative arrangements, it could delay our product development activities. Our reliance on these third parties for research and development activities will reduce our control over these activities but will not relieve us of our responsibility to ensure compliance with all required regulations and study protocols.
If these third parties do not successfully carry out their contractual duties, meet expected deadlines, or conduct our studies in accordance with regulatory requirements or our stated study plans and protocols, we may not be able to complete, or may be delayed in completing, the preclinical studies and clinical trials required to support future FDA, European, or other approvals of our products.
Reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured the products ourselves, including:
| ● | the inability to negotiate manufacturing agreements with third parties under commercially reasonable terms; |
| ● | reduced control as a result of using third-party manufacturers for all aspects of manufacturing activities; |
| ● | termination or non-renewal of manufacturing agreements with third parties in a manner or at a time that is costly or damaging to us; and |
| ● | disruptions to the operations of our third-party manufacturers or suppliers caused by conditions unrelated to our business or operations, including the bankruptcy of the manufacturer or supplier. |
Any of these events could lead to clinical trial delays or failure to obtain regulatory approval, or impact our ability to successfully commercialize future products. Some of these events could be the basis of action from European regulatory authorities, the FDA, or other regulatory authorities, including injunction, recall, seizure, or total or partial suspension of production.
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If we or our third parties on which we rely cannot manufacture our products at sufficient yields, we may experience delays in development, regulatory approval, and commercialization.
Commercialization of our products require access to, or development of facilities to manufacture our products at sufficient yields and at a commercial scale. We have limited experience in large scale manufacturing volumes that are expected to be necessary to support large-scale sales. Our efforts to establish these capabilities may not meet our requirements as to scale-up, yield, cost, potency, or quality in compliance with cGMP. Future clinical trials should be conducted with product produced under applicable cGMP regulations. Failure to comply with these regulations would delay the regulatory approval process. Even an experienced third-party manufacturer may encounter difficulties in production, including:
| ● | costs and challenges associated with scale-up and attaining sufficient manufacturing yields; |
| ● | supply chain issues, including the timely availability and shelf-life requirements of raw materials and supplies; |
| ● | quality control and assurance; |
| ● | shortages of qualified personnel and capital required to manufacture large quantities of product; |
| ● | compliance with regulatory requirements that vary in each country where a product might be sold; |
| ● | capacity limitations and scheduling availability in contracted facilities; and |
| ● | natural disasters or war and terrorism that affect facilities and possibly limit production. |
Any delay or interruption in the supply of our products could have a material adverse effect on our business and operations.
The regulatory authorities also may, at any time following approval of a product for sale, audit our manufacturing facilities or those of our third-party contractors. If any such inspection or audit identifies a failure to comply with applicable regulations or our product specifications or if a violation of applicable regulations, including a failure to comply with the product specifications, occurs independent of such an inspection or audit, we or the relevant regulatory authority may require remedial measures that may be costly or time consuming for us or a third party to implement and that may include the temporary or permanent suspension of a clinical trial or commercial sales or the temporary or permanent closure of a facility.
If we or any of our third-party manufacturers fail to maintain regulatory compliance, the FDA or the European authorities can impose regulatory sanctions including, among other things, refusal to approve a pending application for a new product or revocation of a pre-existing approval.
Additionally, if supply from one approved manufacturer or if supply from our own facility is interrupted, there could be a significant disruption in commercial supply. Switching manufacturers or facilities may involve substantial costs and is likely to result in a delay in our desired clinical and commercial timelines. While we currently have a plan to upgrade our production site in Israel into a large-scale integrated facility, we may not be able to secure the necessary funds for its execution, and our plan may not come into effect, or if it does, it may not be successful.
These factors could cause the delay of clinical trials, regulatory submissions, required approvals, or commercialization of our products; cause us to incur higher costs; and prevent us from commercializing our products successfully. Furthermore, if our suppliers fail to meet contractual requirements, and we are unable to secure one or more replacement suppliers capable of production at a substantially equivalent cost, our clinical trials may be delayed or we could lose potential revenue.
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We are relying on third parties to conduct, supervise, and monitor our existing pre-clinical studies, and our future clinical trials, and if these third parties perform in an unsatisfactory manner, it may harm our business.
We rely on our CROs and other consultants and third parties to conduct, supervise, and monitor our pre-clinical studies. In addition, as part of our future clinical trials, we expect to rely heavily on hospitals, clinic centers, and other institutions and third parties, including the principal investigators and their staff, to carry out our future clinical trials in accordance with our clinical protocols and designs. As part of our future clinical trials, we also expect to rely on a number of CROs to assist in undertaking, managing, monitoring, and executing future clinical trials as well as clinical data management organizations, medical institutions, and clinical investigators to conduct our development efforts in the future. We compete with many other companies for the resources of these third parties, and large pharmaceutical and medical device companies often have significantly more extensive agreements and relationships with such third-party providers, and such third-party providers may prioritize the requirements of such large pharmaceutical and medical device companies over ours. The third parties on whom we rely on may terminate their engagements with us at any time, which may cause delay in the development and commercialization of our products or product candidates. If any such third party terminates its engagement with us or fails to perform as agreed, we may be required to enter into alternative arrangements, which would result in significant cost and delay to our product development program. Moreover, our agreements with such third parties generally do not provide assurances regarding employee turnover and availability, which may cause interruptions in the research on our products by such third parties.
Moreover, while our reliance on these third parties for certain development, trial and management activities will reduce our control over these activities, it will not relieve us of our responsibilities. For example, European regulatory authorities, the FDA, and other regulatory authorities require compliance with regulations and standards, including GCP requirements, for designing, conducting, monitoring, recording, analyzing, and reporting the results of clinical trials to ensure that the data and results from trials are credible and accurate and that the rights, integrity, and confidentiality of trial participants are protected. Although we expect to rely on third parties to conduct our clinical trials, we are responsible for ensuring that each of these clinical trials is conducted in accordance with its general investigational plan and protocol under legal and regulatory requirements. Regulatory authorities enforce these GCP requirements through periodic inspections of trial sponsors, principal investigators, and trial sites. If we or any of our CROs or these other third parties fail to comply with applicable GCP requirements, the clinical data generated in our clinical trials may be deemed unreliable, and European regulatory authorities, the FDA, or other regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. We cannot assure you that upon inspection by a regulatory authority, such regulatory authority will determine that any of our clinical trials comply with GCP requirements.
If CROs and other third parties do not successfully carry out their duties under their agreements with us, if the quality or accuracy of the data they obtain is compromised due to their failure to adhere to trial protocols or to regulatory requirements, or if they otherwise fail to comply with regulations and trial protocols or meet expected standards or deadlines, the trials of our products or product candidates may not meet regulatory requirements. If trials do not meet regulatory requirements or if these third parties need to be replaced, the development of our products or product candidates may be delayed, suspended, or terminated, or the results may not be acceptable. If any of these events occur, we may not be able to obtain regulatory approval of our products on a timely basis, at a reasonable cost, or at all.
Our reliance on third parties may require us to share our trade secrets, which increases the possibility that a competitor will discover them or that our trade secrets will be misappropriated or disclosed.
Because we rely on third parties to manufacture our products, and because we collaborate with various organizations and academic institutions on the advancement of our technology, we must, at times, share trade secrets with them. We seek to protect our proprietary technology, rights and information in part by entering into confidentiality agreements and, if applicable, material transfer agreements, collaborative research agreements, consulting agreements, or other similar agreements with our strategic partners, service providers, advisors, employees, and consultants prior to beginning research or disclosing proprietary information. These agreements typically limit the rights of the third parties to use or disclose our confidential information, such as proprietary information and trade secrets. Despite these contractual provisions, the need to share trade secrets and other confidential information increases the risk that such trade secrets and information become known by potential competitors, are inadvertently incorporated into the technology of others, or are disclosed or used in violation of these agreements. Given that our proprietary position is based, in part, on our know-how and trade secrets, discovery by a third party of our trade secrets or other unauthorized use or disclosure would impair our intellectual property rights and protections in our products.
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In addition, these agreements typically restrict the ability of our collaborators, advisors, employees, and consultants to publish data potentially relating to our trade secrets. Our academic collaborators typically have rights to publish data, provided that we are notified in advance and may delay publication for a specified time in order to secure our intellectual property rights arising from the collaboration. In other cases, publication rights are controlled exclusively by us, although in some cases we may share these rights with other parties. Despite our efforts to protect our trade secrets, our competitors may discover our trade secrets, either through breach of these agreements, independent development, or publication of information including our trade secrets in cases where we do not have proprietary or otherwise protected rights at the time of publication.
It could be difficult to replace some of our suppliers and equipment vendors.
Outside vendors provide key components, raw materials, and equipment used in the manufacture of our products. An uncorrected defect or supplier’s variation in a component or raw material, either unknown to us or incompatible with our manufacturing process, could harm our ability to manufacture products or conduct research and developments activities. We may not be able to find a sufficient alternative supplier in a reasonable time period, or on commercially reasonable terms, if at all, and our ability to conduct research and development activities or produce and supply our products could be impaired.
If we were suddenly unable to purchase from one or more of these companies, we would need a significant period of time to qualify a replacement, and the production of any affected products could be disrupted. While it is our policy to maintain sufficient inventory of components so that our development programs and production will not be significantly disrupted even if a particular component or material is not available for a period of time, we remain at risk that we will not be able to qualify new components or materials quickly enough to prevent a disruption if one or more of our suppliers ceases production of important components or materials, or if we are unable to quickly procure replacement equipment.
Risks Related to Our Business Operations
Our future success depends on our ability to retain senior management, consultants, and advisors and to attract, retain, and motivate qualified personnel.
We are dependent on principal members of our executive team listed under “Management” in this Annual Report, the loss of whose services may adversely impact the achievement of our objectives. While we have entered into employment agreements with each member of our senior management, any of them could leave our employment at any time, subject to advance notice periods. Recruiting and retaining other qualified employees, consultants, and advisors for our business, including scientific and technical personnel, will also be critical to our success. There is currently a shortage of skilled executives in our industry, which is likely to continue. As a result, competition for skilled personnel is intense and the turnover rate can be high. We may not be able to attract and retain personnel on acceptable terms given the competition among numerous pharmaceutical and medical device companies for individuals with similar skill sets. In addition, failure to succeed in clinical trials may make it more challenging to recruit and retain qualified personnel. The inability to recruit or loss of the services of any executive, key employee, consultant, or advisor may impede the progress of our research, development, and commercialization objectives.
Our collaborations with outside scientists and consultants may be subject to restriction and change.
We work with medical experts, chemists, biologists, and other scientists at academic and other institutions, and consultants who assist us in our research, development, and regulatory efforts, including the members of our scientific advisory board. In addition, these scientists and consultants have provided, and we expect that they will continue to provide, valuable advice regarding our programs and regulatory approval processes. These scientists and consultants are not our employees and may have other commitments that would limit their future availability to us. If a conflict of interest arises between their work for us and their work for another entity, we may lose their services. In addition, we are limited in our ability to prevent them from establishing competing businesses or developing competing products. For example, if a key scientist acting as a principal investigator in any of our clinical trials identifies a potential product that is more scientifically interesting to his or her professional interests, his or her availability to remain involved in our clinical trials could be restricted or eliminated.
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Our business and operations would suffer in the event of computer system failures or security breaches.
Despite the implementation of security measures, our internal computer systems, and those of our strategic partners, CROs and other third parties on which we rely, are vulnerable to damage from computer viruses, unauthorized access, cyber-attacks, natural disasters, fire, terrorism, war, and telecommunication and electrical failures. If such an event were to occur and interrupt our operations, it could result in a material disruption of our development programs. For example, the loss of clinical trial data from ongoing or planned clinical trials could result in delays in our or our strategic partners’ regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach results in a loss of or damage to our data or applications, loss of trade secrets or inappropriate disclosure of confidential or proprietary information, including protected health information or personal data of employees or former employees, access to our clinical data, or disruption of the manufacturing process, we could incur liability and the further development of our product candidates could be delayed. We may also be vulnerable to cyber-attacks by hackers or other malfeasance. This type of breach of our cybersecurity may compromise our confidential information and/or our financial information and adversely affect our business or result in legal proceedings. Further, these cybersecurity breaches may inflict reputational harm upon us that may result in decreased market value and erode public trust.
We will need to expand our organization and we may experience difficulties in managing this growth, which could disrupt our operations.
As of March 20, 2024, we had 75 employees. As we mature and undertake the activities required to advance our products and product candidates and to operate as a public company in the United States, we expect to expand our full-time employee base and to hire more consultants and contractors. Our management may need to divert a disproportionate amount of its attention away from our day-to-day activities and devote a substantial amount of time to managing these growth activities. We may not be able to effectively manage the expansion of our operations, which may result in weaknesses in our infrastructure, operational setbacks, loss of business opportunities, loss of employees, and reduced productivity among remaining employees. Our expected growth could require significant capital expenditures and may divert financial resources from other projects, such as the development of additional products. If our management is unable to effectively manage our growth, our expenses may increase more than expected, our ability to generate or grow revenue could be compromised, and we may not be able to implement our business strategy. Our future financial performance and our ability to commercialize products and compete effectively will depend, in part, on our ability to effectively manage any future growth.
Our employees, principal investigators, consultants, and commercial partners may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements and insider trading.
We are exposed to the risk of fraud or other misconduct by our employees, principal investigators, consultants, commercial and strategic partners and other third parties. Misconduct by these parties could include intentional failures to comply with regulations, provide accurate information to European regulatory authorities, the FDA and other regulatory authorities, comply with healthcare fraud and abuse laws and regulations, report financial information or data accurately, or disclose unauthorized activities to us. In particular, sales, marketing, and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing, and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs, and other business arrangements. Such misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and cause serious harm to our reputation. We have adopted a code of business conduct and ethics applicable to all of our employees, but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines or other sanctions.
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We face potential product liability, and, if successful claims are brought against us, we may incur substantial liability and costs. If the use of our products harm patients, or is perceived to harm patients even when such harm is unrelated to our products, our regulatory approvals could be revoked or otherwise negatively impacted and we could be subject to costly and damaging product liability claims.
The use of our products in clinical trials and the sale of any products exposes us to the risk of product liability claims. Product liability claims might be brought against us by consumers, healthcare providers, pharmaceutical and medical device companies, or others that sell or otherwise come into contact with our products. There is a risk that our products may induce adverse events. If we cannot successfully defend against product liability claims, we could incur substantial liability and costs. In addition, regardless of merit or eventual outcome, product liability claims may result in:
| ● | impairment of our business reputation; |
| ● | withdrawal of clinical trial participants; |
| ● | costs due to related litigation; |
| ● | distraction of management’s attention from our primary business; |
| ● | substantial monetary awards to patients or other claimants; |
| ● | the inability to commercialize our products; |
| ● | decreased demand for our products, if approved for commercial sale; and |
| ● | impairment of our ability to obtain product liability insurance coverage. |
We currently carry product liability insurance of $5.0 million for sales of VergenixFG and VergenixSTR. If we obtain marketing approval for additional products, we intend to obtain insurance coverage to include the sale of those commercial products, but we may not be able to obtain product liability insurance on commercially reasonable terms or in adequate amounts. On occasion, large judgments have been awarded in class action lawsuits based on medical treatments that had unanticipated adverse effects. A product liability claim or series of claims brought against us could cause our ordinary share price to decline and, if judgments exceed our insurance coverage, could materially and adversely affect our financial position.
Our development and production of rhCollagen relies upon the continued availability of tobacco plants, and any interruption in availability or supply of tobacco plants may delay production and adversely affect commercial utilization of our rhCollagen-based products.
Our products are all based on our rhCollagen extracted from tobacco plants. Any disruption to the supply of tobacco plants or any change in its availability for use would delay our production of collagen and adversely affect commercial utilization of our products.
The occurrence of severe adverse weather conditions, soil salination or crop diseases may have a potentially devastating impact upon our tobacco production. The effect of severe adverse weather conditions or the occurrence and effect of crop disease may reduce yields in our plants or require higher levels of investment to maintain yields, even when only a portion of the crop is damaged. We cannot assure you that severe future adverse weather conditions, crop diseases or any other interruption in availability or supply of tobacco plants will not adversely impact our operating results and financial condition.
If our existing rhCollagen production sites or any new facilities are damaged or destroyed, or production at these facilities is otherwise interrupted, our business and prospects would be negatively affected.
We currently have two small-scale production sites in Israel where we manufacture rhCollagen. If our existing production facilities or any new facility, or the equipment in it, are damaged or destroyed, we likely would not be able to quickly or inexpensively replace our production capacity. Any new facility needed to replace our existing production facility would need to comply with the necessary regulatory requirements and be tailored to our production requirements and processes. We would need regulatory approval before using any products manufactured at a new facility in clinical trials or selling any products that are ultimately approved. Such an event could delay our or our strategic partners’ clinical trials or, if any of our products are approved by the regulator, reduce or eliminate our product sales.
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If we fail to comply with environmental, health, and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse impact on the success of our business.
We are subject to numerous environmental, health, and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment, and disposal of hazardous materials and wastes. These laws, regulations, and permits could potentially require the expenditure by us of significant amounts for compliance or remediation. If we fail to comply with such laws, regulations, or permits, we may be subject to fines and other civil, administrative, or criminal sanctions, including the revocation of permits and licenses necessary to continue our business activities. See “Item 4.B. Environmental, Health, and Safety Matters” for additional information.
Our operations involve the use of hazardous materials, including chemicals and biological materials. Our operations also produce hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties.
Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials or other work-related injuries, this insurance may not provide adequate coverage against potential liabilities. In addition, we may incur substantial costs in order to comply with current or future environmental, health, and safety laws and regulations. These current or future laws and regulations may impair our research, development or production efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties, or other sanctions.
We may use our financial and human resources to pursue a particular research program or product and fail to capitalize on programs or products that may be more profitable or for which there is a greater likelihood of success.
Because we have limited resources, we may forego or delay pursuit of opportunities with certain programs or products or for indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and future research and development programs for products may not yield any commercially viable products. If we do not accurately evaluate the commercial potential or target market for a particular product, we may relinquish valuable rights to that product through strategic collaboration, licensing, or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such product, or we may allocate internal resources to a product in a therapeutic area in which it would have been more advantageous to enter into a collaboration arrangement.
We are subject to foreign currency exchange risk, and fluctuations between the U.S. dollar and the NIS, the Euro, and other non-U.S. currencies may adversely affect our earnings and results of operations.
We currently operate in two different currencies. While the U.S. dollar is our functional and reporting currency, we incur a portion of our expenses in NIS. As a result, our financial results may be adversely affected by fluctuations in currency exchange rates.
We are exposed to the risks that the NIS may appreciate relative to the U.S. dollar, in such event, the dollar-denominated results of operations would be adversely affected. We cannot predict any future trends in the rate of inflation in Israel or the rate of devaluation (if any) of the NIS against the dollar. For example, the average exchange rate of the dollar against the NIS decreased in 2021, but increased in 2022 and 2023. Market volatility and currency fluctuations may limit our ability to cost-effectively hedge against our foreign currency exposure. Hedging strategies may not eliminate our exposure to foreign exchange rate fluctuations and may involve costs and risks of their own, such as devotion of management time, external costs to implement the strategies, and potential accounting implications. Foreign currency fluctuations, independent of the performance of our underlying business, could lead to materially adverse results or could lead to positive results that are not repeated in future periods.
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We or the third parties upon whom we depend may be adversely affected by natural disasters and/or health epidemics, and our business continuity and disaster recovery plans may not adequately protect us from a serious disaster.
Natural disasters could severely disrupt our operations and have a material adverse effect on our business, results of operations, financial condition and prospects. If a natural disaster, power outage, health epidemic or other event occurred that prevented us from using all or a significant portion of our office, manufacturing and/or lab spaces, that damaged critical infrastructure, such as the manufacturing facilities of our third-party contract manufacturers, CROs, clinical sites, tobacco plants growers, third parties ongoing activities and schedules or that otherwise disrupted operations, it may be difficult or, in certain cases, impossible for us to continue our plans and business for a substantial period of time. The disaster recovery and business continuity plans we have in place may prove inadequate in the event of a serious disaster or similar event. We may incur substantial expenses as a result of the limited nature of our disaster recovery and business continuity plans, which could have a material adverse effect on our business.
Our business may be adversely affected if there is a resurgence of the COVID-19 pandemic.
Public health epidemics or outbreaks could adversely impact our business. In late 2019, a novel strain of COVID-19, also known as coronavirus, was reported in Wuhan, China. Initially the outbreak was largely concentrated in China, but it rapidly spread to countries across the globe, including in Israel and the United States. Many countries around the world, including in Israel and the United States, implemented significant governmental measures to control the spread of the virus, including temporary closure of businesses, severe restrictions on travel and the movement of people, and other material limitations on the conduct of business. In response, for several months in 2020, we implemented remote working and workplace protocols for our employees in accordance Israeli Ministry of Health requirements to ensure employee safety and all employees have been instructed on and encouraged to practice best social distancing behaviors.
If there is a resurgence of COVID-19 its spread may materially affect us economically. While the potential economic impact brought by, and the duration of, any future resurgence of the COVID-19 pandemic may be difficult to assess or predict, it has already caused, and could result in further, significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity and financial position. In addition, the trading prices for other companies have been highly volatile as a result of the COVID-19 pandemic. As a result, we may face difficulties raising capital through sales of our ordinary shares or other securities and such sales may be on unfavorable terms. To the extent that future waves of COVID-19 disrupt normal business operations, we may face operational challenges with our services, and we likely will have to adopt remote working and workplace protocols for employees in accordance with government requirements and other measures to minimize such impact.
The extent to which COVID-19 impacts our operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration and severity of the outbreak, and the actions that may be required to contain COVID-19 or treat its impact. In particular, the extent to which any resurgence of the COVID-19 pandemic may impact our business and financial performance will depend on future developments, which are highly uncertain and cannot be predicted with confidence including our research and clinical trials and our ability to raise capital, could affect the operations of key governmental agencies and could result in the inability of our suppliers to deliver components or raw materials on a timely basis or at all, each of which in turn could have an adverse impact on our business, financial condition and results of operation.
Our business, operating results and growth rates may be adversely affected by current or future unfavorable economic and market conditions and adverse developments with respect to financial institutions and associated liquidity risk.
Our business depends on the economic health of the global economies. If the conditions in the global economies remain uncertain or continue to be volatile, or if they deteriorate, including as a result of the impact of military conflict, such as the war between Russia and Ukraine and Hamas and Israel, terrorism or other geopolitical events, our business, operating results and financial condition may be materially adversely affected. Economic weakness, inflation and increases in interest rates, limited availability of credit, liquidity shortages and constrained capital spending have at times in the past resulted, and may in the future result, in challenging and delayed sales cycles, slower adoption of new technologies and increased price competition, and could negatively affect our ability to forecast future periods, which could result in an inability to satisfy demand for our products and a loss of market share.
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In addition, increases in inflation raise our costs for commodities, labor, materials and services and other costs required to grow and operate our business, and failure to secure these on reasonable terms may adversely impact our financial condition. Additionally, increases in inflation, along with the uncertainties surrounding geopolitical developments and global supply chain disruptions, have caused, and may in the future cause, global economic uncertainty and uncertainty about the interest rate environment, which may make it more difficult, costly or dilutive for us to secure additional financing. A failure to adequately respond to these risks could have a material adverse impact on our financial condition, results of operations or cash flows.
There can be no assurance that future credit and financial market instability and a deterioration in confidence in economic conditions will not occur. Our general business strategy may be adversely affected by any such economic downturn, liquidity shortages, volatile business environment or continued unpredictable and unstable market conditions. If the current equity and credit markets deteriorate, or if adverse developments are experienced by financial institutions, it may cause short-term liquidity risk and also make any necessary debt or equity financing more difficult, more costly, more onerous with respect to financial and operating covenants and more dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial performance and stock price and could require us to alter our operating plans. In addition, there is a risk that one or more of our service providers, financial institutions, manufacturers, suppliers and other partners may be adversely affected by the foregoing risks, which could directly affect our ability to attain our operating goals on schedule and on budget.
Environmental, social and corporate governance (ESG) issues, including those related to climate change and sustainability, may have an adverse effect on our business, financial condition and results of operations and damage our reputation.
There is growing attention from certain investors, customers, consumers, employees and other stakeholders concerning ESG matters. Additionally, public interest and legislative pressure related to public companies’ ESG practices continue to grow. If our ESG practices fail to meet regulatory requirements or investor, customer, consumer, employee or other shareholders’ evolving expectations and standards for responsible corporate citizenship in areas including environmental stewardship, support for local communities, board of Directors and employee diversity, human capital management, employee health and safety practices, product quality, supply chain management, corporate governance and transparency, our reputation, brand and employee retention may be negatively impacted, and our customers and suppliers may be unwilling to continue to do business with us.
Customers, consumers, investors and other shareholders are increasingly focusing on environmental issues, including climate change, energy and water use, plastic waste and other sustainability concerns. Concern over climate change may result in new or increased legal and regulatory requirements to reduce or mitigate impacts to the environment. Changing customer and consumer preferences or increased regulatory requirements may result in increased demands or requirements regarding plastics and packaging materials, including single-use and non-recyclable plastic products and packaging, other components of our products and their environmental impact on sustainability, or increased customer and consumer concerns or perceptions (whether accurate or inaccurate) regarding the effects of substances present in certain of our products. Complying with these demands or requirements could cause us to incur additional manufacturing, operating or product development costs.
If we do not adapt to or comply with new regulations, including the SEC’s published proposed rules that would require companies to provide significantly expanded climate-related disclosures in their periodic reporting, which may require us to incur significant additional costs to comply and impose increased oversight obligations on our management and board of directors, or fail to meet evolving investor, industry or stakeholder expectations and concerns regarding ESG issues, investors may reconsider their capital investment in our Company, we may become subject to penalties, and customers and consumers may choose to stop purchasing our products, if approved for commercialization, which could have a material adverse effect on our reputation, business or financial condition.
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Risks Related to Our Intellectual Property
We have an extensive worldwide patent portfolio. The cost of maintaining our worldwide patent protection is high and requires continuous review and compliance with procedural and documentary requirements. We may not be able to effectively maintain our intellectual property position throughout the major markets of the world.
The U.S. Patent and Trademark Office, or U.S. PTO, and foreign patent authorities require maintenance fees and payments as well as continued compliance with several procedural and documentary requirements. Non-compliance may result in abandonment or lapse of the subject patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance may result in reduced royalty payments for lack of patent coverage in a particular jurisdiction from our collaboration partners or may result in competition, either of which could have a material adverse effect on our business.
We have made, and will continue to make, certain strategic decisions in balancing costs and the potential protection afforded by the patent laws of certain countries. As a result, we may not be able to prevent third parties from practicing our inventions in all countries throughout the world, or from selling or importing products made using our inventions in and into the United States or other countries. Third parties may use our technologies in territories in which we have not obtained patent protection to develop their own products and, further, may infringe our patents in territories which provide inadequate enforcement mechanisms, even if we have patent protection. Such third-party products may compete with our products, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.
If we are unable to obtain or protect intellectual property rights related to our products and product candidates, we may not be able to obtain exclusivity for our products or prevent others from developing similar competitive products.
We rely upon a combination of granted patents, pending patent applications, trade secret protection, and confidentiality agreements to protect the intellectual property related to our products and product candidates. The strength of patents in the field of regenerative medicine involves complex legal and scientific questions and can be uncertain. The patent applications that we own may fail to result in issued patents with claims that cover our products in the United States or in other countries. There is no assurance that all of the potentially relevant prior art relating to our patents and patent applications has been found, which can invalidate a patent or prevent a patent from issuing from a pending patent application. Even if patents do successfully issue and even if such patents cover our products, third parties may challenge their validity, enforceability, or scope, which may result in the patent claims being narrowed or invalidated. Furthermore, even if they are unchallenged, our patents and patent applications may not adequately protect our intellectual property, provide exclusivity for our products, or prevent others from designing around our claims. Any of these outcomes could impair our ability to prevent competition from third parties.
Our ability to attract third parties to collaborate with us to develop products and our ability to commercialize future products may be adversely affected if the patent applications we hold with respect to our techniques or products fail to issue, if the breadth or strength of our patent protection is threatened, or if our patent portfolio fails to provide meaningful exclusivity for our products. Third parties may challenge their validity or enforceability of our patents or patents that issue in the future from our patent applications, which may result in such patents being narrowed, invalidated, or held unenforceable. Even if our patents and patent applications are not challenged by third parties, they may not prevent others from designing around our claims and may not otherwise adequately protect our products. If the breadth or strength of protection provided by the patents and patent applications we hold with respect to our products is threatened, our ability to commercialize our products may be adversely affected.
Discoveries are generally published in the scientific literature well after their actual development, and patent applications in the United States and other countries are typically not published until 18 months after filing and in some cases are never published. Therefore, we cannot be certain that we were the first to make the inventions claimed in our owned granted patents or patent applications, or that we were the first to file for patent protection covering such inventions. Subject to meeting other requirements for patentability, for United States patent applications filed prior to March 16, 2013, the first to invent the claimed invention is entitled to receive patent protection for that invention while, outside the United States, the first to file a patent application encompassing the invention is entitled to patent protection for the invention. In addition, patents have a limited lifespan. In the United States, the expiration of a patent is generally 20 years from the earliest non-provisional filing date. Various extensions may be available, but the life of a patent, and the protection it affords, is limited. Once the patent life has expired for a product, we may be open to competition from third party products, including products that are copies of our products. This risk is material in light of the length of the development process of our products and lifespan of our current patent portfolio.
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In addition to the protection afforded by patents, we rely on trade secret protection and confidentiality agreements to protect our proprietary know-how and other proprietary information that is not patentable or that we elect not to patent. For example, many of our discovery, development, and manufacturing processes involve proprietary know-how, information, or technology that is not covered by patents. We seek to protect our trade secrets and proprietary technology and processes, in part, by entering into confidentiality agreements with our employees, consultants, scientific advisors, and contractors. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical and electronic security of our information technology systems. Security measures may be breached, and we may not have adequate remedies for any breach. In addition, our trade secrets may otherwise become known or be independently discovered by competitors. Although we contractually require all of our employees and consultants to assign their inventions to us, and all of our employees, consultants, advisors, and any third parties who have access to our proprietary know-how, information, or technology to enter into confidentiality agreements, we cannot provide any assurances that all such agreements have been duly executed, that our trade secrets and other confidential proprietary information will not be disclosed, or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. Misappropriation or unauthorized disclosure of our trade secrets could impair our competitive position and may have a material adverse effect on our business. Additionally, if the steps taken to maintain our trade secrets are deemed inadequate, we may have insufficient recourse against third parties for misappropriating the trade secret. In addition, others may independently discover our trade secrets and proprietary information. For example, the FDA, as part of its Transparency Initiative, is currently considering whether to make additional information publicly available on a routine basis, including information that we may consider to be trade secrets or other proprietary information, and it is not clear at the present time how the FDA’s disclosure policies may change in the future, if at all.
Further, the laws of some countries do not protect proprietary rights to the same extent or in the same manner as the laws of the United States. As a result, we may encounter significant problems in protecting and defending our intellectual property both in the United States and in other countries. If we are unable to prevent material disclosure of the non-patented intellectual property related to our technologies to third parties, and there is no guarantee that we will have any such enforceable trade secret protection, we may not be able to establish or maintain a competitive advantage in our market.
Third-party claims of intellectual property infringement may prevent or delay our development and commercialization efforts.
Our commercial success depends in part on our avoiding infringement of the patents and proprietary rights of third parties. There is a substantial amount of litigation, both within and outside the United States, involving patents and other intellectual property rights in the biotechnology and pharmaceutical industries, including patent infringement lawsuits, interferences, oppositions, and inter partes review proceedings before the U.S. PTO, and corresponding foreign patent offices. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are pursuing development technologies. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our products may be subject to claims of infringement of the patent rights of third parties.
Third parties may assert that we are employing their proprietary technology without authorization. There may be third-party patents or patent applications with claims to materials, formulations, methods of manufacture, or methods for treatment related to the use or manufacture of our products. Because patent applications can take many years to issue, there may be currently pending patent applications which may later result in issued patents that our products may be accused of infringing. In addition, third parties may obtain patents in the future and claim that use of our technologies infringes upon these patents. If any third-party patents were held by a court of competent jurisdiction to cover the manufacturing process of any of our products or any final product itself, the holders of any such patents may be able to block our ability to commercialize such product unless we obtained a license under the applicable patents, or until such patents expire. Similarly, if any third-party patents were held by a court of competent jurisdiction to cover aspects of our formulations, processes for manufacture, or methods of use, the holders of any such patents may be able to block our ability to develop and commercialize the applicable product unless we obtained a license or until such patent expires. In either case, such a license may not be available on commercially reasonable terms or at all.
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The patent landscape in competitive product areas is highly complex and there may be patents of third parties of which we are unaware that may result in claims of infringement. Accordingly, there can be no assurance that our products do not infringe the proprietary rights of third parties. Parties making claims against us may obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize one or more of our products. Defense of such claims, regardless of their merit, would involve substantial litigation expenses and would be a substantial diversion of financial and employee resources from our business. In the event of a successful claim of infringement against us, we may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, pay royalties, redesign our infringing products, or obtain one or more licenses from third parties, which may be impossible or require substantial time and monetary expenditure.
We intend, if necessary, to vigorously enforce our intellectual property to protect the proprietary position of our products. Active efforts to enforce our patents may include litigation, post-grant patent challenges, administrative proceedings, or all of the foregoing, depending on the potential benefits that might be available from those actions and the costs associated with undertaking those efforts against third parties. We review and monitor publicly available information regarding products that may be competitive with our products and intend to assert our intellectual property rights where appropriate.
We may enter into license agreements with third parties, and if we fail to comply with our obligations in such agreements under which we license intellectual property rights from third parties or otherwise experience disruptions to our business relationships with our licensors, we could lose license rights that are important to our business.
We may need to obtain licenses from third parties to advance our research or allow commercialization of our products and product candidates. We may fail to obtain any of these licenses at a reasonable cost or on reasonable terms, if at all. In that event, we may be required to expend significant time and resources to develop or license replacement technology. If we are unable to do so, we may be unable to develop or commercialize the affected products.
We may be involved in lawsuits or administrative proceedings to obtain, protect or enforce our patents, which could be expensive, time consuming, and unsuccessful.
Competitors may infringe our patents. To counter infringement or unauthorized use, we may be required to file an infringement suit, which can be expensive and time consuming. In addition, in an infringement proceeding, the defendant may file a countersuit, challenging the validity or enforceability of our patent. In that case, a court may decide that a patent of ours is not valid, is unenforceable, or is not infringed, or it may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation or defense proceedings could put one or more of our patents at risk of being invalidated or interpreted narrowly and could put our patent applications at risk of not issuing.
We may not be able to prevent misappropriation of our intellectual property rights, particularly in countries where the laws may not protect those rights.
Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of hearings, motions, or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the trading price of our ordinary shares.
Recent patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents.
On September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. The Leahy-Smith Act includes a number of significant changes to U.S. patent law, including provisions that affect the way patent applications are prosecuted and also affect patent litigation. The U.S. PTO has developed regulations and procedures to govern administration of the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act, and in particular, the first to file provisions which were enacted March 16, 2013. However, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our business. The Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents. We may become involved in post-grant proceedings challenging our patents or the patents of others, and the outcome of any such proceedings is highly uncertain. An unfavorable outcome in any such proceedings could reduce the scope of, or invalidate, our patent rights, allow third parties to commercialize our technology and compete directly with us, or result in our inability to manufacture, develop, or commercialize our products without infringing the patent rights of others.
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We may be subject to claims that our employees, consultants, or independent contractors have wrongfully used or disclosed confidential information of third parties or, that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.
Certain of our employees and personnel were previously employed at universities, medical institutions, or other biotechnology or pharmaceutical companies. Although we try to ensure that our employees, consultants, and independent contractors do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or our employees, consultants, or independent contractors have inadvertently or otherwise used or disclosed intellectual property, including trade secrets or other proprietary information, of any of our employee’s former employer or other third parties. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees. Furthermore, universities or medical institutions who employ some of our key employees and personnel in parallel to their engagement by us may claim that intellectual property developed by such person is owned by the respective academic or medical institution under the respective institution, intellectual property policy or applicable law.
We may become subject to claims for remuneration or royalties for assigned service invention rights by our employees, which could result in litigation and adversely affect our business.
A significant portion of our intellectual property has been developed by our employees in the course of their employment for us. Section 134 of the Israeli Patents Law, 5727-1967, or the Patents Law, grants employees the right to receive consideration for service inventions unless otherwise provided in an agreement between the parties. According to a decision by the special Committee for Compensations and Royalties formed under the Patents Law, or the Committee, an employee’s right to receive consideration for service inventions is a personal right and is entirely separate from the proprietary rights in such invention. A decision in May 2014 by the Committee clarifies that the right to receive consideration under Section 134 can be waived and that such waiver does not necessarily have to be explicit. However, the Committee has the authority to examine, on a case by case basis, the general contractual framework between the parties, using interpretation rules of the general Israeli contract laws. Although such decision seems to alleviate the requirement to obtain an explicit waiver for royalties for service inventions under Section 134 of the Patents Law, to the extent that there is no explicit waiver in an employment agreement, the existence of such waiver will be subject to the interpretation of the Committee. Further, the Committee has not yet determined one specific formula for calculating this remuneration (but rather uses the criteria specified in the Patents Law) nor the criteria or circumstances under which an employee’s waiver of his right to remuneration will be disregarded. We generally enter into assignment-of-invention agreements with our employees pursuant to which such individuals assign to us all rights to any inventions created in the scope of their employment or engagement with us. Although our employees have agreed to assign to us service invention rights, we may face claims demanding remuneration in consideration for assigned inventions. As a consequence of such claims, we could be required to pay additional remuneration or royalties to our current or former employees, or be forced to litigate such claims, which could negatively affect our business.
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We may be subject to claims challenging the inventorship or ownership of our patents and other intellectual property.
We may be subject to claims that former employees, collaborators, or other third parties have an ownership interest in our patents or other intellectual property. Ownership disputes may arise in the future, for example, from conflicting obligations of consultants or others who are involved in developing our products. Litigation may be necessary to defend against these and other claims challenging inventorship or ownership. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.
Obtaining and maintaining our patent protection requires compliance with various procedural, document submissions, fee payments, and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.
Periodic maintenance fees, renewal fees, annuity fees, and various other governmental fees on patents and applications are and will be due to be paid to the U.S. PTO and various governmental patent agencies outside of the United States in several stages over the lifetime of the patents and applications. The U.S. PTO and various non-U.S. governmental patent agencies require compliance with a number of procedural, documentary, fee payment, and other similar provisions during the patent application process. There are situations in which non-compliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction.
Issued patents covering our products or product candidates could be found invalid or unenforceable if challenged in court or in administrative proceedings.
If we initiate legal proceedings against a third party to enforce a patent covering one of our products or product candidates, the defendant may contend that the patent covering our product is invalid, unenforceable, or fails to cover the product or the infringing product. In patent litigation in the United States, defendants commonly allege that asserted patent claims are invalid and unenforceable. Grounds for a validity challenge could be an alleged failure to meet one or more of several statutory requirements, including lack of novelty, obviousness, lack of written description, indefiniteness, and non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the U.S. PTO, or made a misleading statement, during prosecution. Third parties may also raise similar claims before administrative bodies in the United States or abroad, even outside the context of litigation. Such mechanisms include re-examination, post grant review, and equivalent proceedings in foreign jurisdictions, such as opposition proceedings. Such proceedings could result in revocation, amendments to our patent claims, or statements being made on the record such that our claims may no longer be construed to cover our products. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to the validity question, for example, we cannot be certain that there is no invalidating prior art, of which we and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity, unenforceability, or non-infringement, we would lose at least part, and perhaps all, of the patent protection on our products. For example, as further described below, in July 2017, Fibrogen, Inc., or Fibrogen, prevailed in an administrative challenge to one of our patents in Europe, resulting in the revocation of the patent and the abandonment of another patent. Even if resolved in our favor, litigation, or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses, and could distract our technical and management personnel from their normal responsibilities. Moreover, third parties may continue to initiate new proceedings in the United States and foreign jurisdictions to challenge our patents from time to time.
In addition, there could be public announcements of the results of hearings, motions, or other interim proceedings or developments, and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the market price of our ordinary shares. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing, or distribution activities.
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Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our products or product candidates.
As is the case with other companies in our industry, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biotechnology industry involve both technological and legal complexity, and therefore is costly, time consuming, and inherently uncertain. In addition, in recent years, the United States enacted and implemented wide-ranging patent reform legislation. Recent U.S. Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent owners in some situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents that had already been granted. The patent laws and regulations may change in unpredictable ways through actions of the U.S. Congress, the federal courts, and the U.S. PTO, in the future, and any changes may adversely affect our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future.
We may not be able to protect our intellectual property rights throughout the world.
Filing, prosecuting, and defending patents on products in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Potential competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and may export otherwise infringing products to territories where we have patent protection, but enforcement is not as strong as in the United States. These products may compete with our products, if approved, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets, and other intellectual property protection, particularly those relating to biotechnology products, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing, and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.
Intellectual property rights do not address all potential threats to any competitive advantage we may have.
The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and intellectual property rights may not adequately protect our business or permit us to maintain our competitive advantage. The following examples are illustrative:
| ● | Others may be able to make products that are the same as or similar to our current or future products but that are not covered by the claims of the patents that we own or have exclusively licensed. |
| ● | We or any of our licensors or strategic partners might not have been the first to make the inventions covered by the issued patent or pending patent application that we own or have exclusively licensed. |
| ● | We or any of our licensors or strategic partners might not have been the first to file patent applications covering certain of our inventions. |
| ● | Others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights. |
| ● | The prosecution of our pending patent applications may not result in granted patents. |
| ● | Granted patents that we own or have exclusively licensed may not provide us with any competitive advantages, or may be held invalid or unenforceable, as a result of legal challenges by our competitors. |
| ● | Patent protection on our products may expire before we are able to develop and commercialize the product, or before we are able to recover our investment in the product. |
| ● | Our competitors might conduct research and development activities in the United States and other countries that provide a safe harbor from patent infringement claims for such activities, as well as in countries in which we do not have patent rights, and may then use the information learned from such activities to develop competitive products for sale in markets where we intend to market our products. |
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Risks Related to the Ownership of our Ordinary Shares
The market price of our ordinary shares may be highly volatile.
The trading price of our ordinary shares has been, and is likely to continue to be, volatile. The following factors, some of which are beyond our control, in addition to other risk factors described in this Annual Report may have a significant impact on the market price of our ordinary shares:
| ● | adverse results or delays in preclinical studies or clinical trials; |
| ● | reports of adverse events in other similar products or clinical trials of such products; |
| ● | inability to obtain additional funding; |
| ● | any delay in filing a regulatory submission for any of our products or product candidates and future products and any adverse development or perceived adverse development with respect to the FDA’s review or European authorities’ review of that regulatory submission; |
| ● | failure to develop successfully and commercialize our products or product candidates and future products; |
| ● | failure to enter into or maintain strategic collaborations; |
| ● | failure by us or strategic collaboration partners to prosecute, maintain, or enforce our intellectual property rights; |
| ● | changes in laws or regulations applicable to future products; |
| ● | inability to scale up our manufacturing capabilities, inability to obtain adequate supply for our products, or the inability to do so at acceptable prices; |
| ● | adverse regulatory decisions, including by the IIA under the Innovation Law; |
| ● | introduction of new products, services, or technologies by our competitors; |
| ● | failure to meet or exceed financial projections we may provide to the public; |
| ● | failure to meet or exceed the financial expectations of the investment community; |
| ● | the perception of the biotechnology industry by the public, legislatures, regulators, and the investment community; |
| ● | announcements of significant acquisitions, strategic partnerships, joint ventures, or capital commitments by us or our competitors; |
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| ● | disputes or other developments relating to proprietary rights, including patents, litigation matters, and our ability to obtain patent protection for our technologies; |
| ● | additions or departures of key scientific or management personnel; |
| ● | significant lawsuits, including patent or shareholder litigation; |
| ● | changes in the market valuations of similar companies; |
| ● | sales of our ordinary shares by us or our shareholders in the future; and |
| ● | trading volumes of our ordinary shares. |
In addition, companies trading in the stock market in general, and life science companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of our ordinary shares, regardless of our actual operating performance. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted against that company. If we were involved in any similar litigation, we could incur substantial costs and our management’s attention and resources could be diverted, which could affect our business, financial condition and results of operations.
We may not be able to maintain our listing on the Nasdaq Global Market.
Our ordinary shares currently trade on the Nasdaq Global Market under the symbol “CLGN”. If we fail to adhere to Nasdaq’s strict listing criteria, including with respect to share price, market capitalization and stockholders’ equity, our stock may be delisted. Our results of operations and our fluctuating stock price directly affects our ability to satisfy these listing standards. If we fail to do so, we may be subject to delisting. A delisting could adversely affect our ability to obtain financing for our operations or result in a loss of confidence by investors, customers, suppliers or employees. A delisting from the Nasdaq Global Market could result in our ordinary shares being listed on the Nasdaq Capital Market or on an over-the-counter market, each of which are generally considered to be a less efficient market than the Nasdaq Global Market. Although we currently satisfy the listing criteria for Nasdaq, if our stock price declines dramatically, we could be at risk of failing to meet the Nasdaq continued listing criteria.
We incur significant additional costs as a result of being a public company subject to SEC reporting requirements in the United States, and our management is required to devote substantial additional time to new compliance initiatives as well as to compliance with ongoing United States reporting requirements.
As a U.S. public reporting company, we are incurring significant additional accounting, legal, and other expenses in the future. Our management and other personnel need to devote substantial time to the compliance requirements of being a U.S. public company; in addition, the implementation of such compliance processes and systems may require us to hire outside consultants and incur other significant costs. Any future changes in the laws and regulations affecting public companies in the United States and the rules and regulations adopted by the SEC and the Nasdaq Global Market, for so long as they apply to us, will result in increased costs to us as we respond to such changes. These laws, rules, and regulations could make it more difficult or more costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, on our board committees, if any, or as senior management.
Our principal shareholders, management and directors beneficially own a significant percentage of our ordinary shares and will be able to exert significant influence over matters subject to shareholder approval.
As of March 20, 2024, our senior management, directors, and five percent or more shareholders and their affiliates beneficially owned approximately 36.84% of our ordinary shares. These shareholders will be able to significantly influence all matters requiring shareholder approval, except for decisions that require a special majority at a shareholders’ meeting. For example, these shareholders, if they were to act together, may be able to significantly influence elections of directors (other than our external directors, within the meaning of Israeli law, as described under “Management—External Directors”), amendments of our organizational documents, or approval of any merger, sale of assets, or other major corporate transaction. This may prevent or discourage unsolicited acquisition proposals or offers for our ordinary shares that you may believe are in your best interest as one of our shareholders.
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If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As a result, our shareholders could lose confidence in our financial and other public reporting, which would harm our business and the trading price of our ordinary shares.
Effective internal controls over financial reporting are necessary for us to provide reliable financial reports. Together with adequate disclosure controls and procedures, effective internal controls are designed to prevent fraud. Any failure to implement required new or improved controls or difficulties encountered in their implementation could cause us to fail to meet our reporting obligations. In addition, any testing by us conducted in connection with Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses, may require prospective or retroactive changes to our financial statements, or may identify other areas for further attention or improvement. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our ordinary shares.
Section 404 of the Sarbanes-Oxley Act requires our management to report on, and our independent registered public accounting firm to attest to, the effectiveness of our internal control structure and procedures for financial reporting. We have an ongoing program to perform the system and process evaluation and testing necessary to continue to comply with these requirements. During the course of our review and testing, we may identify deficiencies and be unable to remediate them before we must provide the required reports. Furthermore, if we have a material weakness in our internal controls over financial reporting, we may not detect errors on a timely basis and our financial statements may be materially misstated. We or our independent registered public accounting firm may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting, which could harm our operating results, cause investors to lose confidence in our reported financial information and cause the trading price of our share to fall.
To build our finance infrastructure, we may need to improve our accounting systems, disclosure policies, procedures and controls. If we are unsuccessful in building an appropriate accounting infrastructure, we may not be able to prepare and disclose, in a timely manner, our financial statements and other required disclosures, or comply with existing or new reporting requirements. Any failure to report our financial results on an accurate and timely basis could result in sanctions, lawsuits, delisting of our shares from the Nasdaq Capital Market or other adverse consequences that would materially harm our business. If we cannot provide reliable financial reports or prevent fraud, our business and results of operations could be harmed and investors could lose confidence in our reported financial information.
We are a “foreign private issuer,” and we cannot be certain if the reduced reporting requirements applicable to foreign private issuers will make our ordinary shares less attractive to investors.
As a foreign private issuer, we are not subject to the same requirements that are imposed upon U.S. domestic issuers by the SEC. Under the Securities Exchange Act of 1934, as amended, or the Exchange Act, we will be subject to reporting obligations that, in certain respects, are less detailed and less frequent than those of U.S. domestic reporting companies. For example, we will not be required to issue proxy statements that comply with the requirements applicable to U.S. domestic reporting companies. We will also have four months after the end of each fiscal year to file our Annual Reports with the SEC and will not be required to file current reports as frequently or promptly as U.S. domestic reporting companies. Furthermore, our officers, directors, and principal shareholders will be exempt from the requirements to report transactions in our equity securities and from the short-swing profit liability provisions contained in Section 16 of the Exchange Act. These exemptions and leniencies, along with other corporate governance exemptions resulting from our ability to rely on home country rules, will reduce the frequency and scope of information and protections to which you may otherwise have been eligible in relation to U.S. domestic reporting companies. See “Item 16G. Corporate Governance Practices” for more information, including regarding reliefs relating to general meetings for companies whose securities are traded outside of Israel.
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We cannot predict if investors will find our ordinary shares less attractive because we may rely on these reduced requirements. If some investors find our ordinary shares less attractive as a result, there may be a less active trading market for our ordinary shares and our share price may be more volatile.
Sales of a substantial number of our ordinary shares in the public market could cause our share price to fall.
If our existing shareholders sell, indicate an intention to sell, or the market perceives that they intend to sell, substantial amounts of our securities on the Nasdaq Global Market after the date of this Annual Report on Form 20-F, the market price of our securities could decline significantly. As of March 20, 2024, we had 11,454,512 ordinary shares outstanding. In addition, as of March 20, 2024, an aggregate of 1,214,505 ordinary shares, that are issuable pursuant to exercise of outstanding options, will become eligible for sale in the public market to the extent permitted by the provisions of various vesting schedules, Rule 144 and Rule 701 under the Securities Act of 1933, as amended, or the Securities Act. If these additional ordinary shares are sold, or if it is perceived that they will be sold, in the public market, the market price of our ordinary shares could decline.
Future sales and issuances of our securities or rights to purchase securities, including pursuant to our equity incentive plans, could result in additional dilution of the percentage ownership of our shareholders and could cause the prices of our securities to fall.
Additional capital will be needed in the future to continue our planned operations. To the extent we raise additional capital by issuing equity securities, our shareholders may experience substantial dilution. We may sell ordinary shares, convertible securities, or other equity securities in one or more transactions at prices and in a manner we determine from time to time. If we sell ordinary shares, convertible securities, or other equity securities in one or more transactions, existing investors may be materially diluted by subsequent sales, and new investors could gain rights superior to our existing shareholders.
Pursuant to our Share Ownership and Option Plan (2010), or the 2010 Plan and our 2024 Share Award Plan, or the 2024 Plan, our management is authorized to grant share options and other equity-based awards to our employees, officers, directors, and consultants. As of March 20, 2024, our officers, directors, employees and consultants hold options to purchase 1,743,516 ordinary shares under the 2010 Plan. If our board of directors elects to issue additional options or other equity-based awards under the 2010 Plan or the 2024 Plan, our shareholders may experience additional dilution, which could cause our share price to fall.
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We do not intend to pay dividends on our securities in the foreseeable future, so any returns will be limited to the value of our shares.
We have never declared or paid any cash dividends on our share capital. We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. Any return to shareholders will therefore be limited to the appreciation of their shares. In addition, Israeli law limits our ability to declare and pay dividends, and may subject our dividends to Israeli withholding taxes; see “Item 10.B. Memorandum and Articles of Association—Dividend and Liquidation Rights” and “Item 16G. Corporate Governance Practices” for additional information. As a result, investors in our ordinary shares will not be able to benefit from owning these securities unless their market price becomes greater than the price paid by such investors and they are able to sell such securities. We cannot assure you that you will ever be able to resell our securities at a price in excess of the price paid.
Your percentage ownership in us may be diluted by future issuances of share capital, which could reduce your influence over matters on which shareholders vote.
Our board of directors will have the authority, in most cases without action or vote of our shareholders, to issue all or any part of our authorized but unissued shares, including ordinary shares issuable upon the exercise of outstanding options and warrants. Issuances of additional shares would reduce your influence over matters on which our shareholders vote.
If equity research analysts do not publish research reports about our business or if they issue unfavorable commentary or downgrade our ordinary shares, the price of our ordinary shares could decline.
The trading market for our ordinary shares will rely in part on the research and reports that equity research analysts publish about us and our business. The price of our ordinary shares could decline if we do not obtain research analyst coverage or if one or more securities analysts downgrade our ordinary shares, issue other unfavorable commentary, or cease publishing reports about us or our business.
Risks Related to Our Operations in Israel
We are a “foreign private issuer” and intend to follow certain home country corporate governance practices, and our shareholders may not have the same protections afforded to shareholders of companies that are subject to all corporate governance requirements under the listing rules of the Nasdaq Stock Market LLC, or the Nasdaq Listing Rules.
As a foreign private issuer, we are permitted to follow certain home country corporate governance practices instead of those otherwise required under the Nasdaq Stock Market for domestic U.S. issuers. For instance, we follow home country practice in Israel with regard to the quorum requirement for shareholder meetings. As permitted under the Israeli Companies Law of 1999, or the Companies Law, our articles of association provide that the quorum for any meeting of shareholders shall be the presence of at least two shareholders present in person, by proxy, or by a voting instrument, who hold at least 20% of the voting power of our shares. In addition, we will follow home country practices in Israel (and consequently avoid the requirements that would otherwise apply to a U.S. company listed on the Nasdaq Global Market) with regard to the requirement to obtain shareholder approval for certain dilutive events (such as for the establishment or amendment of certain equity-based compensation plans, issuances that will result in a change of control of the company, certain transactions, and certain acquisitions of the stock or assets of another company). We may in the future (or may be required to) elect to follow home country practices in Israel with regard to other matters. Following our home country governance practices as opposed to the requirements that would otherwise apply to a U.S. company listed on the Nasdaq Global Market may provide less protection to you than what is accorded to investors under the Nasdaq Listing Rules applicable to domestic U.S. issuers. See “Item 16G. Corporate Governance Practices” for more information.
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In addition, as a foreign private issuer, we are exempt from the rules and regulations under the Exchange Act related to the furnishing and content of proxy statements. Under regulations promulgated under the Companies Law, we will be required to disclose in the notice for our annual meetings of shareholders if we had not already done so in our annual report, the annual compensation of our five most highly compensated officers on an individual basis, rather than aggregate. However, this disclosure will not be as extensive as the disclosure required by a U.S. domestic issuer. We will also have four months after the end of each fiscal year to file our annual reports with the SEC and will not be required to file current reports as frequently or promptly as U.S. domestic reporting companies. Furthermore, as a foreign private issuer, our officers, directors and principal shareholders will be exempt from the requirements to report short-swing profit recovery contained in Section 16 of the Exchange Act. Also, as a foreign private issuer, we are not subject to the requirements of Regulation FD (Fair Disclosure) promulgated under the Exchange Act. These exemptions and leniencies will reduce the frequency and scope of information and protections available to you in comparison to those applicable to U.S. domestic reporting companies.
In order to maintain our current status as a foreign private issuer, more than 50% of our outstanding voting securities must not be directly or indirectly owned by residents of the U.S., and we must not have any of the following: (i) a majority of our executive officers or directors being U.S. citizens or residents, (ii) more than 50% of our assets being located in the U.S., or (iii) our business being principally administered in the U.S. Although we have elected to comply with certain U.S. regulatory provisions, our loss of foreign private issuer status would make such provisions mandatory. The regulatory and compliance costs to us under U.S. securities laws as a U.S. domestic reporting company may be significantly higher. If we are not a foreign private issuer, we will be required to file periodic reports and registration statements on U.S. domestic reporting company forms with the SEC, which are more detailed and extensive than the forms available to a foreign private issuer. We may also be required to modify certain of our policies to comply with accepted governance practices associated with U.S. domestic reporting companies. Such conversion and modifications will involve additional costs. In addition, we may lose our ability to rely upon exemptions from certain corporate governance requirements on U.S. stock exchanges that are available to foreign private issuers.
Potential political, economic, and military instability in the State of Israel, where the majority of our senior management and our research and development facilities are located, may adversely impact our results of operations.
We are incorporated under Israeli law and our offices and operations are located in the State of Israel. In addition, our employees, officers, and all but three of our directors are residents of Israel. Accordingly, political, economic, and military conditions in Israel directly affect our business. Since the State of Israel was established in 1948, a number of armed conflicts have occurred between Israel and its neighboring countries.
In October 2023, Hamas terrorists infiltrated Israel’s southern border from the Gaza Strip and conducted a series of attacks on civilian and military targets. Hamas also launched extensive rocket attacks on Israeli population and industrial centers located along Israel’s border with the Gaza Strip and in other areas within the State of Israel. These attacks resulted in extensive deaths, injuries and kidnapping of civilians and soldiers. Following the attack, Israel’s security cabinet declared war against Hamas and a military campaign against these terrorist organizations commenced in parallel to their continued rocket and terror attacks. In addition, since the commencement of these events, there have been continued hostilities along Israel’s northern border with Lebanon (with the Hezbollah terror organization). It is possible that hostilities with Hezbollah in Lebanon will escalate, and that other terrorist organizations, including Palestinian military organizations in the West Bank as well as other hostile countries, such as Iran, will join the hostilities. Such clashes may escalate in the future into a greater regional conflict.
In connection with the Israeli security cabinet’s declaration of war against Hamas and possible hostilities with other organizations, several hundred thousand Israeli military reservists were drafted to perform immediate military service, including about 10% of our workforce in Israel. Although many of such military reservists have since been released, including all our employees but one, they may be called up for additional reserve duty, depending on developments in the war in Gaza and along Israel’s other borders. Military service call ups that result in absences of personnel for an extended period of time may materially and adversely affect our business, prospects, financial condition and results of operations. As of March 20, 2024, we currently have 76 employees located in Israel.
While to date, we have not experienced any major disruptions in our operations due to the war, we have taken particular measures in our facility in Yessod Hama’ala, which is located approximately 9km from Israel’s northern border with Lebanon, including conducting fire drills, first aid trainings and evacuation trainings, as well as upgrading the shelter at the facility. Due to the close proximity of our facility in Yessod Hama’ala to the border with Lebanon, any escalation of the war could result in severe damages to the Yessod facility and/or the partial or complete closure of thereof for an indefinite period of time and could have a material impact on our business and results of operations.
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The intensity and duration of Israel’s current war against Hamas is difficult to predict at this stage, as are such war’s economic implications on the Company’s business and operations and on Israel’s economy in general. If the war extends for a long period of time or expands to other fronts, such as Lebanon, Syria and the West Bank, our operations may be adversely affected.
Our commercial insurance does not cover losses that may occur as a result of events associated with war and terrorism. Although the Israeli government currently covers the reinstatement value of direct damages that are caused by terrorist attacks or acts of war, we cannot assure you that this government coverage will be maintained or that it will sufficiently cover our potential damages. Any losses or damages incurred by us could have a material adverse effect on our business. Any armed conflicts or political instability in the region would likely negatively affect business conditions and could harm our results of operations.
The continued political instability and hostilities between Israel and its neighbors and any future armed conflict, terrorist activity or political instability in the region could adversely affect our operations in Israel and adversely affect the market price of our shares of common stock. In addition, several organizations and countries may restrict doing business with Israel and Israeli companies have been and are today subjected to economic boycotts. The interruption or curtailment of trade between Israel and its present trading partners could adversely affect our business, financial condition and results of operations.
Finally, political conditions within Israel may affect our operations. Israel has held five general elections between 2019 and 2022, and prior to October 2023, the Israeli government pursued extensive changes to Israel’s judicial system, which sparked extensive political debate and unrest. To date, these initiatives have been substantially put on hold. Actual or perceived political instability in Israel or any negative changes in the political environment, may individually or in the aggregate adversely affect the Israeli economy and, in turn, our business, financial condition, results of operations and growth prospects.
The tax benefits that are available to us if and when we generate taxable income require us to meet various conditions and may be prevented or reduced in the future, which could increase our costs and taxes.
If and when we generate taxable income, we may be eligible for certain tax benefits provided to “Preferred Enterprises” under the Israeli Law for the Encouragement of Capital Investments, 5719-1959, as amended, or the Investment Law. The benefits that may be available to us under the Investment Law are subject to the fulfillment of conditions stipulated in the Investment Law. Further, in the future these tax benefits may be reduced or discontinued. If these tax benefits are reduced, cancelled, or discontinued, our Israeli taxable income would be subject to regular Israeli corporate tax rates. The standard corporate tax rate for Israeli companies is currently 23%. Additionally, if we increase our activities outside of Israel through acquisitions, for example, our expanded activities might not be eligible for inclusion in future Israeli tax benefit programs. See “Item 10.E. Taxation—Israeli Tax Considerations and Government Programs—Law for the Encouragement of Capital Investments, 5719-1959.”
It may be difficult to enforce a U.S. judgment against us, our officers and directors, and the Israeli experts named in this Annual Report on Form 20-F in Israel or the United States, or to assert U.S. securities laws claims in Israel or serve process on our officers and directors and these experts.
We were incorporated in Israel, and our corporate headquarters, research facilities and substantially all of our operations are located in Israel. All of our senior management and a majority of our directors are located outside the United States. All of our assets are located outside the United States. Therefore, it may be difficult for an investor, or any other person or entity, to enforce a U.S. court judgment based upon the civil liability provisions of the U.S. federal securities laws against us or any of these persons in a U.S. or Israeli court, or to effect service of process upon these persons in the United States. Additionally, it may be difficult for an investor, or any other person or entity, to assert U.S. securities law claims in original actions instituted in Israel. Israeli courts may refuse to hear a claim based on an alleged violation of U.S. securities laws against us or our officers and directors on the grounds that Israel is not the most appropriate forum in which to bring such a claim. Even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law is applicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact by expert witnesses, which can be a time-consuming and costly process. Certain matters of procedure would be governed by Israeli law. There is little binding case law in Israel addressing the matters described above.
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Your rights and responsibilities as our shareholder will be governed by Israeli law, which may differ in some respects from the rights and responsibilities of shareholders of U.S. corporations.
Because we are incorporated under Israeli law, the rights and responsibilities of our shareholders are governed by our articles of association and Israeli law. These rights and responsibilities differ in some material respects from the rights and responsibilities of shareholders of U.S. corporations. In particular, a shareholder of an Israeli company has a duty to act in good faith and in a customary manner in exercising its rights and performing its obligations towards the company and other shareholders and to refrain from abusing its power in the company, including, among other things, in voting at the general meeting of shareholders on certain matters, such as an amendment to the company’s articles of association, an increase of the company’s authorized share capital, a merger of the company, and approval of related party transactions that require shareholder approval. A shareholder also has a general duty to refrain from discriminating against other shareholders. In addition, a controlling shareholder or a shareholder who knows that it possesses the power to determine the outcome of a shareholder vote or to appoint or prevent the appointment of an officer of the company has a duty of fairness towards the company. However, Israeli law does not define the substance of this duty of fairness. There is limited case law available to assist us in understanding the nature of this duty or the implications of these provisions. These provisions may be interpreted to impose additional obligations and liabilities on our shareholders that are not typically imposed on shareholders of U.S. corporations. See “Item 6.C. Board Practices—Approval of Related Party Transactions under Israeli Law—Shareholders’ Duties.”
Provisions of Israeli law and our amended and restated articles of association could make it more difficult for a third party to acquire us or increase the cost of acquiring us, even if doing so would benefit our shareholders.
Israeli law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvals for transactions involving directors, officers, or significant shareholders and regulates other matters that may be relevant to such types of transactions. For example, a tender offer for all of a company’s issued and outstanding shares, or a Full Tender Offer, can only be completed if the acquirer receives approval of the holders of at least 95% of the issued share capital. Completion of the Full Tender Offer also requires approval of a majority of the offerees that do not have a personal interest in the tender offer, unless at least 98% of the company’s outstanding shares are tendered. Furthermore, the shareholders, including those who indicated their acceptance of the Full Tender Offer (unless the acquirer stipulated in its tender offer that a shareholder that accepts the offer may not seek appraisal rights), may, at any time within six months following the completion of the tender offer, petition an Israeli court to alter the consideration for the acquisition. In case the Full Tender Offer has not been accepted by the required threshold, the offeror is limited to acquire shares that will confer on the offeror a holding of not more than 90% of the issued share capital of the company. In addition, special tender offer requirements may also apply upon a purchaser becoming a holder of 25% or more of the voting rights in a company (if there is no other shareholder of the company holding 25% or more of the voting rights in the company) or upon a purchaser becoming a holder of more than 45% of the voting rights in the company (if there is no other shareholder of the company who holds more than 45% of the voting rights in the company), See “Item 10.B. Memorandum and Articles of Association—Acquisitions under Israeli Law” for additional information.
Further, Israeli tax considerations may make potential transactions undesirable to us or to some of our shareholders whose country of residence does not have a tax treaty with Israel granting tax relief to such shareholders from Israeli tax. For example, Israeli tax law does not recognize tax-free share exchanges to the same extent as U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfilment of a number of conditions, including, in some cases, a holding period of two years from the date of the transaction during which sales and dispositions of shares of the participating companies are subject to certain restrictions. Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when such time expires, the tax becomes payable even if no disposition of the shares has occurred.
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We have received grants from the IIA for certain research and development expenditures. The terms of these grants may require us to satisfy specified conditions in order to manufacture products and transfer technologies outside of Israel. For more information, see “—Risks Related to Our Financial Condition and Capital Requirements—The IIA grants we have received in the past for research and development expenditures may restrict our ability to manufacture products and transfer know-how outside of Israel and require us to satisfy specified conditions.”
We may be classified as a passive foreign investment company for U.S. federal income tax purposes, and our U.S. shareholders may suffer adverse tax consequences as a result.
Generally, if, for any taxable year, either, at least 75% of our gross income is passive income (including our pro-rata share of the gross income of our 25% or more-owned corporate subsidiaries), or at least 50% of the average value of our assets (including our pro-rata share of the assets of our 25% or more-owned corporate subsidiaries) is attributable to assets that produce passive income or are held for the production of passive income, we would be characterized as a passive foreign investment company, or PFIC, for U.S. federal income tax purposes. Passive income generally includes dividends, interest, and gains from disposition of passive assets and rents and royalties.
If we are characterized as a PFIC for any taxable year (or portion thereof) that is included in the holding period of a U.S. holder (as defined below) of our securities, such U.S. holder generally will be subject to certain adverse U.S. federal income tax consequences, including increased tax liability on gains from dispositions of our securities and certain distributions and a requirement to file annual reports with the Internal Revenue Service, or IRS. Certain adverse consequences of PFIC status may be alleviated if a U.S. holder makes a “mark to market” election or an election to treat us as a qualified electing fund, or QEF. These elections would result in an alternative treatment (such as mark-to-market treatment) of our ordinary shares. It is not expected that a U.S. holder will be able to make a QEF election because we do not intend to provide U.S. holders with the information necessary to make a QEF election. See “Item 10.E. Taxation—Certain Material U.S. Federal Income Tax Consequences—Passive Foreign Investment Company Consequences.”
Since PFIC status depends on the composition of our income and the composition and value of our assets (which may be determined in large part by reference to the market value of our ordinary shares, which may be volatile) from time to time, there can be no assurance that we will not be considered a PFIC for any taxable year. However, based on our non-passive revenue-producing operations for the year ended December 31, 2023, we do not believe we were a PFIC for our 2023 taxable year. Because the PFIC determination is highly fact intensive, there can be no assurance that we were not a PFIC in 2023 and will not be a PFIC in 2024 or any other year.
U.S. investors are urged to consult their own tax advisors regarding the possible application of the PFIC rules. For more information, see “Item 10.E. Taxation—Certain Material U.S. Federal Income Tax Consequences—Passive Foreign Investment Company Consequences.”
If a United States person is treated as owning at least 10% of our shares, such holder may be subject to adverse U.S. federal income tax consequences.
If a United States person is treated as owning (directly, indirectly or constructively) at least 10% of the value or voting power of our shares, such person may be treated as a “United States shareholder” with respect to each “controlled foreign corporation” in our group (if any). A United States shareholder of a controlled foreign corporation may be required to annually report and include in its U.S. taxable income its pro rata share of “Subpart F income,” “global intangible low-taxed income” and investments in U.S. property by controlled foreign corporations, whether or not we make any distributions, and may be subject to tax reporting obligations. An individual that is a United States shareholder with respect to a controlled foreign corporation generally would not be allowed certain tax deductions or foreign tax credits that would be allowed to a United States shareholder that is a U.S. corporation. A failure to comply with these reporting obligations may subject you to significant monetary penalties and may prevent the statute of limitations with respect to your U.S. federal income tax return for the year for which reporting was due from starting. We cannot provide any assurances that we will assist any shareholder in determining whether such shareholder is treated as a United States shareholder with respect to any “controlled foreign corporation” in our group (if any) or furnish to any United States shareholders information that may be necessary to comply with the aforementioned reporting and tax paying obligations. A United States investor should consult its tax advisors regarding the potential application of these rules to its investment in the shares.
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Our facilities in Israel are subject to local Business Licensing and Planning and Zoning regulations and we may be subject to fines if not complied with.
Under the Israeli Licensing of Businesses Law, operating a business without a license or temporary permit is a criminal offense. Both our sites in Rehovot, Israel, and our production site at Yessod Hama’ala, Israel, have valid business licenses in effect.
In addition, the Israeli Planning and Zoning Law, sets provisions and obligations, inter alia, regarding the licensing process for a new building, including building permits, non-conforming use and easements, the supervision over its construction, and the required occupancy permits. According to the Planning and Zoning Law, work or use of land without a permit, where such permit is required, a deviation from the permit granted, or use of agricultural land in violation of the law constitute criminal offenses. We have recently learned upon internal inspection that permits for certain of the structures on our production site at Yessod Hama’ala are missing. We are in correspondence with the relevant authorities, including the regional council, and are in the process of obtaining the necessary permits. Nevertheless, the absence of such permits could lead to the halt or closure of the site, may expose us to legal proceedings and may constitute a criminal offence, and as such, could adversely impact our operations and results, including our production capabilities. To date, the site remains open and fully operational, and we have not experienced any adverse effects resulting from our need to obtain the said permits.
ITEM 4. INFORMATION ON THE COMPANY
A. History and Development of the Company
We are a regenerative and aesthetic medicine company focused on 3D bioprinting of tissues and organs, and medical aesthetics. Our products are based on our recombinant human collagen (rhCollagen) that is produced with our proprietary plant based genetic engineering technology. These products address indications for the diverse fields of tissue repair, aesthetics and organ manufacturing, and are ushering in a new era in regenerative and aesthetic medicine.
In February 2021, we entered into the AbbVie Development Agreement, pursuant to which we and AbbVie agreed to collaborate in the development and commercialization of dermal and soft tissue filler products for the medical aesthetics market, using our rhCollagen technology and AbbVie’s technology. In June 2023, we announced the achievement of a milestone with respect to the clinical-phase dermal filler product under the AbbVie Development Agreement, which triggered a $10 million payment from AbbVie to us.
Our legal and commercial name is CollPlant Biotechnologies Ltd. Our name has changed several times but has been CollPlant Biotechnologies Ltd. since June 21, 2019. We hold all of the issued and outstanding shares of CollPlant Ltd. CollPlant Ltd. was incorporated in Israel on August 12, 2004 as a private company limited by shares and began its operations as a technology incubator company under the IIA’s technology incubators program. CollPlant Ltd. owns all of our intellectual property. CollPlant Ltd. holds all of the issued and outstanding shares of CollPlant Inc. CollPlant Inc. was incorporated in Delaware on November 30, 2021, as a corporation. CollPlant Biotechnologies Ltd. was incorporated in Israel on November 9, 1981 as a private company limited by shares. The Company became a public company in 1993, when all of its ordinary shares were listed on the TASE. CollPlant Ltd. was incorporated under the laws of the State of Israel in 2004 and merged with us (by way of transfer of shares) in 2010.
On May 25, 2021, our ordinary shares were approved for trading on the Nasdaq Global Market under our ticker symbol “CLGN” and began trading at the open of market on June 4, 2021. At such time, our ADSs, were mandatorily cancelled and exchanged for ordinary shares at a one-for-one ratio. Prior to that, our ADSs were quoted on the OTCQX from March 2015 to May 25, 2017, on the OTCQB from May 26, 2017 to January 30, 2018 and on the Nasdaq Capital Market from January 31, 2018 to June 3, 2021 under the symbol “CLGN”. In 2018, we delisted our ordinary shares from trading on the TASE, and the last date of trading of our ordinary shares on the TASE was on October 29, 2018.
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Our principal office is located at 4 Oppenheimer, Weizmann Science Park, Rehovot 7670104, Israel, and our telephone number is +972-73-232-5600. Our primary internet address is http://www.CollPlant.com. None of the information on our website is incorporated by reference herein. Puglisi & Associates serves as our agent for service of process in the United States for certain limited matters, and its address is 850 Library Avenue, Suite 204, Newark, Delaware 19711.
We use our website (http://www.CollPlant.com) as a channel of distribution of Company information. The information we post on our website may be deemed material. Accordingly, investors should monitor our website, in addition to following our press releases, SEC filings and public conference calls and webcasts. The contents of our website are not, however, a part of this Annual Report.
As a foreign private issuer, we are exempt from certain rules and regulations under the Exchange Act that are applicable to other public companies that are not foreign private issuers. For example, although we intend to report our financial results on a quarterly basis, we will not be required to issue quarterly reports, proxy statements that comply with the requirements applicable to U.S. domestic reporting companies, or individual executive compensation information that is as detailed as that required of U.S. domestic reporting companies. We will also have four months after the end of each fiscal year to file our annual report with the SEC and will not be required to file current reports as frequently or promptly as U.S. domestic reporting companies. Our senior management, directors, and principal shareholders will be exempt from the requirements to report transactions in our equity securities and from the short-swing profit liability provisions contained in Section 16 of the Exchange Act. As a foreign private issuer, we will also not be subject to the requirements of Regulation FD (Fair Disclosure) promulgated under the Exchange Act.
Our capital expenditures for December 31, 2023, 2022 and 2021 amounted to $954,000, $1.3 million and $1.4 million, respectively. Our purchases of fixed assets primarily include laboratory equipment and establishment of our production site in Rehovot. We financed these expenditures primarily from cash on hand.
B. Business Overview
Overview
We are a regenerative and aesthetic medicine company focused on 3D bioprinting of tissues and organs, and medical aesthetics. Our products are based on our recombinant human collagen (rhCollagen) that is produced with our proprietary plant-based genetic engineering technology. These products address indications for the diverse fields of tissue repair, aesthetics and organ manufacturing, and are ushering in a new era in regenerative and aesthetic medicine.
In February 2021, we entered into the AbbVie Development Agreement with Allergan, an AbbVie company, pursuant to which we and AbbVie are collaborating in the development and commercialization of dermal and soft tissue filler products for the medical aesthetics market, using our rhCollagen technology and AbbVie’s technology. In June 2023, we announced the achievement of a milestone with respect to the dermal and soft tissue filler product, which triggered a $10 million payment from AbbVie to us. The dermal filler product is currently in clinical trials that are conducted by AbbVie.
In the field of medical aesthetics, we are developing 3D-bioprinted breast implants for regeneration of breast tissue, addressing the $2.9 billion global breast implant market. The implants in development are printed and loaded with our rhCollagen-based bioink in combination with other proprietary biomaterials. These implants are expected to regenerate breast tissue without eliciting immune response, and thus may provide a revolutionary alternative for aesthetic and reconstructive procedures, including postmastectomy for cancer patients. In December 2023 we initiated a pre-clinical trial to evaluate commercial-size, 3D-bioprinted, regenerative breast implants. This study follows the completion of our first large-animal study, the results of which were announced in January 2023. This study will be used to obtain data to support subsequent human studies and future product commercialization.
We entered into a joint development and commercialization agreement with Stratasys, in April 2023, pursuant to which we agreed to collaborate on the development of a solution to bio-fabrication human tissues and organs, using Stratasys’ P3 technology-based bioprinter and our rhCollagen-based bioinks, with the first target being a development of an industrial-scale solution for CollPlant’s regenerative breast implants project.
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In January 2023, we commercially launched Collink.3D™50L in powder form, which is our first bioink available in powder form, joining Collink.3D™90 and Collink.3D™50 launched in 2022 and 2021, respectively. Collink.3D is our rhCollagen-based bioink platform, which is ideal for 3D bioprinting of tissues and organs for regenerative medicine applications. These rhCollagen-based bioink products are designed to allow the scalable and reproduceable biofabrication of scaffolds, tissues and organ transplants.
Our rhCollagen production process utilizes plant-based genetic engineering technology. This approach eliminates the need for traditional animal-derived collagen sources, reducing the environmental strain associated with traditional methods and promoting more ethical and sustainable practices.
In the second quarter of 2023, we hired a dedicated expert to lead our Environment, Social and Governance (ESG) effort. Our goal was to identify CollPlant’s strengths in the areas of ESG that are already in line with our mission and communicate these practices to business partners and the public.
In line with this initiative, in September 2023, we announced that we joined the United Nations Global Compact, the world’s largest initiative for sustainable and responsible corporate governance. As a new participant of this voluntary leadership platform, we strengthen our commitment to operate sustainably as we also produce sustainable alternatives to the regenerative and aesthetics medicine products and technologies that currently exist.
Consistent with our mission of helping people live longer, healthier lives through regenerative medicine, we are committed to supporting a more sustainable ecosystem that benefits all stakeholders, including patients, our employees, and our shareholders.
We believe our technology is the only commercially viable technology available for the production of genetically engineered, or recombinant, human collagen. We believe that our rhCollagen is identical to the type I collagen produced by the human body, has significant advantages compared to currently marketed tissue-derived collagens, including improved bio-functionality, high homogeneity, and safety profile (does not elicit immune response). We believe the attributes of our rhCollagen make it suitable for numerous tissue and organ regeneration applications throughout the human body. We believe that the annual market size for our bioink, and our medical aesthetics product candidates including dermal filler, exceeded $10 billion in 2021, and is estimated to reach $18 billion in 2026.
Our rhCollagen has superior biological function when compared to any tissue-derived collagens, whether from animal or human tissues, according to data published in peer-reviewed scientific publications. Our rhCollagen can be fabricated in different forms and shapes including bioinks, gels, pastes, sponges, sheets, membranes, fibers, and thin coats, all of which have been tested and proven superior to tissue-derived products. We have demonstrated that, due to its homogeneity, rhCollagen can produce bioinks with optimal rheological properties fibers with high molecular alignment, which enables the formation of tissue repair products with distinctive physical properties.
In December 2020, we entered into a product manufacturing and supply agreement with STEMCELL, under which we are selling our proprietary recombinant human Type I collagen (rhCollagen) to STEMCELL, which incorporates it into cell culture media kits. To date, hundreds of companies, as well as research and academic institutes, have used these kits for research and development projects. STEMCELL is distributing the kits globally for use in the regenerative medicine research market.
We are currently focusing on the following innovative rhCollagen-based product pipe-lines:
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Regenerative dermal and soft tissue fillers. Our rhCollagen offers a portfolio of opportunities in the field of regenerative aesthetics, owing to its ideal structure and non-immunogenic properties that provide, what we believe is the optimal scaffold to attract cells and promote tissue regeneration. We are collaborating with AbbVie in the development and commercialization of the clinical-phase dermal and soft tissue filler product for the medical aesthetics market, using our rhCollagen technology and AbbVie’s technology, pursuant to the AbbVie Development Agreement entered into in February 2021. In June 2023, we announced the achievement of a milestone with respect to the dermal and soft tissue filler product candidate, in accordance with our collaboration agreement with AbbVie. Per the agreement, the achievement of this milestone triggered a $10 million payment from AbbVie to us that was received in July 2023. In addition, we are developing a photocurable regenerative dermal filler combining our tissue regenerating rhCollagen and other technologies which is designed to address the need for more innovative aesthetic products to treat wrinkles. The photocurable regenerative dermal filler is one of AbbVie’s Option Products under the AbbVie Development Agreement.
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3D-bioprinted regenerative breast implants. We are developing a 3D-bioprinted regenerative breast implants, which are designed to gradually degrade and be replaced by newly grown natural breast tissue. In December 2023, we initiated a large-animal study to evaluate commercial size 3D bioprinted regenerative breast implant. In January 2023, we announced positive results from our first large-animal study. This study demonstrated progressive stages of tissue regeneration after three months, as highlighted by the formation of maturing connective tissue and neovascular networks within the implants, with no adverse events reported.
We were in the initial stages of developing injectable breast implants, and a 3D-bioprinted Regenerative soft Tissue Matrix, or RTM for use in breast reconstruction procedures in combination with an implant. However, we decided to temporarily defer the development of both these products in order to concentrate our efforts on advancing the development of our 3D-bioprinted regenerative breast implants. We will consider resuming the development of both the injectable breast implants and RTM based on our 3D-bioprinted breast implant program progress. The injectable breast implant is one of AbbVie’s Option Product under the AbbVie Development Agreement. | |
| ● | CollPlant rhCollagen-based Commercial Bioink for Regenerative Medicine Applications. Our bioink product line provides an ideal building block for three dimensional bioprinting of tissues and organs. The bioink intend to enable the printing of three-dimensional scaffolds combined with human cells and/or growth factors as a basis for tissue or organ formation. In addition to collagen, CollPlant’s bioink formulations can include other proteins and/or polymers as well. Our bioink is being developed to be compatible with numerous 3D bioprinting technologies and with printed organ characteristics. In January 2023, we launched Collink.3D™ 50L in powder form, which is our first bioink available in powder form and provides enhanced operational flexibility to support a wide range of 3D bioprinting applications, including drug discovery, drug screening, tissue testing as well as the development of transplantable tissues and organs. Earlier, in November 2022 we launched Collink.3D™ 90, an rhCollagen-based bioink solution for use in a variety of 3D bioprinting applications, offering increased mechanical properties to address additional printing requirements of soft and hard tissues. Collink.3D™ 90 is complementary to our first commercial bioink, Collink.3D 50, which was launched in November 2021, for use in 3D bioprinting. Collink.3D 50, our first commercially available rhCollagen-based bioink product is designed to allow the scalable and reproduceable biofabrication of scaffolds, tissues and organ transplants. Made entirely from human-derived collagen, Collink.3D bioinks enables the production of scaffolds that accurately mimic the physical properties of human tissues and organs, with improved bio-functionality, safety and reproducibility. |
We also market VergenixSTR, a soft tissue matrix, intended for the treatment of tendinopathy, and VergenixFG, a wound healing flowable gel, intended for the treatment of chronic and acute wounds.
We were in the initial stages of developing ‘gut-on-a-chip’ tissue model intended to enable a predictive and personalized treatment for inflammatory bowel diseases (IBD). In November 2022, we entered into a license and research agreement with Tel Aviv University and Sheba Medical Center hospital, to co-development a ‘gut-on-a-chip’, tissue model for drug discovery and high throughput screening of drugs. In November 2023, we elected to terminate the aforementioned agreement and continued to develop this program on our own. In March 2024, following a further assessment, we have decided to focus our resources in advancing our 3D-bioprinted regenerative breast implants and dermal and soft tissue fillers programs, consequently putting the ‘gut-on-a-chip’ program on hold. We intend to revisit the ‘gut-on-a-chip’ program and consider its initiation once resources become available.
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Collagen and Collagen-Based Products
Collagen is the main component of connective tissue and is the most abundant protein in mammals. In humans, it comprises approximately 30% of the protein found in the body. Due to its unique characteristics and diverse profile in human body functions, collagen is frequently selected from a variety of biocompatible materials for use in tissue repair to support structural integrity, induce cellular infiltration and promote healing. We estimate that the size of the market for human collagen-based tissue repair with our bioinks and aesthetic medicine product line exceeded $10 billion in 2021 and is estimated to reach approximately $18 billion in 2026.
Type I collagen is the most abundant form of collagen in the human body. It is the dominant constituent of connective tissue and serves as the primary scaffold in tissue or organ repair processes, making it a logical choice for regenerative medicine products. It is found in tendons, skin, artery walls, corneas, the endomysium surrounding muscle fibers, fibrocartilage, and the organic part of bones and teeth. Type II collagen is primarily found in articular cartilage. Type III collagen, which is produced quickly by young fibroblasts before the tougher type I collagen is synthesized, is found in granulation tissue such as artery walls, skin, intestines, and the uterus. While there may be some niche applications in the future where type III or possibly type II collagen is appropriate, type I collagen is best suited for applications associated with regenerative medicine because of its essential role in the healing process of bones, skin, and tendons. Type III rhCollagen is currently available for the research market, and is not used in any products currently approved for medical use.
Disadvantages of Current Collagen-Based Products
Currently, type I collagen for medical use is primarily tissue-derived from bovine (cow) and porcine (pig) sources, as well as from human cadavers. It is extracted from the tissues using mechanical processes and chemical treatments. Tissue-derived collagens suffer from a number of disadvantages:
| ● | The harsh chemical conditions required to recycle collagen from mature tissue results in a collagen product with random defects in its protein structure, leading to a compromised triple helix. Consequently, tissue-derived collagens have significant damage to binding sites for progenitor cells, which are required for cell proliferation and differentiation into tissue. |
| ● | Tissue-derived collagens are non-homogenous and contains high proportions of cross-linked collagen species with high molecular weight. The rate of degradation of collagen is based on the proportion of cross-linked collagen species within the product. Excessive proportions of cross-linked collagen can impair the collagen’s ability to self-assemble homogenous scaffolds with a high surface area and fully functional integrin-binding capacity, and can also impede its rate of degradation. The inability to effectively control the level of cross-linked collagen species in tissue-derived collagens results in variability of performance for a given product, and affects the rate of infiltration of cells into the scaffold, which can delay healing. |
| ● | The extraction of collagen from mature mammalian tissues leaves, in many cases, contaminant proteins, growth factors, and cytokines. As a result, scaffolds made of tissue-derived collagens may provoke inflammation, as well as undesirable immune and foreign body responses that may cause adverse effects and unpredictable biological outcomes. |
| ● | Extraction from animals or humans is also associated with risk of disease transmission. Since 2007, the FDA has highlighted the risks of transmissible diseases to humans in medical devices that contain materials derived from animal sources. In January 2014, the FDA released draft guidance suggesting precautionary procedures to be used in the production of medical devices containing materials derived from animal sources. |
| ● | Although collagen molecules are similar among various animal species, slight differences in the protein sequence between species may result in different biological behavior when applied to humans, and in some cases, invoke specific immune responses; for example, bovine collagen is associated with hypersensitivity and allergic reactions in approximately 3% of people. |
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Advantages of our rhCollagen and rhCollagen-based Products
All of our products are based on our proprietary recombinant type I human collagen, rhCollagen, though laboratory-derived, is identical to the type I collagen produced by the human body. The graphic below illustrates the structural differences between rhCollagen produced with our proprietary plant-based technology and currently marketed tissue-derived collagens.
The key advantages of products using our rhCollagen, as compared to those using collagen derived from animals or human cadaveric tissue, include:
| ● | Better biofunctionality in tissue regeneration. Our rhCollagen has superior biological function when compared to animal or human tissue-derived collagen and has a number of useful physical characteristics, including thermal stability, or resistance to decomposition at high temperatures, and a pristine triple helix, according to data published in peer-reviewed scientific publications. The triple helix structure of collagen is formed when two α-1 protein chains and one α-2 protein chain wind together along a common axis. In the formation of rhCollagen, this structure is achieved without modifications that can lead to defects in the triple helix structure in human tissue-derived collagen, hereby leading to a pristine triple helix identical to the form found in nature. A pristine triple helix enables superior binding, which accelerates primary human cell proliferation. Collagen scaffolds of our rhCollagen support endothelial, fibroblast, and keratinocyte cell attachment and proliferation. In all cell types tested, cell proliferation was significantly better in scaffolds made of rhCollagen than in commercially available scaffolds made of bovine collagen. The accelerated cell proliferation achieved with our rhCollagen results in faster wound healing, less scarring, and higher quality tissue regeneration. |
| ● | High homogeneity. Because our rhCollagen is synthesized by five human genes in tobacco plants producing pure molecules that are repeatable and identical to type I human collagen, it is more homogenous than collagen derived from animal or human tissue sources. The high level of homogeneity of our rhCollagen allows the formulation of extremely high concentrations of monomeric, or single-molecule, collagen, up to 150-200mg/ml, which is at least 10 to 100 times higher than the concentration achieved with tissue-derived collagen. The high concentration of homogeneous monomeric collagen is of particular importance where strong collagen fibers are needed for 3D scaffolds. The homogeneity of our rhCollagen enables us to engineer consistent and reproducible products with a controlled degradation rate which can be optimized to the targeted indication. Achieving the same level of engineered performance would be difficult, if not impossible, with tissue-derived collagen that varies from batch to batch. |
| ● | Improved safety and greater purity. Our pure rhCollagen does not induce an immunogenic response, whereas impurities carried over from the source of tissue-derived collagen can lead to immune system rejection. In vitro studies performed under an academic collaboration have demonstrated that rhCollagen incubated with activated THP1-macrophages produces significantly lower levels of inflammatory cytokines when compared with bovine collagen that is similarly incubated. This demonstrates that animal-derived collagen can provoke a foreign body response not seen with rhCollagen, which delays healing and increases scarring. Further, with our rhCollagen, there are no potential side effects in the growth of tissue because there are no residues of growth factors. In addition, with tissue-derived collagen, there is a possibility that the animal or human from which the collagen was produced was infected with a virus, prion, or other pathogen. With our rhCollagen there is no known risk of transmitting diseases and pathogens. |
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| ● | Novel applications. Due to our ability to control the protein at the molecular level, it is possible to use our rhCollagen to produce products with unique physical features, as well as high repeatability, which is not possible with tissue-derived collagen. As compared to tissue-derived collagen, rhCollagen membranes have shown better thermal stability, improved tensile strength due to alignment of the collagen fibers, and higher levels of transparency. In addition, rhCollagen can be used to produce high concentration solutions of collagen at low viscosities. The unique properties of our rhCollagen make it an ideal building block for many products that we believe cannot currently be produced using tissue-derived collagen, such as BioInks for 3D printing, artificial tendons, and transparent ophthalmic products. |
We believe the clinical attributes of our rhCollagen will translate into benefits for patients, payors, and physicians, and will be adopted rapidly by the market. We believe the improved biofunctionality of our products could lead to faster recovery, better clinical outcomes, and reduced hospitalization time. Our in vivo studies have shown faster tissue remodeling, faster wound closure, and reduced scarring compared to competing products made from tissue-derived collagen.
The advantages of our rhCollagen outlined above have been demonstrated through in vitro testing and in preclinical animal studies, and are based on the performance of rhCollagen alone. The performance demonstrated in these studies is not necessarily indicative of the performance of our products which contain rhCollagen. We cannot assure you that the same advantages of rhCollagen will be seen in clinical testing of our products and product candidates containing rhCollagen.
We can produce our rhCollagen cost-effectively and have access to an abundant supply of raw materials. Tobacco is a relatively easy plant to grow, and can be cultivated in a wide range of climates and soils. The tobacco plant is an extremely hardy plant, may be grown in very large volumes and its growth time to reach desired maturity is relatively short (about eight weeks). Under our current production technology, we are able to achieve a cost of goods that allows us to offer products at prices that are competitive with tissue-derived collagen.
Collagen-based products are already used extensively in the marketplace; therefore, we expect our product candidates, except for dermal fillers, will likely be eligible for reimbursement by third-party payors, including government agencies and insurance companies. We believe that the demand for tissue-derived collagen will decrease as the market recognizes the significant advantages of our rhCollagen.
Our Market Opportunity
Our rhCollagen represents a platform for the development of products addressing significant opportunities in multiple markets. We are initially focused on the regenerative medical and aesthetics market, aiming to become a global leader in these markets. We are developing, together with our development partner, AbbVie, a dermal and soft tissue fillers. Per the AbbVie Development Agreement, we have the potential to receive additional milestones and option products payments, as well as receive meaningful royalties on product sales. AbbVie continues to advance the filler program which is now in clinical studies.
We are developing a 3D-bioprinted breast implants, which are developed to regenerate breast tissue and thus may provide a revolutionary alternative for aesthetic and reconstructive procedures. In December 2023 we initiated a pre-clinical trial to evaluate commercial-size, 3D-bioprinted, regenerative breast implants.
We see a significant opportunity to use our rhCollagen platform to develop products to address additional indications in these markets as well as in new markets, including cardiovascular, orthobiologics, and ophthalmic markets. We believe that the potential addressable market opportunity for products using our rhCollagen and 3D-bioprinting technology is even greater than the market size served by currently available collagen-based products, mainly due to continued unmet medical needs and the utilization of 3D-bioprinting technology for tissue and organ manufacturing.
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Regenerative Medicine and Aesthetic Markets
Dermal fillers are gaining popularity all across the globe due to increasing trend of using anti-aging treatments, growing aging population, demand to look younger and the use of social media. According to the American Society of Plastic Surgeons, comparing the 2022 procedural statistics to 2019, cosmetic surgery procedures have grown by 19%. Minimally invasive procedures gained traction throughout 2022, offering quicker recovery and almost instant results. In addition, the use of dermal fillers saw a 70% jump for men since 2019. More and more companies are in the search for safer and longer lasting fillers.
Broadly, facial fillers can be divided into four categories: autologous fat, collagens, hyaluronic acid, and synthetic fillers (e.g., Calcium hydroxylapatite, Polylactic acid). According to Global Market Insights Inc., in 2022, hyaluronic acid comprised the largest category of the dermal filler market, with approximately 55% market revenue share, and is expected to register around $8.6 billion by 2032. In addition, according to the American Society of Plastic Surgeons, hyaluronic acid injectable fillers were ranked second in popularity among the top Cosmetic Minimally Invasive Procedures for 2022.
According to Global Market Insights Inc., global dermal filler market size accounted over $5.5 billion in 2022 and is estimated to grow at 10.5% to reach $14.8 billion by 2032.
Our regenerative breast implants addressing a $2.9 billion global breast implant market. Additionally, breast reconstruction and augmentation procedures represent the second most common plastic surgery procedure performed worldwide today. The most common breast augmentation or reconstruction procedures today are based on synthetic silicone breast implantations, an artificial substitution for natural regenerated tissue with risks of complications.
Currently, to our knowledge, there are no commercial products that allow regeneration of soft tissues such as the breast. In the U.S. alone, hundreds of thousands of people per year experience adverse events that range from autoimmune symptoms to the very serious breast implant-associated anaplastic large cell lymphoma (BIA-ALCL). CollPlant’s breast implants that are comprised of the Company’s proprietary plant-derived rhCollagen and other biomaterials, are expected to regenerate breast tissue without eliciting immune response, and thus may provide a revolutionary alternative for aesthetic and reconstructive procedures, including postmastectomy for cancer patients.
The global breast implant market size reached US$ 2.9 Billion in 2023. Looking forward, IMARC Group expects the market to reach $4.1 billion by 2032, exhibiting a compound annual growth rate (CAGR) of 3.7% during 2024-2032.
BioInk for 3D printing of tissues & organs
Regenerative medicine and tissue engineering have seen unprecedented growth in the past decade, driving the field of artificial tissue models towards a revolution in future medicine. Progress has been achieved through the development of innovative biomanufacturing strategies to pattern and assemble cells and extracellular matrix, or ECM, in three dimensions to create functional tissue constructs. Bioprinting has emerged as a promising 3D biomanufacturing technology, enabling precise control over spatial and temporal distribution of cells and ECM. Bioprinting technology can be used to engineer artificial tissues and organs by producing scaffolds with controlled spatial heterogeneity of physical properties, cellular composition, and ECM organization. This innovative approach is increasingly utilized in biomedicine, and has potential to create artificial functional constructs for drug screening and toxicology research, as well as tissue and organ transplantation.
Grand View Research Inc. estimates that the global 3D bioprinting market size was valued at $2.0 billion in 2022 and that the global market is expected to grow at a compound annual growth rate (CAGR) of 12.5% from 2023 to 2030. The growth of the global market is largely driven by increasing large demand of tissues and organs for transplantation and the innovations and advancements in technology for 3D bioprinting. A large number of people across the globe are waiting for an organ or tissue transplant, due to the large gap in demand for organ transplants and donors. This has created traction in the 3D bioprinting industry for developing live tissues and organs. Different companies along with academic institutes and laboratories are investing capital for 3D bioprinting research and development. Some of the other factors driving the growth of the global market include increasing research and development activities and increasing compliance for 3D bioprinting in drug discovery processes. Growing stem cell research and increasing adoption of 3D bioprinting in cosmetic industry are expected to create ample growth opportunities for the global market.
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Orthopedic and wound care
Orthobiologics Market
An aging population, active demographics, innovative technology, and emerging geographic areas are expected to continue to drive growth in the global orthopedic market. Top market segments within orthopedics include reconstructive devices, such as joint replacements; spinal implants and instruments, used to treat joint pain; fracture repair, including the use of plates and screws; and arthroscopy and soft tissue repair, primarily for sports and movement related injuries.
Chronic complex musculoskeletal injuries that are slow to heal pose challenges to physicians and patients alike. Orthobiologics use cell-based therapies and biomaterials to help injuries heal more rapidly with a superior outcome. These products are made from substances that are naturally found in the body, which dynamically interact with the musculoskeletal system to facilitate the healing of bone, cartilage, meniscus, tendons, and ligaments affected by disease or injury. Orthobiologics products are spread across all segments of the larger orthopedic market, generating much of the growth within orthopedics. According to Fortune Business Insights, the global orthobiologics market size was valued at $8.36 billion in 2022 and is projected to grow $8.77 billion in 2023 to $12.78 billion by 2030, exhibiting a CAGR of 5.5% during 2023-2030.
Advanced Wound Care Market
The global market for wound care encompasses traditional dressings and bandages, as well as advanced wound care products such as bioengineered skin and skin substitutes and wound care growth factors. Over the past 30 years, there has been a shift from traditional wound dressings towards advanced therapies that aim to optimize the wound healing environment. Advanced wound care is composed of biocompatible products that are intended to actively promote wound healing by interacting either directly or indirectly with wound tissues. Attempts to reduce the duration of hospital stays in order to limit healthcare costs and the goal of enhancing therapeutic outcomes are driving the demand for advanced wound care and closure products. One of the primary market drivers for advanced wound care products is the increasing incidence of chronic wounds, which are on the rise due to an aging population and a sharp rise in the incidence of diabetes and obesity worldwide. Both advanced age and chronic medical conditions are associated with a slower healing process, and all phases of wound healing are affected. The inflammatory response is decreased or delayed, as is the proliferative response.
The global advanced wound care market in terms of revenue was estimated to be worth $11.2 billion in 2022 and is poised to reach $17.7 billion by 2027, growing at a CAGR of 9.4% from 2022 to 2027, according to MarketsAndMarkets. The three major market segments are device-based wound care, comprised of negative-pressure wound therapy and hydrosurgery systems; moist wound care, comprised of dressings that create and maintain a moist environment; and biologics, comprised of bioactive technologies that provide new approaches to debridement and dermal repair and regeneration.
Our Strategy
All of our activities are driven by our goal to become the global market leader in regenerative and aesthetic medicine. As a disruptive technology company, we are facing the need to identify target customer populations, open new markets and establish unique business models for revenue generation. Our value creation is based on our sales of rhCollagen based products to our partners and selected customers, milestone payments and royalties on future sales of our partners. Our business model includes:
| 1. | In-house development of biofabricated scaffolds and tissues. Our current product pipeline addresses a multi-billion-dollar market. |
| 2. | In-licensing of our rhCollagen technology, and/or sales of rhCollagen and rhCollagen-based bioinks formulations, that constitute the ideal building blocks for regenerative medicine applications. |
| 3. | Co-development of more complex tissues and organs with tire-1 partners as well as collaborations with recognized universities and research organizations. |
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We intend to continue to develop additional products, both independently and with strategic collaborators, initially in 3D-bioprinting of tissues and organs, and medical aesthetics markets and subsequently in other high value markets, based on our rhCollagen. We believe the market-leading characteristics of our rhCollagen will create attractive collaboration opportunities for our products, and we intend to selectively establish collaborations and strategic partnerships with respect to our current and future products in order to accelerate their development and commercialization. We established a collaboration with Allergan aesthetics, an AbbVie company, as part of the AbbVie Development Agreement, and we intend to engage with similar well-established companies whose distribution networks are deeply entrenched. We remain engaged in partnering dialogs with several industry leaders and academic institutions interested in our rhCollagen technology and expertise in 3D-bioprinting, to develop therapeutics, medical and aesthetics applications. Our product pipeline and our research and development program are expected to yield new products in the coming years.
Our rhCollagen is a platform technology which can be utilized in a broad range of therapeutic, aesthetic, and other medical applications, and in particular in emerging industries such as 3D-bioprinting which we believe cannot be adequately addressed with currently available collagen technologies. We believe our platform technology, and the knowledge and expertise we have gained in its development, will enable the development, both independently and with collaborators, of differentiated products in multiple industries with a short time to market.
Our Products and Product Candidates
Dermal Filler and Soft Tissue Fillers
In February 2021, we entered into the AbbVie Development Agreement with Allergan aesthetics, an AbbVie company, pursuant to which we and AbbVie agreed to collaborate in the development and commercialization of dermal and soft tissue filler products for the medical aesthetics market, using our rhCollagen technology and AbbVie’s technology. In June 2023, we announced the achievement of a milestone with respect to the clinical phase dermal and soft tissue filler product, which triggered a $10 million payment from AbbVie to us. AbbVie continues to advance the filler program which is now in clinical studies.
Pursuant to the AbbVie Development Agreement, we granted to AbbVie and its affiliates, worldwide exclusive rights to use our rhCollagen in combination with AbbVie proprietary technologies, for the production and commercialization of dermal and soft tissue filler products, or the Exclusive Products. Further, pursuant to the AbbVie Development Agreement, we granted to AbbVie and its affiliates, a right of first negotiation to enter into a definitive agreement to obtain exclusive, worldwide rights to the use of our rhCollagen for the commercialization and sale of an injectable breast implant product and a right of first negotiation to enter into a definitive agreement to obtain exclusive, worldwide rights to the use of our rhCollagen for the commercialization and sale of a photocurable dermal filler product, each an “Option Product” and together, the “Option Products”. Other than under the AbbVie Development Agreement, we agreed not to research, develop or commercialize our rhCollagen for use with any Exclusive Products during the term of the AbbVie Development Agreement or grant any third party any rights to our rhCollagen technology that would conflict with rights granted to AbbVie.
Pursuant to the AbbVie Development Agreement, we successfully developed an aseptic process for sterile rhCollagen that meets certain specifications as set forth in the Development Agreement. The sterile rhCollagen is under stability test that is scheduled to end in 2025. In addition, the Development Agreement provides that later on, we and AbbVie will enter into a supply agreement whereby we will manufacture and supply AbbVie with rhCollagen, at a pre-agreed price, to be used solely for the development and manufacture of the Exclusive Products and Option Products.
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The AbbVie Development Agreement provides that with respect to the Exclusive Products we shall be entitled to receive up to $50 million comprised of an upfront cash payment of $14 million, which was paid in February 2021, and up to $36 million in proceeds upon the achievement of certain development, clinical trial, regulatory and commercial sale milestones, of which $10 million was paid in July 2023 following the achievement of a milestone with respect to the clinical-phase dermal and soft tissue filler product candidate. In addition, CollPlant shall be entitled to a fixed-fee royalty payment (subject to certain adjustments) for each product commercially sold during the applicable royalty term as well as a fee for the supply of rhCollagen to AbbVie. In addition, with respect to the Option Products, we shall be entitled to receive up to $53 million in proceeds, including a one-time non-refundable payment, as well as milestone payments that are payable upon the achievements in certain clinical trials, regulatory approvals and commercial sale milestones, plus a fixed-fee royalty payment (subject to certain adjustments) for each product commercially sold during the applicable royalty term and a fee for the supply of rhCollagen to AbbVie.
Unless earlier terminated, the AbbVie Development Agreement will continue in effect on a product-by-product and country-by-country basis until the later of (i) the expiration, invalidation or abandonment of the last CollPlant patent covering a product in a particular country, and (ii) 10 years from the first commercial sale of such product in such country. Following expiration (unless earlier terminated), the rights granted to AbbVie in the AbbVie Development Agreement will continue on a non-exclusive, fully paid-up, royalty-free, perpetual and irrevocable basis. The Development Agreement may be terminated early by either party for material breach or bankruptcy. In addition, AbbVie may terminate the AbbVie Development Agreement at any time immediately upon written notice to CollPlant if AbbVie reasonably believes that it is not advisable for AbbVie to continue to develop or commercialize the Exclusive Products under the AbbVie Development Agreement as a result of a perceived serious safety issue regarding the use of any Exclusive Product or upon 60 days’ written notice, for any or no reason, with respect to its rights under the Agreement on an Exclusive Product-by-Exclusive Product or country-by-country basis.
In addition, we are currently developing a photocurable regenerative dermal filler, which is one of AbbVie’s Option Products, and is designed to address the need for more innovative aesthetic products to treat wrinkles. In this regard, in early 2023 we completed a 12-month preclinical study with our photocurable regenerative dermal filler, demonstrating superior tissue regeneration, lifting capacity and volume retention when compared to a commercial standard.
Skin rejuvenation procedures are increasing in popularity, especially nonsurgical treatments such as dermal filler injections. Hyaluronic acid is a water-retaining molecule widely used for dermal filling, but lacks the ability to promote cell proliferation and tissue regeneration. This results in a limited-lasting effect.
A photocurable version of our tissue regenerating rhCollagen, serves as the basis for a new dermal filler product line now in development. We are developing a photocurable regenerative filler comprised of rhCollagen and other substances which is intended to provide several revolutionary effects: lifting, sculpturing ability, retention to the host tissue, and tissue regeneration.
rhCollagen-based Photocurable regenerative dermal filler key attributes:
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The photocurable regenerative dermal filler is intended for injection in a semiliquid phase and hardened in-situ post injection by light illumination through the skin. Utilization of photocuring technology is expected to ease the injection process, particularly in subcutaneous and supraperiosteal applications. As the product degrades, a newly formed tissue is expected to regenerate and take its place.
3D-Bioprinted Breast implants
Current breast reconstruction in the market is based on synthetic breast implantation and free flap surgery/autologous fat tissue transfer, all of which replace tissue rather than regenerate it. Breast augmentation and reconstruction through silicone implants, which are among the most popular surgical procedures, are associated with high risk for adverse events.
Our implants in development are bioprinted and loaded with compositions that are based on rhCollagen, and other biomaterials. These implants are intended to promote tissue regeneration and degrade in synchronization with the development of a natural breast tissue.
The following diagram demonstrate the phases of breast implant product candidate production and implementation.
In January 2023, we successfully completed a large-animal study for our 3D bioprinted regenerative breast implants with full achievement of study objectives, demonstrating tissue regeneration which included the formation of maturing connective tissue and neovascular networks. The histological analysis of the implants demonstrated progressive stages of tissue regeneration after three months, as indicated by the formation of maturing connective tissues and neovascular networks. The development of native tissue was synchronized with the degradation process of the implant, which was consistent with the desired outcome observed during the trial. There was also no indication of adverse reaction noted within the implants and the surrounding tissue.
In December 2023, we initiated a pre-clinical trial to evaluate commercial-size, 3D-bioprinted, regenerative breast implants. The primary goal of this study is to obtain data which would than support the optimization of the implant design and imply this design to a pivotal large-animal study that is intended to be the subject of discussion with the FDA.
In addition, we were in the initial stages of developing injectable breast implants, and an RTM for use in breast reconstruction procedures in combination with an implant. However, we decided to temporarily defer the development of both these products in order to concentrate our efforts on advancing the development of our 3D-bioprinted regenerative breast implants. We will consider resuming the development of both the injectable breast implants and RTM based on our 3D-bioprinted breast implant program progress. In June 2021, we signed a co-development agreement with 3D Systems for the development of the RTM, which was terminated in March 2023. The injectable breast implant is one of AbbVie’s Option Product under the AbbVie Development Agreement.
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Bioink for 3D printing of tissues & organs
3D-bioprinting is being applied to the field of regenerative medicine to address the need for complex scaffolds, tissues, and organs that are suitable for transplantation. We have developed rhCollagen-based bioinks that are optimized and provides an ideal building block for the three-dimensional bioprinting of tissues and organs.
For that purpose, rhCollagen was modified chemically to adapt the biological molecules for printing such that bioinks keep a controlled fluidity during printing and cure to form hydrogels when irradiated by certain light sources ranging from UV to visible light. The unique viscosity and shear thinning properties of the modified rhCollagen enable the formulation of bioinks that are suitable for different printing technologies including extrusion, ink-jet, Laser Induced Forward Transfer and Stereolithography. The control of chemical modification in combination with illumination energy allows tight control of the physical properties of the resulting scaffolds to match natural tissue properties, from stiff cartilage to soft adipose. bioinks formulated from rhCollagen were evaluated with all major currently available printing technologies and exhibited the required physical properties and excellent support for cells including a series of primary and differentiated human cells.
CollPlant’s bioink based on rhCollagen – building block for tissue and organ manufacturing.
We believe our bioink offers ideal characteristics for 3D bioprinting, including:
| ● | Biocompatibility—supports cell viability and promotes proliferation (e.g. endothelial cells, fibroblasts, keratinocytes, MSCs) |
| ● | Potential safety—has not shown to promote allergic and other tissue reactions |
| ● | Optimized viscosity and gelation kinetics—printability and compatibility with multiple printing technologies |
| ● | Curing with a range of light sources based on specific requirements |
| ● | Controlled degradation profile |
| ● | Controlled rheological properties (e.g. viscosity) |
| ● | Shear thinning properties – compatible with inkjet technology |
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| ● | Convenient handling at broad range of temperatures and pH (e.g., maintains liquid properties at RT and above –no gelation) |
| ● | Compatible with different photoinitiators to cover the spectrum of 280-500nm |
| ● | Customized physical properties of the printed constructs that are compatible with natural tissues |
We have initiated several research collaborations with biotechnology and medical device companies, as well as academic and research institutions. These collaborations include development of technology for 3D-bioprinting of life-saving organs and different tissues, using our bioink formulations. Our collaborations are generally structured such that our partners provide research funding and purchasing of our bioink to cover the scope of work, in part or in full. This funding is typically reflected as collaboration revenues in our financial statements. Upon entering into a collaboration, we disclose the financial details only to the extent that they are material to our business and not subject to confidentiality agreements with our partners. Research collaborations with academic or research institutions typically involve both us and the academic partner contributing resources directly to projects, but also may involve sponsored research agreements where we fund specific research programs.
In 2021 we announced the commercial launch of our rhCollagen-based bioink platform, by launching our first commercial bioink, Collink.3D™ 50 for use in 3D-bioprinting. Collink.3D™ 50, our first commercially available rhCollagen-based bioink product that was designed to allow the scalable and reproduceable biofabrication of scaffolds, tissues and organ transplants.
In November 2022, we launched Collink.3D™ 90, an rhCollagen-based bioink solution for use in a variety of 3D bioprinting applications, offering increased mechanical properties to address additional printing requirements of soft and hard tissues.
In January 2023, we launched Collink.3D™ 50L in powder form, which is our first bioink available in powder form and provides enhanced operational flexibility to support a wide range of 3D-bioprinting applications, including drug discovery, drug screening, tissue testing as well as the development of transplantable tissues and organs.
Made entirely from human-derived collagen, Collink.3D bioinks enables the production of scaffolds that accurately mimic the physical properties of human tissues and organs, with improved bio-functionality, safety and reproducibility.
Orthopedic and wound healing
VergenixSTR—Tendinopathy Treatment
VergenixSTR is a soft tissue repair matrix that combines cross-linked rhCollagen with PRP, a concentrated blood plasma that contains high levels of platelets, a critical component of the healing process. Platelets contain growth factors that are responsible for stimulating tissue generation and repair, including soft tissue repair, bone regeneration, development of new blood vessels, and stimulation of the wound healing process. VergenixSTR serves as a scaffold to support cell proliferation and the release of growth factors. The product is injected into the affected area and forms a viscous gel matrix which serves as a temporary reservoir for PRP in the vicinity of a tendon injury site, holding the platelet concentrate in place at the injured area. The matrix formed has the capabilities to activate the platelets in PRP, thereby releasing growth factors in a controlled manner and controlled biodegradation time, enabling optimal healing.
In the European Union, VergenixSTR is intended for the treatment of tendinopathy by promoting healing and repair of tendon injuries in a variety of tendons including the elbow tendon (for treatment of “tennis elbow”), rotator cuffs, patellar tendons, Achilles tendon, and hand tendon.
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We estimate the size of the target market for VergenixSTR for treating tendinopathy is three million procedures per year, or approximately $2.0 billion. While our initial focus for VergenixSTR is in tendinopathy, VergenixSTR may be applicable to other soft tissue indications such as tendon rupture, meniscus tear, and cartilage repair, as well as in the aesthetic market.
Globally, the aging population is playing a major role in increasing the incidence of sports injuries as the reduced flexibility and mobility associated with aging can make the body more prone to injury.
We completed a 40 patient open label, single arm, and multi-center clinical trial of VergenixSTR at hospitals in Israel which demonstrated the safety and evaluated the performance of VergenixSTR in patients suffering from tennis elbow or lateral epicondylitis. Tennis elbow is an inflammation of the tendons that join the forearm muscles on the outside of the elbow. The trial, which commenced in January 2015, initially enrolled 20 patients and was expanded to enroll an additional 20 patients. Patients enrolled in the trial received a one-time injection of VergenixSTR and monitored for the level of pain, tendon healing, and recovery of hand movement at three and six months after treatment.
In August 2016, we announced final results. At the three-month and six-month follow ups, patients treated with VergenixSTR reported an average 51% and 59% reduction in pain and improvement in motion, respectively, as measured by score improvement over the baseline on the Patient-Rated Tennis Elbow Evaluation, or PRTEE, questionnaire. The PRTEE questionnaire is designed to measure reduction in pain and recovery of motion for patients with tennis elbow. Furthermore, at three-month and six-month follow ups, 74% and 86%, respectively, of patients treated with VergenixSTR showed at least a 25% reduction in pain and improvement in motion as measured by PRTEE. In contrast, a study of standard-of-care tennis elbow therapies published in 2010 in the American Journal of Sports Medicine, or AJSM, reported that, at three and six months, 48% and 36%, respectively, of steroid patients showed at least a 25% reduction in pain and improvement in motion as measured by PRTEE. Also at the three-month and six-month follow ups, 62% and 64%, respectively, of patients treated with VergenixSTR showed at least a 50% reduction in pain and improvement in motion as measured by PRTEE, whereas the 2010 AJSM study showed 33% and 17% reductions at three and six months, respectively, for this same measurement.
In October 2016, we received CE marking certification for VergenixSTR. In November 2016, we entered into an exclusive distribution agreement with Arthrex GmbH, for VergenixSTR covering Europe, the Middle East, India, and certain African countries. Sales in Europe commenced in the fourth quarter of 2016.
In March 2018, Arthrex announced results of ACP Tendo, a product for treatment of tendinopathy combining our Vergenix®STR and Arthrex’s platelet rich plasma extraction kit, in a European case series. The safety and performance of ACP Tendo was evaluated for the treatment of tendinopathy in 24 patients in 9 different European locations. The indications included injuries in rotator cuff, Achilles tendon, peroneal tendon, tibialis tendon and common extensor tendon. In all treatment groups, patient-recorded-pain decreased after 2 weeks and continued along this trend up to the last follow-up at 6 months. Specifically for rotator cuff and common extensor tendon groups, the functionality was increased over the study period, almost achieving pre-symptom levels after 6 months.
VergenixFG—Wound Filler
VergenixFG is an advanced wound care product based on our rhCollagen. In the European Union, VergenixFG is intended for the treatment of deep surgical incisions and deep wounds, including diabetic ulcers, venous and pressure ulcers, burns, bedsores, and other chronic wounds that are difficult to heal. VergenixFG is designed to be easy to use and to be administrated through a cannula by a doctor or nurse. The VergenixFG formulation provides a scaffold of pure human collagen, an important characteristic in promoting the closure of wounds, that fills the wound bed and is engineered to create maximal contact with the surrounding tissue, which is believed to enhance healing. VergenixFG provides complete coverage of the wound site, facilitates wound closure through an engineered synchronization between scaffold degradation and growth of new tissue, and offers a non-allergenic and pathogen-free scaffold for safe and efficacious wound care therapy. Other flowable gel products are available on the market, but they are based on tissue-derived collagen.
Our initial market for VergenixFG in Europe is chronic wounds, which includes diabetic foot ulcers, venous ulcers, and pressure ulcers.
The population prevalence of chronic wounds is 2.21/1000 people, which equates to 1 million out of the 447 million inhabitants of the EU 27 in 2021.
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We have completed an open label, single arm, and multi-center registration trial of VergenixFG of 20 patients in Israel to demonstrate safety and to evaluate the performance of VergenixFG in patients with hard-to-heal chronic wounds of the lower limbs. Patients enrolled in the trial, received a single treatment of VergenixFG followed by a four-week follow up. Product performance was examined according to several measures, the main one being the percentage of wound closure achieved. The results were published in February 2019 in Wounds, a peer-reviewed journal focusing on wound care and wound research. The paper, titled, “A Novel Recombinant Human Collagen-based Flowable Matrix for Chronic Lower Limb Wound Management: First Results of a Clinical Trial,” presents data from a previously reported independent study conducted by physicians at several wound care medical clinics and hospitals in Israel. Four weeks following treatment, nine wounds closed completely, fifteen wounds exhibited a greater than 70% closure, and the median wound area reduction was 94%. Only one patient failed to respond to treatment. All patients in the study reported a 50% reduction in pain. Further, no significant device-related adverse events were reported throughout the study.
In February 2016, we received CE marketing certification for VergenixFG. Since then we have entered into distribution agreements for the distribution of VergenixFG in several countries in Europe and Asia. We currently do not intend to pursue an FDA regulatory pathway to market for VergenixFG.
In an investigator initiated study, 24 adults with diabetes admitted to the inpatient clinic of the University Hospital in Pisa, Italy between March and July 2017 were randomized to receive VergenixFG plus standard treatment (12 patients) or standard treatment (12 patients). They were evaluated weekly for 6 months or until complete healing had occurred. The group that received VergenixFG had a significantly higher healing rate (83.3% versus 58.3%) and shorter healing time (64±4 days versus 90±11 days) than the group receiving standard treatment. It was concluded that the addition of VergenixFG to standard treatment increased healing rate and shortened healing time in patients with post-surgical diabetic foot wounds. The study was published by Lacopi E et al in The Diabetic Foot Journal, Vol 23 No 2 2020.
Technology
Our rhCollagen is based upon research conducted by our founder and Chief Scientist, Prof. Oded Shoseyov. We believe our technology is the only viable technology available for the production of recombinant type I human collagen, the most abundant collagen in the human body.
The production of our rhCollagen begins with the creation of genetically engineered cultures that are transferred to selected greenhouses across Israel and continues with the harvesting of tobacco leaves and the processing of such leaves to an extract which then undergoes purification until the completion of the rhCollagen.
Five human genes encoding heterotrimeric type I collagen are introduced into tobacco plants. The three protein chains that make up type I collagen—two α1 protein chains and one α2 protein chain—are encoded by two genes. The other three genes encode the human prolyl-4-hydroxylase (P4Hα and P4Hβ) as well as lysyl hydroxylase 3 (LH3) enzymes. These enzymes are responsible for key post-translational modifications of collagen, and plants co-expressing all five of these vacuole-targeted genes generate intact procollagen. The plants are grown in a greenhouse under strict growing protocols and mature leaves are transported to a protein extraction facility. Upon extraction, pro-collagen is enzymatically converted to atelocollagen using a plant-derived protease. The protein is purified to homogeneity through a cost-effective industrial process taking advantage of collagen’s unique properties that make it soluble at a very low pH.
rhCollagen forms thermally stable triple helix structures which readily fibrillate at natural pH and low sodium chloride concentrations, making it ideal for use in the manufacture of products for tissue repair in the human body. Binding of integrins (transmembrane receptors) presented by the cells to a specific 3D structure on type I collagen fibrils requires a perfect triple helix. This binding is essential for binding and proliferation of cells on tissue repair scaffolds. In a study published in the Journal of Biomedical Materials Research Part B: Applied Biomaterials, rhCollagen was compared with acid-solubilized collagen from bovine dermis and pepsin-solubilized collagen from human fibroblast cell culture. Tested samples of the tissue-derived collagens had random fibrillar organization, whereas rhCollagen membranes showed far greater regional fibril alignment and transparency. RhCollagen membranes also showed better thermal stability compared with the tissue-derived collagens. The authors concluded that cross-linked rhCollagen membranes had a superior combination of desirable properties, namely higher transparency, higher thermal and tensile strengths, and adequate hydration.
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We have selected tobacco as the medium for production of rhCollagen due to certain attributes of the tobacco plant that provide us with a number of advantages:
| ● | The genetic structure of tobacco is well understood and therefore can be effectively manipulated. |
| ● | We can monitor the effect of weather conditions on the accumulation of proteins in the plants, which allows us to make optimal use of the growing area. We control the growing process in order to maximize yields. |
| ● | Because tobacco is not part of the food chain, there are no concerns about cross-contamination of the food supply that could result from genetically modified plants, which eases the regulatory burden. |
| ● | Tobacco plants may be grown in very large volumes and its growth time until reaching the desired maturity is relatively short (about eight weeks). |
Our Development Activities
Development History
Our rhCollagen was first developed as a collaboration among several commercial partners and the Hebrew University of Jerusalem, a major academic institution in Israel, under the direction of Professor Oded Shoseyov. Prof. Shoseyov is a faculty member at the Robert Smith Institute of Plant Science and Genetics at the Hebrew University of Jerusalem. The intellectual property was transferred to our wholly owned subsidiary, CollPlant Ltd.
As part of our regulatory strategy, we first developed and achieved a CE marking for a collagen-based non-invasive dressing, VergenixWD. We pursued a CE mark for this product as a predicate product for achieving in 2016 CE marking for our VergenixSTR and VergenixFG product in the European Union. To date, we have sold a few thousands kits of VergenixSTR and VergenixFG to distributors, and those kits have treated patients in several European countries.
In 2017, we created a division focused on development of collagen-based biological ink following the expansion of our research activities in the field of 3D biologic printing of organs and tissues.
In 2018, we filed a provisional patent application for photocurable dermal fillers comprising rhCollagen and hyaluronic acid, for the aesthetics market. This application represents an integral part of our strategy to expand the uses for rhCollagen into new, high value markets. The subject provisional application has matured into granted patents in the U.S. (U.S. Patent No. 11,801,329), Australia, Israel and Japan, and has received allowance in Brazil. Applications are still pending in Europe, China, South Korea, U.S., Japan, Australia, Canada, Israel and Brazil.
In October 2018, we entered into a License, Development and Commercialization Agreement with LB, or the United License Agreement, pursuant to which we and LB collaborated in 3D bio-printing development of lungs for transplant in humans. On February 24, 2021, we received a notice of termination from LB of the United License Agreement, and the termination went effective on March 26, 2021. Under the United License Agreement we received an upfront cash payment of $5 million in November 2018 and a further $3 million in September 2020 following the exercise of an option under the United License Agreement.
In August 2019, we announced that we are developing 3D-bioprinted implants for regeneration of breast tissue and that we successfully produced first prototypes. The implants are comprised of our rhCollagen and additional materials and are intended to promote breast tissue regeneration. Eventually, the scaffold is designed to degrade and be replaced by newly grown natural breast tissue, that is free of any foreign material.
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In January 2020, we announced that we became part of a new public-private Manufacturing USA initiative, or ARMI. Headquartered in Manchester, New Hampshire, ARMI brings together a consortium of over 150 partner organizations from industry, government, academia and the non-profit sector to develop next-generation manufacturing processes and technologies for cells, tissues and organs. We intend to contribute our expertise to advance the entire science and industry of bioengineering and manufacturing.
In December 2020, we entered into a product manufacturing and supply agreement with STEMCELL. As part of the agreement, we are selling our proprietary recombinant human Type I collagen (rhCollagen) to STEMCELL, which incorporates our product into cell culture media kits. The agreement follows the companies’ established business relationship, which started in 2014 when STEMCELL began purchasing and incorporating our rhCollagen into some of its cell culture expansion and differentiation media kits. To date, hundreds of companies, as well as research and academic institutes, have used these kits for research and development projects. STEMCELL distributes the kits globally for use in the regenerative medicine research market.
In February 2021, we entered into the AbbVie Development Agreement, pursuant to which we and AbbVie agreed to collaborate in the development and commercialization of dermal and soft tissue filler products for the medical aesthetics market, using our rhCollagen technology and AbbVie’s technology. In June 2023, we announced the achievement of a milestone with respect to the clinical-phase dermal filler product under the AbbVie Development Agreement, which triggered a $10 million payment from AbbVie to us.
In November 2021, we launched Collink.3D 50 for use in 3D bioprinting. Collink.3D 50, our first commercially available rhCollagen-based bioink product is designed to allow the scalable and reproduceable biofabrication of scaffolds, tissues and organ transplants.
In November 2022 we launched Collink.3D 90, an rhCollagen-based bioink solution for use in a variety of 3D bioprinting applications, offering increased mechanical properties to address additional printing requirements of soft and hard tissues. Collink.3D 90 is complementary to our first commercial bioink, Collink.3D 50.
Also in November 2022, we entered into a license and research agreement with Tel Aviv University and Sheba Medical Center hospital, to co-develop a ‘Gut-on-a-Chip’ tissue model for drug discovery and high throughput screening of drugs. The model was intended to be used in personal medicine applications for the treatment of ulcerative colitis, an inflammatory bowel disease affecting millions of individuals worldwide. In November 2023, we elected to terminate our collaboration agreement with Tel Aviv University and Sheba Medical Center and continued to develop this program on our own. The program was later put on hold as we decided to focus our resources in advancing our 3D-bioprinted regenerative breast implants and dermal and soft tissue fillers programs. We intend to revisit the ‘gut-on-a-chip’ program and consider its initiation once resources become available.
In January 2023, we announced the successful results of our first large-animal study in 3D-bioprinted regenerative breast implants, which demonstrated progressive stages of tissue regeneration after three months, as highlighted by the formation of maturing connective tissue and neovascular networks within the implants, with no adverse events reported.
Also in January 2023, we launched Collink.3D 50L in powder form, which is our first bioink available in powder form and provides enhanced operational flexibility to support a wide range of 3D bioprinting applications, including drug discovery, drug screening, tissue testing as well as the development of transplantable tissues and organs.
In April 2023, we announced a joint development and commercialization agreement with Stratasys to collaborate on the development of a solution to bio-fabrication human tissues and organs, using Stratasys’ P3 technology-based bioprinter and our rhCollagen-based bioinks.
In November 2023, we announced that the U.S. Patent and Trademark Office has granted a patent that covers CollPlant’s photocurable dermal filler product candidate, being developed for the aesthetics market. U.S. Patent No. 11,801,329 is directed, among other things, to a method of filling tissue space under the epidermis by introducing a polymerizable filler solution into the tissue space and applying external light to induce in-situ polymerization. This newly issued patent is related to CollPlant’s photocuring technology and serves as the basis of its photocurable dermal filler product pipeline currently under development. The polymerizable solution injected into the tissue space is comprised of a chemically modified recombinant human collagen (rhCollagen) and other constituents such as hyaluronic acid.
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In January 2024, we announced that we initiated a pre-clinical trial to evaluate commercial-size, 3D-bioprinted, regenerative breast implants. A primary goal of this study is to obtain data which would then support the optimization of the implant design and apply this design to a pivotal large-animal study that is intended to be the subject of discussions with the FDA.
Future Development
To facilitate efficient development, our management holds regular research and development meetings where they prioritize development projects and determine future products. The prioritization process is based on several factors, including our business plan, commercial potential of the products, time to market, cost of development, feasibility of the project, regulatory pathway and our established strategic objectives.
We periodically examine the continued development of other collagen-based products that we have conceived. Each one of our current products or product candidates offers a platform to product derivatives that can address other indications and contribute to our pipeline and revenues.
Manufacturing, Supply, and Production
The majority of our product research and development work is carried out at our offices and research laboratories center in Weizmann Science Park in Rehovot, Israel. The agricultural research and development and extraction activities for our rhCollagen are carried out at our site in Yessod Hama’ala, Israel.
We work with subcontractors with greenhouses for growing the tobacco plant containing human collagen. This tobacco growth occurs year-round and is optimized to the climate conditions in order to achieve the maximum amount of the protein in the leaves. Each grower has the infrastructure that can be scaled-up to accommodate future demand without additional capital expenditures.
We produce the rhCollagen from the tobacco plants at our facilities in Yessod Hama’ala and Rehovot, Israel. We believe that we currently have the ability to produce sufficient quantities of quality recombinant type I human collagen to support our product development activities and sales until 2027. Our activities are focused on yield improvement, scale-up, and cost reduction.
In late 2021, we initiated a plan to upgrade our production site in Israel into a large-scale integrated facility, in order to accommodate expected future increase in demand. We will continue with the plan once there is a surge in demand and the necessary funds are secured for its execution.
While our upstream and downstream processes are quite robust and efficient, we continuously invest in further yield improvement and scalability, in order to reduce costs. In order to increase yield, we plan to increase biomass per growing area by using new genetic derivatives, improvement and optimization of growing techniques, and introduction of online controls. Our next-generation tobacco plants have been created through improved genetics and cross-breeding. In addition, increased growing areas will reduce overall cost per harvest.
We have an approved in-house purification capability. The purification facility includes clean rooms, logistics support areas, and dedicated production equipment to support the Company’s production demand for the next few years. Under our current production techniques, we achieve a cost of goods that allow us to offer competitive pricing in the premium collagen-based products markets.
Sales, Marketing, and Distribution
We sell our bioinks and rhCollagen directly to our business partners, collaborators and selective customers. We anticipate that any products we develop in collaboration with a strategic partner or collaborator, such as dermal fillers which are based on our rhCollagen for the medical aesthetics, will be marketed by the partner’s sales force, such as AbbVie.
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We have been marketing and distributing VergenixSTR and VergenixFG in the European market with business partners since 2016. Currently we have one distributor in Europe for the VergenixFG. We also have one distributor for VergenixSTR and VergenixFG in Brazil. We continue exploring opportunities to distribute our Vergenix products in additional countries.
In 2020, we announced that we signed an agreement for distribution of VergenixFG with a Swiss-headquartered pharmaceutical group in six Commonwealth of Independent States (CIS) countries: Belarus, Kazakhstan, Georgia, Azerbaijan, Armenia and Uzbekistan. In July 2021, the agreement was extended to additional territories: Hong Kong, Denmark, Switzerland, Estonia, Latvia and Lithuania. This agreement was terminated in December 2023 by mutual consent.
We have undertaken post marketing surveillance, or PMS, studies for both VergenixSTR and VergenixFG with our European key opinion leaders and physicians to generate additional clinical data that demonstrates the efficacy, safety and clinical benefit of these products. These PMS studies are intended to facilitate market adoption of our products in Europe, to confirm product safety and performance as well as to provide additional clinical evidence in support to regulatory filing and submission to other regulatory agencies in the future.
Our proprietary Vergenix products are marketed, and intended to be marketed, to physicians, hospitals, and clinics. We plan to expand the awareness of rhCollagen and our rhCollagen-based products to the end users through the publication of clinical trial data as well as marketing studies we may conduct, along with participation in academic and industry conferences. We will also market our rhCollagen to companies who are developing products using collagen and that do not compete with our primary end products. We anticipate entering into collaborations or partnerships with these companies where we would supply them with rhCollagen for use in their products in return for royalties.
Competition
We are not aware of any competitors that produce human collagen from plants or that produce recombinant type I human collagen. However, our industry is characterized by rapidly evolving technology and intense competition, and our rhCollagen-based products will compete with several alternatives, such as collagen that is produced from animals, human cadavers and synthetic products. Adequate protection of intellectual property, successful product development, adequate funding, and retention of skilled, experienced, and professional personnel are among the many factors critical to success in the pharmaceutical industry.
Generally, our competitors currently include large fully integrated companies, as well as academic research institutes and companies in various developmental stages that develop alternative sources and forms of collagen and tissue-derived products, who are using collagen that is extracted from animals and human cadavers.
The main competitors to our dermal/soft tissue fillers that are in development with AbbVie include Galderma, Merz Aesthetics, Sinclair and AbbVie.
The main competitors to our 3D bioprinted regenerative breast implants that are in development include the commercially available breast implants by Allergan, Inc., an AbbVie company, and Mentor Worldwide LLC, Johnson & Johnson company.
The primary competitors to our bioink are potential bio-material inks for 3D biological printing, based on tissue-derived collagens. Manufacturers of these products include, among others, BICO (formerly Cellink), Allevi (now part of 3D systems) and Humabiologics.
The main competitors to our photocurable dermal fillers that are in development include the main commercially available hyaluronic acid dermal filler brands by Galderma, Sinclair and Merz.
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Our VergenixSTR product competes with companies that sell steroid injections and PRP kits, including, among others, Zimmer Biomet., Harvest Technologies Corporation, and Arteriocyte Medical Systems Inc.
The main competitors to our VergenixFG product are products based on tissue-derived collagens. Manufacturers of these products include, among others, Integra Lifesciences Corporation, Organogenesis, Wright Medical Technology Inc., Smith & Nephew, Molnlycke, Convatec, Coloplast, and Urgo.
Intellectual Property
Our success depends, in part, on our ability to protect our proprietary technology and intellectual property. We rely on a combination of patent, trade secret, and trademark laws in the United States and other jurisdictions to protect our intellectual property rights. In addition, we rely on proprietary processes and know-how, intellectual property licenses, and other contractual rights, including confidentiality and invention assignment agreements, to protect our intellectual property rights and develop and maintain our competitive position.
Patents
As of March 20, 2024, we have a global patent portfolio that is comprised of fifteen patent families. More than four dozen of the patent applications have been issued as patents or will issue soon, having been allowed by the relevant patent offices, of which six are European Patents validated in several member states. We have an exclusive ownership of fifteen issued patents in our patent portfolio that cover methods of producing collagen in plants and three issued patents that cover methods of processing recombinant collagen. These issued patents are expected to expire in 2025-2028. We have a pending patent family covering specific collagen producing plants based on their genetic arrangement. If granted, it could provide patent protection for the collagen producing plants until 2039. Our patent portfolio also includes patent families that cover different uses of collagen including 3D Bioprinting, dermal fillers and soft tissue fillers which, if granted, could provide patent protection for particular formulations and uses of the rhCollagen until 2038-2041.
In addition, our patent portfolio includes patents, some of which are jointly owned with Yissum Research Development Company of the Hebrew University of Jerusalem Ltd., or Yissum.
We are not aware of any impediments to the patent applications being granted in the United States or other jurisdictions. However, some of our patent applications may never issue as patents, and our issued patents and any that may issue in the future may be challenged, invalidated or circumvented.
Trademarks
We have registered the marks VERGENIX and COLLINK.3D in several countries and have several more applications directed to COLLINK.3D pending.
Trade Secrets and Confidential Information
In addition to patented technology, we rely on our trade secrets and continuing technological innovations to develop and maintain our competitive position. In an effort to protect our trade secrets, we rely on, among other safeguards, confidentiality and invention assignment agreements to protect our proprietary technology, know-how and other intellectual property that may not be patentable or that we believe is best protected by means that do not require public disclosure. For example, we require our employees, consultants and advisors to execute confidentiality agreements in connection with their employment or consulting relationships with us and to disclose and assign to us inventions conceived in connection with their services to us. These agreements also provide that all confidential information developed or made known to the individual during the course of their relationship with us must be kept confidential, except in specified circumstances.
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Materials Transfer Agreements
We periodically enter into materials transfer agreements with commercial organizations, medical institutions and research and development institutions to transfer materials and products developed by us. These agreements include provisions that are customary for such agreements concerning the permitted use of the transferred material and any results obtained using the material, confidentiality, the rights in the transferred materials and in the results of the research and/or development in which the materials are used, and the instructions concerning care and usage of the materials. These agreements may be used as a basis for further cooperation between us and the counterparties.
We may be unable to obtain, maintain, and protect the intellectual property rights necessary to conduct our business and may be subject to claims that we infringe or otherwise violate the intellectual property rights of others, which could materially harm our business. For a more comprehensive summary of the risks related to our intellectual property, see “Item 3.D. Risk Factors.”
Agreement with Yissum Research Development Company of the Hebrew University of Jerusalem Ltd. with respect to our rhCollagen
Under an agreement dated July 13, 2004 among Meytav—Technological Innovation Center Ltd., Yehuda Zafrir Fagin, Yissum, and Prof. Oded Shoseyov (our Chief Scientist), we carried out a research and development project to develop a process for the production of quality human collagen in plants and further developed the resulting products created by us, Professor Shoseyov and Zafrir, for commercial applications. Yissum and Professor Shoseyov have assigned all intellectual property rights developed by Professor Shoseyov and owned by them to us, including the intellectual property rights in connection with the development of the method for production of quality human collagen in plants.
Government Regulation
We are a developer of products which are subject to extensive regulation in the United States, the European Union and other jurisdictions. These regulations govern, among other things, the introduction of new products, the observance of certain standards with respect to the design, manufacture, testing, promotion and sales of the products, the maintenance of certain records, the ability to track devices, the reporting of potential product defects, the import and export of devices, and other matters.
In order to obtain marketing authorization in the United States, we and/or our partners would be subject to extensive regulation by the FDA and other federal, state, and local regulatory agencies. The Federal Food, Drug, and Cosmetic Act, or FD&C Act, the Public Health Service Act, or the PHS Act, and their implementing regulations set forth, among others, requirements for the research, testing, development, manufacture, quality control, safety, effectiveness, approval, labelling, storage, record keeping, reporting, distribution, import, export, advertising, and promotion of our products. A failure to comply with relevant requirements may lead to administrative, civil, or criminal sanctions. These sanctions could include the imposition by the FDA of a clinical hold or other suspension on clinical trials, refusal to approve pending marketing applications or supplements, withdrawal of approval, warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, civil penalties, or criminal prosecution.
Although the discussion below focuses on regulation in the United States, we and/or our partners anticipate seeking approval for the marketing of products in other countries which have their own regulatory requirements. Generally, our activities or those of our partners in other countries will be subject to regulations that are similar in nature and scope as that imposed in the United States such as medical device approval, quality system requirements, product data and certifications, although there can be important differences and the number and scope of these regulatory requirements are generally increasing.
We and/or our partners must obtain approval by comparable regulatory authorities of foreign countries outside of the European Union and the United States before we can commence clinical trials or marketing of our products in those countries. The approval process varies from country to country and the process may be longer or shorter than that required for FDA approval. In addition, the requirements governing the conduct of clinical trials, product licensing, pricing, and reimbursement vary greatly from country to country. In all cases, clinical trials must be conducted in accordance with the FDA’s regulations, commonly referred to as good clinical practices, or GCPs, and the applicable regulatory requirements and ethical principles that have their origin in the Declaration of Helsinki.
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Government regulation may delay or prevent testing or marketing of our products and impose costly procedures upon our activities. The testing and approval process, and the subsequent compliance with appropriate statutes and regulations, require substantial time, effort, and financial resources, and we cannot be certain that the FDA or any other regulatory agency will grant approvals for our products or any future product candidates on a timely basis or at all. The policies of the FDA or any other regulatory agency may change and additional governmental regulations may be enacted that could prevent or delay regulatory approval of our products or any future product candidates or approval of new indications or label changes. We cannot predict the likelihood, nature or extent of adverse governmental regulation that might arise from future legislative, judicial, or administrative action, either in the United States or abroad.
Approval by Health Authorities
The following is a summary review of the laws and regulations governing our operations or those of our partners. Our end products are medical and aesthetics products, and their marketing, once development is complete, is contingent upon approval of the health authorities in every country in which the products will be marketed:
Israel
Our operations are subject to permits from the Ministry of Health, or the MoH, on two levels:
| ● | First, the registration of medical devices, importing and marketing the medical devices and accessories, and issuing the documentation necessary for the export of medical devices from Israel is governed by the Medical Devices Law, 5712 – 2012, or the Medical Devices Law. The Medical Devices Law sets forth obligations of registration of medical devices in Israel. Under the Medical Devices Law, medical devices may be manufactured and marketed in Israel only if they are first registered with the Medical Devices Department of the MOH, also referred to as the “AMAR”, which manages a registry for medical devices. |
| ● | Second, pertaining to research and development. Clinical trials in humans are subject to the approval of the Helsinki Committee (an ethics committee) of the institution conducting the trial, which is governed by the Public Health Regulations (Trials in Human Beings), 1980, including all amendments until 1999, or the Trials in Human Subjects Regulations and are conducted in accordance with the Guidelines for Clinical Trials in Human Subjects issued by the MOH, or the Guidelines, and the guidelines of the Declaration of Helsinki, or any other approval required by the MOH. According to the Trials in Human Subjects Regulations and the Guidelines, the Helsinki Committee must plan and approve every experimental process that involves human beings. The institutional Helsinki Committee acts in the medical institution where the trial is performed and is the body that approves and supervises the entire trial process. In practice, the physician, who is the principal investigator, submits a trial protocol to the committee on behalf of the requesting party. The committee forwards its decisions regarding the requests for clinical trials that were approved by the committee to the manager of the medical institute and the manager has the authority to approve the requests, and in some cases the additional approval of the MOH will be required. According to the procedure for medical trials in human beings set forth by the MOH, the Helsinki Committee will not approve performance of a clinical trial, unless it is absolutely convinced that the following conditions, among others, are fulfilled: (i) the anticipated benefits for the participant in the clinical trial and to the requesting party to justify the risk and the inconvenience involved in the clinical trial to its participant; (ii) the available medical and scientific information justifies the performance of the requested clinical trial; (iii) the clinical trial is planned in a scientific manner that enables a solution to the tested question and is described in a clear, detailed, and precise manner in the protocol of the clinical trial, conforming with the Declaration of Helsinki; (iv) the risk to the participant in the clinical trial is as minimal as possible; (v) optimal monitoring and follow-up of the participant in the clinical trial; (vi) the initiator, the principal investigator and the medical institute are capable and undertake to allocate the resources required for adequate execution of the clinical trial, including qualified personnel and required equipment; and (vii) the nature of the commercial agreement with the principal investigator and the medical institute does not impair the adequate performance of the clinical trial. |
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All phases of clinical trials conducted in Israel must be conducted in accordance with the Trials in Human Subjects Regulations, including amendments and addenda thereto, the Guidelines, and the International Conference for Harmonized Tripartite Guideline for Good Clinical Practice. The Trials in Human Subjects Regulations and the Guidelines stipulate that a medical study on humans will only be approved after the Helsinki Committee at the hospital intending to perform the study has approved the medical study and notified the relevant hospital director in writing. In addition, certain clinical studies require the approval of the MOH. The relevant hospital director, and the MOH, if applicable, also must be satisfied that the study is not contrary to the Declaration of Helsinki or to other regulations.
In June 2017, we received AMAR approval for VergenixFG and started treating patients in Israel. In March 2018, we received AMAR approval for VergenixSTR.
United States
The regulatory process of obtaining product approvals and clearances can be onerous and costly. Foreign companies manufacturing medical devices intended for sale in the United States are required to meet the FDA’s regulatory requirements. The FDA does not recognize the regulatory certification provided by governmental authorities of other countries.
Regulation of Combination Products
The FDA has specified a definition for the term “combination product,” which includes: (1) a product comprised of two or more regulated components, e.g., drug/device, biologic/device, drug/biologic, or drug/device/biologic, which are physically, chemically, or otherwise combined or mixed and produced as a single entity; (2) two or more separate products packaged together in a single package or as a unit and comprised of drug and device products, device and biological products, or biological and drug products; (3) a drug, device, or biological product packaged separately that according to its investigational plan or proposed labeling is intended for use only with an approved individually specified drug, device, or biological product where both are required to achieve the intended use, indication, or effect and where, upon approval of the proposed product, the labeling of the approved product would need to be changed, e.g., to reflect a change in intended use, dosage form, strength, route of administration, or significant change in dose; or (4) any investigational drug, device, or biological product packaged separately that according to its proposed labeling is for use only with another individually specified investigational drug, device, or biological product where both are required to achieve the intended use, indication, or effect.
The FDA is divided into various “Centers” by product type such as the Center for Drug Evaluation and Research, or CDER, the Center for Biologics, Evaluation and Research, or CBER, or the Center for Devices and Radiological Health, or CDRH. Different Centers review drug, biologic, or device applications.
The FDA is charged with assigning a Center with primary jurisdiction, or a lead Center, for review of a combination product. That determination is based on the “primary mode of action,” or PMOA, of the combination product. Thus, if the PMOA of a device-biologic combination product is attributable to the biologic product, CBER, which is responsible for premarket review of the biologic product, would have primary jurisdiction for the combination product.
The FDA has also established an Office of Combination Products to address issues surrounding combination products and provide more certainty to the regulatory review process. That office serves as a focal point for combination product issues for agency reviewers and industry. It is also responsible for developing guidance and regulations to clarify the regulation of combination products and for assignment of the FDA center that has primary jurisdiction for review of combination products where the jurisdiction is unclear or in dispute.
After formally establishing the PMOA through an applicant’s Request for Designation, the Center that regulates that portion of the product that generates the PMOA becomes the lead evaluator. When evaluating an application, a lead Center may consult other centers but still retain complete reviewing authority, or it may collaborate with another Center, wherein the lead Center assigns concurrent review of a specific section of the application to another Center, delegating its review authority for that section.
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Typically, the FDA requires a single marketing application submitted to the Center selected to be the lead evaluator, although the agency has the discretion to require separate applications to more than one Center. One reason to submit multiple evaluations is if the applicant wishes to receive some benefit that accrues only from approval under a particular type of application, like new drug product or orphan drug exclusivity. If multiple applications are submitted, each may be evaluated by a different lead Center. When submitting multiple applications, the applicant may be subject to the payment of two user fees, but a waiver of such fees may be obtained under certain limited circumstances.
The FDA may subject a combination product to two or more sets of legal authorities, e.g., drug/device, biologic/device, or drug/biologic drug, but it has the authority to deem one set of legal authorities sufficient. FDA’s standard of review for a combination products application and the applicable legal authority or authorities will depend on a case-by-case basis evaluation of the scientific and technical issues and risk profile relevant to a combination product and its constituent parts. Because of the breadth and complexity of this analysis in each case, no single regulatory paradigm is appropriate for all combination products.
After receiving FDA approval or clearance, an approved or cleared product must comply with post-marketing safety reporting requirements applicable to the product based on the application type under which it received marketing authorization. In the case of current good manufacturing practices, or cGMP, the applicant may take one of two approaches: (1) complying with cGMP for each constituent part, or (2) a streamlined approach specific to combination products, subject to certain limitations.
In January 2019, the FDA responded to the Company’s Pre-RFD regarding product classification and jurisdictional assessment. The FDA’s OCP determined that VergenixSTR should be classified as a Combination Product, specifically a drug/biologic/device product, and should be assigned to the FDA’s CBER. A Pre-RFD is FDA’s preliminary, nonbinding assessment of (1) the regulatory identity or classification of a product as a drug, device, biological product, or combination product, and (2) which FDA Center (i.e., CBER, CDER, or CDRH) will have primary jurisdiction for the premarket review and regulation of the product. Therefore, this classification and jurisdictional assessment is subject to change. We currently do not intend to pursue a FDA regulatory pathway to market for VergenixSTR and VergenixFG. We nevertheless include a discussion of FDA’s requirements for approval of, and ongoing, regulation for drugs, biologics, and medical devices below which are relevant to the end products that we are either developing internally or in collaboration with our partners.
Marketing Authorization for Drugs and Biologics in the U.S.
A new biologic must be approved by the FDA through the biologics license application, or BLA, process before it may be legally marketed in the U.S. A new drug must be approved by the FDA through the new drug application, or NDA, process before it may be legally marketed in the U.S.
The animal and other non-clinical data and the results of human clinical trials performed under an Investigational New Drug, or IND, application and under similar foreign applications will become part of the BLA or NDA.
In the U.S., the FDA regulates biologics under the Public Health Service Act, or PHS Act, and implementing regulations, and under the Federal Food, Drug, and Cosmetic Act, or FDCA, and implementing regulations, respectively. The U.S. regulates drugs under the FDCA. The process of obtaining regulatory approvals and the subsequent compliance with applicable federal, state, local, and foreign statutes and regulations require the expenditure of substantial time and financial resources. Failure to comply with the applicable U.S. requirements at any time during the product development process, approval process or after approval may subject an applicant to administrative or judicial sanctions. These sanctions could include the FDA’s refusal to approve pending applications, withdrawal of an approval, a clinical hold, warning letters, requesting product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement, or civil or criminal penalties. Any agency or judicial enforcement action could have a material adverse effect on us. The process required by the FDA before a drug or biologic may be marketed in the U.S. generally involves the following:
| ● | completion of preclinical laboratory tests, animal studies and formulation studies according to Good Laboratory Practices, or GLP, or other applicable regulations; |
| ● | submission to the FDA of an IND which must become effective before human clinical trials may begin; |
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| ● | approval by an IRB representing each clinical trial site before each clinical trial may be initiated; |
| ● | performance of adequate and well-controlled human clinical trials according to Good Clinical Practices, or GCP, to establish the safety and efficacy of the proposed biologic for its intended use; |
| ● | preparation and submission of a BLA or NDA to the FDA; |
| ● | satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the drug is produced to assess compliance with current good manufacturing practice, or cGMP, to assure that the facilities, methods and controls are adequate to preserve the drug’s identity, strength, quality and purity; and satisfactory completion of any FDA audits of the clinical study sites to assure compliance with GCP, and the integrity of clinical data in support of the BLA or NDA; and |
| ● | FDA review (which may include Advisory Panel review and approval) and approval of the BLA or NDA. |
Once a biologic or drug product candidate is identified for development, it enters the preclinical testing stage. Preclinical tests include laboratory evaluations of product chemistry, toxicity and formulation, as well as animal studies. An IND sponsor must submit the results of the preclinical tests, together with manufacturing information and analytical data, to the FDA as part of the IND. The sponsor will also include a protocol detailing, among other things, the objectives of the first phase of the clinical trials, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated if the first phase lends itself to an efficacy evaluation. Some preclinical testing may continue even after the IND is submitted. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, places the clinical trial on a clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. Clinical holds also may be imposed by the FDA at any time before or during studies due to safety concerns or non-compliance.
All clinical trials must be conducted under the supervision of one or more qualified investigators in accordance with GCP regulations. They must be conducted under protocols detailing the objectives of the trial, dosing procedures, subject selection and exclusion criteria, and the safety and effectiveness criteria to be evaluated. Each protocol must be submitted to the FDA as part of the IND, and progress reports detailing the results of the clinical trials must be submitted at least annually. In addition, timely safety reports must be submitted to the FDA and the investigators for serious and unexpected adverse events. An IRB responsible for the research conducted at each institution participating in the clinical trial must review and approve each protocol before a clinical trial commences at that institution and must also approve the information regarding the trial and the consent form that must be provided to each trial subject or his or her legal representative, monitor the study until completed and otherwise comply with IRB regulations.
| ● | Phase I: The product candidate is initially introduced into healthy human subjects and tested for safety, dosage tolerance, absorption, metabolism, distribution and excretion. In the case of some products for severe or life-threatening diseases, such as cancer, especially when the product may be too inherently toxic to ethically administer to healthy volunteers, the initial human testing may be conducted in patients. |
| ● | Phase II: This phase involves studies in a limited patient population to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance and optimal dosage. |
| ● | Phase III: Clinical trials are undertaken to further evaluate dosage, clinical efficacy and safety in an expanded patient population at geographically dispersed clinical study sites. These studies are intended to establish the overall risk-benefit ratio of the product candidate and provide, if appropriate, an adequate basis for product labeling. |
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Concurrent with clinical trials, companies usually complete additional animal studies and must also develop additional information about the chemistry and physical characteristics of a biologic or drug and finalize a process for manufacturing the product in commercial and clinical quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the product candidate, and, among other things, the manufacturer must develop methods for testing the identity, strength, quality and purity of the final product. Additionally, appropriate packaging must be selected and tested, and stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration over its shelf life. Before approving a BLA or NDA, the FDA typically will inspect the facility or facilities where the product is manufactured. The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in full compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. The PHS Act in particular emphasizes the importance of manufacturing control for products like biologics whose attributes cannot be precisely defined.
Manufacturers and others involved in the manufacture and distribution of products must also register their establishments with the FDA and certain state agencies. Both domestic and foreign manufacturing establishments must register and provide additional information to the FDA upon their initial participation in the manufacturing process. Any product manufactured by or imported from a facility that has not registered, whether foreign or domestic, is deemed misbranded under the FDCA.
Establishments may be subject to periodic unannounced inspections by government authorities to ensure compliance with cGMP and other laws. Manufacturers may have to provide, on request, electronic or physical records regarding their establishments. Delaying, denying, limiting, or refusing inspection by the FDA may lead to a product being deemed to be adulterated. Human clinical trials for biologics and drugs are typically conducted in three sequential phases that may overlap or be combined. If there are two independent modes of action, neither of which is subordinate to the other, the FDA makes a determination as to which center to assign the product based on consistency with other combination products raising similar types of safety and effectiveness questions or to the center with the most expertise in evaluating the most significant safety and effectiveness questions raised by the combination product.
Marketing Authorization for Medical Devices in the U.S.
In the United States, medical devices are regulated by the FDA as required under the FDCA. Unless an exemption applies or the product is a Class I device, a new medical device will require either a 510(k) clearance or approval of a Premarket Approval, or PMA, before it can be marketed in the United States. The information that must be submitted to the FDA in order to obtain clearance or approval to market a new medical device varies depending on how the medical device is classified by the FDA. Medical devices are classified into one of three classes on the basis of the controls deemed by the FDA to be necessary to reasonably ensure their safety and effectiveness. Class I devices, which are those that have the lowest level or risk associated with them, are subject to general controls, including labeling, premarket notification, and adherence to the QSR. Class II devices are subject to general controls and special controls, including performance standards. Class III devices, which have the highest level of risk associated with them, are subject to most of the previously identified requirements as well as to premarket approval. Most Class I devices and some Class II devices are exempt from the 510(k) requirement, although manufacturers of these devices are still subject to registration, listing, labeling and Quality System Requirements, or QSR.
A 510(k) premarket notification must demonstrate that the device in question is substantially equivalent to another legally marketed device, or predicate device, that likely did not require premarket approval. In evaluating the 510(k), the FDA will determine whether the device has the same intended use as the predicate device, and: (i)(a) has the same technological characteristics as the predicate device, or (b) has different technological characteristics; and (ii)(a) the data supporting the substantial equivalence contains information, including appropriate clinical or scientific data, if deemed necessary by the FDA, that demonstrates that the device is as safe and as effective as a legally marketed device, and (b) does not raise different questions of safety and effectiveness than the predicate device. Most 510(k)s do not require clinical data for clearance, but the FDA may request such data. If the FDA does not agree that the new device is substantially equivalent to the predicate device, the new device will be classified in Class III, and the manufacturer must submit a PMA.
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The PMA process is more complex, costly, and time consuming than the 510(k) clearance procedure. A PMA must be supported by extensive data including, but not limited to, technical, preclinical, clinical, manufacturing, control, and labeling information to demonstrate to the FDA’s satisfaction the safety and effectiveness of the device for its intended use. After a PMA is submitted, the FDA has 45 days to determine whether it is sufficiently complete to permit a substantive review, but this timeline may be delayed. If the PMA is complete, the FDA will file the PMA. The FDA is subject to performance goal review times for PMAs and may issue a decision letter as a first action on a PMA within 180 days of filing, but if it has questions, it will likely issue a first major deficiency letter within 150 days of filing. It may also refer the PMA to an FDA advisory panel for additional review and will conduct a preapproval inspection of the manufacturing facility to ensure compliance with the QSR, either of which could extend the 180-day response target. A PMA can take several years to complete, and there is no assurance that any submitted PMA will ever be approved. Even when approved, the FDA may limit the indication for which the medical device may be marketed. Changes to the device, including changes to its manufacturing process, may require the approval of a supplemental PMA.
If a medical device is determined to present a “significant risk,” the manufacturer may not begin a clinical trial until it submits an investigational device exemption, or IDE, to the FDA and obtains approval of the IDE from the FDA. The IDE must be supported by appropriate data, such as animal and laboratory testing results, and include a proposed clinical protocol. The clinical trials must be conducted in accordance with applicable regulations, including but not limited to the FDA’s IDE regulations and current good clinical practices. A clinical trial may be suspended by the FDA or the sponsor at any time for various reasons, including a belief that the risks to the study participants outweigh the benefits of participation in the trial. Even if a clinical trial is completed, the results may not demonstrate the safety and efficacy of a device or may be equivocal or otherwise not be sufficient to obtain approval. Medical devices, however, typically rely on one or a few pivotal studies rather than Phase I, II and III clinical trials
Clinical trials are subject to extensive monitoring, recordkeeping and reporting requirements. Clinical trials must be conducted under the oversight of an IRB for the relevant clinical trial sites and must comply with FDA regulations, including, but not limited to, those relating to good clinical practices. To conduct a clinical trial, we also are required to obtain the patient’s informed consent in a form and substance that complies with both FDA requirements and state and federal privacy and human subject protection regulations.
The FDA, the IRB, or we could suspend a clinical trial at any time for various reasons, including a belief that the risks to study subjects outweigh the anticipated benefits or a finding that the research subjects or patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious harm to patients. Clinical testing may not be completed successfully within any specified period, if at all. Even if a trial is completed, the results of clinical testing may not adequately demonstrate the safety and efficacy of the device or may otherwise not be sufficient to obtain FDA clearance or approval to market the product in the United States. Similarly, in Europe, the clinical study must be approved by a local ethics committee and in some cases, including studies with high-risk devices, by the ministry of health in the applicable country.
In August 2010, we submitted a 510(k) notification to the FDA for VergenixWD, a collagen-based non-invasive dressing. In October 2010, we received notice that the Center for Devices and Radiological Health, or CDRH, which is the FDA center with jurisdiction over medical devices, determined that the product required a submission of a PMA for regulatory approval and not a 510(k). We filed an appeal of this decision that was denied, and in April 2012, the FDA confirmed its previous determination that our product would require PMA approval prior to its marketing in the United States. We believe that most, if not all, of our products will be subject to the PMA process or will be considered combination products subject to at least some medical device regulations.
We expect, based on our prior limited interaction with the FDA in connection with our predecessor wound healing product, that our current products and pipeline products, including dermal fillers and breast implants, will be regulated as medical devices through a PMA process; however, no assurance can be given that the FDA will not impose additional, more stringent, regulatory requirements with respect to one or more of our current or future product candidates. Conducting clinical trials for our pipeline product candidates that are required to undergo the PMA process may take one to three years, depending on the composition of the product candidate under development and its designation.
We are not presently conducting any discussions with the FDA with respect to any of our products.
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Post-Approval Regulation of Biologics, Drugs and Medical Devices
After a product is placed on the market, numerous regulatory requirements continue to apply. In addition to the requirements below, adverse event reporting regulations require that we report to the FDA any incident in which our product may have caused or contributed to a death or serious injury or in which our product malfunctioned and, if the malfunction were to recur, would likely cause or contribute to death or serious injury. Additional regulatory requirements include:
| ● | product listing and establishment registration, which helps facilitate FDA inspections and other regulatory action; |
| ● | cGMP or QSR, which requires manufacturers, including third-party manufacturers, to follow stringent design, validation, testing, control, documentation and other quality assurance procedures during all aspects of the design and manufacturing process; |
| ● | labeling regulations and FDA prohibitions against the promotion of products for uncleared, unapproved or off-label use or indication; |
| ● | clearance of product modifications that could significantly affect safety or effectiveness or that would constitute a major change in intended use of one of our approved medical products; |
| ● | notice or approval of product or manufacturing process modifications or deviations that affect the safety or effectiveness of one of our approved medical products; |
| ● | post-approval restrictions or conditions, including post-approval study commitments; |
| ● | post-market surveillance regulations, which apply, when necessary, to protect the public health or to provide additional safety and effectiveness data for the medical product; |
| ● | the FDA’s recall authority, whereby it can ask or, under certain conditions, order device manufacturers to recall from the market a product that is in violation of governing laws and regulations; |
| ● | regulations pertaining to voluntary recalls; and |
| ● | notices of corrections or removals. |
Also, quality control and manufacturing procedures must continue to conform to current Good Manufacturing Practices, or cGMP after approval, which includes, among other things, maintenance of a stability program. The FDA periodically inspects manufacturing facilities to assess compliance with cGMP, which imposes extensive procedural, substantive, and record keeping requirements. In addition, changes to the manufacturing process are strictly regulated and, depending on the significance of the change, may require prior FDA approval before being implemented. FDA regulations also require investigation and correction of product out of specification results and impose reporting and documentation requirements upon us and any third-party manufacturers that we may decide to use. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain compliance with cGMP and other aspects of regulatory compliance. The holder of an NDA is responsible for legal and regulatory compliance for advertising and promotion of the drug product. We are required to provide to the FDA copies of all drug promotion at the time of first use and to ensure that all information disseminated conforms to the product’s approved labeling and other FDA regulations and policies.
A biologic product may also be subject to official lot release, meaning that the manufacturer is required to perform certain tests on each lot of the product before it is released for distribution. If the product is subject to official lot release, the manufacturer must submit samples of each lot, together with a release protocol showing a summary of the history of manufacture of the lot and the results of all of the manufacturer’s tests performed on the lot, to the FDA. The FDA may, in addition, perform certain confirmatory tests on lots of some products before releasing the lots for distribution. Finally, the FDA will conduct laboratory research related to the safety, purity, potency and effectiveness of pharmaceutical products.
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Advertising and promotion of medical devices, in addition to being regulated by the FDA, are also regulated by the U.S. Federal Trade Commission, or FTC, and by state regulatory and enforcement authorities. Promotional activities for FDA-regulated products of other companies have been the subject of enforcement action brought under healthcare reimbursement laws and consumer protection statutes. Furthermore, under the federal U.S. Lanham Act and similar state laws, competitors and others can initiate litigation relating to advertising claims. In addition, we are required to meet regulatory requirements in countries outside the United States, which can change rapidly with relatively short notice. If the FDA determines that our promotional materials or training constitutes promotion of an unapproved or uncleared use, it could request that we modify our training or promotional materials or subject us to regulatory or enforcement actions. It is also possible that other federal, state or foreign enforcement authorities might take action if they consider our promotional or training materials to constitute promotion of an unapproved use, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement.
Failure by us or by our third-party manufacturers and suppliers to comply with applicable regulatory requirements can result in enforcement action by the FDA or other regulatory authorities, which may result in sanctions including, but not limited to:
| ● | untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties; |
| ● | customer notifications or repair, replacement, refunds, recall, detention or seizure of our products; |
| ● | operating restrictions or partial suspension or total shutdown of production; |
| ● | refusing or delaying requests for 510(k) clearance or PMA approvals of new products or modified products; |
| ● | withdrawing 510(k) clearances or PMA approvals that have already been granted; |
| ● | refusing to grant export approval for our products; or |
| ● | criminal prosecution. |
Proteins Intended for Therapeutic Use
In the United States, proteins intended for therapeutic use, whether derived from plants, animals, microorganisms, or recombinant versions of these products, are regulated as biological products that have been transferred from the FDA Center for Biologics Evaluation and Research, or CBER, to the Center for Drug Evaluation and Research, or CDER. CDER has regulatory responsibility, including premarket review and continuing oversight over the transferred products. Cellular products, including products composed of human, bacterial, or animal cells, or from physical parts of those cells, remain under the jurisdiction of CDER.
Our products are based on our recombinant type I human collagen, or rhCollagen, a form of human collagen produced with our proprietary plant based genetic engineering technology. Therefore, we believe our underlying platform technology would be regulated as a biologic by CDER in the U.S.
Regenerative Medicine Advanced Therapy Designation
Under section 3033 of the 21st Cures Act, or Cures Act, a drug is eligible for regenerative medicine advanced therapy (RMAT) designation if (1) the drug is a regenerative medicine therapy, which is defined as a cell therapy, therapeutic tissue engineering product, human cell and tissue product, or any Combination Product using such therapies or products, except for those regulated solely under section 361 of the PHS Act and 21 C.F.R. Part 1271, (2) the drug is intended to treat, modify, reverse, or cure a serious or life-threatening disease or condition, and (3) preliminary clinical evidence indicates that the drug has the potential to address unmet medical needs for such disease or condition. If we pursue U.S. marketing approval for any of our products, we may be able to avail ourselves of this pathway or another expedited pathway.
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Human Cells, Tissues, and Cellular and Tissue-Based Products Regulation
Under Section 361 of the PHS Act, the FDA issued specific regulations governing the use of human cells, tissues, and cellular and tissue-based products, or HCT/Ps, in humans. Pursuant to Part 1271 of Title 21 of the Code of Federal Regulations, or Part 1271, the FDA established a unified registration and listing system for establishments that manufacture and process HCT/Ps. The regulations also include provisions pertaining to donor eligibility determinations; current good tissue practices covering all stages of production, including harvesting, processing, manufacture, storage, labeling, packaging, and distribution; and other procedures to prevent the introduction, transmission, and spread of communicable diseases.
The HCT/P regulations strictly constrain the types of products that may be regulated solely under these regulations. Factors considered include the degree of manipulation, whether the product is intended for a homologous function, whether the product has been combined with noncellular or non-tissue components, and the product’s effect or dependence on the body’s metabolic function. In those instances where cells, tissues, and cellular and tissue-based products have been only minimally manipulated, are intended strictly for homologous use, have not been combined with noncellular or nontissue substances, and do not depend on or have any effect on the body’s metabolism, the manufacturer is only required to register with the FDA, submit a list of manufactured products, and adopt and implement procedures for the control of communicable diseases. If one or more of the above factors has been exceeded, the product would be regulated as a drug, biological product, or medical device rather than an HCT/P.
We do not believe that Part 1271 requirements currently apply to us because we are not currently investigating, marketing or selling cellular therapy products in the U.S. If we were to change our business operations in the future, the FDA requirements that apply to us may also change, and we would potentially need to expend significant resources to comply with these requirements.
European Union
Legal Requirements for Medical Devices in the EU
EU law on medical devices is governed by Regulation EU 2017/745, or the EU MDR, which repealed and replaced Council Directive 93/42/EEC, or MDD, and Regulation 2017/746 on in vitro diagnostic medical devices. The EU MDR became fully applicable on May 26, 2021. On March 20, 2023, the EU MDR has been amended by Regulation (EU) 2023/607. Regulation (EU) 2023/607 extends the validity of certificates issued under the Medical Devices Directives (MDD) that were valid on the day of the MDR’s date of application (26 May 2021) and have not been withdrawn by a Notified Body. Under certain conditions, devices certified under MDD or AIMDD may be placed on the market until 31 December 2027 for Class III and Iib implantable devices or 31 December 2028 for lower risk devices (Is, Im, Iia, Iib devices non implantable)
Under the Medical Device Regulation or EU MDR, medical devices must meet the EU MDR, requirements and have a CE mark prior to marketing in the European Union, or EU. CE marking is the uniform labeling system of products designed to facilitate the supervision and control of the EU concerning manufacturers’ compliance with the various regulations and directives of the EU and to clarify the obligations imposed in the various legislative provisions in the EU. Use of a uniform product labeling indicates compliance with all of the directives and regulations required for the application of such labeling, and it is effective as a manufacturer’s declaration that the product meets the required criteria and technical specifications of the relevant authorities such as health, safety, and environmental protection. CE marking ensures free trade between the EU and European Economic Area (or EEA) countries (Iceland, Liechtenstein, and Norway) and other countries that have mutual recognition agreements with regard to medical devices with the EU, in particular Turkey, and permits the enforcement and customs authorities in European countries not to allow the marketing of similar products that do not bear the CE mark. With regard to Switzerland, the respective mutual recognition agreement was not renewed in time to implement the MDR and as a result, Switzerland currently has the status of a third country with regard to EU medical devices law. As a result, EU law compliant medical devices are not freely traded with Switzerland but instead, additional requirements have to be met for CE-marked medical devices to be shipped to Switzerland, and vice versa.
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CE-marking requires the performance of a conformity assessment procedure to establish that a product meets the essential requirements under the EU MDR. The nature of the conformity assessment procedure and the data required under it – including the question of whether or not a clinical investigation of a device is required – depends on, inter alia, the risk class of the respective device and the extent to which safety data is already available. Devices of the lowest risk class, class I, are mostly subject to mere self-certification by the manufacturer, while devices of higher risk classes, i.e., classes Iia, Iib and III, require a comprehensive quality system program, and other aspects to be reviewed by a Notified Body, or NB. An NB is a private entity vested with certain competencies and designated by the national governments of the EU member states to make independent judgments about whether a product complies with the EU requirements for medical devices and to grant the CE certificate if the manufacturer, and the product, comply with specified terms. After receiving the CE-certificate, we must pass a review carried out by the competent NB annually, under which it audits our facilities to verify our compliance with the ISO 13485 quality system standard. The CE-certificate is a requirement for the declaration of conformity we issue for our medical devices and for our legitimate affixing of the CE-mark to our products.
Certified compliance with the ISO 13485 standard, for medical device quality management systems, is beneficial for regulatory purposes in the EU with regard to devices of risk class Iia or higher. ISO standards are not mandatory, but are recognized international quality standards that are designed to ensure that we develop and manufacture quality medical devices. Other countries are also instituting regulations regarding medical devices. Compliance with these regulations requires extensive documentation and clinical reports for all of our products, revisions to labeling, and other requirements such as facility inspections to comply with the registration requirements.
In 2016, we received the CE certification for VergenixFG and VergenixSTR from our notified body DEKRA. These CE certifications were renewed in 2018 under the requirements of the MDD for 5 years i.e. until July 2023. Following the adoption of Regulation (EU) 2023/607 in March, 2023, CollPlant fulfilled the applicable conditions to quality for the CE certifications extension and as a result, DEKRA (CollPlant EU NB) extended the VergenixFG CE certification to December 31, 2028 and the VergenixSTR CE certification to December 31, 2027.
Before the current CE-certificates expire, we are required to obtain new CE-certificates under the MDR Certification under the MDR is harder to achieve, as many products are subject to increased requirements due to higher risk-classification and the fact that the MDR generally provides higher requirements. Also, our general obligations inter alia with regard to registration, labelling, traceability, post-market surveillance have increased now that the MDR is fully applicable.
In February 2019, we received ISO 13485 certification by DEKRA for the manufacturing and purification of our rhCollagen in our production site at Rehovot. In July 2023, the scope of the ISO 13485 has been extended to also cover medical aesthetics products. The current ISO 13485 certification is valid until July 1, 2026.
Legal Requirements for Drugs in the EU
We do not believe that our products are currently subject to EU or Member States’ regulation on drugs. However, given that our products are highly innovative, a risk remains that regulatory authorities, notified bodies, competitors and/or courts might be of a different opinion. Consequently, there is a risk that discussions might be started with regard to the regulatory status of our products.
If one or more of our current or future products would have the status of a drug under the law of the EU or one or more of its Member States, regulatory requirements for such product(s) would be significantly higher. In particular, a drug can only be placed on the market if it has been authorized by the competent regulatory authority either under the EU centralized procedure, the decentralized or mutual recognition procedure or under a Member State’s national procedure. Marketing authorizations for drugs under all of the different authorization procedures are expensive and time consuming and require the performance of extensive pre-clinical and clinical research. If one or more of our products would be considered drugs by a regulatory authority, notified body or court of the EU or a Member State, it is possible that we would be forced to take the respective product(s) off the market until they have received marketing approval under pharmaceutical law. In addition, this might also lead to administrative fines, criminal prosecution and/or claims raised by customers and/or competitors.
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Other U.S. Federal Healthcare Laws and Regulations
Healthcare providers, physicians, and third-party payors play a primary role in the recommendation and medical devices that are granted marketing approval. In the United States, we are subject to laws and regulations pertaining to healthcare fraud and abuse, including anti-kickback laws and physician self-referral laws that regulate the means by which companies in the healthcare industry may market their products to hospitals and healthcare providers and may compete by discounting the prices of their products. The delivery of our products is subject to regulation regarding reimbursement, and federal healthcare laws apply when a customer submits a claim for a product that is reimbursed under a federally funded healthcare program. These rules require that we exercise care in structuring our sales and marketing practices and customer discount arrangements.
Arrangements with healthcare providers, third-party payors, and other customers are subject to broadly applicable fraud and abuse and other healthcare laws and regulations, including the following:
| ● | the federal healthcare Anti-Kickback Law prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving, or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order, or recommendation of, any good or service for which payment may be made, in whole or in part, under a federal healthcare program such as Medicare and Medicaid; |
| ● | the U.S. False Claims Act imposes civil penalties, and provides for civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease, or conceal an obligation to pay money to the federal government; |
| ● | the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters; |
| ● | HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and its implementing regulations, also imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security, and transmission of individually identifiable health information; |
| ● | the federal false statements statute prohibits knowingly and willfully falsifying, concealing, or covering up a material fact or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items, or services; |
| ● | the federal transparency requirements under the Affordable Care Act require manufacturers of drugs, devices, and medical supplies to report to the U.S. Department of Health and Human Services information related to payments, ownership and investment interest and other transfers of value to physicians, dentists, physician assistants and other health care professionals and teaching hospitals; and |
| ● | analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers. |
Healthcare providers that purchase medical devices generally rely on third-party payors, including, in the United States, the Medicare and Medicaid programs and private payors, such as indemnity insurers, employer group health insurance programs, and managed care plans, to reimburse all or part of the cost of the products. As a result, demand for our products is and will continue to be dependent in part on the coverage and reimbursement policies of these payors. The manner in which reimbursement is sought and obtained varies based upon the type of payor involved and the setting in which the product is furnished and utilized. Reimbursement from Medicare, Medicaid, and other third-party payors may be subject to periodic adjustments as a result of legislative, regulatory, and policy changes as well as budgetary pressures. Possible reductions in, or eliminations of, coverage or reimbursement by third-party payors, or denial of, or provision of uneconomical reimbursement for new products, may affect our customers’ revenue and ability to purchase our products. Any changes in the healthcare regulatory, payment, or enforcement landscape relative to our customers’ healthcare services has the potential to significantly affect our operations and revenue.
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Other Approvals
Our international operations, as well as being an Israeli company, subject us to laws regarding sanctioned countries, entities, and persons; customs, import-export, and laws regarding transactions in foreign countries; and the U.S. Foreign Corrupt Practices Act and local anti-bribery and other laws regarding interactions with healthcare providers. Among other things, these laws restrict, and in some cases can prevent, companies from directly or indirectly selling goods, technology, or services to people or entities in certain countries. In addition, these laws require that we exercise care in structuring our sales and marketing practices in foreign countries.
In addition to the above regulations, we are and may be subject to regulation under country-specific federal and state laws, including, but not limited to, requirements regarding record keeping and the maintenance of personal information, including personal health information. As a public company whose securities are registered pursuant to the Securities Act, we are subject to U.S. securities laws and regulations, including the Sarbanes-Oxley Act. We also are subject to other present, and could be subject to possible future, local, state, federal, and non-U.S. regulations in countries in which we will distribute our products.
The Innovation Law and the IIA
Below is a description of the main obligations and restrictions imposed on a recipient of an IIA grant, or, Recipient Company, under the Innovation Law and the IIA’s rules and guidelines, with respect to the use of its IIA Funded Know-How:
| ● | Royalty Payment Obligation. In general, the Recipient Company is obligated to pay the IIA royalties from any income deriving from products (and related know-how and services), whether received by the Recipient Company or any affiliated entity, developed (in all or in part), directly or indirectly, as a result of an Approved Program, or deriving therefrom, at rates which are determined under the IIA’s rules and guidelines (currently a yearly rate of between 3% to 5% on sales of products or services developed under the Approved Programs, depending on the type of the Recipient Company - i.e., whether it is a “Small Company,” or a “Large Company” as such terms are defined in the IIA’s rules and guidelines), up to the aggregate amount of the total grants received by the IIA, plus Annual Interest For a File (as such term is defined in the IIA’s rules and guidelines). As of December 31, 2023, we paid royalties to the IIA in the total amount of $3.1 million. |
| ● | Reporting Obligations. The Recipient Company is subject to certain reporting obligations (such as, periodic reports regarding the progress of the research and development activities under the Approved Programs and the related research expenses, and regarding the scope of sales of the Recipient Company’s products). In addition, any direct change in control of a Recipient Company must be notified to the IIA. In the event that a non-Israeli entity or a non-Israeli citizen or resident person becomes an “Interested Party” (as such term is defined in the Israeli Securities Law, 5728-1968, or, the Israeli Securities Law) in the Recipient Company, notification to the IIA is required, accompanied by a written undertaking (in the form available on the IIA’s website) by such party to be bound by the Innovation Law, the regulations promulgated thereunder, the IIA’s rules and guidelines and the terms of the Approved Program. |
| ● | Local Manufacturing Obligation. Products developed using the IIA grants must, as a general matter, be manufactured in Israel. The transfer of manufacturing capacity outside of Israel in a manner that exceeds the manufacturing capacity that was declared in the Recipient Company’s original IIA grant application, is subject to prior written approval from the IIA (except for the transfer of less than 10% of the manufacturing capacity in the aggregate, which event requires only a notice to the IIA, which shall be provided in writing prior to the transfer of such manufacturing rights abroad, while the IIA has a right to deny such transfer within 30 days following the receipt of such notice). In general, the transfer of manufacturing capacity outside of Israel may be subject to an increase in the royalties’ cap (depending, inter alia, on the manufacturing volume that is performed outside of Israel) and such transfer will be subject to payment of royalties in accelerated rate. |
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| ● | IIA Funded Know-How transfer limitation. Under the IIA’s rules and guidelines, a Recipient Company is prohibited from transferring the IIA Funded Know-How outside of Israel except with the approval of the IIA Research Committee and in certain circumstances, subject to certain payments to the IIA calculated according to formulas provided under the IIA’s rules and guidelines (which are capped to amounts specified under such rules and guidelines, generally up to 6 time the grants received plus Annual Interest, as such term is defined in the IIA’s rules and guidelines), or the Redemption Fee. For calculating the Redemption Fee which shall be paid to the IIA in the event of a transfer of IIA Funded Know-How outside of Israel, inter alia, the following factors will be taken into account: the scope of the IIA support received, the royalties that have already paid to the IIA, the amount of time that has lapsed since the Recipient Company has finalized the IIA Approved Program, the sale price and the form of transaction. A transfer for the purpose of the Innovation Law means an actual sale of the IIA Funded Know-How, or any other transaction which in essence constitutes a transfer of such know-how (such as, providing an exclusive license to a foreign entity for R&D purposes, which precludes the Recipient Company from further using such IIA Funded Know-How). A mere license solely to market products resulting from the IIA Funded Know-How would not be deemed a transfer for the purpose of the Innovation Law. |
Subject to the IIA’s prior approval, a Recipient Company may transfer IIA Funded Know-How to another Israeli company, provided that the acquiring company assumes all of the Recipient Company’s responsibilities towards the IIA. Such transfer will not be subject to the payment of the Redemption Fee, however, the income from such transaction will generally be subject to the obligation to pay royalties to the IIA (other than in specific circumstances that will be examined by the IIA, mainly when the transfer is between related entities).
| ● | IIA Funded Know-How license limitation. The grant to a foreign entity of a right to use the IIA Funded Know-How for R&D purposes (which does not entirely prevent the Recipient Company from using the IIA Funded Know-How) is subject to receipt of the IIA’s prior approval. This approval is subject to payment to the IIA in accordance with the formulas stipulated in the IIA rules (such payment shall be no less than the amount of the IIA grants received (plus annual interest), and no more than the cap stated in the IIA rules and will generally be due only upon the receipt of the license fee from the licensee). |
The obligation to comply with the Innovation Law and the IIA’s rules and guidelines (including with respect to the restriction of the transfer of IIA Funded Know-How and manufacturing rights outside of Israel) remains in effect even after full repayment of all amounts payable to the IIA. Once a Redemption Fee is paid on a transfer of IIA Funded Know-How outside Israel, all obligations towards the IIA (including the royalty obligation) cease.
Israeli Ministry of Agriculture
The process of growth of transgenic plants and the treatment thereof is subject to the regulations published by the Israeli Ministry of Agriculture and the approval of the Ministry of Agriculture to engage in the cultivation of recombinant plants. Although the Ministry of Agriculture requirements do not necessarily apply to our operations, we hold a valid permit from the Plant Protection and Inspection Services Administration, for growing tobacco plants in greenhouses in our site at Yessod Hama’ala, Israel, as well as in all of our subcontractors’ facilities.
Business Licensing
Under the Israeli Licensing of Businesses Law, to which our production sites and laboratories are subject, operating a business without a license or temporary permit is a criminal offense. Both of our sites in Rehovot, and our production site at Yessod Hama’ala, have valid business licenses.
Planning and Zoning
The Israeli Planning and Zoning Law, sets provisions and obligations, inter alia, regarding the licensing process for a new building, including building permits, non-conforming use and easements, the supervision over its construction, and the required occupancy permits. According to the Planning and Zoning Law, work or use of land without a permit where such permit is required, a deviation from the permit granted, or use of agricultural land in violation of the law, constitutes a criminal offense.
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We have recently learned upon internal inspection that permits for certain of the structures on our production site at Yessod Hama’ala are missing. We are in correspondence with the relevant authorities, including the regional council, and are in the process of obtaining the necessary permits. To date, the site remains open and fully operational, and we have not experienced any adverse effects resulting from our need to obtain the said permits.
Employees
As of March 20, 2024, we had 75 employees, including 23 in research and development, 39 in manufacturing and 13 in general and administrative positions. 14 of our employees have either MDs or PhDs. All of our employees are located in Israel. We believe our employee relations are good.
In addition, we engage consultants and service providers through contractual agreements for specific company projects.
Israeli labor laws govern the length of the workday, minimum wages for employees, procedures for hiring and dismissing employees, determination of the scope of severance pay, annual leave, sick days, advance notice of termination of employment, equal opportunity and anti-discrimination laws, and other conditions of employment. Subject to specified exceptions, Israeli law generally requires severance pay upon the retirement, death, or dismissal of an employee. We fund our ongoing severance obligations by making monthly payments to insurance policies that comply with the applicable Israeli legal requirements. All of our current employees have agreed that upon termination of their employment, they will be entitled to receive only the amounts accrued in the insurance policies with respect to severance pay. Furthermore, Israeli employers and employees are required to make payments to the National Insurance Institute, which is similar to the U.S. Social Security Administration.
None of our employees currently work under any collective bargaining agreements.
Environmental, Health, and Safety Matters
Our research, development, and manufacturing processes involve the controlled use of certain hazardous materials. Therefore, we are subject to extensive environmental, health, and safety laws and regulations in a number of jurisdictions in Israel, governing, among other things: the use, storage, registration, handling, emission, and disposal of chemicals, waste materials, and sewage; chemicals, air, water, and ground contamination; air emissions; and the cleanup of contaminated sites, including any contamination that results from spills due to our failure to properly dispose of chemicals, waste materials, and sewage. Our operations at our Rehovot manufacturing facility use chemicals and produce waste materials and sewage. Our activities require permits from various governmental authorities including local municipal authorities, the Ministry of Environmental Protection, and the Ministry of Health. The Ministry of Environmental Protection, the Ministry of Health, local authorities, and the municipal water and sewage company conduct periodic inspections in order to review and ensure our compliance with various regulations.
These laws, regulations, and permits could potentially require the expenditure by us of significant amounts for compliance or remediation. We believe that our environmental, health, and safety procedures for handling and disposing of these materials comply with the standards prescribed by the controlling laws and regulations. If we fail to comply with such laws, regulations, or permits, we may be subject to fines and other civil, administrative, or criminal sanctions, including the revocation of permits and licenses necessary to continue our business activities. In addition, we may be required to pay damages or civil judgments with respect to third-party claims, including those relating to personal injury (including exposure to hazardous substances we use, store, handle, transport, manufacture, or dispose of), property damage, or contribution claims. These risks are managed to minimize or eliminate associated business impacts. Some environmental, health, and safety laws allow for strict joint and several liability for remediation costs, regardless of comparative fault. We may be identified as a responsible party under such laws. Such developments could have a material adverse effect on our business, financial condition, and results of operations as these kinds of liabilities could exceed our resources. We could be subject to a regulatory shutdown of a facility that could prevent the distribution and sale of products manufactured in such facility for a significant period of time, and we could suffer a casualty loss that could require a shutdown of the facility in order to repair it, any of which could have a material, adverse effect on our business. Although we continuously strive to maintain full compliance with respect to all applicable global environmental, health, and safety laws and regulations, we could incur substantial costs to fully comply with future laws and regulations, and our operations, business, or assets may be negatively affected.
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In addition, compliance with laws and regulations relating to environmental, health, and safety matters is an ongoing process and is often subject to change. In the event of any changes or new laws or regulations, we could be subject to new compliance measures or to penalties for activities which were previously permitted. For instance, Israeli regulations were promulgated in 2012 relating to the discharge of industrial sewage into the sewer system. These regulations establish new and potentially significant fines for discharging forbidden or irregular sewage into the sewage system. We have compliance procedures in place for employee health and safety programs, driven by a centrally led organizational structure that ensures proper implementation, which is essential to our overall business objectives.
We invest resources in creating a green production environment and in the treatment and disposal of waste using environmentally friendly processes. We have received all the necessary permits from the Ministry of Environmental Protection regarding our operations in Yessod Hama’ala and we have obtained a business license for our new facilities in Rehovot. We consult with environmental consultants for direction on environmental issues.
In September 2023, we announced that we joined the United National Global Compact, the world’s largest initiative for sustainable and responsible corporate governance. As a member of this voluntary leadership platform, we strengthen our commitment to operate sustainably as it is also producing sustainable alternatives to the regenerative and aesthetics medicine products and technologies that currently exist.
Legal Proceedings
From time to time, we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We are currently not a party to any material legal or administrative proceedings and, are not aware of any pending or threatened material legal or administrative proceedings against us.
C. Organizational Structure
We currently have two subsidiaries: our wholly owned subsidiary CollPlant Ltd., which is incorporated in the State of Israel, and CollPlant Inc., a wholly owned subsidiary of CollPlant Ltd., which is incorporated in Delaware.
D. Property, Plant and Equipment
Our corporate headquarters and research lab center are located in the Weizmann Science Park in Rehovot, Israel. We entered into a lease agreement in November 2018, for an aggregate of 13,450 square feet of office and laboratory space. In September 2021, we executed an addendum to the lease for an additional 2,800 square feet. The term of the lease is for 65 months, commencing on November 15, 2018 and ending on April 15, 2024 , following which, the lease will be automatically extended for an additional five years. The monthly rent is approximately $37,600. We have invested approximately $1.4 million in establishment of the infrastructure, offices, labs and equipment in our space, net of participation by the landlord.
The research facilities serve us for development of our product pipeline, including bioinks for 3D bioprinting of tissues and organs, dermal fillers and breast implants for medical aesthetics and Gut-on-a-Chip models for personalized medicine and drug discovery. The majority of our research and development work is carried out at our research laboratories in Weizmann Science Park in Rehovot, Israel. The plant research process of our rhCollagen is carried out at our site in Yessod Hama’ala, Israel. We produce our rhCollagen and bioink in our two production sites, in Yessod Hama’ala and in Rehovot.
We lease areas in Yessod Hama’ala, Israel, of approximately 64,583 square feet pursuant to a lease agreement expiring on April 30, 2027.
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In addition, in July 2016, we leased additional space in Rehovot, Israel, of approximately 6,329 square feet for production activities pursuant to a lease agreement expiring on December 31, 2026, with an option to extend the lease for an additional four years.
In late 2021, we initiated a plan to upgrade our production site in Israel into a large-scale integrated facility, in order to accommodate expected future demand increase. We will continue with the plan once there is a surge in demand and the necessary funds are secured for its execution.
We believe that our existing facilities are adequate for our near-term needs. When our leases expire, we may look for extension periods or alternate space for our operations. We believe that suitable additional or alternative space and area would be available if required in the future on commercially reasonable terms.
ITEM 4A. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
You should read the following discussion and analysis of our financial condition and results of operations together with the section titled “Item 3.A.—Selected Financial Data” and our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 20-F. This discussion and other parts of this Annual Report on Form 20-F contain forward-looking statements that involve risk and uncertainties, such as statements of our plans, objectives, expectations, and intentions. Our actual results could differ materially from those discussed in these forward looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section titled “Item 3.D.—Risk Factors” and elsewhere in this Annual Report in Form 20-F.
Overview
We are a regenerative and aesthetic medicine company focused on 3D bioprinting of tissues and organs, and medical aesthetics. Our products are based on our recombinant human collagen (rhCollagen) that is produced with our proprietary plant based genetic engineering technology. These products address indications for the diverse fields of tissue repair, aesthetics and organ manufacturing, and are ushering in a new era in regenerative and aesthetic medicine. Our collaborations include, among others, AbbVie, STEMCELL, the Advanced Regenerative Manufacturing Institute, Stratasys and the RegenMed Development Organization.
We are in collaboration with AbbVie under the AbbVie Development Agreement, pursuant to which we and AbbVie are in the development and commercialization of dermal and soft tissue filler products for the medical aesthetics market, using our rhCollagen technology and AbbVie’s technology.
Our rhCollagen bioink product line is ideal for 3D bioprinting of tissues and organs. We are developing 3D bioprinted breast implants for regeneration of breast tissue, aim to provide a revolutionary alternative to the current practices. The implants in development are printed and loaded with compositions that are based on rhCollagen and other components. These implants are intended to promote tissue regeneration and degrade in synchronization with the development of a natural breast tissue.
In recent years, we have financed our operations primarily with revenues from sales of our products, license of our technology and development milestone achievement payments from business partner, as well as from net proceeds from private and public offerings on Nasdaq Global Market. Prior to this, we financed our operations primarily from public offerings of our securities on the TASE, participation of business partners in product development collaborations, and government grants from the IIA.
Since our inception, we have incurred significant losses. Our net loss was $7.0 million and $16.9 million for the years ended December 31, 2023 and 2022, respectively. As of December 31, 2023, we had an accumulated deficit of $96.7 million.
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We expect to continue to incur expenses and operating losses for the foreseeable future. The net losses we incur may fluctuate significantly from quarter to quarter. We anticipate that our expenses will increase substantially if and as we:
| ● | continue our research and preclinical and clinical development of our pipeline products; |
| ● | seek marketing approvals for our products and future products in the United States and other new territories; |
| ● | maintain, expand, and protect our intellectual property portfolio; |
| ● | hire additional operational, clinical, quality control, and scientific personnel; |
| ● | establish plant infrastructure to accommodate product capacity increase; |
| ● | add operational, financial, and management information systems and personnel, including personnel to support our product development, any future commercialization efforts, and our transition to a public reporting company in the United States; and |
| ● | identify additional product candidates. |
Financial Operations Overview
Revenue
Our ability to generate significant revenues will depend on the successful commercialization of our rhCollagen-based bioinks and products, our strategic partners successful commercialization of the dermal filler product that is in a clinical phase, and on our ability to establish and maintain business collaborations with leading companies for 3D bioprinting of organs and tissues, and for medical aesthetics. In the year ended December 31, 2023, we generated revenues of approximately $11.0 million, mainly from the achievement of a milestone with respect to the AbbVie Development Agreement, which triggered a $10.0 million payment, and from sales of our bioink and rhCollagen.
Our revenues are recorded in the amount of consideration to which we expect to be entitled in exchange for performance obligations upon transfer of control to the customer.
Cost of Revenues
Cost of revenues in our proprietary products and services includes expenses for the manufacturing of products such as raw materials, payroll, utilities, laboratory costs, share-based compensation and depreciation. Cost of revenue also includes royalties to the IIA and provisions for the costs associated with manufacturing scraps and inventory write offs.
Our balance sheet liabilities include current obligations regarding royalties that we are obligated to pay to the IIA based on sales of our products for the second half of the year, which were paid in February 2024. Our cost of revenues include royalties expenses regarding royalties on our sales to the IIA. For more information, see “Item 3.D. Risk Factors—Risks Related to Our Financial Condition and Capital Requirements—The IIA grants we have received in the past for research and development expenditures may restrict our ability to manufacture products and transfer know-how outside of Israel and require us to satisfy specified conditions”, and Note 6 in our consolidated financial statements for the year ended December 31, 2023.
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Operating Expenses
Research and Development Expenses
Research and development expenses consist of costs incurred for the development of our rhCollagen-based products. Those expenses include:
| ● | employee-related expenses, including salaries and share-based compensation expenses for employees in research and development functions; |
| ● | expenses incurred in operating our laboratories; |
| ● | expenses incurred under agreements with CROs and investigative sites that conduct our clinical trials; |
| ● | expenses relating to outsourced and contracted services, such as external laboratories, consulting, and advisory services; |
| ● | supply, development, and manufacturing costs relating to clinical trial materials; |
| ● | maintenance of facilities, depreciation, and other expenses, which include direct and allocated expenses for rent and insurance, net of expenses capitalized to inventory; and |
| ● | costs associated with preclinical and clinical activities. |
Research and development activities are the primary focus of our business. Products in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect that our research and development expenses will continue to be significant in absolute dollars in future periods as we continue to invest in research and development activities related to the development of our products.
Our total research and development expenses for the years ended December 31, 2023, December 31, 2022, and December 31, 2021 were $10.5 million, $10.3 million and $7.6 million, respectively. We did not apply for grants from the IIA since 2019 and we have charged all research and development expenses to operations as they are incurred.
There are numerous factors associated with the successful commercialization of any of our products, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time. Additionally, future commercial and regulatory factors beyond our control will affect our clinical development programs and plans.
General, Administrative, and Marketing Expenses
Our general and administrative expenses consist principally of:
| ● | employee-related expenses, including salaries, benefits, and related expenses, including share-based compensation expenses; |
| ● | legal and professional fees for auditors, investor relations, and other consulting expenses not related to research and development activities; |
| ● | cost of offices, communication, and office expenses; |
| ● | information technology expenses; |
| ● | business development and marketing activities; |
| ● | Stock exchange fees and related services; and |
| ● | Board members related expenses, including fees and directors’ liability insurance premiums. |
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We expect that our general, administrative, and marketing expenses will increase in the future as our business expands and we incur additional general and administrative costs associated with being a public company in the United States, including compliance under the Sarbanes-Oxley Act and rules promulgated by the SEC. These public company-related increases will likely include costs of additional personnel, additional legal fees, audit fees, directors’ liability insurance premiums, and costs related to investor relations.
Financial Income/Financial Expenses
Financial income includes interest income regarding short-term deposits and restricted deposits. Financial expenses consist of bank and other fees and exchange rate differences from the strengthening of the U.S. dollars compared to NIS.
Taxes on Income
We do not generate taxable income in Israel, as we have historically incurred operating losses resulting in carry forward tax losses. As of December 31, 2023, we have incurred operating losses of approximately $7.4 million for CollPlant Biotechnologies Ltd. and $60.0 million for CollPlant Ltd. We anticipate that we will be able to carry forward these tax losses indefinitely to future tax years assuming that we utilize them at the first opportunity. Accordingly, we do not expect to pay taxes in Israel until we have taxable income after the full utilization of our carry forward tax losses.
The standard corporate tax rate in Israel is 23%. Under the Investment Law, and other Israeli laws, we may be entitled to certain additional tax benefits, including reduced tax rates, accelerated depreciation, and amortization rates for tax purposes on certain assets and amortization of other intangible property rights for tax purposes.
A. Operating Results
The table below provides our results of operations for the years ended December 31, 2023, 2022, and 2021.
| Year ended December 31, | ||||||||||||
| 2023 | 2022 | 2021 | ||||||||||
| (USD in thousands) | ||||||||||||
| Statement of operations data: | ||||||||||||
| 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 | ||||
Revenues
We generated revenues from the achievement of a milestone under the AbbVie Development Agreement, and from the sale of our bioink, rhCollagen, and VergenixFG in the amount of $11.0 million in the year ended December 31, 2023 compared to $299,000 in the year ended December 31, 2022. The increase in revenues is mainly related to the achievement of a milestone with respect to the AbbVie Development Agreement, which triggered a $10 million payment and a $660,000 increase in sales of rhCollagen products.
We generated revenues from the sale of our BioInk, rhCollagen, and VergenixFG of $299,000 in the year ended December 31, 2022 compared to $15.6 million for the year ended December 31, 2021. The decrease in revenues mainly derived from the $14 million consideration for the license granted to AbbVie under the AbbVie Development Agreement and to a decrease in sales of bioink and Vergenix products.
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Cost of revenues
We incurred cost of revenue in the amount of $2.0 million in the year ended December 31, 2023, compared to $400,000 in the year ended December 31, 2022. The increase in cost of revenues in the amount of approximately $1.6 million is mainly comprised of: (i) approximately $320,000 in royalty expenses to the IIA, mainly relating to the milestone achievement under the AbbVie Development Agreement, (ii) approximately $711,000 relating to bioinks, VergenixFG, and rhCollagen sales and (iii) approximately $570,000 related to inventory write offs.
We incurred cost of revenue in the amount of $400,000 in the year ended December 31, 2022, compared to $2.0 million in the year ended December 31, 2021. The decrease in cost of revenues in the amount of approximately $1.6 million is mainly comprised of: (i) approximately $460,000 in royalty expenses to the IIA and (ii) approximately $1.0 million relating to bioink, VergenixFG, and rhCollagen sales.
Research and Development Expenses
We incurred research and development expenses amounting to $10.5 million in the year ended December 31, 2023, compared to $10.3 million in the year ended December 31, 2022. The increase in expenses amounting to approximately $200,000 mainly derived from employee salary expenses, including recruitment of new employees for development of new products in 3D bioprinting and medical aesthetics and share based compensation expenses.
We incurred research and development expenses amounting to $10.3 million in the year ended December 31, 2022, compared to $7.6 million in the year ended December 31, 2021. The increase in expenses amounting to approximately $2.7 was comprised primarily of $1.5 million increase in research and development activities including process development and a $1.0 million increase in employee salary expenses, including recruitment of new employees for development of new products in 3D bioprinting and medical aesthetics.
General, Administrative, and Marketing Expenses
We incurred general, administrative, and marketing expenses of $6.0 million in the year ended December 31, 2023, compared to $6.7 million in the year ended December 31, 2022. The decrease in expenses amounting to approximately $700,000 is mainly comprised of: (i) a decrease of $224,000 in employees’ salaries expense, (ii) a decrease of $364,000 in share based compensation expenses mainly related to options grant in 2022 and (iii) a decrease of $73,000 in directors’ and officers insurance policy expenses.
We incurred general, administrative, and marketing expenses of $6.7 million in the year ended December 31, 2022, compared to $5.9 million in the year ended December 31, 2021. The increase in expenses amounting to approximately $800,000 is mainly comprised of employees and director’s salaries and insurance policy expenses.
Financial Income, Net
Financial income, net in the year ended December 31, 2023 totaled $493,000 compared to $172,000 in the year ended December 31, 2022.
Financial income, net for each of the years ended December 31, 2022 and 2021 totaled $172,000.
Financial income, net is mainly attributed to interest received from the Company’s short term cash deposits.
Recent Accounting Pronouncements
Certain recently issued accounting pronouncements are discussed in Note 2, Significant Accounting Policies, to the consolidated financial statements included in “Item 18. Financial Statements” of this Annual Report.
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B. Liquidity and Capital Resources
Our primary uses of cash are to fund working capital requirements, research and development expenses and capital expenditures. Historically, we have funded our operations primarily through cash flow from operations (including sales of our proprietary products and distribution products), payments received in connection with strategic partnerships (including milestone payments from collaboration agreements), issuances of ordinary shares and warrants (including public offerings on the TASE, Nasdaq Global Market and private placements) and government grants from the IIA. The balance of cash and cash equivalents as of December 31, 2023 and 2022 totaled $26.7 million and $29.7 million, respectively. In February 2021 we completed a registered direct offering that resulted in gross proceeds of $35 million and in the same month, we received a $14 million consideration for the license granted to AbbVie under the AbbVie Development Agreement. In June 2023, we announced the achievement of a milestone with respect to the dermal filler product under the AbbVie Development Agreement, which triggered a $10 million payment from AbbVie to us.
We plan to fund our future operations through continued sales of our proprietary products, commercialization and or out-licensing of our rhCollagen and BioInk technology, and raising additional capital through the issuance of equity or debt.
Our cash requirements from known contractual obligations within the next twelve months include:
| ● | Lease liabilities in the amount of $824,000. For more information see Note 5 to our consolidated financial statements for the year ended December 31, 2023; and |
| ● | Trade and other payables in the amount of $2.6 million, which include amounts related to suppliers, salaries and other liabilities with payment term of less than one year. |
Our long-term cash requirements under our various contractual obligations include:
| ● | Lease liabilities in the amount of $3.0 million. For more information, see Note 5 to our consolidated financial statements for the year ended December 31, 2023. |
Cash Flows
The following table summarizes our consolidated statement of cash flows for the years ended December 31, 2023, 2022, and 2021.
| Year ended December 31, | ||||||||||||
| 2023 | 2022 | 2021 | ||||||||||
| (USD in thousands) | ||||||||||||
| Net cash provided by (used in): | ||||||||||||
| 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 Provided by (Used in) Operating Activities
Net cash provided by or used in operating activities resulted primarily from our net income or losses, adjusted for non-cash changes in components of working capital. Adjustments to net loss for non-cash items include mainly depreciation and amortization, share-based compensation and exchange differences on cash and cash equivalents. This cash flow mainly reflects the cash needed for funding the products and pipeline products development and our management costs during the applicable periods.
Net cash used in operating activities in the year ended December 31, 2023 totaled $2.8 million and consisted primarily of (i) net loss of $7.0 million, adjusted for non-cash items including depreciation of $1.1 million, share-based compensation of $1.9 million and exchange differences on cash and cash equivalents of $379,000, and (ii) a net change in operating assets and liabilities of $848,000, which was mainly attributable to a decrease in inventories of $749,000.
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Net cash used in operating activities in the year ended December 31, 2022 totaled $13.7 million and consisted primarily of (i) net loss of $16.9 million, adjusted for non-cash items including depreciation of $1.1 million, share-based compensation of $2.2 million, gains from short-term cash deposits of $87,000, and (ii) a net change in operating assets and liabilities of $544,000.
Net cash provided by operating activities in the year ended December 31, 2021 totaled $2.5 million and consisted primarily of (i) a net income of $237,000, adjusted for non-cash items including depreciation of $773,000, share-based compensation of $1.6 million, gains from short term bank deposits of $151,000 and change in financial instruments of $28,000, and (ii) a net decrease in operating assets and liabilities of $216,000, which are mainly attributable to a decrease in trade receivables of $560,000, and a decrease in accrued liabilities of $464,000 mainly due to royalty payment to the IIA.
Net Cash Provided by (Used in) Investing Activities
Net cash used in investing activities was $1.2 million during the year ended December 31, 2023 and net cash provided by investing activities was $28.9 million during the year ended December 31, 2022. The decrease is mainly attributed to repayment and investment in short-term cash deposits during the year ended December 31, 2022.
Net cash provided by investing activities was $28.9 million during the year ended December 31, 2022 and net cash used in investing activities was $31.6 million during the year ended December 31, 2021. The change is mainly attributed to repayment and investment in short term cash deposits.
Net Cash Provided by Financing Activities
Net cash provided by financing activities was $1.1 million for the year ended December 31, 2023 compared to $1.9 million in the year ended December 31, 2022. Cash provided by financing activities is attributed to proceeds from the exercise of warrants and options into shares.
Net cash provided by financing activities was $1.9 million for the year ended December 31, 2022 compared to $38.8 million in the year ended December 31, 2021. The decrease is mainly attributed to our registered direct offering in February 2021, which resulted in net proceeds of $32.7 million and decrease of $4.1 million in proceeds from the exercise of options and warrants.
Cash and Funding Sources
The table below summarizes our sources of funding for the years ended December 31, 2023, 2022 and 2021:
| Issuance of Ordinary Shares and Warrants | Strategic Collaborations | Total | ||||||||||
| (USD in thousands) | ||||||||||||
| Year ended December 31, 2023 | 1,108 | 10,000 | 11,108 | |||||||||
| Year ended December 31, 2022 | 1,874 | - | 1,874 | |||||||||
| Year ended December 31, 2021 | 38,760 | 14,000 | 52,760 | |||||||||
Funding Requirements
We believe that our existing cash and cash equivalents, as of the date of this Annual Report on Form 20-F, which includes approximately $26.7 million, will enable us to fund our operating expenses and capital expenditures for at least the next 12 months. We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect.
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Our present and future funding requirements will depend on many factors, including, among other things:
| ● | the number of potential new products we identify and decide to develop; |
| ● | the progress, timing, and completion of preclinical testing and clinical trials in the U.S. for tissues and organs which are based on our BioInk, medical aesthetics, and any future pipeline product; |
| ● | selling and marketing activities undertaken in connection with the commercialization of our products; |
| ● | the costs of upscaling our manufacturing capabilities; |
| ● | costs involved in the development of distribution channels, and for an effective sales and marketing organization, for the commercialization of our products in Europe; |
| ● | the time and costs involved in obtaining regulatory approvals and any delays we may encounter as a result of evolving regulatory requirements or adverse results with respect to any of these products; and |
| ● | the costs involved in filing patent applications and maintaining and enforcing patents or defending against claims or infringements raised by third parties. |
For more information as to the risks associated with our future funding needs, see “Item 3.D. Risk Factors—We will need to raise additional funding, which may not be available on acceptable terms, or at all. Failure to obtain additional capital when needed may force us to delay, limit, or terminate our product development efforts or other operations.”
C. Research and Development, Patents and Licenses
See above, under Item 5 – “Research and Development Expenses.”
D. Trend Information
We are in a development stage with regard to different medical and aesthetics products, and are in early stages of commercialization of our bioink products for customers that develop technologies for 3D-bioprinting of tissues and organs and the medical aesthetics market. It is not possible for us to predict with any degree of accuracy the outcome of our research, development, or commercialization efforts. As such, it is not possible for us to predict with any degree of accuracy any known trends, uncertainties, demands, commitments or events that are reasonably likely to have a material effect on our net sales or revenues, income from continuing operations, profitability, liquidity or capital resources, or that would cause reported financial information to not necessarily be indicative of future operating results or financial condition. However, to the extent possible, certain trends, uncertainties, demands, commitments and events are in this “Operating and Financial Review and Prospects.”
E. Critical Accounting Estimates
Our critical accounting estimates include the areas where we have made what we consider to be particularly difficult, subjective or complex judgments in making estimates, and where these estimates can significantly affect our financial results under different assumptions and conditions. We prepare our financial statements in conformity with U.S GAAP. As a result, we are required to make estimates, judgments and assumptions that we believe are reasonable based upon the information available. These estimates, judgments and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the periods presented. Actual results could be different from these estimates. Critical estimates and assumptions made by management include:
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Estimates of share-based compensation fair value
Share-based compensation reflects the compensation expense of our share option programs granted to employees which compensation expense is measured at the grant date fair value of the options. The grant date fair value of share-based compensation is recognized as an expense over the requisite service period. We recognize compensation expense for awards conditioned only on continued service that have a graded vesting schedule using the accelerated method based on the multiple-option award approach, and classify these amounts in our statement of operations based on the department to which the related employee reports.
Options Valuation
We selected the Black-Scholes option pricing model as the most appropriate method for determining the estimated fair value of the share-based compensation.
For the purpose of the evaluation of the fair value and the manner of the recognition of share-based compensation, our management is required to estimate, among others, various subjective and complex parameters that are included in the calculation of the fair value of the option as well as our results and the number of options that will vest. These parameters include the expected volatility of our share price over the expected term of the options, the risk-free interest rate assumption, and expected dividends.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and Senior Management
The following table sets forth certain information relating to our directors and senior management as of March 20, 2024. Unless otherwise stated, the address for our directors and senior management is at the Company’s registered address c/o 4 Oppenheimer, Weizmann Science Park, P.O. Box 4132, Rehovot 7670104, Israel.
| Name | Age | Position | ||
| Senior Management | ||||
| Yehiel Tal | 71 | Chief Executive Officer and Director | ||
| Eran Rotem, CPA | 56 | Deputy CEO and Chief Financial Officer | ||
| Oren Fahimipoor | 42 | Vice President, Operations | ||
| Dr. Philippe Bensimon | 58 | Vice President, Regulatory Affairs and Quality Assurance | ||
| Elana Gazal | 49 | Vice President, Research and Development | ||
| Hadas Dreiher Horowitz | 47 | Vice President, Human Resources | ||
| Non-Employee Director | ||||
| Dr. Roger Pomerantz (1)(4)(5) | 67 | Chairman of the Board and Director | ||
| Dr. Abraham Havron (1)(3)(4)(5) | 76 | Director | ||
| Dr. Elan Penn (1)(2)(3)(4)(5) | 72 | Director | ||
| Joseph Zarzewsky (1)(2)(3)(4) | 63 | Director | ||
| Hugh Evans (1)(4) | 57 | Director | ||
| Alisa Lask (1)(2)(4) | 53 | Director |
| (1) | Independent Director under the Nasdaq Listing Rules |
| (2) | Member of the Compensation Committee |
| (3) | Member of the Audit Committee |
| (4) | Independent Director under Israeli Law |
| (5) | Member of the Nominating and Corporate Governance Committee |
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Senior Management
Yehiel Tal has served as our chief executive officer since January 2010 and as a member of our board of directors since May 2022. Mr. Tal possesses over 30 years of management experience in the Israeli and American high-tech and biotechnology industries. Prior to joining us, Mr. Tal was the chief executive officer and co-founder of Regentis Biomaterials Ltd. Prior to that Mr. Tal served as vice-president of business development at ProChon BioTech Ltd. He has also served as vice president of marketing and business development at OrthoScan Technologies Ltd. and director of business development and business unit manager at Kulicke and Soffa Industries, Inc. In 2021, Mr. Tal was elected to the Board of Directors of the International Society for Biofabrication. Mr. Tal holds a Bachelor’s and a Master’s degree in mechanical engineering from the Technion, Israel Institute of Technology.
Eran Rotem has served as our chief financial officer since January 2012 and, since November 2017, also as our deputy CEO. Mr. Rotem possesses 29 years of broad financial and operational experience, primarily with biotechnology and industrial companies. Prior to joining us, Mr. Rotem served as the chief financial officer of Tefron Ltd., an industrial global company traded on both the Tel Aviv Stock Exchange (TASE:TFRN) and on the OTCBB (OTC:TFRFF) in the United States. Before Tefron, Mr. Rotem served as chief financial officer of Healthcare Technologies, Ltd. (NASDAQ:HCTL) and Gamida Ltd., a group of companies that specialize in the development, manufacturing, and marketing of clinical diagnostic test kits, as well as medical equipment and services to the biotechnology and high-tech industries. Prior to joining Healthcare Technologies, Ltd., Mr. Rotem served as a senior manager at Ernst & Young. Mr. Rotem holds a Bachelor’s degree in Accounting and Business Administration from the Tel Aviv College of Management and is a Certified Public Accountant in Israel.
Oren Fahimipoor has been appointed as our vice president of operations effective as of April 2, 2023. Mr. Fahimipoor has more than 15 years of vast experience in leading complex operations in the biopharmaceutical industry. Prior to joining us, Mr. Fahimipoor was the business unit manager in Omrix Biopharmaceuticals, a Johnson and Johnson company, leading the Tel Hashomer plant operations end-to-end from 2019 to 2023 and the Ness Ziona Omrix site from 2018 to 2019. Mr. Fahimipoor also spent over a decade at Teva Pharmaceuticals from 2007 to 2018 where he held several leading positions in Teva’s sterile production plant including leading sterile production and packaging of vials and syringes from 2012 to 2018 and as a researcher in biogenerics research and development from 2007 to 2012, developing four biosimilar products, including scale up processes and handling technical aspects of the drug development. Mr. Fahimipoor holds a BSc in Biotechnology Engineering from the Ben Gurion University and an MBA in Business Management from the Open University of Israel.
Dr. Philippe Bensimon has served as our vice president of regulatory affairs, quality assurance and clinical affairs since February 2011. Dr. Bensimon has over 30 years of experience in regulatory affairs, quality assurance and clinical affairs in international medical device companies. Prior to joining us Dr. Bensimon served for 14 years at InterVascular Datascope (now Maquet-Getinge Group), a manufacturer of long-term cardiovascular implants, as director of regulatory affairs, quality assurance, and clinical affairs. Dr. Bensimon also served for five years at 3M Medical as manager of regulatory affairs. Dr. Bensimon holds a PharmD degree from the University of Pharmacy, Marseille, France.
Elana Gazal has joined us as our Vice President of Research and Development as of November 2022. Dr. Gazal brings multidisciplinary experience in CMC, analytical chemistry and formulation development from Israeli and international companies engaging both pharmaceutical products and medical device. Prior to joining us, Dr. Gazal was the Head of Pharmaceutical Research in Neuroderm (now Mitsubishi Tanabe) leading their formulation development team and new LCM projects, taking part in the submission of ND0612 for PD patients. Prior to that, Dr. Gazal has worked at Waters IS as Application leader, in Foamix (now Wyne) developing their Minocycline foam and in Beckman Coulter (US) leading the prenatal markers area. Dr. Gazal holds a PhD in Organic Chemistry from HUJI.
Hadas Dreiher Horowitz has joined us as our vice president of human resources as of March 2021. Mrs. Dreiher Horowitz has over 16 years of experience in human resources. Prior to joining us, Mrs. Dreiher Horowitz served as Senior HR manager at Elbit Systems Ltd. from March 2019 to March 2021, and prior to that as HR manager at Teva Pharmaceutical Industries Ltd. from August 2013 to June 2018. Prior to that, Mrs. Dreiher Horowitz held various HR positions at Mul-T-Lock Technologies Ltd. and Job-Tov. Mrs. Dreiher Horowitz holds a Bachelor’s degree in Behavioural Sciences from Ben-Gurion University, Israel and a Master’s degree in Labor Studies from Tel Aviv University, Israel.
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Non-Employee Directors
Dr. Roger Pomerantz has served as our Chairman of the board of directors since February 2020. Dr. Pomerantz is currently a board member of Indaptus Therapeutics and VerImmune. Dr. Pomerantz served as Chairman of the board of directors of Seres Therapeutics in 2019, where he served as Chairman and CEO from June 2014 until January 2019. From 2011 to 2013, he was Worldwide Head of Licensing & Acquisitions, Senior Vice President at Merck & Co., Inc. where he oversaw all licensing and acquisitions at Merck Research Laboratories. Previously, he served as Senior Vice President and Global Franchise Head of Infectious Diseases at Merck. Prior to joining Merck, Dr. Pomerantz was Global Head of Infectious Diseases for Johnson & Johnson Pharmaceuticals. He joined Johnson & Johnson in 2005 as President of Tibotec Pharmaceuticals, Inc. Dr. Pomerantz received his B.A. in Biochemistry at the Johns Hopkins University and his M.D. at the Johns Hopkins School of Medicine. He received post-graduate training at the Massachusetts General Hospital, Harvard Medical School and M.I.T. Dr. Pomerantz is Board Certified in both Internal Medicine and Infectious Diseases. He was Professor of Medicine, Biochemistry and Molecular Pharmacology, Chief of Infectious Diseases, and the Founding Director and Chair of the Institute for Human Virology and Biodefense at the Thomas Jefferson University and Medical School. He has developed twelve small and large molecular drugs approved world-wide in important diseases, including HIV, HCV, CMV, C. Diff, and tuberculosis.
Dr. Abraham (Avri) Havron has served on our board of directors since May 2016. Dr. Havron is a 41-year veteran of the biotech industry. Since 2005 and until 2014 when its acquisition by OPKO Health Inc. (NASDAQ: OPK) was completed. Dr. Havron was the Chief Executive Officer and a director of PROLOR Biotech Inc. (NYSE: PBTH). Between 1999 and 2003, Dr. Havron served as V.P. and Chief Technology Officer of Clal Biotechnology Industries Ltd. and prior to that for 12 years as V.P. Manufacturing and Process-Development of BioTechnology General Ltd. (now, a subsidiary of Ferring Pharmaceuticals). Dr. Havron was a member of the founding team of Interpharm Laboratories Ltd. (a subsidiary of Merck-Serono) - the first Israeli biotech company, where he served as Director of R&D from 1980 to 1987. During his managerial career Dr. Havron was directly involved in the multi-disciplinary development of many biopharmaceuticals, eight of which were approved and are marketed worldwide: Rebif (recombinant beta interferon), Biotropin (recombinant human growth hormone), Bio-Hep-B (3rd generation recombinant hepatitis B vaccine), Biolon and Euflexxa (ophthalmic and orthopedic devices containing bacteria derived hyaluronic acid), bio-similar recombinant Insulin and, Nexxobrid (debridement agent for severe burns), Somatrogan- recombinant long acting human growth hormone analog. Dr. Havron has been actively involved in establishing several biotech start-up companies among them Mediwound, Curetech, Prolor-Biotech, Polyheal, PamBio and Enlivex. He is also a member of the board of Enlivex Therapeutics Ltd. (NASDAQ: ENLV; TASE: ENLV), was the Chairman of Mediwound during 2001-2003 and later a member of its board from 2014 to 2017 (NASDAQ: MDWD) and from 2010 to 2018 was a member of the board of directors of Kamada Ltd. (NASDAQ: KMDA; TASE: KAMDA). Dr. Havron earned his PhD in chemistry from the Weizmann Institute of Science, and completed his post- doctorate at Harvard Medical School. Dr. Havron is also a board member of CollPlant Ltd., our wholly owned subsidiary.
Dr. Elan Penn has served on our board of directors since January 2018. Dr. Penn serves as chief executive officer and chairman of Penn Publishing Ltd., a private company based in Tel Aviv, Israel. Dr. Penn serves as external director of Dunietz Brothers Ltd. (TASE: DUNI:IT). Dr. Penn serves as chairman of A.I. Conversation Systems Ltd. (TASE: AICS). From 2000 to 2001, Dr. Penn served as vice president of finance and administration of A.I. Research and Development Ltd. Dr. Penn served as chief executive officer of Sivan Computer Training Company Ltd. during the years 1998 through 2000. From 1992 to 2000, Dr. Penn served as vice president of finance and administration of Mashov Computers Ltd. From 1987 to 1991 and again from 1992 to 1997, Dr. Penn served as vice president of finance and administration of Magic Software Enterprises Ltd. (NASDAQ: MGIC) and, from 2005 to 2014, served as an external director of Magic Software. Dr. Penn previously served as a director of Telkoor Power Supplies Ltd. (TASE: TLCR) and Nexgen Biofuels Ltd. (formerly Healthcare Technologies Ltd) (OTC: NXGN). Dr. Penn holds a B.A. degree in Economics from the Hebrew University of Jerusalem and a Ph.D. in Management Science from the University of London. Dr. Penn is also a board member of CollPlant Ltd., our wholly owned subsidiary.
Joseph Zarzewsky has served on our board of directors since August 2019. Mr. Zarzewsky has served as the Vice President of Business Development at the Mitrelli Group, or Mitrelli, since June 2010. Mr. Zarzewsky has served as the Chairman of “SMAD”, a joint venture between Mitrelli and the Harbin Government, China, since June 2011. Mr. Zarzewsky has also served as the Chairman of the Investment Committee of the Harbin Israel Fund since 2012, and as a member of the board of directors of Wize Pharma, Inc. (OTCQB: WIZP) since November 2017. He has also previously served as the Vice President of marketing at Clal Insurance Enterprises Holdings Ltd. (TASE: CLIS) and as the Vice President of Marketing for the Israel Postal Authority. In addition, Mr. Zarzewsky has served as a director of Excellence Underwriter House Ltd. since 2007. In 2008, he was appointed as the Honorary Economic Advisor of the Harbin Government, China. In addition, in June 2012, he was honored as an Honorary Citizen of Harbin, China. Mr. Zarzewsky holds an MA in Commercial Law from the University of Tel Aviv in collaboration with the University of California, Berkeley.
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Hugh Evans has served on our board of directors since March 2021. Mr. Evans serves as a board member at ZVerse, 3DM, Currant 3D, Evolve, Additive Solutions, Amnovis and Advano. Previously Mr. Evans served as a board member of AquaVenture Holdings (NYSE: WAAS), which was acquired by Culligan International as well as FactoryFour which was acquired by Xometry. In 2019, Mr. Evans founded 3D Ventures Group, where he serves as a managing member. From 2013 to 2019, Mr. Evans served as Senior Vice President of Corporate Development & Digitization at 3D Systems (NYSE: DDD). Previously, from 1992 to 2013, he served as a portfolio manager at T. Rowe Price Associates (NASDAQ: TROW). Mr. Evans holds a BA in Psychology from the University of Virginia and an MBA from the Stanford Graduate School of Business.
Alisa Lask has served on our board of directors since August 2021. Ms. Lask is the CEO of Rion Aesthetics Inc., a regenerative medicine company based in Rochester, MN leveraging platelet derived exosome technology for use in both cosmetic applications and investigational studies for aesthetics uses such as hair loss. Ms. Lask is the former Vice President and General Manager of US Aesthetics at Galderma. Previously, she was a Senior Director of Global Strategic Marketing of Facial Aesthetics at Allergan and held strategic marketing positions at both Zimmer Biomet and Eli Lilly. Mrs. Lask received an M.B.A from the University of Michigan and has a B.A. in marketing from Miami University, Oxford, Ohio.
Advisory Boards
We have established a scientific advisory board and a clinical advisory board. The members of our advisory boards are appointed by our chief executive officer. Once nominated, the members of our advisory boards sign a standard letter of engagement. Most of the members of our advisory boards are not appointed for a specific term and their position may be terminated by either us or the member of the advisory board according to standard notice periods. The members of our advisory boards are all paid either daily or hourly fees for their services and are entitled to reimbursement of their expenses. Furthermore, several of the members of our advisory boards have been granted options due to their strategic role and years of service. The members of our advisory boards are as follows:
Advisory Board
Prof. Avraham Hershko
Prof. Shay Soker
Prof. Vicki Rosen
Prof. Abhay Pandit
Prof. Ofer Levy, MD, MCh (Orth)
Joseph M. Lane, MD
B. Compensation
Compensation of Senior Management and Directors
The following table presents in the aggregate all compensation we paid to all of our senior management and directors as a group for the year ended December 31, 2023. The table does not include any amounts we paid to reimburse any of such persons for costs incurred in providing us with services during this period.
| Salaries, fees, commissions, and bonuses(1) (thousand USD) | Value of Options Granted(2) (thousand USD) | |||||||
| All senior management and directors as a group, consisting of 12 persons | 2,602 | 1,672 | ||||||
| (1) | Salary includes cost of salary to the Company and ancillary benefits such as payments to the National Insurance Institute, advanced education funds, managers’ insurance and pension funds; vacation pay; recuperations pay as mandated by Israeli law. This amount includes approximately $112,000 set aside or accrued to provide pension, severance, retirement, vacation or similar benefits or expenses. |
| (2) | Consists of amounts recognized as share-based compensation expense for the year ended December 31, 2023. Assumptions and key variables used in the calculation of such amounts are discussed in Note 8 of our financial statements. |
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In accordance with the Companies Law, the following table presents information regarding compensation of our five most highly paid office holders, namely our Chief Executive Officer, Deputy CEO and Chief Financial Officer, Vice President Regulatory Affairs and Quality Assurance, Vice President Research and Development, and Vice President Operations, during the year ended December 31, 2023.
| Name and Position(1) | Salary Cost (2) (thousand USD) | Bonus (thousand USD)(3) | Value of Options Granted(4) (thousand USD) | Total (thousand US dollar) | ||||||||||||
| Yehiel Tal, CEO | 541 | 210 | 325 | 1,076 | ||||||||||||
| Eran Rotem, Deputy CEO & CFO | 424 | 104 | 220 | 748 | ||||||||||||
| Philippe Bensimon, VP RA& QA | 243 | 35 | 84 | 362 | ||||||||||||
| Elana Gazal, VP Research and Development | 257 | 22 | 100 | 379 | ||||||||||||
| Oren Fahimipoor, VP Operations(5) | 180 | 32 | 111 | 323 | ||||||||||||
| (1) | All such officers are employed on a full-time (100%) basis. |
| (2) | Salary includes cost of salary to the Company and ancillary benefits such as payments to the National Insurance Institute, advanced education funds, managers’ insurance and pension funds; vacation pay; recuperations pay as mandated by Israeli law. |
| (3) | Amounts reported in this column refer to the cash incentives provided by the Company with respect to 2023, including the annual cash bonus for 2023, which have been provided for in the Company’s financial statements for the year ended December 31, 2023, but will be paid in April 2024. Such amounts exclude bonuses paid during 2023 which were provided in the Company’s financial statements for previous years. |
| (4) | Represents the share-based compensation expenses recorded in the Company’s consolidated financial statements for the year ended December 31, 2023, based on the equity fair value on the grant date, calculated in accordance with accounting guidance for share-based compensation. For a discussion on the assumptions used in reaching this valuation, see Note 8 to our consolidated financial statements for the year ended December 31, 2023 for more information. |
| (5) | Amounts presented reflects a period of nine months. |
Compensation of Directors
Our directors (other than the Chairman) are entitled to an annual fee of $25,000 and a per meeting participation fee of $800, and any applicable VAT as well as reimbursement of expenses, including meeting participation expenses, reimbursement of business travel including a daily stipend when traveling and accommodation expenses.
Our Chairman is entitled to a monthly consulting fee of $14,584 plus applicable VAT as well as reimbursement, against receipts, for out-of-pocket business expenses, reasonably and necessarily incurred by him relating to the provision of his services, provided that our prior approval for such expense has been obtained.
The members of our board of directors are also entitled to a letter of indemnification and exemption, in the Company’s standard form, and to coverage under our D&O insurance policies, as renewed from time to time.
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On October 10, 2023, our general meeting of shareholders approved, following approval of our compensation committee and board of directors, and as part of a broader repricing decision applying to our employees and officers, the repricing of the exercise price of option to purchase ordinary shares, previously granted to our directors and our CEO (who also serves as a director on our board of directors), whose exercise price was $9.12-$15.2, such that their new exercise price will be $6.39, which represents the average of the closing price of our ordinary shares during the 30 days preceding the board of directors’ decision on the repricing.
On April 3, 2024, the board of directors (following the approval of the compensation committee with respect to the Company’s directors and officers) approved to extend the expiry date of 337,464 options exercisable into 337,464 ordinary shares that were previously granted to some of our employees and directors, from an expiry date ranging between December 2024 and July 2025, by an additional three years, such that the expiry dates will range between December 2027 and July 2028. Out of the said options, 126,800 options exercisable into 126,800 ordinary shares are held by some of the Company’s directors and by its CEO (who also serves as a director on the board of directors), and as such, the extension of the expiry dates of these options is subject to the receipt of shareholders’ approval by the required majorities under applicable law.
Employment and Services Agreements with Senior Management
We have entered into written employment agreements with each of our executive officers. These agreements provide for notice periods of varying duration for termination of the agreement by us or by the relevant executive officer, during which time the executive officer will continue to receive base salary and benefits. These agreements also contain customary provisions regarding noncompetition, confidentiality of information and assignment of inventions. However, the enforceability of the noncompetition provisions may be limited under applicable law. In addition, from time to time we grant our senior managers options to purchase ordinary shares under our equity compensation plans. For information on our equity compensation plans, please see Item 6.E – Share Ownership.
On July 18, 2023, our general meeting of shareholders approved the adoption and grant of a new letter of indemnification for the Company’s current and future directors and officers. For information on exemption and indemnification letters granted to our directors and officers, please see “C. Board Practices – Exemption, Insurance and Indemnification of Directors and Officers”.
C. Board Practices
Board of Directors
Under the Companies Law, the overseeing of the management of our business is vested in our board of directors. Our board of directors may exercise all powers and may take all actions that are not specifically granted to our shareholders or to management. Our officers are responsible for our day-to-day management and have individual responsibilities established by our board of directors and specified in their specific employment agreements. Our chief executive officer is appointed by, and serves at the discretion of, our board of directors, subject to the employment agreement that we have entered into with him. All other officers are appointed by our chief executive officer with the prior review of our board of directors and compensation committee, and are subject to the terms of any applicable employment agreements that we may enter into with them.
Under our articles of association, our board of directors must consist of at least three and not more than twelve directors, including at least two external directors, but allows us, subject to and in accordance with the provisions of any law, to determine that the provisions relating to external directors (including the obligation to appoint external directors) shall not apply to us.
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On December 20, 2021, our board of directors determined that in light of our current shareholding structure, which no longer supports the claim that we have a controlling shareholder, it was decided to reinstate the relief provided under an exemption, or the Exemption, that provides relief for Israeli companies whose shares are listed on certain stock exchanges outside of Israel (including the Nasdaq Capital Market) with no controlling shareholder from being required to appoint external directors so long as such companies satisfy the requirements of the foreign laws in the listing jurisdiction outside of Israel which apply to companies incorporated in such jurisdiction, in respect of the appointment of independent directors and the composition of the audit committee and compensation committee, adopted by our board of directors in November 2018. As such, Dr. Gili Hart and Dr. Elan Penn, our then external directors, were no longer classified as external directors, as of which date they continued to serve on our board of directors as independent directors until the earlier of: (i) the end of their tenure; or (ii) the lapse of the second annual general meeting following the said determination. Dr. Hart was not proposed for re-election in 2023 and as such her tenure as a member of our board ended on July 5, 2023. Dr. Penn was re-elected as a director by our general meeting of shareholders on July 18, 2023, until our next annual general meeting.
Currently our board of directors consists of six non-employee directors, all of who are elected annually at the general meeting of our shareholders by a vote of the holders of a majority of the voting power present and voting, in person or by proxy, at that meeting.
We have two types of directors: independent directors and “regular” directors. For purposes of complying with the Nasdaq Listing Rules to list the Company’s ordinary shares on the Nasdaq Global Market, our board of directors is comprised of six independent directors and one regular director.
Our board of directors has determined that all of our non-employee directors are independent under such rules.
Under the Companies Law any shareholder holding at least 1% of our outstanding voting power may submit to our board of directors a request to add an item to the agenda of a general meeting that is due to convene, provided that such item is suitable to be discussed at the general meeting. Accordingly, a shareholder may propose to nominate one or more persons for election as directors at a general meeting by delivering a written notice of such shareholder’s intent to make such nomination or nominations, setting forth all of the details and information as required to be provided by our amended and restated articles of association and regulations promulgated under the Companies law.
In addition, our articles of association allow our board of directors to appoint additional director or directors who shall remain in office until the next annual shareholders’ meeting, provided that the board of directors must consist of no more than 12 directors. In addition, our articles of association allow our board of directors to appoint alternate directors to fill vacancies on our board of directors, for a term of office equal to the remaining period of the term of office of the director(s) whose office(s) have been vacated.
Under the Companies Law, our board of directors must determine the minimum number of directors who are required to have accounting and financial expertise. In determining the number of directors required to have such expertise, our board of directors must consider, among other things, the type and size of the company and the scope and complexity of its operations. Our board of directors has determined that the minimum number of directors who are required to have accounting and financial expertise is one.
DIVERSITY OF THE BOARD OF DIRECTORS
Board Diversity Matrix (As of April 1, 2024)
| Country of Principal Executive Offices | Israel | |||
| Foreign Private Issuer | Yes | |||
| Disclosure Prohibited under Home Country Law | No | |||
| Total Number of Directors | 7 |
| Part I: Gender Identity | Female | Male | Non- Binary |
Did Not Gender | |||
| Directors | 1 | 6 | 0 | 0 | |||
| Part II: Demographic Background | |||||||
| Underrepresented Individual in Home Country Jurisdiction | 0 | ||||||
| LGBTQ+ | 0 | ||||||
| Did Not Disclose Demographic Background | 0 | ||||||
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External Directors
Under the Companies Law, companies incorporated under the laws of the State of Israel that are “public companies”, including companies with shares listed on the Nasdaq, are required to appoint at least two external directors. The external directors must meet strict independence criteria to ensure that they are unaffiliated with the company and any controlling shareholder. At least one of the external directors is required to have financial and accounting expertise, and the other external director must have either financial and accounting expertise or professional qualifications, as defined in the regulations promulgated under the Companies Law. The Companies Law also provides that the external directors must serve on both the audit committee and the compensation committee, that the audit committee and the compensation committee must both be chaired by an external director, and that at least one external director must serve on every board committee authorized to exercise powers of the board of directors. Additional rules govern the term and compensation of external directors. Pursuant to regulations promulgated under the Companies Law, companies with shares traded on certain U.S. stock exchanges, including the Nasdaq, may, subject to certain conditions, adopt an exemption, or, the Exemption, from the Companies Law requirements to appoint external directors and related Companies Law rules concerning the composition of the audit committee and compensation committee of the Board of Directors. In accordance with these regulations, we have elected to adopt the Exemption, which exempts us from the Companies Law requirement to appoint external directors and related Companies Law rules concerning the composition of the audit committee and compensation committee of the Board of Directors.
As discussed above, until December 20, 2021, Dr. Gili Hart and Dr. Elan Penn, our then external directors, served as “external directors” on our board of directors, and upon the determination of our board of directors that the Company no longer has a controlling shareholder, continued to serve as independent directors on our board of directors until the earlier of: (i) the end of their tenure; or (ii) the lapse of the second annual general meeting following the said determination. Dr. Hart was not proposed for re-election in 2023 and as such her tenure as a member of our board ended on July 5, 2023. Dr. Penn was re-elected as a director by our general meeting of shareholders on July 18, 2023, until our next annual general meeting.
For further information on our decision to adopt the Exemption, please see C. Board Practices – Board of Directors.
Role of Board of Directors in Risk Oversight Process
Risk assessment and oversight are an integral part of our governance and management processes. Our board of directors encourages management to promote a culture that incorporates risk management into our corporate strategy and day-to-day business operations. Management discusses strategic and operational risks at regular management meetings and conducts specific strategic planning and review sessions during the year that include a focused discussion and analysis of the risks facing us. Throughout the year, senior management reviews these risks with the board of directors at regular board meetings as part of management presentations that focus on particular business functions, operations or strategies, and presents the steps taken by management to mitigate or eliminate such risks.
Leadership Structure of the Board of Directors
In accordance with the Companies Law and our articles of association, our board of directors is required to appoint one of its members to serve as chairman of the board of directors. Our board of directors has appointed Dr. Roger Pomerantz to serve as chairman of the board of directors.
Committees of the Board of Directors
Currently, our board of directors has three permanent committees: an audit committee, a compensation committee, and a nominating and corporate governance committee.
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Audit Committee
Under the Companies Law, the board of directors of a public company must appoint an audit committee that will comply with certain composition requirements, subject to the possibility of a company to opt out of certain Companies Law requirements under certain circumstances, as we have. Under the Nasdaq Listing Rules, we are required to maintain an audit committee consisting of at least three independent directors, all of whom are financially literate and at least one of whom has accounting or related financial management expertise.
Accordingly, our audit committee consists of Dr. Avraham Havron, Dr. Elan Penn and Joseph Zarzewsky, each of whom meets the requirements for independence under the rules of the Nasdaq and the applicable rules and regulations of the SEC. Each member of our audit committee also meets the financial literacy requirements in the rules of the Nasdaq and the applicable rules and regulations of the SEC. In addition, our board of directors has determined that Dr. Elan Penn is an audit committee financial expert within the meaning of Item 407(d) of Regulation S-K under the Securities Act.
Our board of directors has adopted a new audit committee charter in November 2023, setting forth the responsibilities of the audit committee consistent with the rules of the SEC and the Nasdaq Listing Rules as well as the requirements for such committee under the Companies Law, including the following:
| ● | providing oversight of our accounting and financial reporting process and the audits of our financial statements; |
| ● | assisting our board of directors in its oversight of (i) the quality and integrity of our financial statements and other published financial information, (ii) our compliance with applicable financial and accounting related standards, rules and regulations, (iii) the selection, retention and termination, subject to shareholder approval, of our independent auditor, (iv) the pre-approval of all audit, audit-related and all permitted non-audit services, if any, by our independent auditor, and the compensation therefor and (v) our internal controls over financial reporting; |
| ● | determining whether there are delinquencies in our business management practices, including in consultation with our internal auditor or independent auditor, and making recommendations to our board of directors to improve such practices; |
| ● | determining whether to approve certain related party transactions or transactions in which a board member or other office holder has a personal interest and whether such transaction is material to us; |
| ● | preparing any report that the rules of the SEC require (if we are then subject to the U.S. proxy rules) to be included, or that we otherwise elect to include, in our annual proxy statement; | |
| ● | providing the board of directors with the results of its monitoring and recommendations derived from the foregoing; and |
| ● | fulfilling any other duties of the audit committee as shall be required under the Companies Law. |
Our audit committee provides assistance to our board of directors in fulfilling its legal and fiduciary obligations in matters involving our accounting, auditing, financial reporting, internal control, and legal compliance functions by pre-approving the services performed by our independent accountants and reviewing their reports regarding our accounting practices and systems of internal control over financial reporting. Our audit committee also oversees the audit efforts of our independent accountants and takes those actions that it deems necessary to satisfy itself that the accountants are independent of management.
Under the Companies Law, our audit committee is mainly responsible for:
| ● | determining whether there are deficiencies in our business management practices, including in consultation with our internal auditor or the independent auditor, and making recommendations to the board of directors to improve such practices; |
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| ● | determining whether certain acts of an office holder not in accordance with his or her fiduciary duty owed to the Company are extraordinary or material and to approve such acts and certain related party transactions (including transactions in which an office holder has a personal interest) and whether such transaction is extraordinary or material under the Companies Law (see “—Approval of Related Party Transactions Under Israeli Law” below); |
| ● | determining procedures for a competitive process, or other procedures, before approving related party transactions with controlling shareholders, even if such transactions are deemed by the audit committee not to be extraordinary transactions. This process is to be supervised by the audit committee, or any person authorized for such supervision, or via any other method approved by the audit committee; |
| ● | determining whether or not to approve acts or transactions that require the audit committee’s approval pursuant to the Companies Law. |
| ● | determining the approval process for transactions that are not negligible, as well as determine which types of transactions would require the approval of the audit committee. Non-negligible transactions are defined as related party transactions with a controlling shareholder, or in which the controlling shareholder has a personal interest, that the audit committee classified as non-extraordinary transactions and which have also been classified by the audit committee as non-negligible transactions; |
| ● | where the board of directors approves the work plan of the internal auditor, to examine such work plan before its submission to the board and propose amendments thereto; |
| ● | examining our internal controls and internal auditor’s performance, including whether the internal auditor has sufficient resources and tools to dispose of its responsibilities; |
| ● | examining the scope of our auditor’s work and compensation and submitting a recommendation with respect thereto to our board of directors or shareholders, depending on which of them is considering the appointment of our auditor; and |
| ● | establishing procedures for the handling of employees’ complaints as to deficiencies in the management of our business and the protection to be provided to such employees. |
Our audit committee may not approve any actions requiring its approval (see “—Approval of Related Party Transactions Under Israeli Law” below), unless at the time of approval a majority of the committee’s members are present.
Compensation Committee
Under the Companies Law, the board of directors of a public company must appoint a compensation committee. The Companies Law provides composition requirements applicable to a compensation committee, unless a company elects to opt-out of certain Companies Law requirements, under certain circumstances, as we have. Our compensation committee consists of Dr. Elan Penn, Alisa Lask and Joseph Zarzewsky, each of whom meets the requirements for independence under the rules of the Nasdaq Global Market and the applicable rules and regulations of the SEC.
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The duties of the compensation committee include the recommendation to the company’s board of directors of a policy regarding the terms of engagement of office holders, to which we refer as a compensation policy, and to examine the necessity of updating the compensation policy. This policy must be adopted by the company’s board of directors, after considering the recommendations of the compensation committee, and must be approved by the company’s shareholders by a special majority, which we refer to as a Special Majority for Compensation. This Special Majority for Compensation requires shareholder approval by a majority vote of the shares present and voting at a meeting of shareholders called for such purpose, provided that either: (i) such majority includes at least a majority of the shares held by all shareholders who are not controlling shareholders and do not have a personal interest in such compensation arrangement; or (ii) the total number of shares of non-controlling shareholders and shareholders who do not have a personal interest in the compensation arrangement and who vote against the arrangement does not exceed 2% of the company’s aggregate voting rights. Under special circumstances, the board of directors may approve the compensation policy despite the objection of the shareholders on the condition that the compensation committee (or the audit committee acting in lieu of a compensation committee pursuant to the Companies Law) and then the board of directors decide, on the basis of detailed arguments and after discussing the compensation policy once again, that approval of the compensation policy, despite the objection of the meeting of shareholders, is for the benefit of the company. Our current compensation policy was approved by our shareholders on May 2, 2022 by the required Special Majority for Compensation, and will be in effect for a period of three years from its date of original approval. The compensation policy does not, by nature, grant any rights to our directors or officers. The compensation policy includes both long-term and short-term compensation elements and is to be reviewed from time to time by our compensation committee and our board of directors, according to the requirements of the Companies Law. On July 18, 2023, our shareholders approved, by the required Special Majority for Compensation, an amendment to our compensation policy with respect to the adoption of a new clawback policy intended to comply with the clawback-related listing standards of the Nasdaq Stock Market and the Companies Law, which took effect upon the effective date of the Nasdaq listing rule (i.e., December 1, 2023).
Our compensation policy serves as the basis for decisions concerning the financial terms of employment or engagement of office holders, including exemption, insurance, indemnification or any monetary payment or obligation of payment with respect to employment or engagement. According to the Companies Law, the compensation policy must be approved (or reapproved) not longer than every three years and relate to certain factors, including advancement of the company’s objectives, the company’s business plan and its long-term strategy, and creation of appropriate incentives for office holders. It must also consider, among other things, the company’s risk management, size, and nature of its operations. With respect to the compensation terms that include variable compensation, the compensation policy must also consider the officer holders’ contribution to meeting the Company’s objectives and the creation of profit, all with a long-term view and according to the office holder’s position. The compensation policy must furthermore consider the following additional factors:
| ● | the knowledge, skills, expertise, and accomplishments of the relevant office holder; |
| ● | the office holder’s roles and responsibilities and prior compensation agreements with him or her; |
| ● | the ratio between the terms offered and the cost of employment of the other employees of the company, including those employed through manpower companies, and in particular the ratio between the average salary and the median salary of such employees; |
| ● | the impact of disparities in salary upon work relationships in the company; |
| ● | the possibility of reducing variable compensation at the discretion of the board of directors; |
| ● | the possibility of capping the exercise value of non-cash variable equity-based compensation; and |
| ● | as to severance compensation, the period of service of the office holder, the terms of his or her compensation during such service period, the company’s performance during that period of service, the person’s contributions towards the company’s achievement of its objectives and the maximization of its profits, and the circumstances under which the person is leaving the company. |
The compensation policy must also include the following principles:
| ● | the linkage between variable compensation and long-term performance and measurable criteria. |
| ● | the ratio between variable and fixed compensation, and the ceiling for the value of variable compensation at the time of the payment (or with respect to variable equity compensation that is not paid for in cash, a ceiling for their value on the grant date); |
| ● | the conditions under which an office holder would be required to repay compensation paid to him or her if it was later shown that the data upon which such compensation was based was inaccurate and was required to be restated in the company’s financial statements; |
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| ● | the minimum holding or vesting period for variable, equity-based compensation with a view to long-term incentives; and |
| ● | maximum limits for severance compensation. |
Our board of directors has adopted a new compensation committee charter in November 2023, setting forth the responsibilities of the committee, which include:
| ● | reviewing and setting or making recommendations to our board of directors regarding the compensation of our CEO and the other directors and officers; |
| ● | reviewing the compensation disclosure included in Item 6 of our annual reports; |
| ● | recommending to our board of directors, for its approval, a compensation policy, in accordance with the requirements of the Companies Law and any other compensation policies, incentive-based compensation plans and equity-based plans as well as any claw-back recovery provisions, or collectively, the Compensation Plans and Policies; |
| ● | overseeing the development and implementation of the Compensation Plans and Policies that are appropriate for the Company in light of all relevant circumstances and recommending to our board of directors any amendments or modifications to the Compensation Plans and Policies that the compensation committee deems appropriate, including the extension of Compensation Plans and Policies as required by the Companies Law; |
| ● | determining whether to approve transactions concerning the terms of engagement and employment of the our CEO, other officers and directors that require the approval of the compensation committee under the Companies Law or the Compensation Plans and Policies; |
| ● | taking any further actions as the compensation committee is required or allowed to under the Companies Law or the Compensation Plans and Policies; and, |
| ● | reviewing and approving, or, if required by law or the Compensation Plans and Policies, approve and recommend for approval by our board of directors, grants and awards under our equity incentive plans. |
Nominating and Corporate Governance Committee
Our nominating and corporate governance committee consists of Dr. Roger Pomerantz, Dr. Abraham Havron, and Dr. Elan Penn. Each of the members of our nominating and corporate governance committee is independent under the listing requirements of the Nasdaq Global Market.
Our board of directors has adopted a new nominating and governance committee charter in November 2023, setting forth the responsibilities of the nominating and governance committee, which include:
| ● | examining the qualifications, skills and experiences of potential director candidates; |
| ● | recommending to our board of directors, for its approval, the criteria for nominating board members and guidelines for the structure of the board of directors, to be used by the committee in recommending directors and by the board of directors in nominating directors; |
| ● | reviewing the board committee structure and periodically recommending to the board of directors, for its approval, directors to serve as members of each committee; |
| ● | reviewing and assessing the adequacy of our approach to corporate governance and any such corporate governance guidelines adopted by our board of directors and recommending any proposed changes to the board of directors for approval; |
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| ● | making recommendations to our board of directors regarding governance matters, including our articles of association and the charters of our other committees. Our board of directors may refer to the committee other matters and questions relating to corporate governance and nomination as our board of directors may from time to time see fit; and, |
| ● | reporting regularly to our board of directors regarding the committee’s activities. |
Internal Auditor
Under the Companies Law, the board of directors of a public company must appoint an internal auditor based on the recommendation of the audit committee. The role of the internal auditor is to examine, among other things, our compliance with applicable law and orderly business procedures. The audit committee is required to oversee the activities and to assess the performance of the internal auditor as well as to review the internal auditor’s work plan.
An internal auditor may not be:
| ● | a person (or a relative of a person) who holds 5% or more of the company’s outstanding shares or voting rights; |
| ● | a person (or a relative of a person) who has the power to appoint a director or the general manager of the company; |
| ● | an office holder or director (or a relative of an officer or director) of the company; or |
| ● | a member of the company’s independent accounting firm, or anyone on its behalf. |
Ms. Dana Gottesman Erlich, has been serving as our Internal Auditor since November 2013. Ms. Gottesman Erlich is a CPA, CIA, MA, Partner in the Risk Advisory Services (RAS) Group at the accounting firm of BDO Ziv Haft. Ms. Gottesman Erlich has more than 10 years of experience in the provision of internal audit and risk management consulting services to public and private companies, government agencies, municipalities, non-profit organizations, and more. Ms. Gottesman Erlich specializes in the analysis and specification of work procedures and their assimilation in the organization, the internal audit of work procedures in different organizations, including the performance of risk surveys and fraud and embezzlement surveys. Ms. Gottesman Erlich holds a BA in Accounting and Business Administration and an MA in Internal Audit and Public Administration. Ms. Gottesman Erlich’s nomination satisfies the requirements of the Companies Law.
Approval of Related Party Transactions under Israeli Law
Fiduciary Duties of Directors and Officers
The Companies Law imposes a duty of care and a fiduciary duty on all office holders of a company. Each person listed in the table under “Management—Senior Management and Directors” is an office holder under the Companies Law.
The duty of care requires an office holder to act with the degree of proficiency with which a reasonable office holder in the same position would have acted under the same circumstances. The fiduciary duty requires that an office holder act in good faith and in the best interests of the company.
The duty of care includes a duty to use reasonable means to obtain:
| ● | information on the advisability of a given action brought for his or her approval or performed by virtue of his or her position; and |
| ● | all other important information pertaining to these actions. |
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The fiduciary duty includes a duty to:
| ● | refrain from any act involving a conflict of interest between the performance of his or her duties to the company and his or her other duties or personal affairs; |
| ● | refrain from any activity that is competitive with the company; |
| ● | refrain from exploiting any business opportunity of the company to receive a personal gain for himself or herself or others; and |
| ● | disclose to the company any information or documents relating to the company’s affairs which the office holder received as a result of his or her position as an office holder. |
Disclosure of Personal Interests of an Office Holder and Approval of Certain Transactions
The Companies Law requires that an office holder promptly disclose to the company any personal interest that he or she may be aware of and all related material information or documents concerning any existing or proposed transaction by the company. An interested office holder’s disclosure must be made promptly and, in any event, no later than the first meeting of the board of directors at which the transaction is considered. An office holder is not obliged to disclose a personal interest if it derives solely from the personal interest of his or her relative in a transaction that is not considered as an extraordinary transaction.
A “personal interest” is defined under the Companies Law to include a personal interest of any person in an act or transaction of a company, including the personal interest of such person’s relative or of a corporate body in which such person or a relative of such person is a 5% or greater shareholder, director, or general manager or in which he or she has the right to appoint at least one director or the general manager, but excluding a personal interest solely stemming from one’s ownership of shares in the company.
A personal interest furthermore includes the personal interest of a person for whom the office holder holds a voting proxy or the personal interest of the office holder with respect to his or her vote on behalf of a person for whom he or she holds a proxy even if such shareholder has no personal interest in the matter.
Under the Companies Law, an extraordinary transaction is defined as any of the following:
| ● | a transaction other than in our ordinary course of business; |
| ● | a transaction that is not on market terms; or |
| ● | a transaction that may have a material impact on the company’s profitability, assets, or liabilities. |
Under the Companies Law, the audit committee is the organ responsible for classifying a transaction with an officer holder, or in which an officer holder has a personal interest, as an extraordinary transaction, and may make such classification regarding certain types of actions or transactions based on pre-determined criteria once a year. If it is determined that an office holder has a personal interest in a transaction which is not an extraordinary transaction, approval by the board of directors is required for such transaction, unless the company’s articles of association provide for a different method of approval. An extraordinary transaction in which an office holder has a personal interest requires approval first by the company’s audit committee and subsequently by the board of directors. In general, the compensation of, or an undertaking to indemnify or insure, an office holder who is not a director requires approval first by the company’s compensation committee, then by the company’s board of directors, and, if such compensation arrangement or an undertaking to indemnify or insure is inconsistent with the company’s stated compensation policy or if the office holder is the chief executive officer (apart from a number of specific exceptions), then such arrangement is subject to shareholders’ approval by the Special Majority for Compensation. Arrangements regarding the compensation, exculpation, indemnification, or insurance of a director require the approval of the compensation committee, board of directors, and shareholders by ordinary majority, in that order, and under certain circumstances, a special majority approval.
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Generally, a person who has a personal interest in a matter which is being considered at a meeting of the board of directors or the audit committee may not be present at such a meeting or vote on that matter unless the chairman of the relevant committee or board of directors (as applicable) determines that he or she should be present in order to present the transaction that is subject to approval. If a majority of the members of the audit committee or the board of directors (as applicable) have a personal interest in the approval of a transaction, then all directors may participate in discussions of the audit committee or the board of directors (as applicable) on such transaction and the voting on approval thereof, but shareholder approval is also required for such transaction (except in cases where specific reliefs are applied, or in cases where the said transaction is a non-extraordinary transaction with an officer holder or in which an officer holder has a personal interest).
Disclosure of Personal Interests of Controlling Shareholders and Approval of Certain Transactions
Under Israeli Law, the term “controlling shareholder” means a shareholder with the ability to direct the activities of our company, other than by virtue of being an officer or director. A shareholder is presumed to be a controlling shareholder if the shareholder holds 50% or more of the voting rights in a company or has the right to appoint at least half of the directors of the company or its general manager. For the purpose of approving transactions with related parties, the definition of controlling shareholder also includes any shareholder that holds 25% or more of the voting rights in a public company if no other shareholder holds more than 50% of the voting rights in the company. For purposes of determining the holding percentage stated above, two or more shareholders who have a personal interest in a transaction that is brought for the company’s approval are deemed as joint holders.
Pursuant to Israeli law, the disclosure requirements regarding personal interests that apply to directors and officers also apply to a controlling shareholder of a public company. In the context of a transaction involving a shareholder of the company, as mentioned above, a controlling shareholder also includes a shareholder who holds 25% or more of the voting rights in the company if no other shareholder holds more than 50% of the voting rights in the company. Generally, the approval of the audit committee or compensation committee, the board of directors, and a special majority, in that order, is required for: (i) extraordinary transactions with a controlling shareholder or in which a controlling shareholder has a personal interest, including any private placements in which a controlling shareholder has a personal interest; (ii) the engagement with a controlling shareholder or his or her relative, directly or indirectly, for the provision of services to the company; (iii) the terms of engagement and compensation of a controlling shareholder or his or her relative who is an office holder; or (iv) the employment of a controlling shareholder or his or her relative by the company. For this purpose, a “special majority” approval requires shareholder approval by a majority vote of the shares present and voting at a meeting of shareholders called for such purpose, provided that either: (a) such majority includes at least a majority of the shares held by all shareholders who do not have a personal interest in the approval of such item; or (b) the total number of shares of non-controlling shareholders and shareholders who do not have a personal interest in the approval of such item and who vote against the arrangement does not exceed 2% of the company’s aggregate voting rights.
To the extent that any such transaction with a controlling shareholder is for a period extending beyond three years, approval is required once every three years, unless, with respect to certain transactions, the audit committee determines that the duration of the transaction is reasonable given the circumstances related thereto.
Arrangements regarding the compensation, exculpation, indemnification, or insurance of a controlling shareholder in his or her capacity as an office holder require the approval of the compensation committee and board of directors, and, in general, approval by a special majority of shareholders.
Pursuant to regulations promulgated under the Companies Law, certain transactions with a controlling shareholder or his or her relative, or with directors, that would otherwise require approval of a company’s shareholders may be exempt from shareholder approval upon certain determinations of the audit committee or compensation committee and board of directors.
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Shareholders’ Duties
Under the Companies Law, a shareholder has a duty to act in good faith and in a customary manner toward the company and other shareholders and to refrain from abusing his or her power in the company, including, among other things, in voting at general meetings of shareholders and class meetings of shareholders with respect to the following matters:
| ● | an amendment of the articles of association or memorandum of association of the company; |
| ● | an increase in the company’s authorized share capital; |
| ● | a merger; or |
| ● | the approval of related party transactions and acts of office holders that require shareholder approval. |