ABBV - CollPlant: Expanding End-Market Opportunities

Summary

• Possesses only plant-based collagen product with multiple end-market opportunities.
• AbbVie relationship alone justifies the current valuation.
• The company's cap is a mere $120 million and debt free.
• Business models include upfront and milestone payments and ultimately royalty income.

CollPlant Biotechnologies Ltd. ( CLGN ). CollPlant seeks to become a global leader in regenerative medicine. Collagen is the most abundant protein in the human body, found in the bones, muscles, skin, and tendons. It is the substance that holds the body together. Collagen forms a scaffold to provide strength and structure. Exogenous collagen is used for medical and cosmetic purposes, including the repair of body tissues. The company's rhCollagen BioInk can be sold and/or licensed to many end markets. The company's collagen is plant-based, as opposed to bovine, derived and grown in tobacco plants, and to the company's knowledge, the only plant-based collagen product. CLGN has a highly-scalable business model.

In February 2021, CLGN announced a global commercialization agreement with Allergan Aesthetics, an AbbVie ( ABBV ) company (ABBV has a $200 billion market cap), for rhCollagen in dermal and soft tissue filler products. Allergan, the world's leading company in dermal filler products, was granted worldwide exclusivity to use CLGN's plant-derived recombinant human collagen. Additionally, Allergan was granted the right of first negotiation for CLGN's technology in two future products. CLGN received $14 million in an upfront payment, is entitled to receive an additional $89 million in milestone payments and is then eligible to receive royalty payments and a fee for the manufacture and supply of rhCollagen to Allergan. Based on company public statements, CLGN should receive its next milestone payment this year, which we estimate to be $10 million.

In fact, we believe the ABBV partnership itself supports the company's current enterprise value, providing "free" optionality on the many other "shots on goal." The company's market cap is $100 million, with $36 million in cash, and no debt (as compared to when the market cap was $200 million and the cash balance was $50 million in our 2021 letter). We averaged down, as we often do, as the share price fell. The company states that between its current cash balance and expected milestone payments, it is sufficiently self-funded and will not need to raise additional capital.

New developments:

• Successfully completed a 12-month preclinical study on its dermal filler product.
• Successfully completed a large animal study for its 3D regenerative breast implant program.
• Expanded commercial portfolio of rhCollagen based BioInk with two new products, Collink.3D 90 and Collink 50L (BioInk in powder form providing expanded operational flexibility for certain end-markets).
• In November 2022, signed a collaboration agreement with Tel Aviv University and Sheba Medical Center to co-develop a bio-printed human and intestine model for drug discovery and personalized treatment of ulcerative colitis.

The company recently noted, "We are currently involved in partnering discussions with several industry leaders and academic institutions." We believe the company will sign additional AbbVie-like licensing agreements providing upfront money, milestone payments, and ultimately royalty payments (in addition to the sale of its rhCollagen product itself). The safety of rhCollagen has already been established, given the approval and subsequent sales of its wound-healing product in Europe. To be clear, it's our view that as CollPlant succeeds in reinforcing the efficacy of its collagen product, it will be purchased by one of the leading biopharmaceutical companies.

CLGN, with multiple end-market opportunities, years of development of its unique plant-based collagen BioInk, an unlevered balance sheet, with an AbbVie partnership, and a $100 million market cap, is a deeply underappreciated security at its current price, in our opinion.

Company Presentation

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