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, 2022: 11,186,481 ordinary shares.
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
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.
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.
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 ☐
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.
If
this is an annual report, indicate by check mark whether the registrant is a shell 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, or rhCollagen, that is produced with our proprietary plant based genetic engineering technology. Our products address
indications for the diverse fields of tissue repair, aesthetics and organ manufacturing, and, we believe, are ushering in a new era in
regenerative and aesthetic medicine. Our collaborations include, among others, AbbVie, STEMCELL, Tel Aviv University, Sheba Medical Center,
the Advanced Regenerative Manufacturing Institute, or ARMI, and the RegenMed Development Organization, or ReMDO.
Our flagship 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 and aim to provide a revolutionary alternative to the current practices. The implants in development will be bioprinted and loaded
with compositions that are based on rhCollagen and extracellular matrix, or ECM, components. These implants are intended to promote tissue
regeneration and degrade in synchronization with the development of a natural breast tissue.
In February 2021, we entered
into a Development, Exclusivity and Option Products Agreement with AbbVie Inc., or AbbVie, pursuant to which we and AbbVie will 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. To date, the development of the product continues to move forward according to plan.
In October 2021, we announced
that our rhCollagen based Bioink was used successfully by researchers from Israel’s Technion Institute of Technology to create a
3D bioprinted implantable tissue containing a network of blood vessels capable of supplying blood to the implanted tissue.
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.
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 is intended to be used in personal medicine applications
for the treatment of ulcerative colitis, an inflammatory bowel disease affecting millions of individuals worldwide.
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.
Previously, 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. 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.
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, 2018 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”, “ADSs”, “warrants” and “share capital” refer to our ordinary shares,
ADSs, warrants and share capital, respectively, of CollPlant.
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” are to our ordinary shares, 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.
From
the Company’s inception through December 31, 2018, the Company’s functional and presentation currency was NIS. Management
conducted a review of the functional currency of the Company and decided to change its functional and presentation currency to the U.S.
dollar from the NIS, effective January 1, 2019. This change was based on an assessment by Company management that the dollar is the primary
currency of the economic environment in which the Company operates. Accordingly, the functional and presentation currency of the Company
in this annual report on Form 20-F is the U.S. dollar.
Prior
to the termination of our ADS program in June 2021, we effected a 1-for-50 reverse share split of our ordinary shares effective as of
July 15, 2019. Concurrently with the reverse split, we effected a corresponding change in the ratio of ordinary shares to each of our
ADSs, such that the ratio of ADSs to ordinary shares changed from one ADS representing 50 ordinary shares to a new ratio of one ADS representing
one ordinary share. All share numbers in this annual report on Form 20-F are reflected on a post-reverse stock split basis and on a post-ADS
termination program basis.
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:
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.
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.
PART I
ITEM 1. |
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS |
Not
applicable.
ITEM 2. |
OFFER STATISTICS AND EXPECTED TIMETABLE |
Not
applicable.
B. |
Capitalization and Indebtedness |
Not
applicable.
C. |
Reasons for the Offer and Use of Proceeds |
Not
applicable.
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
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Except for the year ended December 31, 2021, we have incurred significant losses since our inception and anticipate that we will continue to incur losses for the foreseeable future. |
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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. |
Risks Related to Commercialization of Our Products
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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. |
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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. |
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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. |
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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. |
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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
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We currently depend heavily on the future success of our BioInk and our medical aesthetics and 3D bioprinting product candidates. 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. |
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Our products are based on novel technology, which makes it difficult to predict the time and cost of product development and potential regulatory approval. |
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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. |
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Future clinical trials may not be successful or may be delayed. |
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Even if we or our strategic partners obtain regulatory approval for
a product, our products will remain subject to regulatory scrutiny. |
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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
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We may not be successful in establishing and maintaining strategic partnerships, which could adversely affect our ability to develop and commercialize our rhCollagen based BioInks and dermal fillers. |
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We expect to depend upon third-party collaborators, distributors and resellers for a significant portion of our sales. |
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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. |
Risks Related to Our Business Operations
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Our future success depends on our ability to retain senior management, consultants, and advisors and to attract, retain, and motivate qualified personnel. |
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Our collaborations with outside scientists and consultants may be subject to restriction and change. |
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Our business and operations would suffer in the event of computer system failures or security breaches. |
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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. |
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If our existing rhCollagen production site or any new facility is damaged or destroyed, or production at this facility is otherwise interrupted, our business and prospects would be negatively affected. |
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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. |
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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. |
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Our business may be adversely affected if there is a resurgence of the COVID-19 pandemic. |
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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. |
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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
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We have an extensive worldwide patent portfolio. The cost of maintaining our patent protection is high and maintaining our patent protection requires continuous review and compliance in order to maintain worldwide patent protection. We may not be able to effectively maintain our intellectual property position throughout the major markets of the world. |
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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
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The market price of our ordinary shares may be highly volatile. |
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We may not be able to maintain our listing on the Nasdaq Global Market. |
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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. |
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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. |
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Sales of a substantial number of our ordinary shares in the public market could cause our share price to fall. |
Risks Related to Our Operations in Israel
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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. |
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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
Except for the year December 31, 2021, we
have 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 $16.9 million for the
year ended December 31, 2022 and a total comprehensive income of $237,000 for the year ended December 31, 2021. As of December 31, 2022,
we had an accumulated deficit of $89.7 million.
We have devoted most of our
financial resources to research and development, including our clinical and preclinical development activities. To date, we have financed
our operations primarily with revenues from sales of our products and license of our technology, as well as from net proceeds from private
and public offerings. Prior to February 2017, 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 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 for the foreseeable future. We anticipate that our expenses will increase substantially if and
as we:
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continue our research and preclinical and clinical development of our products and product candidates; |
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initiate additional preclinical, clinical, or other studies for our products and product candidates; |
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seek marketing approvals for any of our products and product candidates that successfully complete clinical trials; |
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further develop and expand the manufacturing process for our products and product candidates; |
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establish a sales, marketing, and distribution infrastructure to commercialize our products and product candidates for which we may obtain marketing approval; |
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seek to identify and validate additional products and product candidates; |
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maintain, protect, and expand our intellectual property portfolio; |
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attract and retain skilled personnel; |
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create additional infrastructure to support our operations as a public company; and |
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experience any delays or encounter issues with any of the above. |
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 clinical
and 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 collaboration partners advance our products
or product candidates in clinical trials.
As of December 31, 2022, our
cash and cash equivalents together with short-term cash deposits accumulated to $29.7 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 our Development, Exclusivity and Option Products Agreement with AbbVie. We will
need to raise additional capital in the future to support our operations and product development activities. In the near term, we expect
to continue to fund our operations and other development activities from the cash held by us, from milestones payments from business collaborators
and through future equity financings.
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.
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. The total gross amount of grants
actually received by us from the IIA as of December 31, 2022 totaled approximately $10.1 million. We, therefore, must comply with the
requirements of, and are subject to certain restrictions under, the Israeli Law for the Encouragement of Industrial Research and Development
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.
Such restrictions may impair
our ability to perform or outsource manufacturing rights outside of Israel, or otherwise transfer our or license for R&D purpose our
IIA Funded Know-How outside of Israel. 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”
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:
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the time, resources, and expenses required to conduct clinical trials of, seek regulatory approvals for, manufacture, market, and sell our current products and any additional products we may develop; |
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the time, resources, and expenses required to research and develop additional indications of our current products; |
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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; |
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any product liability or other lawsuits related to our products and the costs associated with defending them or the results of such lawsuits; |
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the costs to attract and retain personnel with the skills required for effective operations; and |
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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:
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market demand for, and acceptance of, our products; |
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our ability to obtain or maintain regulatory approvals; |
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our sales and marketing operations, or the effectiveness of these operations; |
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performance of our third-party contractors; |
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the availability of procedures or products that compete with our products; |
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media coverage of our technologies, the procedures or products of our competitors or our industry; and |
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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, including for example, the COVID-19 outbreak), 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 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 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:
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the cost, safety, efficacy, and convenience of our products in relation to alternative treatments and products; |
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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; |
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the prevalence and severity of any side effects, including any limitations or warnings contained in a product’s approved labeling; |
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the prevalence and severity of any side effects resulting from the procedure by which our products are administered; |
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the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies; |
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the strength of marketing and distribution support for, and timing of market introduction of, competing products; |
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publicity concerning our products or competing products and treatments; and |
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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 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 which we sell in Europe. 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 the VergenixFG and VergenixSTR 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.
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 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 that obtain regulatory approval,
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 into 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 is 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.
A variety of risks associated with international
operations could harm our business.
If any of our products are
approved for commercialization, it is our current intention to market them on a regional or worldwide basis in the jurisdictions where
they may be approved, 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:
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different regulatory requirements for product approval in foreign countries; |
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reduced protection for intellectual property rights; |
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unexpected changes in tariffs, trade barriers, and regulatory requirements; |
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economic weakness, including inflation, or political instability in particular foreign economies and markets; |
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compliance with tax, employment, immigration, and labor laws for employees living or traveling abroad; |
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foreign currency fluctuations, which could result in increased operating expenses and reduced revenue, and other obligations incident to doing business in another country; |
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workforce uncertainty in countries where labor unrest is more common than in the United States and Israel; |
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production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and |
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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, including for example, the COVID-19 pandemic). |
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
that are approved 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, managed care, pharmacy benefit, 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.
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 BioInk and our medical aesthetics and 3D bioprinting product candidates. 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, BioInk, medical aesthetics and 3D bioprinting product
candidates, and our Vergenix line of products. We currently depend heavily on the future success of our BioInk, medical aesthetics and
3D bioprinting product candidates. 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:
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our ability to continue and support our rhCollagen platform technology and programs; |
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our ability to establish and maintain strategic partnerships, including the Development, Exclusivity and Option Products Agreement with AbbVie; |
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successfully initiating and completing future clinical trials and other studies required for our products and product candidates; |
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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; |
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establishing successful sales and marketing arrangements for our products in the jurisdictions where they may be approved; |
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the availability of coverage and reimbursement by healthcare payors for our products in the jurisdictions where they may be approved; |
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establishing a large scale facility as a second source for the manufacture of commercial and clinical quantities of our products, if approved; and |
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other risks described in this “Risk Factors” section. |
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.
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 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.
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 our ability to recruit patients to participate in our clinical trials. We or our strategic partners may experience delays in
patient enrollment in the future. If patients are unwilling to participate in our 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 our clinical trials in a timely manner. Patient enrollment is affected by factors including:
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design of the trial protocol; |
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size of the patient population; |
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eligibility criteria for the trial in question; |
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severity of the disease/wounds under investigation; |
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perceived risks and anticipated benefits of the product under study; |
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proximity and availability of clinical trial sites for prospective patients; |
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availability of competing therapies, products, and clinical trials; |
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efforts to facilitate timely enrollment in clinical trials; |
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patient referral practices of physicians; and |
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ability to monitor patients adequately during and after treatment. |
We are currently not conducting
any clinical trials. We may not be able to initiate or continue future clinical trials if we cannot enroll a sufficient number of eligible
patients to participate in the clinical trials required by European regulatory authorities, the FDA, or other regulatory authorities.
In addition, patients enrolled
in our 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 our trials may cause us to delay or abandon 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.
Future 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 of
our products or product candidates in humans for other regulatory authorities such as the United States. From time to time, we work with
contract research organizations, or CROs, which assist us in overseeing and implementing our 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 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:
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delays in reaching a consensus with regulatory agencies on trial design; |
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delays in reaching agreement on acceptable terms with prospective CROs and clinical trial sites; |
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delays in obtaining required IRB approval at each clinical trial site; |
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delays in recruiting suitable patients to participate in our clinical trials; |
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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 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; |
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delays in the testing, validation, manufacturing, and delivery of our products to the clinical sites; |
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delays in having patients complete participation in a trial or return for post-treatment follow-up; |
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clinical trial sites or patients dropping out of a trial; |
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occurrence of serious adverse events associated with the products that are viewed to outweigh their potential benefits; or |
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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. In addition, if we make manufacturing or design changes to our products or product candidates, we may need to conduct additional
studies 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 our clinical
trials are inconclusive or if there are safety concerns or adverse events associated with our products or product candidates, we may:
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fail to obtain, or be delayed in obtaining, marketing approval for our products or product candidates; |
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obtain approval for indications or patient populations that are not as broad as intended or desired; |
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obtain approval with labeling that includes significant use or distribution restrictions or safety warnings; |
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be required to perform additional clinical trials to support approval or be subject to additional post-marketing testing requirements; |
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have regulatory authorities withdraw their approval of the product or impose restrictions on its distribution; |
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be subject to the addition of labeling statements, such as warnings or contraindications; |
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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.
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 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 in the future 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
partnerobtain 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:
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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; |
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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; |
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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; |
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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 |
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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:
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issue a warning letter asserting that we are in violation of the law; |
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seek an injunction or impose civil or criminal penalties or monetary fines; |
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suspend or withdraw regulatory approval; |
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suspend any ongoing clinical trials; |
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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.
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 are subject to stringent regulation and
any adverse regulatory action may materially adversely affect our financial condition and business operations.
Our 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:
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take a significant amount of time; |
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require the expenditure of substantial resources; |
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involve rigorous and expensive preclinical and clinical testing, as well as increased post-market surveillance; |
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involve modifications, repairs, or replacements of our products; and |
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result in limitations on the indicated uses of our products. |
We cannot be certain that
we, or our third-party collaborators, 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 third-party collaborators 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.
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 our rhCollagen based BioInks
dermal fillers and other products such as breast implants and future products for medical aesthetics.
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 a Development, Exclusivity and Option Products Agreement with AbbVie pursuant to which
we and AbbVie will 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. Additionally , we were previously party to a collaboration with
Lung Biotechnology PBC, or LB, a wholly-owned subsidiary of United Therapeutics Corporation, pursuant to which we and LB collaborated
in the 3D bio-printing of lungs and kidneys for transplant in humans, that terminated in February 2021.
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:
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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; |
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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; |
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we may be required to undertake the expenditure of substantial operational, financial, and management resources; |
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we may be required to issue equity securities that would dilute our existing shareholders’ percentage ownership; |
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we may be required to assume substantial actual or contingent liabilities; |
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we, or our strategic partner, may not receive requisite regulatory approvals; |
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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; |
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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 |
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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 our Development, Exclusivity and Option Products Agreement upon 60 days’ written notice to us for any or no
reason. Furthermore, in February 2021, LB exercised its right to terminate the license agreement we were party to. 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.
Further, a strategic partner
may breach an agreement with us, and we may not be able to adequately protect our rights under these agreements. 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 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 will 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:
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the inability to negotiate manufacturing agreements with third parties under commercially reasonable terms; |
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reduced control as a result of using third-party manufacturers for all aspects of manufacturing activities; |
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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 |
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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.
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:
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costs and challenges associated with scale-up and attaining sufficient manufacturing yields; |
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supply chain issues, including the timely availability and shelf life requirements of raw materials and supplies; |
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quality control and assurance; |
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shortages of qualified personnel and capital required to manufacture large quantities of product; |
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compliance with regulatory requirements that vary in each country where a product might be sold; |
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capacity limitations and scheduling availability in contracted facilities; and |
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natural disasters 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 is interrupted, there could be a significant disruption in commercial supply. Switching manufacturers may involve
substantial costs and is likely to result in a delay in our desired clinical and commercial timelines.
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.
We expect to rely on third parties to conduct,
supervise, and monitor our future clinical trials, and if these third parties perform in an unsatisfactory manner, it may harm our business.
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. 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 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 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 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 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 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, 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 trade secrets.
Despite these contractual provisions, the need to share trade secrets and other confidential information increases the risk that such
trade secrets 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.
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. 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 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 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 on Form 20-F, 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.
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 contract research organizations, or 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 drug development programs. For example, the loss of clinical trial data from ongoing or planned
clinical trials could result in delays in our 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 drug 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 15, 2023, we had
73 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, and commercial partners. 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 conduct
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.
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:
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impairment of our business reputation; |
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withdrawal of clinical trial participants; |
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costs due to related litigation; |
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distraction of management’s attention from our primary business; |
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substantial monetary awards to patients or other claimants; |
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the inability to commercialize our products; |
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decreased demand for our products, if approved for commercial sale; and |
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impairment of our ability to obtain product liability insurance coverage. |
We currently carry product
liability insurance of $5.0 million for sales in Europe of VergenixFG and VergenixSTR. We intend to acquire product liability insurance
before commercializing any of our other products. However, we may not be able to obtain insurance coverage at a reasonable cost or in
sufficient amounts to protect us against losses due to product liability. 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 will not adversely impact our operating results and financial condition. Although some crop diseases are treatable, the cost
of treatment is high, and we cannot assure that such events in the future will not adversely affect our operating results and financial
condition.
If our existing rhCollagen production site
or any new facility is damaged or destroyed, or production at this facility is otherwise interrupted, our business and prospects would
be negatively affected.
We currently have a single,
small-scale production site in Israel where we manufacture rhCollagen. If our existing production facility or the new facility, or the
equipment in it, is 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 clinical trials or, if
any of our products are approved by the regulator, reduce or eliminate our product sales.
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 and 2020, but increased in 2022. 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.
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, 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.
Our business could be adversely
impacted by the effects of the coronavirus outbreak originating in China, or by other epidemics. In addition, such an event may cause
other parties to slow down their activities and schedules and therefore influence our timelines. A health epidemic or other outbreak,
including the current coronavirus outbreak, may materially and adversely affect our business, financial condition and results of operations.
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, sany 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, 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.
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 COVID-19, 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.
More recently, the closures
of SVB and Signature Bank and their placement into receivership with the FDIC created bank-specific and broader financial institution
liquidity risk and concerns. Although we do not hold accounts in these banks and although the Department of the Treasury, the Federal
Reserve and the FDIC jointly released a statement that depositors at SVB and Signature Bank would have access to their funds, even those
in excess of the standard FDIC insurance limits, under a systemic risk exception, future adverse developments with respect to specific
financial institutions or the broader financial services industry may lead to market-wide liquidity shortages, impair the ability of companies
to access near-term working capital needs, and create additional market and economic uncertainty. 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 an increasing focus 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.
Risks Related to Our Intellectual Property
We have an extensive worldwide patent portfolio.
The cost of maintaining our patent protection is high and maintaining our patent protection requires continuous review and compliance
in order to maintain worldwide patent protection. 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 a number
of 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 effected.
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.
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.
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 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 expense 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 in order 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 are 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.
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.
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.
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:
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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. |
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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. |
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We or any of our licensors or strategic partners might not have been the first to file patent applications covering certain of our inventions. |
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Others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights. |
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The prosecution of our pending patent applications may not result in granted patents. |
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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. |
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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. |
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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. |
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:
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adverse results or delays in preclinical studies or clinical trials; |
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reports of adverse events in other similar products or clinical trials of such products; |
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inability to obtain additional funding; |
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any delay in filing a regulatory submission for any of our products and any adverse development or perceived adverse development with respect to the FDA’s review or European authorities’ review of that regulatory submission; |
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failure to develop successfully and commercialize our products or product candidates and future products; |
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failure to enter into or maintain strategic collaborations; |
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failure by us or strategic collaboration partners to prosecute, maintain, or enforce our intellectual property rights; |
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changes in laws or regulations applicable to future products; |
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inability to scale up our manufacturing capabilities, inability to obtain adequate product supply for our products, or the inability to do so at acceptable prices; |
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adverse regulatory decisions, including by the IIA under the Innovation Law; |
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introduction of new products, services, or technologies by our competitors; |
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failure to meet or exceed financial projections we may provide to the public; |
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failure to meet or exceed the financial expectations of the investment community; |
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the perception of the biotechnology industry by the public, legislatures, regulators, and the investment community; |
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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; |
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additions or departures of key scientific or management personnel; |
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significant lawsuits, including patent or shareholder litigation; |
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changes in the market valuations of similar companies; |
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sales of our ordinary shares by us or our shareholders in the future; and |
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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. 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. 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 15, 2023, our
senior management, directors, and five percent or more shareholders and their affiliates beneficially owned approximately 36.1% 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.
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.
We are required to disclose
changes made in our internal controls and procedures on an annual basis and our management is required to assess the effectiveness of
these controls annually. However, for as long as we are an “emerging growth company” under the Jumpstart Our Business Startups
Act, or the JOBS Act, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal
controls over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act. We could be an emerging growth company for up
to the date that is the last date of the fiscal year that includes the fifth anniversary of our first sale of our common equity securities
pursuant to an effective registration statement (i.e. December 31, 2023). An independent assessment of the effectiveness of our internal
controls could detect problems that our management’s assessment might not. Undetected material weaknesses in our internal controls
could lead to financial statement restatements and require us to incur the expense of remediation.
We are an “emerging growth company”
and a “foreign private issuer,” and we cannot be certain if the reduced reporting requirements applicable to emerging growth
companies and foreign private issuers will make our ordinary shares less attractive to investors.
We are an “emerging
growth company,” as defined in the JOBS Act. While we currently qualify as an “emerging growth company” under the JOBS
Act, we will cease to be an emerging growth company on or before December 31, 2023, and at such time our costs and the demands placed
upon our management are expected to increase. For as long as we continue to be an emerging growth company, we may take advantage of exemptions
from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including not
being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations
regarding executive compensation in this Annual Report on Form 20-F and other periodic reports and proxy statements, extended transition
periods for adopting new or revised accounting standards, and exemptions from the requirements of holding a non-binding advisory vote
on executive compensation and shareholder approval of any golden parachute payments not previously approved. We will be an emerging growth
company until the earliest of: (i) the last day of the fiscal year during which we had total annual gross revenues of $1.235 billion or
more, (ii) the last day of the fiscal year following the fifth anniversary of the date of the first sale of our common equity securities
pursuant to an effective registration statement (i.e. December 31, 2023), (iii) the date on which we have, during the previous three-year
period, issued more than $1 billion in non-convertible debt or (iv) the date on which we are deemed a “large accelerated filer”
as defined in Regulation S-K under the Securities Act, which means the market value of our ordinary shares that is held by non-affiliates
exceeds $700 million as of the prior June 30th. Furthermore, 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.
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 15, 2023, we had 11,385,041 ordinary shares outstanding.
In addition, as of March 15,
2023, an aggregate of 1,267,177 ordinary shares, that are issuable pursuant to exercise of either outstanding options or outstanding warrants,
will become eligible for sale in the public market to the extent permitted by the provisions of various vesting schedules, and 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, our management is authorized to grant share options and other equity-based awards to our employees,
directors, and consultants. As of March 15, 2023, our officers, directors, employees and consultants hold options to purchase 1,844,652
ordinary shares under the 2010 Plan.
If our board of directors
elects to increase the number of shares available for future grant by the maximum amount each year, our shareholders may experience additional
dilution, which could cause our share price to fall.
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” 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.
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,
including the requirement for an emerging growth company to disclose the compensation of the chief executive officer and other two highest
compensated executive officers on an individual, rather than aggregate, basis. 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.
Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its present trading partners, or a significant
downturn in the economic or financial condition of Israel, could adversely impact our operations. Since October 2000, there have been
increasing occurrences of terrorist violence. Ongoing and revived hostilities or other Israeli political or economic factors could harm
our operations, product development and results of operations.
Although Israel has entered
into various agreements with Egypt, Jordan, and the Palestinian Authority, there has been an increase in unrest and terrorist activity,
which began in October 2000 and has continued with varying levels of severity. The establishment in 2006 of a government in the Gaza Strip
by representatives of the Hamas militant group has created additional unrest and uncertainty in the region. In 2006, a conflict between
Israel and the Hezbollah in Lebanon resulted in thousands of rockets being fired from Lebanon up to 50 miles into Israel. Starting in
December 2008, for approximately three weeks, Israel engaged in an armed conflict with Hamas in the Gaza Strip, which involved missile
strikes against civilian targets in various parts of Israel and negatively affected business conditions in Israel. In November 2012, for
approximately one week, Israel experienced a similar armed conflict, resulting in hundreds of rockets being fired from the Gaza Strip
and disrupting most day-to-day civilian activity in southern Israel. Most recently, in May 2021, Israel yet again experienced rocket strikes
against civilian targets in various parts of Israel, as part of an armed conflict commenced between Israel and Hamas. If continued or
resumed, these hostilities may negatively affect business conditions in Israel in general and our business in particular. Our insurance
policies do not cover us for the damages incurred in connection with these conflicts or for any resulting disruption in our operations.
The Israeli government, as a matter of law, provides coverage for the reinstatement value of direct damages that are caused by terrorist
attacks or acts of war; however, the government may cease providing such coverage or the coverage might not be enough to cover potential
damages. In the event that hostilities disrupt the ongoing operation of our facilities or the airports and seaports on which we depend
to import and export our supplies and products, our operations may be materially adversely affected.
In addition, since the end
of 2010, numerous acts of protest and civil unrest have taken place in several countries in the Middle East and North Africa, many of
which involved significant violence. The civil unrest in Egypt, which borders Israel, resulted in the resignation of its president Hosni
Mubarak, and to significant changes to the country’s government. In Syria, also bordering Israel, a civil war is continuing to take
place. The ultimate effect of these developments on the political and security situation in the Middle East and on Israel’s position
within the region is not clear at this time. Such instability may lead to deterioration in the political and trade relationships that
exist between the State of Israel and certain other countries.
Popular uprisings in various
countries in the Middle East and North Africa are affecting the political stability of those countries. Such instability may lead to deterioration
in the political and trade relationships that exist between the State of Israel and these countries. Several countries, principally in
the Middle East, still restrict doing business with Israel and Israeli companies, and additional countries may impose restrictions on
doing business with Israel and Israeli companies if hostilities in Israel or political instability in the region continues or increases.
Any hostilities involving Israel, interruption or curtailment of trade between Israel and its present trading partners, or significant
downturns in the economic or financial condition of Israel could adversely affect our operations and product development and adversely
affect our share price. Similarly, Israeli companies are limited in conducting business with entities from several countries. For instance,
in 2008, the Israeli legislature passed a law forbidding any investments in entities that transact business with Iran.
In addition, Iran has threatened
to attack Israel and is widely believed to be developing nuclear weapons. Iran is also believed to have a strong influence among extremist
groups in the region, such as Hamas in Gaza, Hezbollah in Lebanon, and various rebel militia groups in Syria. Additionally, a violent
jihadist group named Islamic State of Iraq and Levant, or ISIL, is involved in hostilities in Iraq and Syria. Although ISIL’s activities
have not directly affected the political and economic conditions in Israel, ISIL’s stated purpose is to take control of the Middle
East, including Israel. These situations may potentially escalate in the future to more violent events, which may affect Israel and us.
Any armed conflicts, terrorist activities, or political instability in the region could adversely affect business conditions and could
harm our results of operations and could make it more difficult for us to raise capital. Parties with whom we do business may decline
to travel to Israel during periods of heightened unrest or tension, forcing us to make alternative arrangements when necessary in order
to meet our business partners face to face. In addition, the political and security situation in Israel may result in parties with whom
we have agreements involving performance in Israel claiming that they are not obligated to perform their commitments under those agreements
pursuant to force majeure provisions in such agreements. Further, in the past, the State of Israel and Israeli companies have been subjected
to economic boycotts. Several countries still restrict business with the State of Israel and with Israeli companies. These restrictive
laws and policies may have an adverse impact on our operating results, financial condition, or the expansion of our business.
The legislative power of the
State resides in the Knesset, a unicameral parliament that consists of 120 members elected by nationwide voting under a system of proportional
representation. Israel’s most recent general elections were held on April 9, 2019, September 17, 2019, March 2, 2020 March 23, 2021
and November 1, 2022. Furthermore, the Israeli government has recently been pursuing legislative changes which, if adopted, may alter
the current state of separation of powers among the three branches of government and, as a result, have sparked a considerable political
debate. In response to the foregoing developments, many individuals, organizations and institutions, within and outside of Israel, have
voiced concerns over the potential negative impacts of such changes and the controversy surrounding them on the business and financial
environment in Israel. Such negative impacts may include, among others, a downgrade in Israel’s sovereign credit rating, increased
interest rates, currency fluctuations, inflation, civil unrest and volatility in securities markets, which could adversely affect the
conditions in which we operate in Israel and potentially deter foreign investors and organizations from investing or transacting business
in Israel. If any of the foregoing risks were to materialize, it may have an adverse effect on our business, our results of operations
and our ability to raise additional funds.
Our operations may be disrupted by the obligations
of personnel to perform military service.
As of March 15, 2023, we had
73 employees, all of whom were based in Israel. Some of our employees may be called upon to perform up to 36 days (and in some cases
more) of annual military reserve duty until they reach the age of 40 (and in some cases, up to 45 or older) and, in emergency circumstances,
could be called to immediate and unlimited active duty. In the event of severe unrest or other conflict, individuals could be required
to serve in the military for extended periods of time. Since September 2000, in response to increased tension and hostilities, there have
been occasional call-ups of military reservists, including in connection with the 2006 conflict in Lebanon, and the December 2008, November
2012 and, July 2014 conflicts with Hamas, and it is possible that there will be additional call-ups in the future. Our operations could
be disrupted by the absence of a significant number of our employees related to military service or the absence for extended periods of
one or more of our key employees for military service. Such disruption could materially adversely affect our business and results of operations.
Additionally, the absence of a significant number of the employees of our Israeli suppliers and contractors related to military service
or the absence for extended periods of one or more of their key employees for military service may disrupt their operations.
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.
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.
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 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. See “Item 10.E. Taxation—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, 2022,
we do not believe we were a PFIC for our 2022 taxable year. Because the PFIC determination is highly fact intensive, there can be no assurance
that we were not a PFIC in 2022 and will not be a PFIC in 2023 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—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.
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, to which our production site and offices and laboratories are subject, operating a business without a license or temporary
permit is a criminal offense. In April 2019, we moved our laboratories and offices to a new site in Rehovot, Israel, and in the third
quarter of 2020 we obtained two business licenses for our sites in Rehovot, which are in effect until December 31, 2025 and December 31,
2030, respectively. In addition, we have a business license for our plant growth and production site at Yessod Hama’ala, Israel,
which is in effect until July 18, 2025. We intend to apply to extend our business license for our site at Yessod Hama’ala, Israel.
In addition, our production
sites and laboratories are subject to the Israeli Planning and Zoning Law, which 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.
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 rhCollagen
that is produced with our proprietary plant based genetic engineering technology. Our products address indications for the diverse fields
of tissue repair, aesthetics and organ manufacturing, and, we believe, are ushering in a new era in regenerative and aesthetic medicine.
Our collaborations include, among others, AbbVie, STEMCELL, Tel Aviv University, Sheba Medical Center, ARMI and ReMDO.
Our flagship 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 and aim to provide a revolutionary alternative to the current practices. The implants in development will be bioprinted and loaded
with compositions that are based on rhCollagen and ECM components. These implants are intended to promote tissue regeneration and degrade
in synchronization with the development of a natural breast tissue.
In February 2021, we entered
into a Development, Exclusivity and Option Products Agreement with AbbVie, pursuant to which we and AbbVie will 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. To date, the development of the product continues to move forward according to plan.
In October 2021, we announced
that our rhCollagen based Bioink was used successfully by researchers from Israel’s Technion Institute of Technology to create a
3D bioprinted implantable tissue containing a network of blood vessels capable of supplying blood to the implanted tissue.
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.
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 is intended to be used in personal medicine applications for
the treatment of ulcerative colitis, an inflammatory bowel disease affecting millions of individuals worldwide.
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.
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. The Company was incorporated in Israel on November
9, 1981 as a private company limited by shares. The Company became a public company in Israel in 1993, when all of its ordinary shares
were listed on the TASE. CollPlant Ltd., our wholly owned subsidiary, 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, 2018 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.
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.
We
are an emerging growth company, as defined in Section 2(a) of the Securities Act, as implemented under the JOBS Act. While we currently
qualify as an “emerging growth company” under the JOBS Act, we will cease to be an emerging growth company on or before December
31, 2023. As such, we are eligible to, and intend to, take advantage of certain exemptions from reporting requirements that generally
apply to public companies, including the auditor attestation requirements with respect to internal control over financial reporting under
Section 404 of the Sarbanes-Oxley Act, compliance with new standards adopted by the Public Company Accounting Oversight Board which may
require mandatory audit firm rotation or auditor discussion and analysis, exemption from say on pay, say on frequency, and say on golden
parachute voting requirements, and reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements.
We will be an emerging growth company until the earliest of: (i) the last day of the fiscal year during which we had total annual gross
revenues of $1.235 billion or more, (ii) the last day of the fiscal year following the fifth anniversary of the date of the first sale
of our common equity securities pursuant to an effective registration statement (i.e. December 31, 2023), (iii) the date on which we have,
during the previous three-year period, issued more than $1 billion in non-convertible debt, or (iv) the date on which we are deemed a
“large accelerated filer” as defined in Regulation S-K under the Securities Act, which means the market value of our ordinary
shares that is held by non-affiliates exceeds $700 million as of the prior June 30th.
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, 2022, 2021, and 2020 amounted to $1.3 million, $1.4 million, and $437,000, 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.
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 rhCollagen
that is produced with our proprietary plant based genetic engineering technology. Our products address indications for the diverse fields
of tissue repair, aesthetics and organ manufacturing, and, we believe, are ushering in a new era in regenerative and aesthetic medicine.
Our collaborations include, among others, AbbVie, STEMCELL, Tel Aviv University, Sheba Medical Center, ARMI and ReMDO.
Our flagship 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 and aim to provide a revolutionary alternative to the current practices. The implants in development will be bioprinted and loaded
with compositions that are based on rhCollagen and ECM components. These implants are intended to promote tissue regeneration and degrade
in synchronization with the development of a natural breast tissue.
In February 2021, we entered
into a Development, Exclusivity and Option Products Agreement with AbbVie, pursuant to which we and AbbVie will 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. To date, the development of the product continues to move forward according to plan.
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.
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 is intended to be used in personal medicine applications for
the treatment of ulcerative colitis, an inflammatory bowel disease affecting millions of individuals worldwide.
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.
Previously, 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. 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 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, though laboratory-derived, is identical to the type I collagen produced by the human body, has significant
advantages compared to currently marketed collagens, known as “tissue-derived collagens”, that are extracted from animals
and human cadavers. Our advantages include improved biological function, high homogeneity, and reduced risk of immune response. We believe
the attributes of our rhCollagen make it suitable for numerous tissue repair 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 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 fibers and membranes with high molecular order, meaning there is high molecular alignment,
which enables the formation of tissue repair products with distinctive physical properties. We produce our rhCollagen from genetically
engineered tobacco plants, assuring a relatively abundant supply of high-quality raw materials.
We are currently focusing
on the following two rhCollagen-based family products lines:
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CollPlant rhCollagen-based BioInk for use in the 3D printing of tissues and organs.
Our flagship BioInk product line provides an ideal building block for three dimensional bioprinting of tissues and organs. The BioInk
is being developed 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.
We are developing a bioprinted regenerative breast implants, which are designed to gradually degrade and be replaced by newly grown natural
breast tissue. We are also developing a regenerative soft tissue matrix. Both the bioprinted breast implants and soft tissue matrix programs
are currently in the pre-clinical phase, and we plan to initiate a second large animal study for the breast implant product in the second
half of 2023. We are also developing with Tel Aviv University and Sheba Medical Center hospital, a ‘Gut-on-a-Chip’ tissue
model for drug discovery and high throughput screening of drugs. Designed to emulate the human intestine tissue, the 3D bioprinted model
will allow medical professionals to identify drug targets and personalized therapeutic responses that can lead to improved patient outcomes. |
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Aesthetic medicine product line including a dermal filler and breast implants. 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. In February 2021, we entered into a Development, Exclusivity and Option Products Agreement with AbbVie, 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 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. AbbVie has a right of first negotiation for the photocurable regenerative dermal filler. In addition, we are developing an injectable breast implant for regeneration of breast tissue comprised of rhCollagen and additional materials. AbbVie has a right of first negotiation for the injectable breast implant product candidate. |
We also currently market two
of our products in Europe: VergenixSTR, a soft tissue matrix, intended to accelerate treatment of tendinopathy, and VergenixFG, a wound
healing flowable gel, intended to enhance the quality and speed of closure of deep surgical incisions and wounds.
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:
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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. |
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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. |
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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. |
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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. |
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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. |
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:
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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. |
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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 3-D 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. |
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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 3-D 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 therapeutic, aesthetic, and other medical
markets. We are initially focused on BioInks for use in the 3D printing of tissues and organs, products that are based on our BioInks
and the medical aesthetics market.
We also 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 technology is even greater than the market size served by currently available collagen-based products, mainly due to continued
unmet medical needs and the shortcomings of tissue-derived collagen.
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 $1.7 billion in 2021 and that the global market is expected to reach $5.3 billion
by 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.
Aesthetic Medicine
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, in 2020, 92% of the cosmetic procedures are performed
on women, and there is rapidly gaining popularity with the male population as well. More and more companies are on 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). In 2020, hyaluronic acid comprised the largest category of soft tissue filler injections, with approximately 77% market share and
2.6 million procedures performed in the U.S.
According to Global Market
Insights Inc., global dermal filler market was valued at over $5.5 billion in 2022, and is poised to grow at a CAGR of over 10% between
2023 and 2032.
According to Global Market
Insights, the global breast implants market sizes was estimated at $2.5 billion in 2021, and has 8.5% CAGR between 2022 and 2030.
Orthopedic and wound healing
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. The global orthobiologics market is expected to grow from $8.56 billion in 2022 to $12.33 billion by
2029, exhibiting a CAGR 5.4%.
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 is expected to reach $16.5 billion in 2025 from $10.3 billion in 2020. The market is estimated to grow with a CAGR of 9.8%
from 2020-2025, 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
We plan to exploit the unique
characteristics of our rhCollagen to develop and commercialize an extensive portfolio of regenerative medicine products, independently
or in collaboration with collaboration partners. The key elements of our strategy include the following:
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Position our rhCollagen as the “gold standard” platform technology for collagen-based products in a broad range of markets. We believe that our rhCollagen represents a significant advance in collagen technology, demonstrated by its biofunctionality, high homogeneity, and reduced risk of immune response. 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 intend to expand the awareness of rhCollagen through partnerships and collaborations with leading commercial and academic partners around the world and further clinical trials which we will seek to have published in peer-reviewed journals, as well as through our participation in academic and industry conferences, to position rhCollagen as the “gold standard” platform technology for collagen-based products. 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. |
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Utilize collaborative partners and distributors to develop and commercialize our technology and products. 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 and intend to engage with well-established companies whose distribution networks are deeply entrenched. We expect our commercial efforts will be comprised of the distribution networks of our collaboration partners, particularly in the United States and Europe. |
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Manufacturing capacity to support commercialization of rhCollagen-based end products. We cultivate the tobacco plants used in the production of our rhCollagen in a network of farms in Israel, and we extract the raw materials used to manufacture our rhCollagen from these tobacco plants. We have a manufacturing facility in Israel that is supporting our current commercial needs to manufacture commercial and clinical quantities of our rhCollagen and our BioInk in a cost-competitive manner for application in both premium and commodity markets. |
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Expand our pipeline through ongoing development of new products. 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. In 2019, we initiated development of injectable and 3D bioprinted breast implants. In 2021 and 2022, we developed and launched three bioink products, which are being used by customers for the development of 3D bioprinting of tissues and organs. In 2022, we entered into a co-development agreement with Tel Aviv University and Sheba Medical Center hospital for a 3D printed ‘Gut-on-a-Chip’ tissue model for drug discovery and high throughput screening of drugs. Our product pipeline and our research and development program are expected to yield new products in the coming years. |
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Advance our leadership position in recombinant protein production through our plant-based technology. We continually seek to expand our knowledge of plant-based protein production systems and introduce improvements into our process. We are shifting production to an enhanced line of tobacco plants with higher collagen yield, along with improvements in the growing and cultivation process as well as collagen extraction and purification. As tissue engineering and regenerative medicine continue to evolve and expand, we expect that the demand for high-quality biomaterials will grow. |
Our Products and Product Candidates
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:
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Biocompatibility—supports cell viability and promotes proliferation (e.g. endothelial cells, fibroblasts, keratinocytes, MSCs) |
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Potential safety—has not shown to promote allergic and other tissue reactions |
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Optimized viscosity and gelation kinetics—printability and compatibility with multiple printing technologies |
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Curing with a range of light sources based on specific requirements |
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Controlled degradation profile |
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Controlled rheological properties (e.g. viscosity) |
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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) |
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Compatible with different photoinitiators to cover the spectrum of 280-500nm |
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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, such as cornea, 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 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.
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.
Medical Aesthetics
Dermal Filler and Soft Tissue Fillers
In February 2021, we entered
into a Development, Exclusivity and Option Products Agreement, or the Development Agreement, with AbbVie, pursuant to which we and AbbVie
will 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. To date, the development of the product continues to move forward according
to plan.
Pursuant to the Development
Agreement, we agreed to undertake projects for the development of an aseptic process for sterile rhCollagen that meets or exceeds certain
specifications as set forth in the Development Agreement. Prior to the second anniversary of the Development Agreement, AbbVie may elect
to have CollPlant undertake additional projects for the development of a more concentrated rhCollagen that meets or exceeds certain specifications.
Pursuant to the Development
Agreement, we granted to AbbVie and its affiliates, worldwide exclusive rights to use its 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 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 Development Agreement, we agreed not to research, develop or commercialize
its rhCollagen for use with any Exclusive Products during the term of the Development Agreement or grant any third party any rights to
our rhCollagen technology that would conflict with rights granted to AbbVie.
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.
The 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. 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 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
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 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 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, we recently 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:
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.
According to Global Market
Insights Inc., global dermal filler market was valued at over $5.5 billion in 2022, and is poised to grow at a CAGR of over 10% between
2023 and 2032, reaching up to $14.5 billion in 2032. We believe that rising awareness and acceptance regarding several cosmetic procedures
in developed and developing regions, coupled with increasing disposable income, is expected to drive forward the dermal filler market
size.
We believe that an expanding
geriatric population across the globe seeking anti-aging and wrinkle treatment is expected to have a significant impact on segmental growth,
and that an accelerating demand for numerous beauty enhancement procedures is expected to further support facial line correction segment
growth.
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. Another procedure increasing in popularity for relatively small volume breast
augmentation is an injectable scaffold composed of autologous fat tissue injected into the desired location for volume fill (fat transfer).
The clinical outcome of this procedure is however quite limited due to a significant volume loss after a relatively short period.
We are developing 3D bioprinted
breast implants and injectable breast implants for regeneration of breast tissue, aimed to overcome these challenges and provide a revolutionary
alternative to the current practices.
3D Bioprinted breast implants
The implants in development
will be bioprinted and loaded with compositions that are based on rhCollagen, autologous fat cells and ECM components. 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. We are planning to initiate a follow-up large animal study in the second half of 2023 using commercial-size
implants to support subsequent human studies and future product commercialization.
Injectable implants
Injectable implants composed
of rhCollagen, additional materials and fat cells taken from the patient are intended to promote breast tissue regeneration. The specific
compositions are designed to support the viability and function of the autologous fat cells, and to attract cells to promote tissue regeneration.
The scaffold is designed to gradually degrade and be replaced by newly grown natural breast tissue that is free of any foreign material.
The injectable breast implant is one of AbbVie’s Option Product.
3D bioprinted regenerative
soft tissue matrix
We are developing a 3D bioprinted
regenerative soft tissue matrix for use in breast reconstruction procedures in combination with an implant. In June 2021, we signed
a co-development agreement with 3D Systems for the development of the product candidate. The agreement was terminated in March 2023 and
we are using printers of other companies for the development of our product candidates.
According to the World
Health Organization, in 2020, approximately 2.3 million women were diagnosed with breast cancer globally. As a result, a large majority
required partial or full removal of breast tissue. Survival probabilities are 90% or greater due to highly effective treatments which
is increasing the focus on delivering improved options for reconstruction. The majority of breast reconstruction procedures use soft
tissue matrices derived from human cadavers or animals. These sources are associated with supply shortages and batch-to-batch variability,
as well as the possibility for eliciting immune response which impacts healing.
The 3D bioprinted soft tissue
matrix product in development is designed to meet the required physical and mechanical properties while promoting cell infiltration and
proliferation by using bioink formulations based on rhCollagen that promote tissue regeneration. We believe that the efforts will result
in tissue matrices that offer superior performance, consistency and safety due to their plant origin and identical match with natural
human collagen which does not elicit an adverse immune response in humans.
Gut-on-a-Chip
We are also developing with
Tel Aviv University and Sheba Medical Center hospital, a ‘Gut-on-a-Chip’ tissue model for drug discovery and high throughput
screening of drugs. Designed to emulate the human intestine tissue, the 3D bioprinted model the model is intended to be used in personal
medicine applications for the treatment of ulcerative colitis, an inflammatory bowel disease affecting millions of individuals worldwide.
The in-vitro intestine-on-chip platform combines our rhCollagen with other proprietary biomaterials and human cells. The 3D bioprinted
model is intended to allow medical professionals to identify drug targets and personalized therapeutic responses that can lead to improved
patient outcomes.
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.
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.
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.
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:
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The genetic structure of tobacco is well understood and therefore can be effectively manipulated. |
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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. |
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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. |
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Tobacco plants may be grown in very large volumes and its growth time until reaching the desired maturity is relatively short (about eight weeks). |
We have developed a large
portfolio of configurations and composites based on our rhCollagen that are used to create high-quality products, including our three
products, as follows:
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.
Between 2013 and 2017, we
developed with Bioventus a surgical matrix, a novel resorbable carrier designed to help accelerate bone healing and formation. The surgical
matrix is a novel resorbable carrier composed of rhCollagen and synthetic minerals which is intended to be charged with a bone morphogenetic
protein for use as a bone graft substitute in bone repair indications such as spinal fusion and trauma. A study was led by Bioventus,
and published in Science Translational Medicine, under the title “Bone Repair with a Receptor Optimized BMP-2/6/Activin Chimera
Delivered in a Novel Ceramic/rhCollagen Matrix is Superior to BMP-2”. The published article reports results from a study in non-human
primates for bone regeneration using a receptor optimized chimera version of BMP-2/BMP-6/Activin A delivered in a composite matrix formulated
with CollPlant’s rhCollagen and ceramic granules. The rhCollagen matrix was specifically designed for high retention of the BMP
chimera and has a unique design for cell infiltration and bone tissue growth. The treatment demonstrated tissue ingrowth that generated
superior bone formation at concentrations of BMP that were 1/10th to 1/30th of the standard dosage of
BMP-2 concentration approved by the FDA for clinical use in humans.
In May 2017, we created a
division focused on development of collagen-based biological ink, or BioInk, following the expansion of our research activities in the
field of 3D biologic printing of organs and tissues.
In May 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 combination of hyaluronic
acid, a naturally-occurring, moisture-binding compound, with our plant-based, tissue regenerating rhCollagen is intended to form the basis
for a new dermal filler product line aimed at addressing the need for innovative aesthetic products to treat wrinkles.
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 and kidneys 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 will be comprised of our rhCollagen and additional materials. Loaded with fat cells taken from the patient, these implants
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. We have since expanded our development to include injectable breast implants.
In January 2020, we announced
that we became part of a new public-private ManufacturingUSA initiative, the 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 November 2020, we announced
our development program of an antiviral agent for potential treatment of COVID-19 patients. In-vitro early results of our formulations
showed significant inhibition of avian coronavirus infectivity. Our formulations designed for the potential treatment of COVID-19 patients
are based on our proprietary recombinant rhCollagen imbedded with silver nanoparticles AgNP. The anti-viral treatment concept was evaluated
in-vitro using an avian coronavirus, a model of the human coronavirus SARS-COV-2, grown on epithelial cells. The potential efficacy was
assessed by the ability of the formulations to protect the epithelial cells from lethal doses of the virus. The results showed significant
reduction in infectivity of the model virus by treatment with the rhCollagen-AgNP complexes. In December 2021, following a status assessment
that we conducted, in which we took into account the success of COVID-19 vaccinations in reducing infection and mortality as a result
of COVID-19, we decided to halt further antiviral agent product development at this stage and prioritize our current development plans
in which we are currently engaged.
In December 2020, we entered
into a product manufacturing and supply agreement with STEMCELL. As part of the agreement, we will sell our proprietary recombinant human
Type I collagen (rhCollagen) to STEMCELL, which will incorporate 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 will distribute the kits globally for use in the regenerative medicine
research market.
In February 2021, we entered
into a Development, Exclusivity and Option Products Agreement with AbbVie, pursuant to which we and AbbVie will 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. To date, the development of the product continues to move forward according to plan.
In October 2021, we announced
that our rhCollagen based Bioink was used successfully by researchers from Israel’s Technion Institute of Technology to create a
3D bioprinted implantable tissue containing a network of blood vessels capable of supplying blood to the implanted tissue.
In
February 2022, we signed a collaboration agreement with CELLINK, a BICO Group company. Under this agreement, CELLINK’s bioprinter
will be explored for the development of large-scale production of CollPlant’s 3D bioprinted regenerative breast implants. This agreement
will end in June 2023 and we are using printers of other companies for the development of our products.
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.
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 is intended to be used in personal medicine applications for
the treatment of ulcerative colitis, an inflammatory bowel disease affecting millions of individuals worldwide.
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.
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, and our established strategic objectives. We have several development projects that are
in different stages of development.
We periodically examine the
continued development of other collagen-based products that we have conceived. Each one of our current products offers a platform to product
derivatives that can address other indications and contribute to our pipeline and revenues. Through ongoing research we are also pursuing
other platforms for our rhCollagen, such as biomaterial coatings in order to reduce foreign body response and tissue adhesion.
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 manufacturing facility 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 2026. 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 have also commenced activities to establish a US-based 3D bioprinting center of excellence.
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 BioInk 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.
We sell our rhCollagen in
the research market mostly to selective customers, including business collaborators and potential collaborators.
We are marketing and distributing
VergenixSTR and VergenixFG in the European market with business partners since 2016. We distribute VergenixFG in European and other countries
with local distributors and distributed VergenixSTR with Arthrex GmbH mainly in Europe. We terminated the agreement with Arthrex
effective as of December 31, 2020. We continue exploring opportunities to distribute our Vergenix products in additional countries.
In September 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.
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 our 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 end products
are marketed, and will 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 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
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 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.
The competitors to our 3D
bioprinted regenerative soft tissue matrix that is in development include the main commercially available acellular dermal matrices by
AbbVie, MTF biologics, Bard and Stryker.
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 primary 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 15, 2023, we have
a global patent portfolio that is comprised of twelve patent families. More than three dozen of our patent applications have issued as
patents or will issue soon, having been allowed by the relevant patent office. We have exclusive ownership of 21 issued patents in our
patent family that cover methods of creating collagen-producing plants and three issued patents that cover methods of processing recombinant
collagen. These issued patents and others that may issue in the future in these patent families, assuming timely payment of annual fees,
are expected to expire in 2025-2028. We have ongoing patent application covering the 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 our rhCollagen until 2038-2040.
In addition, our patent portfolio
includes pending applications, 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.
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.
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.
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 on two levels:
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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 are all supervised by the medical accessories and devices unit, or AMAR, of the Ministry of Health. |
| ● | 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 Ministry
of Health, or the Guidelines, and the guidelines of the Declaration of Helsinki, or any other approval required by the Ministry of Health.
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 Ministry of Health will be required. According to the procedure
for medical trials in human beings set forth by the Ministry of Health, 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. |
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 Ministry of Health. The relevant hospital director, and the Ministry of Health, 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
AMR approval for VergenixFG and started treating patients in Israel. In March 2018, we received AMR 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.
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; |
| ● | 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. |
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.
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.
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.
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 |
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.
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. However, medical devices that have
been CE-certified under the MDD can be marketed with these CE-certificates until they expire or until May 26, 2024 (whichever is earlier),
which on January 6, 2023, was proposed to be extended by the European Commission to December 31, 2027 for Class III devices and Class
IIB implantable devices, which are the categories our products are classified under.
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.
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. The renewed certificates will expire on July 1, 2023, which will be extended to December 31, 2027 if the European Commissions
proposed amendments to the MDR are adopted. The CE certification for VergenixWD we had has now expired, and we have not renewed it. VergenixWD
was our first medical product based on collagen protein derived from plants that was authorized for sale and marketing in Europe, but
we are not currently promoting a marketing strategy for VergenixWD, which is considered a commodity product and is not targeted towards
the advanced wound care market, which is our target market.
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. The Rehovot production facility is now covered
by the current CollPlant ISO13485:2016 certification that is valid until July 1, 2024.
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.
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.
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 Company, under the Innovation Law and the IIA’s rules and guidelines,
with respect to the use of the 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 an Approved Program, as well as any rights associated with
such IIA Funded Know-How:
| ● | Royalty Payment Obligation. In general, the Recipient
Company is obligated to pay the IIA royalties from the revenues generated from the sale of products (and related 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 based on LIBOR (as determined in
the IIA’s rules and guidelines) . As of December 31, 2022, we paid royalties to the IIA in the total amount of $2.8 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). |
| ● | Local Manufacturing Obligation. Products developed
using the IIA grants must , as a general matter, be manufactured in Israel. The Recipient Company is prohibited from manufacturing products
developed using these IIA grants outside of the State of Israel without receiving prior approval from the IIA (except for the transfer
of less than 10% of the manufacturing capacity in the aggregate which requires only a notice, while the IIA has a right to deny such
transfer within 30 days following the receipt of such notice). If the Recipient Company receives approval to manufacture products developed
with IIA grants outside of Israel, it will be required (except for certain cases) to pay increased royalties to the IIA, up to 300% of
the grant amount plus interest at annual rate based on LIBOR, depending on the manufacturing volume that is performed outside of Israel.
The Recipient Company may also be subject to an accelerated royalty repayment rate. A Recipient Company also has the option of declaring
in its IIA grant application its intention to exercise a portion of the manufacturing capacity abroad, thus avoiding the need to obtain
additional approval following the receipt of the grant and avoiding the need to pay increased royalties to the IIA (it is noted, however
that in such scenario the Recipient Company will be required to pay to the IIA royalties at an accelerated rate). |
| ● | IIA Funded Know-How transfer limitation. Under the
Innovation law and the IIA’s rules and guidelines, a Recipient Company is prohibited from transferring the IIA Funded Know-How
outside of Israel except under limited circumstances, and only 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, or the Redemption
Fee, (which are capped to amounts specified under such rules and guidelines, generally up to 6 time the grants received plus interest).
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 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. Upon payment of
the Redemption Fee, the IIA Funded Know-How and the manufacturing rights of the products supported by such IIA funding cease to be subject
to 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 sale transaction will be subject to the obligation to pay royalties to the IIA.
|
● |
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). |
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, or PPIS, 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. In April 2019, we moved our laboratories and offices into a new site, and on September and November 2020 we have
obtained a business license for our sites in Rehovot Israel. In addition, we have a business license for our production site at Yessod
Hama’ala, in effect until July 18, 2025.
Planning and Zoning
Our production sites and laboratories
are subject to the Israeli Planning and Zoning Law, which 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.
Employees
As of March 15, 2023, we had
73 employees, including 20 in research and development, 40 in manufacturing and 13 in sales, general and administrative positions. 15
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 employ a limited
number of part-time employees on a temporary basis, as well as consultants and service providers.
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.
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.
Legal Proceedings
From time to time we may become
involved in legal proceedings or be subject to claims arising in our 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, with
an option to extend the lease for an additional five years. Monthly rent is approximately $31,000. We have invested approximately $1.5
million during the years 2021-2022 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 use greenhouses for tobacco growing in a few areas in Israel. We produce
our rhCollagen and BioInk in our two production sites, in Yessod Hama’ala and in Rehovot.
We rent areas in Yessod Hama’ala,
Israel, of approximately 64,583 square feet of greenhouse and manufacturing facility pursuant to a lease agreement expiring on April 30,
2027.
In addition, on July 28,
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.
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 have also commenced activities to establish a US-based 3D bioprinting center of excellence.
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 based upon current expectations
that involve risks and uncertainties. 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 rhCollagen
that is produced with our proprietary plant based genetic engineering technology. Our products address indications for the diverse fields
of tissue repair, aesthetics and organ manufacturing, and, we believe, are ushering in a new era in regenerative and aesthetic medicine.
Our collaborations include, among others, AbbVie, STEMCELL, Tel Aviv University, Sheba Medical Center, ARMI and ReMDO.
Our flagship 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 and aim to provide a revolutionary alternative to the current practices. The implants in development will be bioprinted and loaded
with compositions that are based on rhCollagen and ECM components. These implants are intended to promote tissue regeneration and degrade
in synchronization with the development of a natural breast tissue. In addition, we are in collaboration with AbbVie under a Development,
Exclusivity and Option Products Agreement, pursuant to which we and AbbVie 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.
To date, we have financed
our operations primarily with revenues from sales of our products and license of our technology, as well as from net proceeds from private
and public offerings. Prior to February 2017, 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, except for the year ended December 31, 2021. Our net loss was $16.9 million for the year ended December 31,
2022 and our net income was $237,000 for the year ended December 31, 2021. As of December
31, 2022, we had an accumulated deficit of $89.7.
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, 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, 2022, we generated revenues of $299,000 mainly 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.
Operating Expenses
Cost of Revenue
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 provisions for the costs associated with manufacturing scraps
and inventory write offs.
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, 2022, December 31, 2021, and December 31, 2020 were $10.3 million, $7.6 million, and
$4.1 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.
Participation
in Research and Development Expenses
Our research and development
expenses are net of the following participations by third parties.
Participation by the
Israel Innovation Authority. 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. The requirements and restrictions for such grants are found in the Encouragement
of Research, Development and Technological Innovation in the Industry Law 5744 1984 (formerly known as the Law for the Encouragement of
Research and Development in Industry 5744 1984) (“Innovation Law”), and the regulations promulgated thereunder. These 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 Innovation Law royalties of 3% on the income generated from sales of products and from related services
developed in whole or in part under IIA programs are payable to the IIA, up to the total amount of grants received, linked to the U.S.
dollar and bearing interest at an annual rate of LIBOR applicable to U.S. dollar deposits, as published on the first business day of each
calendar year. The total gross amount of grants actually received by us from the IIA as of December 31, 2022 totaled approximately $10.1
million. As of December 31, 2022, we paid royalties to the IIA in the total amount of $2.8 million.
In addition to paying any
royalty due, we must abide by other restrictions associated with receiving such grants under the Innovation Law that continue to apply
following repayment to the IIA. These restrictions may impair our ability to outsource manufacturing or otherwise transfer our know-how
outside of Israel and may require us to obtain the approval of the IIA for certain actions and transactions and pay additional royalties
and other amounts 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 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.” If we fail to comply with the
Innovation Law, we may be subject to civil claims and criminal charges.
Under applicable accounting
rules, the grants from the IIA have been accounted for as an off-set against the related research and development expenses in our financial
statements. 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, as they are due for payment in the following quarter. Our cost of goods include
royalties expenses regarding royalties on our sales to the IIA See Note 6 in our consolidated financial statements for the year ended
December 31, 2022 for more information.
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. |
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 Expense
Financial income includes interest income regarding
short-term cash deposits and re-evaluation of financial instruments. Financial expense consists of bank commissions.
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, 2022, we have incurred operating losses of approximately
$21.5 million for CollPlant Biotechnologies Ltd. and $66.3 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, 2022, 2021, and 2020.
| |
Year ended December 31, | |
| |
2022 | | |
2021 | | |
2020 | |
| |
(USD in thousands) | |
Statement of operations data: | |
| | |
| | |
| |
Revenue | |
| 299 | | |
$ | 15,641 | | |
$ | 6,137 | |
Cost of revenue | |
| 400 | | |
| 2,005 | | |
| 3,002 | |
Gross Profit
(loss) | |
| (101 | ) | |
| 13,636 | | |
| 3,135 | |
Research and development expenses, net | |
| 10,255 | | |
| 7,631 | | |
| 4,065 | |
General, administrative, and marketing expenses | |
| 6,741 | | |
| 5,940 | | |
| 4,669 | |
Total operating income (loss) | |
| (17,097 | ) | |
| 65 | | |
| (5,599 | ) |
Financial income (expenses), net | |
| 172 | | |
| 172 | | |
| (175 | ) |
Net income (loss) | |
| (16,925 | ) | |
$ | 237 | | |
$ | (5,774 | ) |
Revenues
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
and to a decrease in sales of BioInk and Vergenix products.
We
generated revenues from the sale of our BioInk, rhCollagen, VergenixFG and VergenixSTR, as well as revenues from the AbbVie Agreement,
in the year ended December 31, 2021 of approximately $15.6 million compared to $6.1 million in the year ended December 31, 2020.
The increase in revenues in 2021 was mainly related to the $14.0 million consideration for the license granted to AbbVie.
Cost of revenue
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 million relating to BioInk,
VergenixFG, and rhCollagen sales.
We
incurred cost of revenue in the amount of $2.0 million in the year ended December 31, 2021, compared to $3.0 million in the year
ended December 31, 2020. Cost of revenue includes mainly the cost of VergenixFG, VergenixSTR and our rhCollagen based BioInk products,
and royalties to the IIA for our sales. The decrease in cost of revenue in the amount of approximately $1.0 million is comprised of: (i)
a decrease of approximately $327,000 in royalty expenses to the IIA in 2020 in relation to the kidney option exercise under the United
License Agreement, (ii) a decrease in the amount of approximately $300,000 in cost of revenue generated from BioInk and rhCollagen sales
and (iii) a decrease of approximately $275,000 in cost of revenue from services, both relate to the end of the United License Agreement.
Research and
Development 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.
We
incurred research and development expenses of $7.6 million in the year ended December 31, 2021 compared to $4.1 million in the year ended
December 31, 2020. The increase in expenses amounting to approximately $3.5 million was comprised primarily of $2.1 million in product
development activities, including pre-clinical studies, subcontractors and materials, and $1.2 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 $6.7 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 an increase
in employees and director’s salaries and insurance policy expenses.
We
incurred general, administrative, and marketing expenses of $5.9 million in the year ended December 31, 2021, compared to $4.7 million
in the year ended December 31, 2020. The increase in expenses amounting to approximately $1.2 million is mainly comprised of: (i) $946,000
in employees and directors’ salary and insurance policy expenses, and (ii) $410,000 one-time fees relating to the termination of
the Company’s ADS program, and the registration of the ordinary shares for listing on Nasdaq Global Market.
Financial Expenses (Income),
Net
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.
Financial
income, net, totaled $172,000 in the year ended December 31, 2021, compared to financial expenses, net of $175,000 in the year ended December
31, 2020. The increase in financial income, net in 2021 as compared to the year 2020 was mainly due to interest received from our short-term
cash deposits and exchange rate differences.
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.
JOBS Act
With less than $1.235 billion
in revenues during our last fiscal year, we qualify as an emerging growth company under the JOBS Act. An emerging growth company may take
advantage of specified provisions in the JOBS Act that provide exemptions or reductions of its regulatory burdens related to reporting
and other requirements that are otherwise applicable generally to public companies. These provisions include an exemption from the auditor
attestation requirement in the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act. We may
take advantage of some, but not necessarily all, of these provisions to reduce our burdens or exempt ourselves from regulatory requirements
for up to five years or such earlier time that we are no longer deemed an emerging growth company. We will be an emerging growth company
until the earliest of: (i) the last day of the fiscal year during which we had total annual gross revenues of $1.235 billion or more,
(ii) the last day of the fiscal year following the fifth anniversary of the date of the first sale of our common equity securities pursuant
to an effective registration statement (i.e. December 31, 2023), (iii) the date on which we have, during the previous three-year period,
issued more than $1 billion in non-convertible debt, or (iv) the date on which we are deemed a “large accelerated filer” as
defined in Regulation S-K under the Securities Act.
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 Tel Aviv Stock Exchange, Nasdaq Global Market and private placements) and government grants
from the IIA. The balance of cash and cash equivalents as of December 31, 2022 and 2021 totaled $29.7 million and $13.1 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 Development Agreement. 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 $709,000. For more information
see Note 5 to our consolidated financial statements for the year ended December 31, 2022; 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 $2.8 million. For more
information, see Note 5 to our consolidated financial statements for the year ended December 31, 2022. |
Cash Flows
The following table summarizes
our consolidated statement of cash flows for the years ended December 31, 2022, 2021, and 2020.
| |
| |
| |
2022 | | |
2021 | | |
2019 | |
| |
(USD in thousands) | |
Net cash provided by (used in): | |
| | |
| | |
| |
Operating activities | |
| (13,698 | ) | |
| 2,501 | | |
| (4,451 | ) |
Investing activities | |
| 28,922 | | |
| (31,556 | ) | |
| (519 | ) |
Financing activities | |
| 1,874 | | |
| 38,760 | | |
| 4,465 | |
Net Cash Provided
by (Used in) Operating Activities
The use of cash resulted primarily
from our net income in the year ended December 31, 2021, and from our net losses in the years ended December 31, 2022 and 2020, adjusted
for non-cash charges and measurements and changes in components of working capital. Adjustments to net income for non-cash items include
depreciation and amortization and share-based compensation.
Net cash used in operating
activities resulted primarily from our net income or losses adjusted for non-cash charges and measurements and changes in components of
working capital. Adjustments to net loss for non-cash items include 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 costs of the Company’s management during the applicable periods.
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, shared-based compensation of $2.2 million, net decrease in operating lease
accounts of $455,000, gains from short-term cash deposits of $87,000, and (ii) a net change in operating assets and liabilities of $482,000.
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, shared-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 used in operating
activities in the year ended December 31, 2020 totaled $4.4 million and consisted primarily of (i) a net loss of $5.8 million, adjusted
for non-cash items including depreciation of $660,000, shared-based compensation of $1.7 million and change in financial instruments of
$40,000, and (ii) a net increase in operating assets and liabilities of $911,000, which are mainly attributable to an increase in trade
receivables of $751,000 mainly due to royalty payment to the IIA, and an increase in inventory of $374,000.
Net Cash Provided by (Used
in) Investing Activities
Net cash provided by investing
activities was $28.9 million during the year ended December 31, 2022 and $31.6 million used in during the year ended December 31, 2021.
The change is mainly attributed to repayment and investment in short term cash deposits.
Net cash used in investing
activities was $31.6 million during the year ended December 31, 2021 and $519,000 during the year ended December 31, 2020. The increase
in the amount of approximately $31.0 million is primarily due to short term cash deposits of $30.0 million.
Net cash used in investing
activities was $519,000 during the year ended December 31, 2020 and $1.5 million during the year ended December 31, 2019. The
decrease in the amount of approximately $942,000 in investing activities is primarily due to the establishment of our new center of R&D
labs and headquarters in Rehovot in 2019.
Net Cash Provided
by Financing Activities
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 million and decrease of
$4.1 million in proceeds in exercise of options and warrants.
Net cash provided by financing
activities amounted to approximately $38.8 million for 2021 and $4.5 million in 2020. In 2021, we consummated equity raises of net $32.7
million in return for proceeds from the issuances of securities under a registered direct offering and $6.0 million in return for proceeds
from exercise of options and warrants.
Net cash provided by financing
activities amounted to approximately $4.5 million for 2020 and $5.4 million in 2019. In 2020, we consummated equity raises of net $4.4
million in return for proceeds from the issuances of securities under the Securities Purchase Agreement with U.S. accredited investors.
In addition, we received proceeds in the amount of $89,000 from option exercised and paid $24,000 on a loan.
Cash and Funding Sources
The table below summarizes
our sources of funding for the years ended December 31, 2022, 2021 and 2020:
| |
Issuance of Ordinary Shares and Warrants | | |
Strategic Collaborations* | | |
Total | |
| |
(USD in thousands) | |
Year ended December 31, 2022 | |
| 1,874 | | |
| - | | |
| 1,874 | |
Year ended December 31, 2021 | |
| 38,760 | | |
| 14,000 | | |
| 52,760 | |
Year ended December 31, 2020 | |
| 4,489 | | |
| 3,000 | | |
| 7,489 | |
* |
Does not include royalties payments to the IIA |
Funding Requirements
We believe that our existing
cash and cash equivalents and short term cash deposits, as of the date of this Annual Report on Form 20-F, which includes approximately
$29.6 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.
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 3D BioInks and medical aesthetics products, and are in early stages of commercialization of our BioInks for customers
that develop technologies for 3D bio-printing 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 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:
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, the share option exercise 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 15, 2023. 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 |
|
70 |
|
Chief Executive Officer and Director |
Prof. Oded Shoseyov |
|
66 |
|
Founder, Non-Executive Chief Scientist |
Eran Rotem, CPA |
|
55 |
|
Deputy CEO and Chief Financial Officer |
Dr. Ilana Belzer* |
|
63 |
|
Chief Operating Officer |
Oren Fahimipoor* |
|
41 |
|
Vice President, Operations |
Dr. Philippe Bensimon |
|
57 |
|
Vice President, Regulatory Affairs and Quality Assurance |
Elana Gazal |
|
48 |
|
Vice President, Research and Development |
Hadas Dreiher Horowitz |
|
46 |
|
Vice President, Human Resources |
Michal Roytman |
|
38 |
|
Vice President, Sales and Marketing |
Non-Employee Director |
|
|
|
|
Dr. Roger Pomerantz (1)(5) |
|
66 |
|
Chairman of the Board and Director |
Dr. Abraham Havron (1)(5)(6) |
|
75 |
|
Director |
Dr. Gili Hart (1)(3)(4)(5)(6) |
|
48 |
|
Director |
Dr. Elan Penn (1)(2)(3)(4)(5)(6) |
|
71 |
|
Director |
Joseph Zarzewsky (1)(2)(3)(5) |
|
62 |
|
Director |
Hugh Evans (1)(5) |
|
56 |
|
Director |
Alisa Lask (1)(2)(5) |
|
52 |
|
Director |
* | Oren Fahimipoor has been appointed Vice President, Operations effective
April 2, 2023 replacing Dr. Ilana Belzer who was terminated effective April 17, 2023. |
(1) |
Independent Director under the Nasdaq Listing Rules |
(2) |
Member of the Compensation Committee |
(3) |
Member of the Audit Committee |
(4) |
Served as external director under Israeli Law until December 20, 2021. Following the Board’s determination that there is no control interest in the Company, as detailed in Item 6.C, such director continues to serve as an Independent Director of the Company until the earlier of: (i) the end of their tenure; or (ii) the lapse of the second annual general meeting following the said determination. |
(5) |
Independent Director under Israeli Law |
(6) |
Member of the Nominating and Corporate Governance Committee |
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.
Prof.
Oded Shoseyov founded our subsidiary CollPlant Ltd. in 2004, and currently serves as our Chief Scientist since March
2019. Prof. Shoseyov served as our Chief Scientific Officer from August 2008 until March 2019, and a member of our board of directors
from May 2010 until October 2016. Prof. Shoseyov is a faculty member of the Hebrew University of Jerusalem. He has extensive experience
with plant transformation systems and protein engineering. Prof. Shoseyov has authored or co-authored over 350 scientific publications
and is the inventor or co-inventor of 97 patents. Prof. Shoseyov holds a Ph.D. from The Hebrew University of Jerusalem, Israel. Prof.
Shoseyov received the Outstanding Scientist Polak Award in 2002, the Kay Awards for Innovative and Applied Research in 1999 and 2020,
and the Israel Prime Minister Citation for Entrepreneurship and Innovation on 2012. He has co-founded and holds positions at various companies,
including: SP-Nano Ltd., a nano-biotech company which manufactures SP1-Carbon Nano Tube coated fabrics for the composite industry;
CBD-Technologies/FuturaGene, a forestry agro-biotech company that develops and commercializes transgenic trees for the pulp and paper
and the bio-fuel industry; scientific founder, chief scientific officer and board member Melodea Ltd., a nano-biotech company that
develops and manufactures Nano Crystaline Cellulose from sludge for structural foam additives for the paint, printing and packaging industries;
Valentis Nanotech Ltd., a nanotechnology company that develops and manufactures nano-bio-based transparent films for food packaging
and agriculture; scientific founder, chief scientific officer and chairman of the board at Biobetter Ltd. an agro-biotech company that
manufactures growth factors for the culture meat industry; scientific co-founder and board member at Wonder Veggies Ltd., an agro-food
company that manufactures probiotic endophytes in leafy greens; scientific founder, chief scientific officer and chairman of the board
at SavorEat Ltd., a food-tech company that manufactures plant-based meat alternatives; scientific founder and board member at Paulee CleanTec
Ltd., a company that aims to be the world leader in the collection and disposal of pet waste through its brand AshPoopie, and to branch
out to human waste treatment with future products that similarly turn feces into odorless, sterile organic fertilizer via its daughter
company Epic-Cleantech; scientific founder and board member at GemmaCert Ltd., a medical cannabis company developing products to assure
product standardization; scientific founder, chief scientific officer and board member at Seekwell Ltd., a research and development firm
that focuses on developing natural, safe and clinically tested cannabis products; scientific founder, chief scientific officer and member
of the board at Miruku Scientific, a New Zealand-based company that develops plant-based dairy proteins for the food industry; scientic
co-founder and board members at Egg’n’Up Ltd.; co-founder, scientific advisor and board member at GeneNeer Ltd.; board member
at Evogene Inc; scientific advisor and chairman of the board at PlantArc Bio Ltd.; and member of the scientific advisory board at Aliment
Capital. . His appointments include: at the Hebrew University of Jerusalem, academic director of HUJI Innovate at the The Center for Innovation
& Entrepreneurship and member of the scientific committee of the Center of Nanoscience and Nanotechnology.
Eran Rotem has
served as our chief financial officer since January 2012 and, since November 2017, also as our deputy CEO. Mr. Rotem possesses more
than 25 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.
Dr. Ilana Belzer has
served as our chief operating officer since October 2015. Prior to joining us, Dr. Belzer served as the chief operating officer of
BioHarvest, an innovative biotechnology company, from October 2012 to September 2015, and prior to that as vice president of research
and development and operations at Procognia Ltd. Prior to that, Dr. Belzer held executive positions in Omrix Biopharmaceuticals Inc.,
now part of the Johnson & Johnson family of companies, and InterPharm Laboratories Ltd., now a subsidiary of Merck-Serono.
Dr. Belzer holds an M.Sc., a B.Sc. and a Ph.D. in Microbiology and Cell Biology from Tel Aviv University, 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.
Michal Roytman has
joined us in July 2018 and has served as our Vice President of Sales and Marketing since January 2022. Prior to this position, Ms. Roytman
served as our Director of Product Sales and Marketing (April 2020-January 2022) and Sales and Marketing Manager (July 2018-April 2020).
Prior to joining us, Ms. Roytman served as a Product Manager in Ocon Medical from November 2017 to July 2018 and a Corporate Development
Manager in NeuroDerm (now Mitsubishi Tanabe) from March 2016 to November 2017. Ms. Roytman holds an MSc in Biotechnology and food
engineering from the Technion - Israel institute of technology, and an MBA specializing in marketing from Bar Ilan University, Israel.
Non-Employee Directors
Dr. Roger Pomerantz has
served as our Chairman of the board of directors since February 2020. Dr. Pomerantz is currently the President, Chief Executive Officer
and Chairman of the Board of Directors of ContraFect, and 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 seven 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. Gili Hart has
served on our board of directors since July 2017. Dr. Hart serves as the Chief Executive Officer of Splisense. From 2017 and until
2020, Dr. Hart served as the Chief Executive Officer of Mitoconix and from 2014 and until 2017 she served as the Chief Executive Officer
of OPKO Biologics. From 2011 to 2014, Dr. Hart served as Vice President of Prolor Biotech Ltd. Dr. Hart serves as a director
in Enlivex Therapeutics, and Dr. Hart holds a B.Sc degree in Biological engineering and an M.Sc degree from the Weizmann Institute
of Science as well as a Ph.D. from the Weizmann Institute of Science.
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.
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
and Advano. Previously Mr. Evans served as a board member of AquaVenture Holdings (NYSE: WAAS), which was acquired by Culligan International
as well as Factory Four 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. Mrs. Lask is the CEO of Rion Aesthetics Inc., Previously Mrs. Lask served as 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. Earlier, she 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 the 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,
2022. 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 15 persons |
|
|
2,924 |
|
|
|
1,790 |
|
(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 $116,000 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, 2022. Assumptions and key variables used in the calculation of such amounts are discussed in Note 8 of our financial statements. |
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, Chief Operating Officer, Vice President Regulatory Affairs and Quality Assurance and
Vice President Research and Development during the year ended December 31, 2022.
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 |
|
|
689 |
|
|
|
176 |
|
|
|
292 |
|
|
|
1,157 |
|
Eran Rotem,
Deputy CEO & CFO |
|
|
530 |
|
|
|
121 |
|
|
|
302 |
|
|
|
953 |
|
Ilana Belzer,
COO |
|
|
288 |
|
|
|
- |
|
|
|
120 |
|
|
|
408 |
|
Philippe Bensimon,
VP RA& QA |
|
|
269 |
|
|
|
28 |
|
|
|
114 |
|
|
|
411 |
|
Michal Roytman,
VP S&M |
|
|
217 |
|
|
|
11 |
|
|
|
77 |
|
|
|
305 |
|
(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 2022, including the annual cash bonus for 2022, which have been provided for in the Company’s financial statements for the year ended December 31, 2022, but were paid in March 2023. Such amounts exclude bonuses paid during 2022 which were provided for 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, 2022, 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, 2022 for more information. |
Compensation of Directors
Until May 2022, we paid our
directors (other than our Chairman) annual fees of approximately $8,400 and a per meeting fee of approximately $500, in accordance with
regulations promulgated under the Companies Law. On May 2, 2022, following the approval of our compensation committee and board of directors,
our general meeting of shareholders approved an amendment to the compensation of directors, which was subject to the approval of our new
compensation policy (which was obtained in the same shareholders’ meeting), such that all 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 exculpation, in the Company’s standard form, and to coverage under
our D&O insurance policies, as renewed from time to time.
In May 2021, we granted, subject
to shareholders approval which was obtained on August 4, 2021, Hugh Evans options to purchase 23,000 ordinary shares, at an exercise price
of $15.2. The options vest subject to a vesting period of four years, with a quarter of the options vesting on the first anniversary of
the grant date, and the remaining options vesting in equal parts at the end of every quarter thereafter.
In May 2022, we granted, subject
to shareholders approval which was obtained on May 2, 2022, options to purchase 50,000 ordinary shares to our Chairman, Dr. Roger Pomerantz,
options to purchase 24,000 ordinary shares to each of Dr. Avraham (Avri) Havron, Dr. Elan Penn, Dr. Gili Hart, Joseph Zarzewsky, and Hugh
Evans, as well as options to purchase 47,000 ordinary shares to Ms. Alisa Lask, who was appointed as a member of our board of directors
in the same general meeting of shareholders. The exercise price of these options is $9.22 per one ordinary share. The options will be
exercisable for ten years following the date of grant, and vest subject to a vesting period of four years, with a quarter of the options
vesting on the first anniversary of the grant date, and the remaining options vesting in equal parts at the end of every quarter thereafter.
The remaining terms of the options are in accordance with the 2010 Plan, which includes conditions with respect to, among other things,
acceleration, adjustments, assumption, and termination of engagement.
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.
For information on exemption
and indemnification letters granted to our directors and officers, please see “C. Board Practices – Exculpation, 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.
Prior to the 2019 Financing,
we considered ourselves as a company with no controlling shareholder, and therefore, in November 2018, our board of directors decided
to adopt 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. Our articles of association were amended to reflect such relief on June 6, 2019. Accordingly, the former external
directors, Dr. Gili Hart and Dr. Elan Penn, were no longer classified as external directors, but continued to serve on our board of directors.
As part of the 2019 Financing, Mr. Sagy increased his holdings in the Company to over 25%, at which point we determined that we will consider
Mr. Sagy as our controlling shareholder. Under these circumstances, we could no longer benefit from the Exemption and approached the Israeli
Ministry of Justice to re-classify Dr. Gili Hart and Dr. Elan Penn as external directors despite changes in their compensation package
adopted during the period in which they were not classified as external directors, at which point in time the Israeli Ministry of Justice
notified us that under the circumstances, there was no prevention from re-classifying Dr. Gili Hart and Dr. Elan Penn as external directors,
and accordingly, we re-classified Dr. Gili Hart and Dr. Elan Penn as our external directors until the remainder of their term on July
4, 2020 and January 14, 2021, respectively, considering among other things, the short time that lapsed from the date on which we adopted
the Exemption and the formation of a control interest in the Company as well as the fact that Dr. Gili Hart and Dr. Elan Penn do not have
any affiliation with Mr. Sagy. On May 14, 2020, at our extraordinary general meeting of shareholders, our shareholders re-elected Dr.
Gili Hart as an external director of the Company for a three-year term until July 5, 2023. On October 13, 2020, at our annual and extraordinary
general meeting of shareholders, our shareholders re-elected Dr. Elan Penn as an external director of the Company for a three-year term
until January 14, 2024.
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 the Exemption. As such, Dr. Gili Hart and Dr. Elan Penn were no longer
classified as external directors, as of which date they continue 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.
Currently our board of directors
consists of seven 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, other than Dr. Gili Hart and Dr.
Elan Penn, who, as aforesaid, shall continue to serve until the earlier of: (i) the end of their tenure; or (ii) the lapse of the second
annual general meeting following the determination that we no longer have a controlling shareholder, and Mr. Yehiel Tal, who was appointed
as a director on May 25, 2022 by our board of directors and shall continue to serve until the next annual general 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 seven 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 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 to our registered
office. Each such notice must set 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 March 15, 2023)
Country of Principal Executive Offices |
Israel |
Foreign Private Issuer |
Yes |
Disclosure Prohibited under Home Country Law |
No |
Total Number of Directors |
8 |
Part I: Gender Identity |
Female |
|
Male |
|
Non-
Binary |
|
Did Not
Disclose
Gender |
Directors |
2 |
|
6 |
|
0 |
|
0 |
Part II: Demographic Background |
|
Underrepresented Individual in Home Country Jurisdiction |
0 |
LGBTQ+ |
0 |
Did Not Disclose Demographic Background |
0 |
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,
“opt out” 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 “opt out” 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 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, continue 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.
For further information on
our decision to “opt out” pursuant to 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.
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. Gili Hart, 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 an audit committee charter 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:
| ● | oversight of our independent registered public accounting
firm and recommending the engagement, compensation or termination of engagement of our independent registered public accounting firm
to the board of directors in accordance with Israeli law; |
| ● | recommending the engagement or termination of the person filling
the office of our internal auditor; and |
| ● | recommending the terms of audit and non-audit services provided
by the independent registered public accounting firm for pre-approval by our board of directors. |
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; |
| ● | 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,
even if they are deemed by the audit committee not to be extraordinary transactions but 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.
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, which approval requires 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
decides, 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 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.
Our compensation policy serves
as the basis for decisions concerning the financial terms of employment or engagement of office holders, including exculpation, 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; |
|
● |
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 compensation committee charter setting forth the responsibilities of the committee, which include:
|
● |
the responsibilities set forth in the compensation policy; |
|
● |
reviewing and approving the granting of options and other incentive awards to the extent such authority is delegated by our board of directors; and |
|
● |
reviewing, evaluating, and making recommendations regarding the compensation and benefits for our non-employee directors. |
Nominating and Corporate Governance Committee
Our nominating and corporate
governance committee consists of Dr. Gili Hart, 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 nominating and governance committee charter setting forth the responsibilities of the nominating and governance committee, which
include:
|
● |
overseeing and assisting our board in reviewing and recommending nominees for election as directors; |
|
● |
assessing the performance of the members of our board; and |
|
● |
establishing and maintaining effective corporate governance policies and practices, including, but not limited to, developing and recommending to our board a set of corporate governance guidelines applicable to our company. |
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 more than 5% 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. |
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. |
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.
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).
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. For this purpose, the holdings of all shareholders who have a personal interest in the same transaction
will be examined on an aggregate basis and will be deemed as joint holders. 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.
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; |
|
● |
the approval of related party transactions and acts of office holders that require shareholder approval. |
A shareholder also has a general
duty to refrain from discriminating against other shareholders. In addition, certain shareholders have a duty of fairness toward the company.
These shareholders include any controlling shareholder, any shareholder who knows that he or she has the power to determine the outcome
of a shareholder vote and any shareholder who has the power to appoint or to prevent the appointment of an office holder of the company
or other power. The Companies Law does not define the substance of the duty of fairness, except to state that the remedies generally available
upon a breach of contract will also apply in the event of a breach of the duty to act with fairness.
Exculpation, Insurance and Indemnification
of Directors and Officers
Under the Companies Law, a
company may not exculpate an office holder from liability for a breach of the duty of loyalty. An Israeli company may exculpate an office
holder in advance from liability to the company, in whole or in part, for damages caused to the company as a result of a breach of duty
of care but only if a provision authorizing such exculpation is included in its articles of association. Our articles of association include
such a provision. A company may not exculpate a director from liability arising out of a prohibited dividend or distribution to shareholders.
Under the Companies Law, an
Israeli company may indemnify an office holder with respect to the following liabilities and expenses incurred for acts performed as an
office holder, either in advance of an event or following an event, provided a provision authorizing such indemnification is contained
in its articles of association:
| ● | financial liability imposed on him or her in favor of another
person pursuant to a judgment, including a settlement or arbitrator’s award approved by a court. However, if an undertaking to
indemnify an office holder with respect to such liability is provided in advance, then such an undertaking must be limited to events
which, in the opinion of the board of directors, can be foreseen based on the company’s activities when the undertaking to indemnify
is given, and to an amount or according to criteria determined by the board of directors as reasonable under the circumstances, and such
undertaking must detail the abovementioned foreseen events and amount or criteria; |
| ● | reasonable litigation expenses, including attorneys’
fees, incurred by the office holder: (i) as a result of an investigation or proceeding instituted against him or her by an authority
authorized to conduct such investigation or proceeding, provided that (a) no indictment was filed against such office holder as
a result of such investigation or proceeding and (b) no financial liability was imposed upon him or her as a substitute for the
criminal proceeding as a result of such investigation or proceeding or, if such financial liability was imposed, it was imposed with
respect to an offense that does not require proof of criminal intent; and (ii) in connection with a monetary sanction; |
|
● |
Expenses incurred in connection with an Administrative
proceeding that has been conducted in his case, including reasonable litigation costs, covering also legal fees.
“Administrative proceeding”
- a proceeding to impose a financial sanction according to Article D of Chapter Four of Part 9 of the Companies Law as amended from time
to time; as well as proceeding according to Chapter a G1 of the Restrictive Trade Practices Law, 5748-1988, as amended from time to time;
as well as any additional administrative proceeding whereby, by law (and subject to that law) an indemnity may be granted in respect of
payments related thereto or expenses incurred in connection therewith; and, |
|
● |
reasonable litigation expenses, including attorneys’ fees, incurred by the office holder or imposed by a court in proceedings instituted against him or her by the company, on its behalf, or by a third party or in connection with criminal proceedings in which the office holder was acquitted or as a result of a conviction for an offense that does not require proof of criminal intent. |
Under the Companies Law, a
company may insure an office holder against the following liabilities incurred for acts performed as an office holder if, and to the extent,
provided in the company’s articles of association:
|
● |
a breach of duty of care to the company or to a third party, including a breach arising out of the negligent conduct of the office holder; |
|
● |
a breach of fiduciary duty to the company, to the extent that the office holder acted in good faith and had a reasonable basis to believe that the act would not prejudice the company; |
|
● |
a monetary liability imposed on the office holder in favor of a third party; and |
|
● |
expenses incurred by an office holder in connection with an administrative procedure, including reasonable litigation expenses and reasonable attorneys’ fees. |
Under the Companies Law, a
company may not indemnify or insure an office holder against any of the following:
|
● |
a breach of fiduciary duty, except for indemnification and insurance for a breach of the fiduciary duty to the company and to the extent that the office holder acted in good faith and had a reasonable basis to believe that the act would not prejudice the company; |
|
● |
a breach of duty of care committed intentionally or recklessly, excluding a breach arising out of the negligent conduct of the office holder; |
|
● |
an act or omission committed with intent to derive illegal personal benefit; or |
|
● |
a fine or forfeit levied against the office holder. |
Under the Companies Law, exculpation,
indemnification, and insurance of office holders in a public company must be approved by the compensation committee and the board of directors
and, with respect to certain office holders or under certain circumstances, by the shareholders.
Our articles of association
and compensation policy allow us to exculpate, indemnify, and insure our office holders according to applicable law.
We have obtained directors’
and officers’ liability insurance for the benefit of our office holders and intend to continue to maintain such coverage and pay
all premiums thereunder to the fullest extent permitted by the Companies Law. In addition, we have entered into agreements with each of
our current office holders undertaking to indemnify them to the fullest extent permitted by the Companies Law and our articles of association,
to the extent that these liabilities are not covered by insurance.
In the opinion of the Securities
and Exchange Commission, indemnification of directors and office holders for liabilities arising under the Securities Act, however, is
against public policy and therefore unenforceable.
D. Employees.
See “Item 4.B. Business
Overview—Employees.”
E. Share Ownership.
See
“Item 7.A. Major Shareholders” below.
Share Incentive Plan
In May 2010, we adopted the
2010 Plan, an option plan for employees and senior officers, and as part of the acquisition of CollPlant Ltd., all of the options
under the Employee Share Ownership and Option Plan (2004) of CollPlant Ltd. were substituted with and assumed by options under our
2010 Plan, while any restriction periods under Sections 102(b)(2) and 102(b)(3) of the Israeli Income Tax Ordinance, or the Ordinance,
were calculated as of their original grant date. On March 26, 2020, our board of directors, in accordance with the compensation committee’s
recommendation, extended the 2010 Plan for an additional ten (10) years period, until May 2030. The 2010 Plan allows us to grant options
to purchase our ordinary shares to our officers, employees, and consultants. The 2010 Plan is intended to enhance our ability to attract
and retain desirable individuals by increasing their ownership interests in us. As of March 15, 2023, our employees, officers, directors
and consultants hold an aggregate of options to purchase 1,844,652 ordinary shares, NIS 1.50 par value, under the 2010 Plan. Since 2008
and until March 15, 2023, options to purchase an aggregate of 203,348 ordinary shares had been exercised and transferred to the beneficial
holders. The 2010 Plan is designed to reflect the provisions of the Israeli Income Tax Ordinance, or the Ordinance, mainly Sections 102
and 3(i), which affords certain tax advantages to Israeli employees, officers, and directors that are granted options in accordance with
its terms. Section 102 of the Ordinance allows employees, directors, and officers, who are not controlling shareholders and who are
Israeli residents, to receive favorable tax treatment for compensation in the form of shares or options. Section 102 of the Ordinance
includes two alternatives for tax treatment involving the issuance of options or shares to a trustee for the benefit of the grantees and
also includes an additional alternative for the issuance of options or shares directly to the grantee. Sections 102(b)(2) and 102(b)(3)
of the Ordinance, which provide the most favorable tax treatment for grantees, permit the issuance to a trustee under the “capital
gains track.” In order to comply with the terms of the capital gains track, all options granted under a specific plan and subject
to the provisions of Section 102 of the Ordinance, as well as the shares issued upon exercise of such options and other shares received
following any realization of rights with respect to such options, such as share dividends and share splits, must be registered in the
name of a trustee selected by the board of directors and held in trust for the benefit of the relevant employee, director, or officer.
The trustee may not release these options or shares to the relevant grantee before the second anniversary of the registration of the options
in the name of the trustee. However, under this track, our ability to deduct an expense with respect to the issuance of the options or
shares might be limited. Section 3(i) of the Ordinance does not provide for similar tax benefits.
The plans may be administered
by our board of directors either directly or upon the recommendation of a committee appointed by our board of directors.
The compensation committee
recommends to the board of directors, and the board of directors determines or approves, the eligible individuals who receive options
under the plan, the number of ordinary shares covered by those options, the terms under which such options may be exercised, and other
terms and conditions of the options, all in accordance with the provisions of the plans. Option holders may not transfer their options
except in the event of death or transfer to an Administrator in accordance with law in the event of the absence of legal competency. Our
compensation committee or board of directors may, at any time, amend or terminate each of the plans; however, any amendment or termination
may not adversely affect any options or shares granted under such plan prior to such action.
The option exercise price
is determined by the board of directors, and with respect to grants to a director or officer, by the compensation committee prior to the
board of directors, and is specified in each option award agreement. In general, and according to our compensation policy, the option
exercise price is the market value of the shares on the date of grant in accordance with our ordinary share market value traded on the
Nasdaq Global Market.
Awards under the 2010 Plan
may be granted until 2030, 10 years from the date on which the 2010 Plan was extended by our board of directors.
Options granted under the
2010 Plan generally vest over four years commencing on the date of grant such that 25% vest on the first anniversary of the date of grant
and an additional 6.25% vest at the end of each subsequent three-month period thereafter for 36 months , unless otherwise provided
in a specific allocation agreement.
Options, other than certain
incentive share options, that are not exercised within 10 years from the grant date expire, unless otherwise determined by our board
of directors. Except as otherwise determined by the board of directors or as set forth in an individual’s award agreement, in the
event of termination of employment or services for reasons of disability, death, or retirement, the grantee, or in the case of death,
his or her legal successor, may exercise options that have vested prior to termination within a period of one year from the date of disability,
death, or retirement. If we terminate a grantee’s employment or service for cause, all of the grantee’s unvested options will
expire on the date of termination, yet options which by that date the offeree’s eligibility to exercise has already been formed
shall remain exercisable. If a grantee’s employment or service is terminated for any other reason, the grantee may exercise his
or her vested options within 90 days of the date of termination. Any expired or unvested options return to the pool for reissuance.
In the event of (i) a
sale of all or substantially all of our assets or (ii) our consolidation or merger in which we are not the ongoing or surviving corporation,
then, and unless otherwise determined in the agreement or by the board, we shall be entitled to determine that all of the outstanding
unexercised options held by or for the benefit of any grantee shall be assumed or substituted for an appropriate number of options of
the successor company, provided that the aggregate amount of the exercise price for such options shall be equal to the aggregate amount
of the exercise price of our unexercised options held by each grantee at such time. With respect to the grants that were made since October
2017, the above acceleration provision was amended in a manner that the options’ vesting is fully accelerated upon the occurrence
of a M&A Transaction or Reorganization: (1) “M&A Transaction” shall mean a “merger” as such term
or term of similar nature is defined in the Israeli Companies Law of 1999, as well as (i) a sale of 50% or more of the assets of
the Company and its subsidiaries taken as a whole, or the sale or disposition (whether by merger or otherwise) of one or more subsidiaries
of the Company if more than 50% of the assets of the Company and its subsidiaries taken as a whole are held by such subsidiary or subsidiaries;
(ii) a sale of all or more than 50% of the shares of the share capital of the Company whether by a single transaction or a series
of related transactions which occur either over a period of 12 months or within the scope of the same acquisition agreement; (iii) an
issuance of shares of the Company, whether by a single transaction or a series of related transactions which occur either over a period
of 12 months or within the scope of the same acquisition agreement, that results in the offeree holding more than 50% of the share
capital of the Company; or (iv) a merger, consolidation or like transaction of the Company with or into another corporation including
a reverse triangular merger, but excluding a merger which falls within the definition of Reorganization; and/or (2) “Reorganization”
shall mean any re-domestication of the Company, share flip, creation of a holding Company for the Company which will hold all, or 50%
or more, of the shares of the Company or any other transaction involving the Company in which our ordinary shares of the Company outstanding
immediately prior to such transaction continue to represent, or are converted into or exchanged for shares that represent, immediately
following such transaction, at least a majority, by voting power, of the share capital of the surviving, acquiring or resulting corporation
and in which there is no material change to the interests held by the shareholders of the Company prior to such transaction and thereafter.
The Board may also determine
that in the occurrence of a Fund-Raising Transaction (as defined below), that all of the outstanding and unexercised options held by or
for the benefit of any grantee shall become fully vested. Such determination shall be specifically determined in the grantee’s letter
of grant. “Fund-Raising Transaction” shall mean the raise by the Company of at least $10 million by way of public offerings
and/or private placements of equity securities by one transaction or more, except in the event of issuance of equity securities in connection
with the grant in exchange for services or as part of a commercial transaction.
F. Disclosure of a registrant’s
action to recover erroneously awarded compensation.
Not applicable.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. Major Shareholders
The following table sets forth
information with respect to the beneficial ownership of our ordinary shares as of March 15, 2023 by:
|
● |
each of our directors and senior management; |
|
● |
all of our directors and senior management as a group; and |
|
● |
each person (or group of affiliated persons) known by us to be the beneficial owner of 5% or more of the outstanding ordinary shares. |
Beneficial ownership is determined
in accordance with the rules of the SEC. These rules generally attribute beneficial ownership of securities to persons who possess sole
or shared voting or investment power with respect to those securities, and include shares subject to options and warrants that are exercisable
within 60 days after March 15, 2023. Such shares are also deemed outstanding for purposes of computing the percentage ownership of
the person holding the option, but not the percentage ownership of any other person.
Unless otherwise indicated
below, to our knowledge, all persons named in the table have sole voting and investment power with respect to their shares, except to
the extent that authority is shared by spouses under community property laws. None of our shareholders has informed us that he, she, or
it is affiliated with a registered broker-dealer or is in the business of underwriting securities. None of our shareholders has different
voting rights from other shareholders.
|
|
Ordinary
Shares
Beneficially
Owned |
|
|
Percentage
Beneficially
Owned** |
|
Senior Management and Directors |
|
|
|
|
|
|
Dr. Roger Pomerantz (1) |
|
|
144,704 |
|
|
|
1.3 |
% |
Abraham Havron (2) |
|
|
20,000 |
|
|
|
* |
|
Dr. Gili Hart (3) |
|
|
26,000 |
|
|
|
* |
|
Dr. Elan Penn (3) |
|
|
26,000 |
|
|
|
* |
|
Joseph Zarzewsky (4) |
|
|
26,000 |
|
|
|
* |
|
Hugh Evans (5) |
|
|
409,554 |
|
|
|
3.6 |
% |
Alisa Lask (6) |
|
|
11,750 |
|
|
|
* |
|
Yehiel Tal (7) |
|
|
278,808 |
|
|
|
2.4 |
% |
Eran Rotem (8) |
|
|
130,236 |
|
|
|
1.1 |
% |
Oded Shoseyov (9) |
|
|
184,877 |
|
|
|
1.6 |
% |
Philippe Bensimon (10) |
|
|
65,813 |
|
|
|
* |
|
Ilana Belzer (11) |
|
|
68,229 |
|
|
|
* |
|
Hadas Dreiher Horowitz (12) |
|
|
19,688 |
|
|
|
* |
|
Michal Roytman (13) |
|
|
15,250 |
|
|
|
* |
|
Elana Gazal (14) |
|
|
- |
|
|
|
- |
|
All senior management and directors as a group (15) persons) |
|
|
1,426,909 |
|
|
|
11.56 |
% |
|
|
|
|
|
|
|
|
|
More than 5% Shareholders |
|
|
|
|
|
|
|
|
Ami Sagy (15) |
|
|
2,247,086 |
|
|
|
19.3 |
% |
Loewenbaum Group (16) |
|
|
1,119,822 |
|
|
|
9.84 |
% |
Roumell Asset Management, LLC (17) |
|
|
605,437 |
|
|
|
5.32 |
% |
** |
Based on 11,385,041 ordinary shares outstanding |
(1) |
Consists of (i) options to purchase 132,204 ordinary shares NIS 1.50 par value at an exercise price of $11.06 per share and expiring on February 6, 2026 and (ii) options to purchase 12,500 ordinary shares at an exercise price of $9.22 per share and expiring on May 2, 2032. Does not include options to purchase 68,009 ordinary shares, that vest in more than 60 days of March 15, 2023. |
(2) |
Consists of (i) options to purchase 4,000 ordinary shares NIS 1.50 par value at an exercise price of $4.02 per share and expiring on January 14, 2025, (ii) options to purchase 5,000 ordinary shares at an exercise price of $5.07 per share and expiring on January 30, 2026 (iii) options to purchase 5,000 ordinary shares at an exercise price of $9.12 per share and expiring on August 27, 2030. and (iv) options to purchase 6,000 ordinary shares at an exercise price of $9.22 per share and expiring on May 2, 2032. Does not include options to purchase 521,000 ordinary shares, that vest in more than 60 days of March 15, 2023. |
(3) |
Consists of (i) options to purchase 10,000 ordinary shares NIS 1.50 par value at an exercise price of $4.02 per share and expiring on January 14, 2025, (ii) options to purchase 5,000 ordinary shares at an exercise price of $5.07 per share and expiring on January 30, 2026 (iii) options to purchase 5,000 ordinary shares at an exercise price of $9.12 per share and expiring on August 27, 2030, and (iv) options to purchase 6,000 ordinary shares at an exercise price of $9.22 per share and expiring on May 2, 2032. Does not include options to purchase 21,000 ordinary shares, that vest in more than 60 days of March 15, 2023. |
(4) |
Consists of (i) options to purchase 15,000 ordinary shares NIS 1.50 par value at an exercise price of $4.02 per share and expiring on December 31, 2026 and (ii) options to purchase 5,000 ordinary shares NIS 1.50 par value at an exercise price of $9.12 per share and expiring on August 27, 2030, and (iii) options to purchase 6,000 ordinary shares at an exercise price of $9.22 per share and expiring on May 2, 2032. Does not include options to purchase 21,000 ordinary shares, that vest in more than 60 days of March 15, 2023. |
(5) |
Consists of (i) 377,429 ordinary shares and (ii) options to purchase 10,063 ordinary shares NIS 1.50 par value at an exercise price of $15.2 per share and expiring on August 4, 2031, and (iii) options to purchase 6,000 ordinary shares at an exercise price of $9.22 per share and expiring on May 2, 2032. Does not include options to purchase 30,938 ordinary shares, that vest in more than 60 days of March 15, 2023. |
(6) |
Consists of options to purchase 11,750 ordinary shares at an exercise price of $9.22 per share and expiring on May 2, 2032. Does not include options to purchase 35,250 ordinary shares, that vest in more than 60 days of March 15, 2023. |
(7) |
Consists of (i) 30,117 ordinary shares, (ii) options to purchase 1,020 ordinary shares exercisable at an exercise price of $4.02 per share and expiring on May 3, 2023, (iii) options to purchase 37,800 ordinary shares exercisable at an exercise price of $4.02 per share and expiring on July 31, 2025, (iv) options to purchase 75,000 ordinary shares exercisable at an exercise price of $4.02 per share and expiring on January 14, 2025, (v) options to purchase 54,000 ordinary shares at an exercise price of $5.07 per share and expiring on January 30, 2026, and (vi) options to purchase 55,870 ordinary shares at an exercise price of $10.08 per share and expiring on May 26, 2030, and (vii) options to purchase 25,000 ordinary shares at an exercise price of $9.22 per share and expiring on May 2, 2032. Does not include options to purchase 100,396 ordinary shares, that vest in more than 60 days of March 15, 2023. |
(8) |
Consists of (i) options to purchase 9,000 ordinary shares exercisable at an exercise price of $4.02 per share and expiring on May 18, 2025, (ii) options to purchase 45,000 ordinary shares exercisable at an exercise price of $4.02 per share and expiring on December 26, 2024, (iii) options to purchase 15,000 ordinary shares at an exercise price of $5.07 per share and expiring on January 30, 2026, (iv) options to purchase 36,236 ordinary shares at an exercise price of $10.08 per share and expiring on May 26, 2030, and (v) options to purchase 25,000 ordinary shares at an exercise price of $9.22 per share and expiring on January 27, 2032. Does not include options to purchase 71,471ordinary shares, that vest in more than 60 days of March 15, 2023. |
(9) |
Consists of (i) 63,734 ordinary shares, (ii) options to purchase 727 ordinary shares at an exercise price of $4.02 per share and expiring on May 3, 2023, (iii) options to purchase 66,666 ordinary shares at an exercise price of $4.02 per share and expiring on July 31, 2025, (iv) options to purchase 20,000 ordinary shares at an exercise price of $4.02 per share and expiring on December 26, 2024, (v) options to purchase 20,000 ordinary shares at an exercise price of $5.07 per share and expiring on January 30, 2026, and (iv) options to purchase 13,750 ordinary shares at an exercise price of $10.08 per share and expiring on May 26, 2030. Does not include options to purchase 6,250 ordinary shares, that vest in more than 60 days of March 15, 2023. |
(10) |
Consists of (i) options to purchase 2,000 ordinary shares exercisable at an exercise price of $4.02 per share and expiring on May 3, 2023, (ii) options to purchase 9,000 ordinary shares exercisable at an exercise price of $4.02 per share and expiring on May 18, 2025, (iii) options to purchase 15,000 ordinary shares exercisable at an exercise price of $4.02 per share and expiring on December 26, 2024, (iv) options to purchase 16,000 ordinary shares at an exercise price of $5.07 per share and expiring on January 30, 2026, (v) options to purchase 14,438 ordinary shares at an exercise price of $10.08 per share and expiring on May 26, 2030, and (vi) options to purchase 9,375 ordinary shares at an exercise price of $9.22 per share and expiring on January 27, 2032. Does not include options to purchase 27,188 ordinary shares, that vest in more than 60 days of March 15, 2023. |
(11) |
Consists of (i) options to purchase 4,667 ordinary shares exercisable at an exercise price of $4.02 per share and expiring on August 31, 2025, (ii) options to purchase 15,000 ordinary shares exercisable at an exercise price of $4.02 per share and expiring on December 26, 2024, (iii) options to purchase 22,000 ordinary shares at an exercise price of $5.07 per share and expiring on January 30, 2026, (iv) options to purchase 17,188 ordinary shares at an exercise price of $10.08 per share and expiring on May 26, 2030, and (vii) options to purchase 9,375 ordinary shares at an exercise price of $9.22 per share and expiring on January 27, 2032. Does not include options to purchase 28,438 ordinary shares, that vest in more than 60 days of March 15, 2023. |
|
|
(12)
|
Consists of (i) options to purchase 15,000 ordinary shares exercisable at an exercise price of $12.78 per share and expiring on March 25, 2031 and (ii) options to purchase 4,688 ordinary shares at an exercise price of $9.22 per share and expiring on January 27, 2032. Does not include options to purchase 25,313 ordinary shares, that vest in more than 60 days of March 15, 2023. |
(13) |
Consists of (i) options to purchase 2,750 ordinary
shares exercisable at an exercise price of $5.07 per share and expiring on January 30, 2026, (ii) options to purchase 3,438 ordinary shares
exercisable at an exercise price of $10.08 per share and expiring on May 26, 2030, (iii) options to purchase 2,813 ordinary shares exercisable
at an exercise price of $13.08 per share and expiring on January 13, 2031, and (iv) options to purchase 6,250 ordinary shares at an exercise
price of $9.22 per share and expiring on January 27, 2032. Does not include options to purchase 17,500 ordinary shares, that vest in more
than 60 days of March 15, 2023.
|
(14) |
Does not include options to purchase 50,000 ordinary shares, that vest in more than 60 days of March 15, 2023. |
|
|
(15) |
Consists of (i) 1,997,086 ordinary shares, and (ii) 250,000 warrants to purchase 250,000 ordinary shares exercisable at an exercise price of $4.00 per share and expiring on February 17, 2024. |
(16) |
Based on information contained in a Schedule 13G filed with the SEC on January 25, 2023 by George Walter Loewenbaum, Lillian S. Loewenbaum, Elizabeth S. Loewenbaum, , Lillian S. Loewenbaum Grantor Retained Annuity Trust I, Lillian S. Loewenbaum Grantor Retained Annuity Trust V, Lillian S. Loewenbaum Grantor Retained Annuity Trust VI, The Loewenbaum 1992 Trust, and The Waterproof Partnership, Ltd. Consists of (i) 895,506 ordinary shares underlying shares held by George Walter Loewenbaum, (ii) 50,106 ordinary shares held by Lillian S. Loewenbaum, (iii) 20,688 ordinary shares held by the Elizabeth S. Loewenbaum, (iv) 22,805 ordinary shares held in the Lillian S. Loewenbaum Grantor Retained Annuity Trust I, (v) 20,000 ordinary shares held in the Lillian S. Loewenbaum Grantor Retained Annuity Trust V, (vi) 30,000 ordinary shares held in the Lillian S. Loewenbaum Grantor Retained Annuity Trust VI, (vii) 49,510 ordinary shares held by The Loewenbaum 1992 Trust, and (viii) 31,207 ordinary shares held by The Waterproof Partnership, Ltd. |
(17) |
Based on information contained in a Schedule 13G filed with the SEC on February 13, 2023 by Roumell Asset Management, LLC. Consists of 605,437 ordinary shares held by Roumell Asset Management, LLC (“RAM”). These shares are deemed to be owned beneficially by Roumell Asset Management, LLC solely as a result of its discretionary power over such shares as investment adviser to the Roumell Opportunistic Value Fund (the “Fund”). James C. Roumell Roumell is President of RAM and holds a controlling percentage of its outstanding voting securities and, as a result of his position with and ownership of securities of RAM, Roumell could be deemed the beneficial owner of the shares beneficially owned by the Fund. |
To our knowledge, other than
as disclosed in the table above, our other filings with the SEC and this Annual Report, there has been no significant change in the percentage
ownership held by any major shareholder since January 1, 2020.
B. Related Party Transactions
The following is a description
of the material terms of those transactions with related parties to which we are party and which were in effect since January 1, 2019.
All share amounts have been
adjusted to give effect to the 1 for 3 reverse share split effected on November 20, 2016 and the 1 for 50 reverse share split effected
on July 15, 2019. The descriptions provided below are summaries of the terms of such agreements and do not purport to be complete and
are qualified in their entirety by the complete agreements.
We believe that we have executed
all of our transactions with related parties on terms no less favorable to us than those we could have obtained from unaffiliated third
parties. See “Item 6.C. Board Practices—Approval of Related Party Transactions under Israeli Law.”
Agreements with Yissum
We have entered into certain
agreements with Yissum, in which Prof. Oded Shoseyov, our former Chief Scientist, has or might have a personal interest, including an
agreement dated July 13, 2004 with respect to the intellectual property rights relating to our rhCollagen. See “Item 4.B. Business
Overview—Intellectual Property—Agreement with Yissum Research Development Company of the Hebrew University of Jerusalem Ltd.
with Respect to Our rhCollagen,” and see “Item 6.C. Board Practices—Approval of Related Party Transactions Under Israeli
Law.”
Agreement with Our Subsidiary
The Company has contracted
CollPlant Ltd., the Company’s wholly owned subsidiary, for its management and administrative services, for which CollPlant Ltd.
pays the Company NIS 400,000 on a monthly basis.
Agreements with Directors and Senior Management
Insurance, Exculpation, and Indemnification
Agreements
We have entered into indemnification
agreements with each of our current directors and executive officers exculpating them from a breach of their duty of care to us to the
fullest extent permitted by law, subject to limited exceptions, and undertaking to indemnify them to the fullest extent permitted by Israeli
law, subject to limited exceptions, and including with respect to liabilities resulting from an offering of securities by us to the extent
such liabilities are not covered by insurance. See “Item 6.C. Board Practices—Approval of Related Party Transactions Under
Israeli Law—Exculpation, Insurance and Indemnification of Directors and Officers.”
Employment and Services Agreements
We have entered into employment
or services agreements with our senior management. See “Item 6.B. Compensation.”
Options
We have granted options to
purchase our ordinary shares to certain of our officers and directors. See “Item 6.B. Compensation” and “Item 7.A. Major
Shareholders.” We describe our option plans under “Item 6.E. Share Ownership” and “Item 7.A. Major Shareholders.”
C. Interests of Experts and Counsel
Not applicable.
ITEM 8. FINANCIAL INFORMATION.
A. Consolidated Statements and Other
Financial Information.
See “Item 18. Financial
Statements.”
Legal Proceedings
See “Item 4.B. Business
Overview—Legal Proceedings.”
Dividends
We have never declared or
paid cash dividends to our shareholders. Currently, we do not intend to pay cash dividends. We intend to reinvest any earnings in developing
and expanding our business. Any future determination relating to our dividend policy will be at the discretion of our board of directors
and will depend on a number of factors, including future earnings, our financial condition, operating results, contractual restrictions,
capital requirements, business prospects, applicable Israeli law and other factors our board of directors may deem relevant. In addition,
the distribution of dividends is limited by Israeli law, which permits the distribution of dividends only out of distributable profits
and only if there is no reasonable concern that such distribution will prevent us from meeting our existing and future obligations when
they become due.
B. Significant Changes
Other than as otherwise described
in this Annual Report on Form 20-F and as set forth below, no significant change has occurred in our operations since the date of our
consolidated financial statements included in this Annual Report on Form 20-F.
ITEM 9. THE OFFER AND LISTING
A. Offer and Listing Details
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
former securities 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, 2018 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.
B. Plan of Distribution
Not applicable.
C. Markets
Our ordinary shares are listed
on the Nasdaq Global Market.
D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issue
Not applicable.
ITEM 10. ADDITIONAL INFORMATION
A. Share Capital
Not applicable.
B. Memorandum and Articles of Association
Copies of our Memorandum of
Association and Amended and Restated Articles of Association are attached as Exhibits 1.1 and 1.2 to this Annual Report, respectively.
Other than as disclosed below, the information called for by this Item is set forth in Exhibit 2.1 to this Annual Report and is incorporated
by reference into this Annual Report.
C. Material Contracts
Except
as set forth below, we have not entered into any material contract within the two years prior to the date of this Annual Report on Form
20-F, other than contracts entered into in the ordinary course of business, or as otherwise described herein in “Item 4.A.
History and Development of the Company”, “Item 4.B. Business Overview”, “Item 7A. Major Shareholders”
or “Item 7B. Related Party Transactions” above.
The
share and per share numbers in the following discussion reflect (i) a 1-for-3 reverse share split that we effected on November 20, 2016,
(ii) a 1 for 50 reverse share split effected on July 15, 2019 and (ii) the mandatory cancellation of our ADS program and the exchange
of ADSs for ordinary shares at a one-for-one ratio effected on June 4, 2021.
Registration Rights
Agreement Relating to our 2019 Financing Agreement
Concurrently with the execution
of a financing agreements entered into in 2019 with Ami Sagy and certain U.S. Investors, or the
2019 Financing, we entered into registration rights agreements, or the Registration Rights Agreements, with each of Ami Sagy and
the U.S. Investors. Pursuant to the Registration Rights Agreements, we granted one demand registration right to each of Mr. Sagy and the
U.S. Investors, which expired in October 2021. In addition, we granted to each of Mr. Sagy and the U.S. Investors F-3 shelf registration
rights, pursuant to which Mr. Sagy and the U.S. Investors can demand the filing of a shelf registration statement or a public offering
under such shelf registration statement, but not more than twice during any 12-month period. We also granted to Mr. Sagy and the U.S.
Investors certain piggyback registration rights. All registration rights granted relate to ordinary shares held by Mr. Sagy and
the U.S. Investors as well as the ordinary shares to be issued upon exercise of any warrants issued to Mr. Sagy and the U.S. Investors
in the 2019 Financing.
As part of the Registration
Rights Agreements, we granted customary indemnification rights pursuant to which we undertook to indemnify Mr. Sagy and the U.S. Investors,
as the case may be, from and against all Losses (as such term is defined in the Registration Rights Agreements) arising out of or relating
to any untrue or alleged untrue statement or omission or alleged omission of a material fact contained in a registration statement and
violations of securities laws in connection with the Registration Rights Agreements. Moreover, Mr. Sagy and the U.S. Investors undertook
to indemnify us, severally and not jointly, from and against all Losses arising out of or relating to any untrue or alleged untrue statement
of a material fact or omission or alleged omission of a material fact contained in any registration statement, but only to the extent
that such untrue statement or omission is contained in any information furnished in writing by Mr. Sagy or the U.S. Investors, as the
case may be.
We further undertook to bear
all fees and expenses incident to the performance of or compliance with the Registration Rights Agreements, whether or not any registerable
securities are sold pursuant to a registration statement. This will include all registration and filing fees, printing expenses, communication
and delivery expenses, fees and disbursements of counsel for the Company, Securities Act liability insurance (should we desire such insurance),
and the fees and expenses of all other persons retained by us in connection with the consummation of the Registration Rights Agreements.
D. Exchange Controls
There are currently no Israeli
currency control restrictions on remittances of dividends on our ordinary shares, proceeds from the sale of the shares or interest or
other payments to non-residents of Israel, except for shareholders who are subjects of countries that are, or have been, in a state of
war with Israel.
E. Taxation.
The following description
is not intended to constitute a complete analysis of all tax consequences relating to the acquisition, ownership and disposition of our
ordinary shares. You should consult your own tax advisor concerning the tax consequences of your particular situation, as well as any
tax consequences that may arise under the laws of any state, local, foreign, or other taxing jurisdiction.
Israeli Tax Considerations and Government Programs
The following is a brief summary
of the material Israeli tax laws applicable to us and certain Israeli Government programs that benefit us. This section also contains
a discussion of material Israeli tax consequences concerning the ownership and disposition of our ordinary shares. This summary does not
discuss all the aspects of Israeli tax law that may be relevant to a particular investor in light of his or her personal investment circumstances
or to some types of investors subject to special treatment under Israeli law. Examples of such investors include residents of Israel or
traders in securities who are subject to special tax regimes not covered in this discussion. To the extent that the discussion is based
on new tax legislation that has not yet been subject to judicial or administrative interpretation, we cannot assure you that the appropriate
tax authorities or the courts will accept the views expressed in this discussion. The discussion below is subject to change, including
due to amendments under Israeli law or changes to the applicable judicial or administrative interpretations of Israeli law, which change
could affect the tax consequences described below.
General Corporate Tax Structure in Israel
Israeli resident (as defined
below) companies, such as us, are generally subject to corporate tax at the rate of 23% as of 2018. However, the effective tax rate payable
by a company that derives income from a Preferred Enterprise or a Preferred Technology Enterprise (as discussed below) may be considerably
lower. Capital gains derived by an Israeli company are generally subject to tax at the prevailing corporate tax rate.
Law for the Encouragement of Industry (Taxes),
5729-1969
The Law for the Encouragement
of Industry (Taxes), 5729-1969, or the Industry Encouragement Law, provides several tax benefits for “Industrial Companies.”
The Industry Encouragement
Law defines an “Industrial Company” as a company resident in Israel, of which 90% or more of its income in any tax year, other
than income from defense loans, is derived from an “Industrial Enterprise” owned by it. An “Industrial Enterprise”
is defined as an enterprise whose principal activity in a given tax year is industrial production.
The following corporate tax
benefits, among others, are available to Industrial Companies:
| ● | amortization over an eight-year period of the cost of patents
and rights to use a patent and know-how which were purchased in good faith and are used for the development or advancement of the Industrial
Enterprise; |
| ● | deduction over a three-year period of expenses incurred in
connection with the issuance and listing of shares on a stock market; and |
| ● | under certain conditions, an election to file consolidated
tax returns with related Israeli Industrial Companies. |
There can be no assurance
that we currently qualify, or will continue to qualify, as an Industrial Company or that the benefits described above will be available
in the future.
Law for the Encouragement of Capital Investments,
5719-1959
Tax Benefits for Income from Preferred Enterprise
The Law for the Encouragement
of Capital Investments, 5719-1959, or the Investment Law, currently provides certain tax benefits for income generated by “Preferred
Companies” from their “Preferred Enterprises.” The definition of a Preferred Company includes, inter alia, a
company incorporated in Israel that is not wholly owned by a governmental entity, which:
|
● |
owns a Preferred Enterprise, which is defined as an “Industrial Enterprise” (as defined under the Investment Law) that is classified as either a “Competitive Enterprise” (as defined under the Investment Law) or a “Competitive Enterprise in the Field of Renewable Energy” (as defined under the Investment Law); |
|
● |
is controlled and managed from Israel; |
|
● |
is not a “Family Company,” a “Home Company,” or a “Kibbutz” (collective community) as defined under the Income Tax Ordinance; |
|
● |
keeps acceptable books of account and files reports in accordance with the provisions of the Investment Law and the Income Tax Ordinance; and |
|
● |
was not, and certain officers of which were not, convicted of certain crimes in the 10 years prior to the tax year with respect to which benefits are being claimed. |
As of January 1, 2017,
a Preferred Company is currently entitled to a reduced corporate tax rate of 16% with respect to its income derived by its Preferred Enterprise,
unless the Preferred Enterprise is located in development area A, in which case the rate is currently 7.5% (our operations are currently
not located in development area A).
Dividends distributed from
income generated from a Preferred Enterprise are subject to tax at the rate of 20% or to a lower rate as may be provided in an applicable
tax treaty. However, if such dividends are distributed to an Israeli company, such dividends are exempt from tax.
If in the future we generate
taxable income, to the extent that we qualify as a “Preferred Company,” the benefits provided under the Investment Law could
potentially reduce our corporate tax liabilities. Therefore, the termination or substantial reduction of the benefits available under
the Investment Law could materially increase our tax liabilities.
Tax Benefits for Income from Preferred Technology
Enterprise
An amendment to the Investment
Law was enacted as part of the Economic Efficiency Law that was published on December 29, 2016, and became effective as of January 1,
2017, or the 2017 Amendment. The 2017 Amendment provides new tax benefits to Preferred Companies for “Technology Enterprises,”
as described below, and is in addition to the Preferred Enterprise regime provided under the Investment Law.
The 2017 Amendment provides
that a technology company that meet the conditions established in law will be qualified as a “Preferred Technology Enterprise”
and may thereby benefit from a reduced corporate tax rate of 12% on its “Preferred Technology Income,” as defined in the Investment
Law. The applicable tax corporate tax rate can be reduced to 6%-12% present (6% in case the company has a turnover of over 10 billion
NIS, and to 12% in case the company has less than 10 billion NIS of a turnover. In case the company is located in a development area A
and has a turnover of less than 10 billion, it will be eligible for 7.5% tax rate). In addition, a Preferred Technology Enterprise may
be subjected to a reduced capital gains tax rate of 12% and up to 6% (depending on the company’s turnover) on capital gain derived
from the sale of certain “Benefited Intangible Assets” (as defined in the Investment Law) to a related foreign company. A
company can be eligible to reduced tax rates only in case the Benefited Intangible Assets was acquired or registered on behalf of the
company or after January 1, 2017 (applicable to companies with a turnover of more than 10 billion NIS), or in case the Benefited
Intangible Assets were acquired from a foreign company on or after January 1, 2017 for at least NIS 200 million and the sale
receives prior approval from the IIA (applicable to companies with a turnover of less than 10 billion NIS).
Dividends distributed by a
Preferred Technology Enterprise that are paid out of Preferred Technology Income are subject to tax at the rate of 20%, but if such dividends
are distributed to a foreign company and at least 90% of the shares of the distributing company are held by foreign resident companies
then the tax rate may be as low as 4%, subject to the fulfillment of certain conditions.
As we have not yet generated
taxable income, there is no assurance that we qualify as a Preferred Technology Enterprise or that the benefits described above will be
available to us in the future.
If in the future we generate
taxable income, to the extent that we qualify as a “Preferred Company,” the benefits provided under the Investment Law could
potentially reduce our corporate tax liabilities. Therefore, the termination or substantial reduction of the benefits available under
the Investment Law could materially increase our tax liabilities.
The Encouragement of Research, Development
and Technological Innovation in the Industry Law 5744
Under the Encouragement of
Research, Development and Technological Innovation in the Industry Law 5744-1984 (formerly known as the Law for the Encouragement
of Research and Development in Industry 5744-1984), or Innovation Law, and the regulations and guidelines promulgated thereunder, research
and development programs which meet specified criteria and are approved by a committee of the IIA, are eligible for grants. The grants
awarded are typically up to 50% of the project’s expenditures, as determined by the research committee. The grantee is required
to pay royalties to the State of Israel from the sale of products developed under the program. Regulations under the Innovation Law generally
provide for the payment of royalties of 3% to 6% on income generated from products and services based on technology developed using grants,
until 100% of the grant, linked to the dollar and bearing interest at the LIBOR rate, is repaid. In July 2017, new regulations came into
force. According to the new regulations, the royalties range between 1.3-5% depending on the company’s size and sector. The terms
of the IIA participation also require that products developed with IIA grants be manufactured in Israel and that the know-how developed
thereunder may not be transferred outside of Israel, unless approval is received from the IIA and additional payments are made to the
IIA. However, this does not restrict the export of products that incorporate the funded know-how. The royalty repayment ceiling can reach
up to three times the amount of the grant received (plus interest) if manufacturing is transferred outside of Israel, and repayment of
up to six times the amount of the grant (plus interest) may be required if the technology itself is transferred outside of Israel or license
to use it was granted to a foreign entity.
Taxation of our Shareholders
Capital Gains Tax
Israeli law generally imposes
a capital gains tax (i) on the sale of any capital assets by residents of Israel, as defined for Israeli tax purposes, and (ii) on
the sale of capital assets located in Israel, including shares of Israeli companies, by non-residents of Israel, unless a specific exemption
is available or unless a tax treaty between Israel and the shareholder’s country of residence provides otherwise. The law distinguishes
between real gain and inflationary surplus. The inflationary surplus is a portion of the total capital gain that is equivalent to the
increase of the relevant asset’s purchase price which is attributable to the increase in the Israeli consumer price index or a foreign
currency exchange rate between the date of purchase and the date of sale. The real gain is the excess of the total capital gain over the
inflationary surplus.
Israeli Residents
Generally, as of January 1,
2012 and thereafter, the tax rate applicable to real capital gains derived from the sale of shares, whether listed on a stock market or
not, is 25% for Israeli individuals, unless such shareholder claims a deduction for financing expenses in connection with such shares,
in which case the gain will generally be taxed at a rate of 30%. Additionally, if such shareholder is considered a “substantial
shareholder” at the time of the sale or at any time during the 12-month period preceding such sale, the tax rate will be 30%. A
“substantial shareholder” is defined as one who holds, directly or indirectly, alone or “together with another”
(i.e., together with a relative, or together with someone who is not a relative but with whom, according to an agreement, there is
regular cooperation in material matters of the company, directly or indirectly), holds, directly or indirectly, at least 10% of any of
the “means of control” in the company. “Means of control” generally include the right to vote, receive profits,
nominate a director or an executive officer, receive assets upon liquidation, or instruct someone who holds any of the aforementioned
rights regarding the manner in which such rights are to be exercised. However, different tax rates will apply to dealers in securities.
Israeli companies are subject to capital gains tax at the regular corporate tax rate (i.e., 23% for the tax year 2018 and thereafter)
on real capital gains derived from the sale of listed shares.
As of January 1, 2020,
Israeli resident shareholders who are individuals with taxable income that exceeds NIS 651,600 in a tax year (linked to the Israeli consumer
price index each year) will be subject to an additional tax at the rate of 3% on the portion of their taxable income for such tax year
that exceeds NIS 651,600 (linked to the Israeli consumer price index each year). For this purpose, taxable income includes taxable capital
gains from the sale of our shares and taxable income from dividend distributions.
In some instances where our
shareholders are liable for Israeli tax on the sale of their ordinary shares, the payment of the consideration may be subject to the withholding
at source of Israeli tax at source.
Non-Israeli
Residents
A non-Israeli resident who
derives capital gains from the sale of shares in an Israeli resident company that were purchased after the company was listed for trading
on a stock exchange in Israel (and also if the company was not listed on stock exchange, under certain conditions) will be exempt from
Israeli tax so long as the shares were not held through a permanent establishment that the non-resident maintains in Israel. However,
non-Israeli resident corporations will not be entitled to the foregoing exemption if (i) an Israeli resident has a controlling interest,
directly or indirectly, alone, “together with another” (as defined above), or together with another Israeli resident, of more
than 25% in one or more of the “means of control” (as defined above) in such non-Israeli resident corporation, or (ii) Israeli
residents are the beneficiaries of, or are entitled to, 25% or more of the revenues or profits of such non-Israeli resident corporation,
whether directly or indirectly.
In addition, a sale of securities
by a non-Israeli resident may be exempt from Israeli capital gains tax under the provisions of an applicable tax treaty. For example,
pursuant to the provisions of the Convention between the Government of the United States of America and the Government of the State of
Israel with respect to Taxes on Income, as amended, or the U.S.-Israel Tax Treaty, capital gains arising from the sale, exchange or disposition
of our ordinary shares by (i) a person who qualifies as a resident of the United States within the meaning of the U.S.-Israel Tax
Treaty, (ii) who holds the shares as a capital asset, and (iii) who is entitled to claim the benefits afforded to such person
by the U.S.-Israel Tax Treaty generally is generally exempt from Israeli capital gains tax. Such exemption will not apply if: (i) such
person holds, directly or indirectly, shares representing 10% or more of our voting power during any part of the 12-month period preceding
such sale, exchange, or disposition, subject to particular conditions; (ii) the capital gains from such sale, exchange, or disposition
are attributable to a permanent establishment in Israel; or (iii) such person is an individual and was present in Israel for 183 days
or more during the relevant tax year. In such case, the capital gain arising from the sale, exchange, or disposition of our ordinary shares
would be subject to Israeli tax, to the extent applicable; however, under the U.S.-Israel Tax Treaty, the taxpayer may be permitted to
claim a credit for such taxes against the U.S. federal income tax imposed with respect to such sale, exchange, or disposition, subject
to the limitations under U.S. law applicable to foreign tax credits. The U.S.-Israel Tax Treaty does not relate to U.S. state or local
taxes.
Shareholders may be required
to demonstrate that they are exempt from tax on their capital gains in order to avoid withholding tax at source at the time of sale.
It should be noted that in
the event that the real capital gain realized by an individual shareholder is not exempt from tax in Israel, the tax rates applicable
to Israeli resident individual shareholders should generally apply.
In some instances where our
shareholders may be liable for Israeli tax on the sale of their ordinary shares, the payment of the consideration may be subject to the
withholding of Israeli tax at source.
Taxation of Dividend Distributions
Israeli Residents
Israeli resident individuals
are generally subject to Israeli income tax on the receipt of dividends paid in respect to ordinary shares, other than bonus shares (share
dividends). As of January 1, 2012 and thereafter, the tax rate applicable to such dividends is generally 25%. With respect to a person
who is a “substantial shareholder” (as defined above) at the time the dividend is received or at any time during the preceding
12-month period, the applicable tax rate is 30%. Dividends distributed from income derived from Preferred Enterprises and Preferred Technology
Enterprises will generally be subject to income tax at a rate of 20%.
As of January 1, 2020,
Israeli resident shareholders who are individuals with taxable income that exceeds NIS 651,600 in a tax year (linked to the Israeli consumer
price index each year) will be subject to an additional tax at the rate of 3% on the portion of their taxable income for such tax year
that exceeds NIS 651,600 (linked to the Israeli consumer price index each year). For this purpose, taxable income includes taxable capital
gains from the sale of our shares and taxable income from dividend distributions.
Dividends paid to an Israeli
resident individual shareholder on our ordinary shares will generally be subject to withholding tax at the rates corresponding with the
income tax rates detailed above unless we are provided in advance with a withholding tax certificate issued by the Israel Tax Authority
stipulating a different rate.
Notwithstanding the above,
dividends distributed to an Israeli resident “substantial shareholder” (as defined above) on publicly traded shares, like
our ordinary shares, which are held via a “nominee company” (as defined under the Israeli Securities Law), are generally subject
to Israeli withholding tax at a rate of 25%, unless a different rate is provided under an applicable tax treaty, provided that a certificate
from the Israel Tax Authority allowing for a reduced withholding tax rate is obtained in advance.
If the dividend is attributable
partly to income derived from a Preferred Enterprise or a Preferred Technology Enterprise and partly to other sources of income, the tax
rate will be a blended tax rate reflecting the relative portions of the various types of income. We cannot assure you that we will designate
the profits that are being distributed in a way that will reduce shareholders’ tax liability.
Israeli resident companies
are generally exempt from tax on the receipt of dividends paid on our ordinary shares.
Non-Israeli
Residents
Unless relief is provided
in a treaty between Israel and the shareholder’s country of residence, non-Israeli residents are generally subject to Israeli income
tax on the receipt of dividends paid on our ordinary shares at the rate of 25%. With respect to a person (including a corporation) who
is a “substantial shareholder” (as defined above) at the time of receiving the dividend or at any time during the preceding
12-month period, absent treaty relief as mentioned above, the applicable capital gains tax rate is 30%. Notwithstanding the above, dividends
distributed from income derived from Preferred Enterprises will be subject to Israeli tax at a rate of 20%. In addition, dividends distributed
by a Preferred Technology Enterprise that are distributed from a Preferred Technology Income are subject to tax at the rate of 20%, but
if they are distributed to a foreign company and at least 90% of the shares of the distributing company are held by foreign resident companies
then the tax rate may be as low as 4%, subject to the fulfillment of certain conditions.
In this regard, dividends
paid to a non-Israeli resident shareholder on our ordinary shares will generally be subject to withholding tax at the rates corresponding
with the income tax rates detailed above unless we are provided in advance with a withholding tax certificate issued by the Israel Tax
Authority stipulating a different rate (e.g., in accordance with the provisions of an applicable tax treaty).
Notwithstanding the above,
dividends paid to a non-Israeli resident “substantial shareholder” (as defined above) on publicly traded shares, like our
ordinary shares, which are held via a “nominee company” (as defined under the Israeli Securities Law), are generally subject
to Israeli withholding tax at a rate of 25%, unless a different rate is provided under an applicable tax treaty, provided that a certificate
from the Israel Tax Authority allowing for a reduced withholding tax rate is obtained in advance.
In addition, it should be
noted that an additional 3% tax might be applicable to individual shareholders if certain conditions are met.
Under the U.S.-Israel Tax
Treaty, the maximum Israeli tax on dividends paid to a holder of ordinary shares who qualifies as a resident of the United States within
the meaning of the U.S.-Israel Tax Treaty is 25%. Such tax rate is generally reduced to 12.5% if: (i) the shareholder is a U.S. corporation
and holds at least 10% of the outstanding shares of our voting stock during the part of our tax year that precedes the date of payment
of the dividends and during the whole of our prior tax year; (ii) not more than 25% of our gross income in the tax year preceding
the payment of the dividends consists of interest or dividends, other than dividends or interest received from subsidiary corporations
that 50% or more of the outstanding shares of voting stock of such corporations are owned by us at the time such dividends or interest
are received by us; and (iii) the dividends are not sourced from income derived during a period for which we were entitled to the
reduced tax rate applicable to a Preferred Enterprise under the Investment Law. If the dividends are sourced from income derived during
a period for which we are entitled to the reduced tax rate applicable to a Preferred Enterprise or a Preferred Technology Enterprise under
the Investment Law, to the extent that the first two conditions detailed above are met, the Israeli tax rate applicable to such dividends
should be 15%.
If the dividend is attributable
partly to income derived from a Preferred Enterprise or a Preferred Technology Enterprise and partly to other sources of income, the tax
rate will be a blended rate reflecting the relative portions of the various types of income. We cannot assure you that we will designate
the profits that are being distributed in a way that will reduce shareholders’ tax liability.
Estate and
gift tax
Israeli law presently does
not impose estate tax.
Israeli law also does not
presently impose gift taxes upon the transfer of assets to Israeli resident individuals so long as it is demonstrated to the satisfaction
of the Israel Tax Authority that the transfer was executed in good faith.
Material U.S. Federal Income Tax Consequences
The following summary describes
certain material U.S. federal income tax consequences relating to an investment in our ordinary shares. This summary deals only with ordinary
shares that are held as capital assets (generally, property held for investment) within the meaning of Section 1221 of the U.S. Internal
Revenue Code of 1986, as amended, or the Code, and does not address tax considerations of holders that may be subject to special tax rules,
including, but not limited to, dealers or traders in securities or currencies, financial institutions, tax-exempt organizations, insurance
companies, regulated investment companies, real estate investment trusts, grantor trusts, individual retirement and tax-deferred accounts,
certain former citizens or residents of the United States, persons who acquire our ordinary shares through the exercise or cancellation
of employee stock options or otherwise as compensation for their services, persons holding ordinary shares as part of a hedging, integrated,
conversion or constructive sale transaction, or a straddle, persons that mark their securities to market for U.S. federal income tax purposes,
persons subject to the alternative minimum tax, or persons who have a functional currency other than the U.S. dollar. In addition, this
discussion does not address the tax treatment of U.S. holders (as defined below) who own, directly, indirectly, or constructively, 10%
or more of our outstanding stock, by vote or value. The summary set forth below relating to U.S. holders is applicable only to such U.S.
holders (i) who are residents of the United States for purposes of the U.S.-Israel Tax Treaty, (ii) whose ordinary shares are
not, for purposes of the U.S.-Israel Tax Treaty, effectively connected with or attributable to a permanent establishment in Israel, and
(iii) who otherwise qualify for the full benefits of the U.S.-Israel Tax Treaty. The discussion below is based upon the Code, final,
temporary and proposed Treasury regulations promulgated thereunder, applicable administrative rulings and judicial interpretations thereof,
and the U.S.-Israel Tax Treaty, all as in effect as of the date of this Annual Report on Form 20-F and all of which are subject to change,
possibly on a retroactive basis, and all of which are open to differing interpretations. In addition, this summary does not consider the
possible application of U.S. federal gift or estate taxes or any aspect of state, local, or non-U.S. tax laws. Furthermore, we will not
seek a ruling from the IRS with regard to the U.S. federal income tax treatment of an investment in our ordinary shares and can provide
no assurance that the tax consequences contained in this summary will not be challenged by the IRS or will be sustained in a court if
challenged.
As used in this summary the
term “U.S. holder” means a beneficial owner of ordinary shares that is, for U.S. federal income tax purposes: (i) an
individual citizen or resident of the United States, (ii) a corporation (or other entity taxable as a corporation for U.S. federal
income tax purposes) created or organized in or under the laws of the United States or any state thereof, or the District of Columbia;
(iii) an estate the income of which is subject to U.S. federal income taxation regardless of its source, or (iv) a trust if
either (a) a court within the United States is able to exercise primary supervision over the administration of the trust and one
or more U.S. persons have the authority to control all substantial decisions of the trust, or (b) the trust has a valid election
in effect under applicable Treasury regulations to be treated as a U.S. person. Except to the limited extent discussed below, this summary
does not consider the U.S. federal tax considerations to a person that is not a U.S. holder (a “non-U.S. holder”). In addition,
the tax treatment of persons who hold ordinary shares through a partnership or other pass-through entity treated as a partnership for
U.S. federal income tax purposes generally depends upon the status of the partner (or person or entity treated as a partner) and the activities
of the partnership. The tax consequences to such a partner or partnership are not considered in this summary and partners and partnerships
should consult their tax advisors with respect to the U.S. federal tax consequences of investing in our ordinary shares.
This summary does not discuss all aspects of
U.S. federal income taxation that may be relevant to a particular investor in light of its circumstances. Prospective purchasers of our
ordinary shares should consult their own tax advisors with respect to the specific U.S. federal income tax consequences to such person
of purchasing, holding, or disposing of our ordinary shares, as well as the effect of any state, local, or other tax laws.
Distributions on Ordinary Shares
As noted above, we currently
do not expect to pay cash dividends on our ordinary shares in the foreseeable future. Subject to the discussion under the heading “Passive
Foreign Investment Company Consequences,” U.S. holders are required to include in gross income the amount of any distribution paid
on ordinary shares to the extent the distribution is paid out of our current and/or accumulated earnings and profits, as determined for
U.S. federal income tax purposes. To the extent a distribution paid with respect to our ordinary shares exceeds our current and accumulated
earnings and profits, such amount will be treated first as a non-taxable return of capital, reducing a U.S. holder’s tax basis for
our ordinary shares to the extent thereof, and thereafter as either long-term or short-term capital gain depending upon whether the U.S.
holder has held our ordinary shares for more than one year as of the time such distribution is received. Preferential tax rates for long-term
capital gains are applicable for U.S. holders that are individuals, estates, or trusts. However, we do not expect to maintain calculations
of our earnings and profits under United States federal income tax principles. Therefore, U.S. holders should expect that the entire amount
of any distribution (without reduction for any Israeli tax withheld from such distribution) generally will be reported as dividend income
when actually or constructively received. The amount of the dividend will generally be treated as foreign-source dividend income to U.S.
holders. A non-corporate U.S. holder that meets certain eligibility requirements may qualify for a lower rate of U.S. federal income taxation
on dividends paid if we are a “qualified foreign corporation” for U.S. federal income tax purposes. We generally will be treated
as a qualified foreign corporation if we are not a passive foreign investment company, or PFIC, in the taxable year in which such dividends
are paid or in the preceding taxable year (see discussion below), and (i) we are eligible for benefits under the United States-Israel
income tax treaty or (ii) our ordinary shares are listed on an established securities market in the United States (which includes
the Nasdaq Global Market). In addition, a non-corporate U.S. holder will not be eligible for a reduced U.S. federal income tax rate with
respect to dividend distributions on ordinary shares if (a) such U.S. holder has not held our ordinary shares for at least 61 days
during the 121-day period starting on the date which is 60 days before, and ending 60 days after the ex-dividend date, (b) to
the extent the U.S. holder is under an obligation to make related payments on substantially similar or related property, or (c) with
respect to any portion of a dividend that is taken into account by the U.S. holder as investment income under Section 163(d)(4)(B)
of the Code. Any days during which the U.S. holder has diminished its risk of loss with respect to ordinary shares (for example, by holding
an option to sell our ordinary shares) are not counted towards meeting the 61-day holding period. Non-corporate U.S. holders should consult
their own tax advisors concerning whether dividends received by them qualify for the reduced rate of tax.
Corporate U.S. holders generally
will not be allowed a deduction for dividends received from us.
The amount of a distribution
with respect to our ordinary shares equals the amount of cash and the fair market value of any property distributed plus the amount of
any Israeli taxes withheld therefrom. The amount of any cash distributions paid in NIS equals the U.S. dollar value of the NIS on the
date of distribution based upon the exchange rate in effect on such date, regardless of whether the NIS are converted into U.S. dollars
at that time, and U.S. holders who include such distribution in income on such date will have a tax basis in such NIS for U.S. federal
income tax purposes equal to such U.S. dollar value. If the dividend is converted to U.S. dollars on the date of receipt, a U.S. holder
generally will not recognize a foreign currency gain or loss. However, if the U.S. holder converts the NIS into U.S. dollars on a later
date, the U.S. holder must include, in computing its income, any gain or loss resulting from any exchange rate fluctuations. The gain
or loss will be equal to the difference between (i) the U.S. dollar value of the amount included in income when the dividend was
received and (ii) the amount received on the conversion of the NIS into U.S. dollars. Such gain or loss will generally be ordinary
income or loss and United States source income for U.S. foreign tax credit purposes. U.S. holders should consult their own tax advisors
regarding the tax consequences to them if we pay dividends in NIS or any other non-U.S. currency.
Subject to certain significant
conditions and limitations, including potential limitations under the U.S.-Israel Tax Treaty, U.S. holders may be entitled to a credit
against their U.S. federal income tax liability or a deduction against U.S. federal taxable income in an amount equal to the non-refundable
Israeli tax withheld on distributions on our ordinary shares. However, as a result of recent changes to the U.S. foreign tax credit rules,
a withholding tax generally will need to satisfy certain additional requirements in order to be considered a creditable tax for a U.S.
holder. We have not determined whether these requirements have been met and, accordingly, no assurance can be given that any withholding
tax on dividends paid by us will be creditable. The election to deduct, rather than credit, foreign taxes, is made on a year-by-year basis
and applies to all foreign taxes paid by a U.S. holder or withheld from a U.S. holder that year. Distributions paid on our ordinary shares
will generally be treated as passive income that is foreign source for U.S. foreign tax credit purposes, which may be relevant in calculating
a U.S. holder’s foreign tax credit limitation. The rules relating to the determination of the foreign tax credit are complex, and
U.S. holders should consult their own tax advisors to determine whether and to what extent they would be entitled to such credit.
Disposition of Ordinary Shares
Subject to the discussion
under the heading “Passive Foreign Investment Company Consequences,” upon the sale, exchange or other disposition of ordinary
shares, a U.S. holder generally will recognize capital gain or loss in an amount equal to the difference between the amount realized on
the disposition and such U.S. holder’s adjusted tax basis in our ordinary shares. The adjusted tax basis in an ordinary share generally
will be equal to the cost of such ordinary share. The capital gain or loss realized on the sale, exchange, or other disposition of ordinary
shares will be long-term capital gain or loss if the U.S. holder held our ordinary shares for more than one year as of the time of disposition.
Preferential tax rates for long-term capital gain will generally apply to non-corporate U.S. holders. Any gain or loss realized by a U.S.
holder on the sale, exchange, or other disposition of ordinary shares generally will be treated as from sources within the United States
for U.S. foreign tax credit purposes, except for certain losses which will be treated as foreign source to the extent certain dividends
were received (or certain inclusion amounts were taken into account) by the U.S. holder within the 24-month period preceding the date
on which the U.S. holder recognized the loss. The deductibility of capital losses for U.S. federal income tax purposes is subject to limitations.
U.S. holders should consult
their own tax advisors regarding the U.S. federal income tax consequences of receiving currency other than U.S. dollars upon the disposition
of their ordinary shares.
Disclosure of Reportable Transactions
If a U.S. holder sells or
disposes of our ordinary shares at a loss or otherwise incurs certain losses that meet certain thresholds, such U.S. holder may be required
to file a disclosure statement with the IRS. Failure to comply with these and other reporting requirements could result in the imposition
of significant penalties.
Passive Foreign Investment Company Consequences
Generally, a non-U.S. corporation
will be a PFIC for U.S. federal income tax purposes in any taxable year in which either (i) 75% or more of its gross income for such
year consists of certain types of “passive” income or (ii) 50% or more of the average fair market value of its assets
during such year (based on quarterly valuations) produce or are held for the production of passive income. Passive income for this purpose
generally includes dividends, interest, rents, royalties, annuities, income from certain commodities transactions and from notional principal
contracts, and the excess of gains over losses from the disposition of assets that produce passive income. Passive income also includes
amounts derived by reason of the temporary investment of funds, including those raised in a public offering. Assets that produce or are
held for the production of passive income may include cash, even if held as working capital or raised in a public offering, as well as
marketable securities, and other assets that may produce passive income. In determining whether a non-U.S. corporation is a PFIC, a proportionate
share of the income and assets of each corporation in which it owns, directly or indirectly, at least a 25% interest (by value) is taken
into account.
A foreign corporation’s
PFIC status is an annual determination that is based on tests that are factual in nature, and our PFIC status for any year will depend
on the composition of our income, fair market value of our assets, and our activities for such year. Based on our non-passive revenue-producing
operations for the year ended December 31, 2022, we do not expect to be a PFIC for our 2022 taxable year. Because the PFIC determination
is highly fact intensive, there can be no assurance that we were not a PFIC in 2022 and will not be a PFIC in 2023 or any other year.
Even if we determine that we are not a PFIC after the close of a taxable year, there can be no assurance that the IRS or a court will
agree with our conclusion.
If we were a PFIC for any
taxable year during which a U.S. holder held ordinary shares, then unless an election has been made by a U.S. holder to be taxed under
one of the alternative regimes discussed below, gain recognized by a U.S. holder on a sale or other disposition (including certain pledges)
of our ordinary shares would be allocated ratably over the U.S. holder’s holding period for our ordinary shares. The amounts allocated
to the taxable year of the sale or other disposition and to any year before we became a PFIC would be taxed as ordinary income. The amount
allocated to each other taxable year would be subject to tax at the highest rate in effect for individuals or corporations, as appropriate,
for that taxable year, and an interest charge would be imposed on the amount allocated to that taxable year. Similar rules would apply
to any distribution with respect to our ordinary shares in excess of 125% of the average of the annual distributions received by a U.S.
holder during the preceding three years or such U.S. holder’s holding period, whichever is shorter. In addition, non-corporate U.S.
holders will not be eligible for reduced rates of taxation on any dividends received from us if we are a PFIC in the taxable year in which
such dividends are paid or in the preceding taxable year.
If we are a PFIC for any taxable
year during which you hold our ordinary shares and our non-United States subsidiary is also a PFIC (the non-United States subsidiary in
such a case, the “lower-tier PFIC”),, a U.S. holder would be treated as owning a proportionate amount (by value) of the shares
of the lower-tier PFIC for purposes of the application of these rules and a disposition by us of the shares of the lower-tier PFIC or
receipt by us of a distribution from the lower-tier PFIC generally will be treated as a deemed disposition of such shares or the deemed
receipt of such distribution by the U.S. holder, subject to taxation under the PFIC rules even though the U.S. holder does not receive
any proceeds from those dispositions or distributions. There can be no assurance that a U.S. holder will be able to make a “QEF”
election with respect to the lower-tier PFIC. U.S. holders are urged to consult their tax advisors about the application of the PFIC rules
to our non-United States subsidiary.
If we are treated as a PFIC
for any taxable year during the holding period of a non-electing U.S. holder (i.e., a U.S. holder that does not elect to be taxed
under one of the alternative regimes discussed below), we will continue to be treated as a PFIC for all succeeding years during which
such non-electing U.S. holder is treated as a direct or indirect holder even if we are not a PFIC for such years. A U.S. holder is encouraged
to consult its tax advisor with respect to any available elections that may be applicable in such a situation, including the “deemed
sale” election of Section 1298(b)(1) of the Code.
Notwithstanding the default
PFIC rules described in the preceding paragraphs, certain elections may be available that would result in alternative tax consequences;
i.e., the “qualified electing fund” or “QEF” election and the “mark to market” election. If a
U.S. holder makes a timely and valid mark-to-market election, the U.S. holder generally will recognize as ordinary income any excess of
the fair market value of our ordinary shares at the end of each taxable year over their adjusted tax basis, and will recognize an ordinary
loss in respect of any excess of the adjusted tax basis of our ordinary shares over their fair market value at the end of the taxable
year (but only to the extent of the net amount of income previously included as a result of the mark-to-market election). The U.S. holder’s
tax basis in our ordinary shares will be adjusted to reflect the income or loss resulting from the mark-to-market election. Any gain recognized
on the sale or other disposition of ordinary shares in a year when we are a PFIC will be treated as ordinary income and any loss will
be treated as an ordinary loss (but only to the extent of the net amount of income previously included as a result of the mark-to-market
election and any loss in excess of such amount will be treated as capital loss). The mark-to-market election is available only if we are
a PFIC and our ordinary shares are “regularly traded” on a “qualified exchange” within the meaning of applicable
U.S. Treasury regulations. Our ordinary shares will be treated as “regularly traded” in any calendar year in which more than
a de minimis quantity of our ordinary shares are traded on a qualified exchange on at least 15 days during each calendar quarter.
Although the IRS has not published any authority identifying specific exchanges that may constitute “qualified exchanges,”
Treasury Regulations provide that a qualified exchange is (i) a U.S. securities exchange that is registered with the Securities and
Exchange Commission, (ii) the U.S. market system established pursuant to Section 11A of the Securities and Exchange Act of 1934,
or (iii) a non-U.S. securities exchange that is regulated or supervised by a governmental authority of the country in which the market
is located, provided that: (a) such non-U.S. exchange has trading volume, listing, financial disclosure, surveillance, and other
requirements designed to prevent fraudulent and manipulative acts and practices, to remove impediments to and perfect the mechanism of
a free and open, fair and orderly, market, and to protect investors, and the laws of the country in which such non-U.S. exchange is located
and the rules of such non-U.S. exchange ensure that such requirements are actually enforced; and (b) the rules of such non-U.S. exchange
effectively promote active trading of listed shares. The Nasdaq Global Market is a qualified exchange for this purpose, but there can
be no assurance that the trading in our ordinary shares will be sufficiently regular to qualify our ordinary shares as marketable stock.
A mark-to-market election will not apply to ordinary shares held by a U.S. holder for any taxable year during which we are not a PFIC,
but will remain in effect with respect to any subsequent taxable year in which we become a PFIC unless our ordinary shares are no longer
regularly traded on a qualified exchange or the IRS consents to the revocation of the election. Such election will not apply to any PFIC
subsidiary that we own. Each U.S. holder is encouraged to consult its own tax advisor with respect to the availability and tax consequences
of a mark-to-market election with respect to our ordinary shares.
Another way in which certain
of the adverse consequences of PFIC status can be mitigated is for a U.S. holder to make a QEF election. Generally, a shareholder making
the QEF election is required for each taxable year to include in income a pro rata share of our ordinary earnings and net capital gain
of the QEF, subject to a separate election to defer payment of taxes, which deferral is subject to an interest charge. An election to
treat us as a QEF will not be available if we do not provide the information necessary to make such an election. We are not obligated
and do not currently intend to provide the information necessary to make a QEF election and thus it is not expected that a QEF election
will be available for U.S. holders of our ordinary shares if we were a PFIC in any prior year, the current year or any future year.
U.S. holders should consult
their tax advisors to determine under what circumstances these elections would be available and, if available, what the consequences of
the alternative treatments would be in their particular circumstances.
If a U.S. holder holds ordinary
shares in any year in which we are treated as a PFIC, the U.S. holder will be required to file IRS Form 8621 and may be subject to
certain other information reporting requirements.
The U.S. federal income tax
rules relating to PFICs are complex. Prospective U.S. holders are urged to consult their own tax advisors with respect to the consequences
to them of an investment in a PFIC, any elections available with respect to our ordinary shares and the IRS information reporting obligations
with respect to the purchase, ownership, and disposition of our ordinary shares in the event we are determined to be a PFIC.
Medicare Tax on Investment Income
In addition to the income
taxes described above, U.S. holders that are individuals, estates, or trusts and whose income exceeds certain thresholds will be subject
to a 3.8% tax on all or a portion of their “net investment income,” which generally would include dividends on, and dispositions
of, our ordinary shares. U.S. holders should consult their tax advisors with respect to the applicability of the 3.8% Medicare tax to
their income and gains, if any, resulting from their investment in our ordinary shares.
Information Reporting and Backup Withholding
A U.S. holder may be subject
to backup withholding and information reporting requirements with respect to cash distributions and proceeds from a disposition of ordinary
shares. In general, backup withholding will apply only if a U.S. holder fails to comply with certain identification procedures. Information
reporting and backup withholding will not apply with respect to payments made to certain exempt recipients, such as corporations and tax-exempt
organizations. Backup withholding is not an additional tax and may be claimed as a credit against the U.S. federal income tax liability
of a U.S. holder, provided that the required information is furnished to the IRS.
Tax Reporting
Certain U.S. holders will
be required to file an IRS Form 926 (Return by a U.S. Transferor of Property to a Foreign Corporation) to report a transfer of cash
or other property to us. Substantial penalties may be imposed on a U.S. holder that fails to comply with this reporting requirement. Each
U.S. holder is urged to consult with its own tax advisor regarding this reporting obligation.
Foreign Asset Reporting
Certain U.S. holders who are
individuals may be required to report information relating to an interest in our ordinary shares, subject to certain exceptions. For example,
certain U.S. holders that own “specified foreign financial assets” with an aggregate value in excess of $50,000 (and in some
circumstances, a higher threshold) are generally required to file IRS Form 8938 with respect to such assets with their tax returns.
“Specified foreign financial assets” include any financial accounts maintained by foreign financial institutions, as well
as any of the following, but only if they are not held in accounts maintained by financial institutions: (i) stocks and securities
issued by non-U.S. persons; (ii) financial instruments and contracts held for investment that have non-U.S. issuers or counterparties;
and (iii) interests in foreign entities. Failure to file IRS Form 8938 for each applicable taxable year may result in substantial
penalties and the statute of limitations on the assessment and collection of U.S. federal income taxes of such U.S. holder for the related
taxable year may not close until three years after the date on which the required information is filed. In addition, a U.S. holder should
consider the possible obligation to file FinCEN Form 114, Report of Foreign Bank and Financial Accounts, as a result of holding ordinary
shares. U.S. holders are urged to consult their tax advisors regarding the application of these and other reporting requirements that
may apply to their ownership of ordinary shares.
Non-U.S. Holders of Ordinary Shares
Except as provided below,
a non-U.S. holder of ordinary shares generally will not be subject to U.S. income or withholding tax on the payment of dividends on and
the proceeds from the disposition of ordinary shares.
A non-U.S. holder may be subject
to U.S. federal income tax on dividends received on ordinary shares or upon the receipt of income from the disposition of ordinary shares
if: (i) such income is effectively connected with the conduct by the non-U.S. holder of a trade or business in the United States
or, in the case of a resident of a country which has an applicable income tax treaty with the United States, such item is attributable
to a permanent establishment or a fixed place of business of the non-U.S. holder in the United States; (ii) with respect to a U.S.
holder that is an individual, the non-U.S. holder is an individual who is present in the United States for 183 days or more in the
taxable year of the sale and certain other conditions are met; or (iii) the non-U.S. holder is subject to tax pursuant to the provisions
of the U.S. tax laws applicable to certain former citizens or residents of the United States.
Payments to non-U.S. holders
of distributions on, or proceeds from the disposition of, ordinary shares are generally exempt from information reporting and backup withholding.
However, a non-U.S. holder may be required, under certain circumstances, to establish that exemption by providing certification of non-U.S.
status on an appropriate IRS Form W-8.
THE DISCUSSION ABOVE IS
A GENERAL SUMMARY AND IS NOT INTENDED TO CONSTITUTE A COMPLETE ANALYSIS OF ALL TAX CONSEQUENCES RELATING TO THE PURCHASE, OWNERSHIP AND
DISPOSITION OF OUR ORDINARY SHARES. IT DOES NOT COVER ALL TAX MATTERS THAT MAY BE OF IMPORTANCE TO A PROSPECTIVE INVESTOR. EACH PROSPECTIVE
INVESTOR IS URGED TO CONSULT ITS OWN TAX ADVISOR ABOUT THE TAX CONSEQUENCES TO IT RELATING TO THE PURCHASE, OWNERSHIP, AND DISPOSITION
OF ORDINARY SHARES IN LIGHT OF THE INVESTOR’S OWN CIRCUMSTANCES.
F. |
Dividends and Paying Agents |
Not applicable.
Not applicable.
We are subject to certain
information reporting requirements of the Exchange Act, applicable to foreign private issuers and under those requirements will file reports
with the SEC. The SEC maintains an internet site at http://www.sec.gov that contains reports, proxy and information statements and
other information regarding issuers that file electronically with the SEC. Our filings with the SEC will also be available to the public
through the SEC’s website at www.sec.gov.
As a foreign private issuer,
we are exempt from the rules under the Exchange Act related to the furnishing and content of proxy statements, and our officers, directors
and principal shareholders will be exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the
Exchange Act. In addition, we are not required under the Exchange Act to file annual, quarterly and current reports and financial statements
with the SEC as frequently or as promptly as U.S. domestic companies whose securities are registered under the Exchange Act. However,
we will file with the SEC, within 120 days after the end of each fiscal year, or such applicable time as required by the SEC, an annual
report on Form 20-F containing financial statements audited by an independent registered public accounting firm, and may submit to the
SEC, on a Form 6-K, unaudited quarterly financial information.
I. |
Subsidiary Information. |
Not applicable.
J. |
Annual Report to Security Holders. |
Not applicable.
|
ITEM 11. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
We
are exposed to market risk in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial
position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of fluctuations in
foreign currency exchange rates and interest rates.
Foreign
Currency Exchange Risk
Our
functional and reporting currency is the U.S. dollar. Our foreign currency exposures give rise to market risk associated with exchange
rate movements of the NIS, mainly against the U.S. dollar and the Euro. A material portion of our expenses consist principally of payments
in NIS made to employees, subcontractors and consultants for clinical trials, other research and development activities, and purchase
of new equipment. A material portion of our research and development is conducted through collaboration agreements denominated in U.S.
dollars, and therefore our net research and development expenses are subject to significant foreign currency risk. If the NIS fluctuates
significantly against either the U.S. dollar or the Euro, it may have a negative impact on our results of operations.
To
date, we have not entered into any hedging arrangements with respect to foreign currency risk or other derivative financial instruments.
In the future, we may enter into currency hedging transactions to decrease the risk of financial exposure from fluctuations in the operating
currencies. These measures, however, may not adequately protect us from the material adverse effects of such fluctuations.
Interest
Rate Risk
At
present, our investments consist primarily of cash and cash equivalents in short-term deposits. The primary objective of our investment
activities is to preserve our capital to fund our operations. Our investments are exposed to market risk due to fluctuation in interest
rates, which may affect our interest income and the fair market value of our investments, if any. We manage this exposure by performing
ongoing evaluations of our investments. Due to the short-term maturities, if any, of our investments to date, their carrying value has
always approximated their fair value. We believe that our exposure to interest rate risk is not significant and a 1% change in market
interest rates would not have a material impact on our assets.
|
ITEM 12. |
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES |
Not applicable.
Not applicable.
Not applicable.
D. |
American Depositary Shares |
Not applicable.
The accompanying notes are an integral part of
the consolidated financial statements
The accompanying notes are an integral part of
the consolidated financial statements
The accompanying notes are an integral part of
the consolidated financial statements.
The accompanying notes are an integral part of
the consolidated financial statements.
The accompanying notes are an integral part of
the consolidated financial statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share and per
share amounts)
NOTE 1 - GENERAL
CollPlant Biotechnologies Ltd.
(the “Company”) is a regenerative and aesthetic medicine company focused on 3D bioprinting of tissues and organs and medical
aesthetics. The Company’s products are based on its rhCollagen (recombinant human collagen) produced with CollPlant’s proprietary
plant based technology. These products address indications for the diverse fields of tissue repair, aesthetics, and organ manufacturing.
The Company’s revenues include
income from business collaborators and from sales of (i) the BioInk product for the development of 3D bioprinting of organs and tissues,
(ii) sales of rhCollagen for the medical aesthetics market, and (iii) sales in Europe of the products for tendinopathy and wound
healing.
The Company operates mainly through
CollPlant Ltd., a wholly-owned subsidiary (CollPlant Biotechnologies Ltd. and CollPlant Ltd. will be referred to hereinafter
as “the Company” and “CollPlant”, respectively). In November 2021 CollPlant Ltd established CollPlant Inc., a
wholly owned subsidiary in the United States. As of December 31, 2022, CollPlant Inc has not commenced operation.
COLLPLANT BIOTECHNOLOGIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share and per
share amounts)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
a. | Basis of presentation of the financial statements |
The accompanying consolidated financial
statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and
include the accounts of Collplant Biotechnologies Ltd. and its wholly-owned subsidiaries.
b. | Use of estimates in the preparation of financial statements |
The preparation of financial statements
in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. The Company’s management believes that the estimates, judgment and assumptions used are reasonable
based upon information available at the time they are made. Actual results may differ from those estimates.
The functional currency is the currency
that best reflects the economic environment in which the Company and its subsidiaries operates and conducts their transactions. Most of
the Company’s financing activity, cash flows, costs and expenses are incurred in U.S. dollar. Base on the Company’s management assessment
the functional currency of the Company is the U.S. dollar.
Transactions and balances that are denominated
in currencies other than the U.S. dollar are remeasured into U.S. dollars in accordance with principles set forth in Accounting Standard
Codification (“ASC”) Topic 830, Foreign Currency Matters (“ASC 830”). In accordance with ASC 830, monetary
assets and liabilities denominated in foreign currencies are remeasured into U.S. dollars at the end of each reporting period using the
exchange rates in effect at the balance sheet date. Non-monetary assets denominated in foreign currencies are measured using historical
exchange rates. Gains and losses resulting from remeasurement are reflected in the statements of comprehensive income (loss) as financial
income or expenses, as appropriate.
COLLPLANT BIOTECHNOLOGIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share and per
share amounts)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
d. | Principles of consolidation |
The consolidated financial statements
include the accounts of the Company and its subsidiaries. All inter-company transactions and balances have been eliminated in consolidation.
The Company identifies operating segments
in accordance with ASC Topic 280, “Segment Reporting” as components of an entity for which discrete financial information
is available and is regularly reviewed by the chief operating decision maker, or decision-making group, in making decisions regarding
resource allocation and evaluating financial performance. The Company defines the term “chief operating decision maker” to
be its chief executive officer. The Company determined it operates in one operating segment and one reportable segment, as its chief operating
decision maker reviews financial information presented only on a consolidated basis for purposes of allocating resources and evaluating
financial performance.
f. | Cash and cash equivalents |
The Company considers as cash equivalents
all short-term, highly liquid investments, which include short-term bank deposits with original maturities of three months or less from
the date of purchase that are not restricted as to withdrawal or use and are readily convertible to known amounts of cash.
g. | Short-term bank deposits |
Short-term bank deposits are deposits
with an original maturity of more than three months and less than a year from the date of investment and which do not meet the definition
of cash equivalents.
The Company’s considers as restricted
deposits long term and short term collaterals related to the Company’s lease contracts and credit card.
Trade receivables are stated net of
credit losses allowance. The Company is exposed to credit losses primarily through sales of products. The allowance against gross trade
receivables reflects the current expected credit loss inherent in the receivables portfolio determined based on the Company’s methodology.
The Company’s methodology is based on historical experience, customer creditworthiness, current and future economic condition and
market condition. Additionally, specific allowance amounts are established to record the appropriate provision for customers that have
a higher probability of default. The Company’s assessment for credit loss is negligible.
COLLPLANT BIOTECHNOLOGIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share and per
share amounts)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
Inventory is measured at the lower of
cost and net realizable value.
Inventory costing is based on the moving
average cost method. In the case of purchased goods and work in process, costs include raw materials, direct labor, share based compensation
and other direct costs and fixed production overheads (based on the normal operating capacity of the production facilities).
Net realizable value is the estimated
selling price in the ordinary course of business, less attributable selling expenses.
The Company determines if an arrangement
is a lease at inception. Balances related to operating leases are included in operating lease right-of-use (“ROU”) assets
and current and non-current operating lease liabilities in the consolidated balance sheets.
ROU assets represent the Company’s
right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments
arising from the lease. Operating lease ROU assets and liabilities are recognized as of the commencement date based on the present value
of lease payments over the lease term. Lease terms may include options to extend or terminate the lease when it is reasonably certain
that the Company will exercise that option. The Company’s uses its estimated incremental borrowing rate based on the information
available at the commencement date in determining the present value of lease payments. Lease expense for lease payments is recognized
on a straight-line basis over the lease term. The Company also elected the practical expedient to not separate lease and non-lease components
for its leases (see also Note 6).
l. | Property and equipment |
| 1) | Property and equipment are
stated at cost, net of accumulated depreciation. |
| 2) | The Company’s property
and equipment are depreciated by the straight-line method on the basis of their estimated useful life. |
COLLPLANT BIOTECHNOLOGIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share and per
share amounts)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
The depreciation period is as follows:
| |
Years |
| |
|
Laboratory equipment | |
5 |
Greenhouse equipment* | |
4 - 10 |
Computer equipment | |
3 |
Office furniture | |
17 |
Leasehold improvements | |
** |
Electronic equipment | |
7 |
Vehicles | |
7 |
| * | Greenhouse equipment - agricultural
equipment used in the tobacco production greenhouse. |
| ** | Leasehold improvements are amortized
by the straight-line method over the shorter of the lease term or useful economic life. |
m. | Impairment of long-lived assets |
The Company’s long-lived assets
are reviewed for impairment in accordance with ASC 360, “Property, Plant and Equipment” (“ASC 360”), whenever
events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Recoverability of an asset to
be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated
by the asset. If such asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying
amount of the asset exceeds its fair value.
For the three years ended December 31,
2022, the Company did not recognize an impairment loss for its long-lived assets.
The Company capitalizes development
costs incurred during the application development stage that are related to internal use technology. Under ASC 350-40, internal-use software
capitalization begins when the preliminary project stage is complete and ceases at the point in which the project is substantially complete
and is ready for its intended purpose.
Cost capitalized to internal
use software include sub-contractors services and employee salary expenses.
COLLPLANT BIOTECHNOLOGIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share and per
share amounts)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
o. | Share-based compensation |
The Company accounts for employees’
share-based payment awards classified as equity awards using the grant-date fair value. The fair value of each share option award is estimated
on the grant date using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model requires the input of highly subjective
assumptions, including the fair value of the underlying ordinary shares, the expected term of the share option, the expected volatility
of the price of our ordinary shares, risk-free interest rates, and the expected dividend yield of ordinary shares. The assumptions used
to determine the fair value of the option awards represent management’s best estimates. These estimates involve inherent uncertainties
and the application of management’s judgment. The fair value of share-based payment transactions is recognized as an expense over
the requisite service period.
The Company elected to recognize compensation
costs for awards conditioned only on continued service that have a graded vesting schedule using the accelerated method based on the multiple-option
award approach.
The Company elected to account for forfeitures
as they occur.
p. | Research and development expenses |
Research and development expenses include
costs directly attributable to the conduct of research and development programs, including the cost of salaries, share-based compensation
expenses, payroll taxes and other employee benefits, lab expenses, consumable equipment and consulting fees. All costs associated with
research and developments are expensed as incurred.
Grants received from Israel Innovation
Authority (hereafter - “IIA”), are recognized when the grant becomes receivable, provided there is reasonable assurance that
the Company will comply with the conditions attached to the grant and there is reasonable assurance the grant will be received. The grant
was deducted from the research and development expenses as the applicable costs are incurred, and presented in research and development
expenses, net. See Note 7.
For the years ended December 31, 2022,
2021 and 2020 the Company did not receive any grants.
Revenues are recognized in accordance
with ASC 606; revenue from contracts with customers is recognized when control of the promised goods or services is transferred to the
customers, in an amount that the Company expects in exchange for those goods or services.
The Company recognizes revenue under the core principle that transfer of control to the Company’s customers should be depicted in
an amount reflecting the consideration the Company expects to receive in revenue. In order to achieve that core principle, the Company
applies the following five-step approach: (1) identify the contract with a customer, (2) identify the performance obligations in the contract,
(3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize
revenue when the performance obligation is satisfied.
COLLPLANT BIOTECHNOLOGIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share and per
share amounts)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
|
(1) |
Identify the contract with a customer |
A contract is an agreement between
two or more parties that creates enforceable rights and obligations. In evaluating the contract, the Company analyzes the customer’s
intent and ability to pay the amount of promised consideration and considers the probability of collecting substantially all of the consideration.
|
(2) |
Identify the performance obligations in the contract |
At a contract’s inception, the
Company assesses the goods or services promised in a contract with a customer and identifies the performance obligations.
Performance obligations are promised
goods or services in a contract to transfer a distinct good or service to the customer.
The Company evaluates whether options
granted to a customer to acquire additional goods or services give rise to a performance obligation. If an agreement contains such option,
the Company determines that the option is a separate performance obligation only if the option provides a material right to the customer
that it would not receive without entering into that agreement.
|
(3) |
Determine the transaction price |
The Company estimates the transaction
price based on the amount of consideration the Company expects to be received for transferring the promised goods or services in the contract.
The consideration may include both fixed consideration and variable consideration. At the inception of each arrangement that includes
variable consideration, the Company evaluates the amount of the potential payments and the likelihood that the payments will be received.
If it is probable that a significant revenue reversal would not occur, the variable consideration is included in the transaction price.
The transaction price is allocated
to each performance obligation on a relative stand-alone selling price basis. In determining the stand-alone selling price the Company
considers market conditions as well as entity-specific factors, including those factors contemplated in negotiating the agreements as
well as internally developed estimates that include assumptions related to the market opportunity, estimated development costs, probability
of success and the time needed to commercialize a product candidate pursuant to the license.
|
(4) |
Allocate the transaction price to the performance obligations in the contract |
For contracts with more than one performance
obligation the Company allocates the transaction price to each separate performance obligation, based on its relative standalone selling
price.
|
(5) |
Recognize revenue when a performance obligation is satisfied |
Revenue is recognized when or as performance
obligations are satisfied by transferring control of a promised good or service to a customer. Control either transfers over time or at
a point in time, which affects when revenue is recorded.
COLLPLANT BIOTECHNOLOGIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share and per
share amounts)
NOTE 2 - SIGNIFICANT ACCOUNTING
POLICIES (continued)
Up-front
payments and fees are recorded as deferred revenue upon receipt or when due until the Company performs its obligations under these arrangements.
Amounts expected to be recognized as revenue within the 12 months following the balance sheet date are classified as current portion of
deferred revenue in the accompanying consolidated balance sheets. Amounts not expected to be recognized as revenue within the 12 months
following the balance sheet date are classified as deferred revenue, net of current portion. Amounts are recorded as accounts receivable
when the Company’s right to consideration is unconditional.
|
1. |
Revenues from sale of goods |
The goods are products based on the Company’s
rhCollagen, and include the BioInk product for the development of 3D bioprinting of organs and tissues and the medical aesthetics and
products for tendinopathy and wound healing. The Company recognizes revenues from selling goods at a point in time when control over the
product is transferred to customers .
|
2. |
Revenues from rendering services |
Revenue from rendering of services is
recognized over time, during the period the customer simultaneously receives and consumes the benefits provided by the Company’s
performance. Under the Company’s service contracts, the Company has a right to consideration from the customer in an amount that
corresponds directly with the value to the customer of the Company’s performance completed to date and recognizes revenue in the
amount to which the Company has a right to invoice.
The Company charges its customers based
on payment terms agreed upon in specific agreements. When payments are made before or after the service is performed, the Company recognizes
the resulting contract asset or liability.
|
3. |
Revenues from licensing agreement |
|
|
On February 5, 2021, the Company signed a Development, Exclusivity and Option Products Agreement (“the Development Agreement”), with AbbVie, pursuant to which the Company and AbbVie will collaborate in the development and commercialization of dermal and soft tissue filler products for the medical aesthetics market, using the Company’s rhCollagen technology and AbbVie’s technology (see also Note 7). |
The Company has identified in the Development
Agreement the right for the CollPlant technology and right to use any know-how related to CollPlant rhCollagen.
Pursuant to the Development Agreement CollPlant grants AbbVie, its affiliates and third-party transferees a right to use any know-how
related to CollPlant rhCollagen that is (a) necessary or useful to exploit an exclusive product and (b) controlled by CollPlant or its
affiliates, solely to support the regulatory approval of such exclusive product.
The Company determined that those rights
described above are to the use of the IP of CollPlant, therefore represent a right under a license contract. The Company farther identified
the license as a performance obligation.
COLLPLANT BIOTECHNOLOGIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share and per
share amounts)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
In addition, the Company has identified
in the Development Agreement (i) certain development activities, (ii) a right of first negotiation for Option Products, and (iii) an option
for future supply agreement. However, neither of the above mentioned is distinct and/or provides a material right to the customer and
therefore, do not give rise to a performance obligation.
As such the Company has concluded that
the contract includes only one performance obligation, and the transaction price was fully allocated to the license delivery performance
obligation.
The transaction price included an up-front
paid amount of $14,000 as well as variable considerations contingent upon the Company or AbbVie achieving certain milestones and sales-based
royalties (“Variable Consideration”). The Company estimates variable consideration using the most likely method. Amounts included
in the transaction price are recognized only when it is probable that a significant reversal of cumulative revenues will not occur.
Since it is not probable that a significant
reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the milestone payments is
resolved, and since the contract include termination provisions, the Company estimated the transaction price at $14,000 and recognized
that amount as revenue once the license was delivered.
For the year ended December 31, 2022 the Company did not
reach any millstones and therefore did not recognize revenues relating to the Development Agreement.
Sales-based royalties are not included
in the transaction price. Rather, they are recognized as incurred, due to the specific exception of ASC 606 for sales-based royalties
in licensing of intellectual properties.
|
1) |
Deferred taxes
Income taxes are computed using the asset and
liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences
between the financial reporting and tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws.
A valuation allowance is recognized to the extent that it is more likely than not that the deferred taxes will not be realized in the
foreseeable future. The Company has provided a full valuation allowance with respect to its deferred tax assets. |
| 2) | Uncertainty in income taxes The Company follows a two-step approach in
recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the
available evidence indicates that it is more likely than not that the position will be sustained based on technical merits. If the more
likely than not threshold is met, the second step is to measure the tax position as the largest amount that has more than a 50% likelihood
of being realized upon ultimate settlement. |
COLLPLANT BIOTECHNOLOGIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share and per share amounts)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
s. | Income (loss) per share |
Basic income (loss) per share is computed
on the basis of the net income (loss), for the period divided by the weighted average number of ordinary shares and prepaid warrants outstanding
during the period. Diluted income (loss) per share is based upon the weighted average number of ordinary shares and of potential ordinary
shares outstanding when dilutive. Ordinary share equivalents include outstanding stock options and warrants, which are included under
the treasury stock method when dilutive. The calculation of diluted income (loss) per share does not include options and warrants exercisable
into 2,558,164, 1,590,346
and 4,008,007 shares for the years ended December 31, 2022, 2021 and 2020, respectively, because the effect would be anti-dilutive.
t. | Fair value measurement |
Fair value is based on the price that
would be received from the sale of an asset or that would be paid to transfer a liability in an orderly transaction between market participants
at the measurement date. In order to increase consistency and comparability in fair value measurements, the guidance establishes a fair
value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described
as follows:
Level 1: Quoted prices (unadjusted)
in active markets that are accessible at the measurement date for assets or liabilities.
Level 2: Observable prices that
are based on inputs not quoted on active markets, but corroborated by market data.
Level 3: Unobservable inputs are used
when little or no market data is available.
In determining fair value, the Company
utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible
and considers counterparty credit risk in its assessment of fair value. A financial instrument’s categorization within the valuation
hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
The carrying amount of the cash and
cash equivalents, restricted deposits, trade receivable, trade payables, accrued expenses and other liabilities approximates their fair
value.
The Company’s financial liability
at fair value through profit or loss is the anti-dilution derivatives, classified as liabilities, and amounted to $28 as of December 31,
2020. As of December 31, 2021 the assumption of probability for anti dilution event was 0%, hence the financial liability fair value was
$0.
As of December 31, 2022 and 2021, the
company has no financial instruments measured at fair value.
COLLPLANT BIOTECHNOLOGIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share and per
share amounts)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
u. | Newly issued and recently adopted accounting
pronouncements: |
In August 2020, the FASB issued ASU
No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (ASU 2020-06), which simplifies the
accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts
in an entity’s own equity. Among other changes, ASU 2020-06 removes from GAAP the liability and equity separation model for convertible
instruments with a cash conversion feature and a beneficial conversion feature, and as a result, after adoption, entities will no longer
separately present in equity an embedded conversion feature for such debt. Similarly, the embedded conversion feature will no longer be
amortized into income as interest expense over the life of the instrument. Instead, entities will account for a convertible debt instrument
wholly as debt unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC Topic 815, Derivatives
and Hedging, or (2) a convertible debt instrument was issued at a substantial premium. Additionally, ASU 2020-06 requires the application
of the if-converted method to calculate the impact of convertible instruments on diluted earnings per share (EPS). ASU 2020-06 is effective
for fiscal years beginning after December 15, 2021, with early adoption permitted for fiscal years beginning after December 15, 2020.
The adoption of this ASU did not have a material impact on the financial statements.
Newly issued and not yet adopted
accounting pronouncements:
The Company has reviewed recent accounting
pronouncements and concluded that they are either not applicable to its business or that no material effect is expected on the consolidated
financial statements as a result of their future adoption
COLLPLANT BIOTECHNOLOGIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share and per
share amounts)
NOTE 3 - PROPERTY AND EQUIPMENT
| |
December 31 | |
| |
2022 | | |
2021 | |
Cost: | |
| | |
| |
Laboratory equipment | |
$ | 3,164 | | |
$ | 2,765 | |
Greenhouse equipment | |
| 751 | | |
| 713 | |
Computer equipment | |
| 225 | | |
| 167 | |
Office furniture | |
| 300 | | |
| 216 | |
Leasehold improvements | |
| 3,310 | | |
| 2,629 | |
Electronic equipment | |
| 6 | | |
| - | |
Vehicles | |
| 251 | | |
| 251 | |
| |
| 8,007 | | |
| 6,741 | |
Less: | |
| | | |
| | |
Accumulated depreciation | |
| (5,041 | ) | |
| (4,013 | ) |
Property and Equipment, net | |
$ | 2,966 | | |
$ | 2,728 | |
Depreciation expense totaled $1,036,
$773 and $660 for the years ended December 31, 2022, 2021 and 2020, respectively.
During the year ended December 31, 2022
and 2021, the Company disposed of property and equipment in the net amount of $7 and $33, respectively. In the year ended December
31, 2020 there was no disposal of property and equipment booked to the Company’s financial statements.
COLLPLANT BIOTECHNOLOGIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share and per
share amounts)
NOTE 4 - INVENTORIES
a. |
Inventories on December 31, 2022 and 2021 consisted of the following: |
| |
December 31, | |
| |
2022 | | |
2021 | |
Work in progress | |
$ | 881 | | |
$ | 693 | |
Finished goods | |
| 549 | | |
| 388 | |
| |
$ | 1,430 | | |
$ | 1,081 | |
b. | The Company recorded inventories write-downs of $296, $367 and $55 for the years ended December 31, 2022, 2021 and 2020, respectively that were recorded as part of cost of revenues. |
NOTE 5 - OPERATING LEASES
The Company’s leases include offices for its facilities
and car leases, which are all classified as operating leases. The car leases are generally for three years period and the payments are
linked to the Israeli CPI.
As collateral for the office and lease agreement,
a restricted deposit was pledged in favor of the property owner. The balance of the restricted deposit as of December 31, 2022 amounted
to $188. The deposit is classified as a non-current asset.
To secure the terms of the car lease agreements,
the Company has made certain prepayments to the leasing company, representing approximately three months of lease payments.
Operating leases cost for rental space and vehicles
for the years ended December 31, 2022 and 2021 totaled $645 and $646, respectively.
The operating lease costs include variable lease
payments of $24 in 2022 and $12 in 2021.
COLLPLANT BIOTECHNOLOGIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share and per
share amounts)
NOTE 5 - OPERATING LEASES (continued)
Supplemental cash flow information related to
leases was as follows:
| |
Year ended December 31, | |
| |
2022 | | |
2021 | |
Operating cash flows from operating leases | |
$ | 770 | | |
$ | 702 | |
Supplemental balance sheet information
related to leases was as follows:
| |
December 31, | |
| |
2022 | | |
2021 | |
Operating Leases | |
| | |
| |
Operating lease right-of-use assets | |
$ | 2,711 | | |
$ | 2,953 | |
| |
| | | |
| | |
Current lease liabilities | |
$ | 529 | | |
$ | 519 | |
Non-current lease liabilities | |
| 2,382 | | |
| 3,089 | |
Total lease liabilities | |
$ | 2,911 | | |
$ | 3,608 | |
| |
| | | |
| | |
Weighted Average Remaining Lease Term | |
| | | |
| | |
Operating leases | |
| 5.7 years | | |
| 6.7 years | |
| |
| | | |
| | |
Weighted Average Discount Rate | |
| | | |
| | |
Operating leases | |
| 7.13 | % | |
| 7.33 | % |
As of December 31, 2022, the maturities
of lease liabilities were as follows:
| |
Operating leases | |
Year ending December 31, | |
| |
2023 | |
$ | 709 | |
2024 | |
| 604 | |
2025 | |
| 550 | |
2026 | |
| 524 | |
2027 and thereafter | |
| 1,143 | |
Total undiscounted lease payments | |
| 3,530 | |
Less - imputed interests | |
| (619 | ) |
Present value of lease liabilities | |
| 2,911 | |
COLLPLANT BIOTECHNOLOGIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share and per
share amounts)
NOTE 6 - COMMITMENTS
|
Commitment to pay royalties to the government of Israel |
The Company received grants from the IIA for research and development funding
until the year 2019, and therefore is subject to the provisions of the Israeli Law for the Encouragement of Research, Development and
Technological Innovation in the Industry and the regulations and guidelines thereunder (the “Innovation Law”, formerly known
as the Law for the Encouragement of Research and Development in Industry). Under the Innovation Law royalties of 3% on the income generated
from sales of products and from related services developed in whole or in part under IIA programs are payable to the IIA. Such commitment
is up to the amount of grants received (dollar linked), plus interest at annual rate based on LIBOR. Pursuant to the Innovation Law there
are restrictions regarding intellectual property and manufacturing outside of Israel, unless approval is received, and additional payments
are made to the IIA.
The Company did not apply for grants
from the IIA since 2019. For the years ended December 31, 2022, 2021 and 2020, the Company recorded royalties expenses of $9, $468 and
$795, respectively.
The royalty expenses which are related
to the funded project are recognized in the statements of comprehensive income (loss) as a component of cost of revenue.
The total gross amount of grants actually received by us from the IIA
as of December 31, 2022 totaled approximately $10.1 million. As of December 31, 2022, we paid royalties to the IIA in the total amount
of $2.8 million.
As of December 31, 2022, the maximum
total royalty amount payable by the Company under IIA funding arrangement is approximately $7,314 (without interest).
COLLPLANT BIOTECHNOLOGIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share and per
share amounts)
NOTE 7 – DEVELOPMENT , EXCLUSIVITY AND
OPTION PRODUCTS AGREEMENTS
|
On February 5, 2021, CollPlant entered into a Development, Exclusivity and Option Products Agreement (the “Development Agreement”) with AbbVie, pursuant to which CollPlant and AbbVie will collaborate in the development and commercialization of dermal and soft tissue filler products for the medical aesthetics market, using CollPlant rhCollagen technology and AbbVie’s technology. |
Pursuant to the Development Agreement,
CollPlant agreed to undertake projects for the development of an aseptic process for sterile rhCollagen that meets or exceeds certain
specifications as set forth in the Development Agreement.
Pursuant to the Development Agreement,
CollPlant granted to AbbVie and its affiliates, worldwide exclusive rights to use its 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 Development Agreement, CollPlant 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 CollPlant 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 CollPlant’s 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 Development Agreement, CollPlant agreed not to research, develop
or commercialize its rhCollagen for use with any Exclusive Products during the term of the Development Agreement or grant any third party
any rights to CollPlant’s rhCollagen technology that would conflict with rights granted to AbbVie.
The Development Agreement provides
that later on CollPlant and AbbVie will enter into a supply agreement whereby CollPlant 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.
The Development Agreement provides
that with respect to the Exclusive Products CollPlant shall be entitled to receive up to $50,000 comprised of an upfront cash payment
of $14,000, which was paid in February 2021, and up to $36,000 in proceeds upon the achievement of certain development, clinical trial,
regulatory and commercial sale milestones. 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, CollPlant shall be entitled to receive up to $53,000, as further described below, 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. The $53,000 in proceeds includes a one-time non-refundable payment of $6,000 upon signing
a definitive agreement with regard to the injectable breast implant product; a one-time non-refundable payment of $4,000 for signing a
definitive agreement with regard to the photocurable dermal filler product; and up to an additional $43,000 payable upon the achievement
of certain clinical trial, regulatory approval and commercial sale milestones.
COLLPLANT BIOTECHNOLOGIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share and per
share amounts)
NOTE 7 - LICENSE DEVELOPMENT AND COMMERCIALIZATION
AGREEMENTS (continued)
Unless earlier terminated, the 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 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 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 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.
NOTE 8 - SHARE CAPITAL
|
1) |
Rights of the Company’s ordinary shares |
Each ordinary share is entitled to one
vote. The holder of the ordinary shares is also entitled to receive dividends whenever funds are legally available, when and if declared
by the Board of Directors. Since its inception, the Company has not declared any dividends.
On January 31, 2018 the Company’s
ADSs commenced trading on the Nasdaq Capital Market, under the symbol CLGN. On May 25, 2021, The Company’s 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, the Company’s ADSs were
mandatorily cancelled and exchanged for ordinary shares at a one-for-one ratio.
|
2) |
Changes in share capital: |
| a) | In 2020 Alpha converted the remaining of the prepaid warrants and converted a pre-paid warrant to purchase 811,085 ordinary shares into 811,085 ordinary shares. During January-April 2021, Alpha exercised
992,149 warrants into 992,149 ADS in return of $3,969. |
COLLPLANT BIOTECHNOLOGIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share and per
share amounts)
NOTE 8 - SHARE CAPITAL (continued)
| b) | On September 10, 2018, the Company signed a one year service agreement with a service provider according to which in return to its services the Company will pay a monthly retainer and issue a total of 12,000 restricted ADSs (12,000 ordinary shares) in 3 tranches of 4,000 ADSs (4,000 ordinary shares) each: (i) following the execution of the agreement, (ii) February 1, 2019, and (iii) June 1, 2019. If the agreement was cancelled prior to the issuance date the share balance would not be owed. The first tranche was completed on December 19, 2018. The second and third tranches were completed on January 10, 2020. |
| c) | On August 30, 2019, the Company entered into an agreement with Ami Sagy and certain U.S. investors for the issuance of shares and warrants in a form of a convertible loan agreements in the total amount of $6,500, as follows: (i) a convertible loan agreement with Ami Sagy, its largest shareholder (the “Sagy Agreement”), pursuant to which Mr. Sagy will provide a convertible loan to the Company in an amount of $3,000 in two tranches, and (ii) a convertible loan agreement with certain U.S. investors (the “U.S. Agreement”, and, together with the Sagy Agreement, the “Agreements”), pursuant to which such U.S. investors (the “U.S. Investors”) provided a loan to the Company in an amount of $3,500 in one tranche. |
| | The Sagy Agreement provided that the transactions contemplated by the Sagy Agreement shall occur in three separate closings. On the first closing date, which occurred on September 3, 2019, Ami Sagy transferred to the Company the principal amount of $2,000. This amount was invested on account of the issuance in a form of convertible loan and was automatically converted into 500,000 ADSs at a conversion price of $4.00 per ADS on October 27, 2019. On the second closing date, which occurred on February 28, 2021, after the Company executed the Development, Exclusivity and Option Products Agreement (see note 8), the following occurred: (i) Ami Sagy transferred the Company an amount of $1,000 by way of an equity investment, and (ii) the Company issued to Ami Sagy 250,000 ADSs representing 250,000 ordinary shares and a warrants to purchase up to 250,000 ADSs representing 250,000 ordinary shares. On the third closing date, which was subject to shareholder approval and occurred on October 27, 2019, the Company issued to Ami Sagy a warrant to purchase up to 500,000 ADSs representing 500,000 ordinary shares. The consideration of the third closing is included in the principal amount received in the first closing. |
| | The U.S. Agreement provided that the transactions contemplated by the U.S. Agreement shall occur in two separate closings. On the first closing date, which occurred on September 6, 2019, the U.S. Investors transferred to the Company the principal amount of $3,500. On the second closing date, which occurred on October 27, 2019, the following occurred: (i) the principal amount invested on account of the issuance in a form of convertible loan, was automatically converted into 875,000 ADSs at a conversion price equal to $4.00 per ADS, and (ii) the Company issued to the U.S. Investors warrants to purchase up to 875,000 ADSs representing 875,000 ordinary shares. |
COLLPLANT BIOTECHNOLOGIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share and per
share amounts)
NOTE 8 - SHARE CAPITAL (continued)
|
|
In addition, the Company agreed to enter into
Price Protection Agreements pursuant to which, until the three-year anniversary of the first closing date, the Company shall issue additional
ADSs in the event of certain subsequent equity issuances at a price that is lower than $4.00 (subject to certain adjustments) on a “full-ratchet”
basis with respect to their holdings in the Company. The “full-ratchet” instruments are classified as financial liability
on the balance sheets and measures at fair value through profit or loss.
The warrants issuable under the Agreements are
exercisable at $4.00 per ADS and have a term of three years from the issuance date. The warrants are subject to adjustments upon certain
events, including share splits, share dividends, subsequent rights offerings, and fundamental transactions. In addition, until the three-year
anniversary of the first closing date, in the event of certain subsequent equity issuances at a price that is lower than the then applicable
exercise price, the exercise price shall adjust to such lower price |
|
|
Concurrently with the execution of the Agreements, the Company entered into Registration Rights Agreements with each of Ami Sagy and the U.S. Investors, pursuant to which the Company granted certain demand and piggyback registration rights with respect to the ordinary shares represented by the ADSs underlying the convertible loans and warrants. |
On October 27, 2019, an extraordinary
general meeting was held and the Company received the “shareholders’ approval” and subsequently issued the ADSs and
warrants as mentioned above.
The Company also issued an aggregate
of 175,039 ADSs to Mr. Sagy, and Meitav Dash, and 250,000 ADSs and 20,000 prepaid warrant to purchase up to 20,000 ADSs to Alpha in satisfaction
of the price protection undertakings under the Alpha Purchase Agreement, the Meitav Dash Purchase Agreement and the Sagy Purchase Agreement.
In 2021, one of the U.S investors exercised
450,000 warrants into 450,000 ordinary shares ADS in return of $1,800.
In 2022, three U.S investors exercised
425,000 warrants into 425,000 ordinary shares in return of $1,700.
| d) | On February 14, 2020, the Company entered into a Securities Purchase Agreement with several accredited U.S. investors, pursuant to which the Company issued on March 6, 2020, in a private placement, 445,000 ordinary shares for an aggregate purchase price of $4,450. |
| e) | On February 17, 2021, the Company completed
a registered direct offering providing for the sale and issuance of an aggregate of 2,000,000 ADSs at a purchase price of $17.50 per
ADS, for aggregate gross proceeds of $35,000. The total issuance costs accumulated to $3,200. |
COLLPLANT BIOTECHNOLOGIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share and per
share amounts)
NOTE 8 - SHARE CAPITAL (continued)
B. |
Share-based compensation: |
|
1) |
Option plan
In accordance with an option plan for employees
and consultants (the “Option Plan”), as amended from time to time, employees and consultants of the Company will be granted
options, each exercisable into one ordinary share of the Company of NIS 1.50. The ordinary shares that will be issued in accordance with
the Option Plan will have the same rights as the other ordinary shares of the Company, immediately subsequent to their issue. An option
that is not exercised within 10 years from the allotment date will expire, unless the board of directors extends its validity.
Grants to employees are made in accordance with
the Option Plan, and are carried out within the provisions of Section 102 of the Israel Income Tax Ordinance. In accordance with
the track selected by the Company and these provisions, the Company is not entitled to claim a tax deduction for the employee benefits.
For those who are not employees of the Company,
and for the Company’s controlling shareholders (as defined in the Income Tax Ordinance) options are granted in accordance with section 3(I)
of the Income Tax Ordinance. |
|
a. |
Option granted to employees and directors |
In the years ended December 31, 2022,
2021 and 2020, the Company granted options as follows (amounts presented reflect the number of shares issued if the options will be exercised):
| |
Year ended December 31, 2022 | |
|
| |
Award amount | | |
Exercise
price range | | |
Vesting
period | |
Expiration |
Employees | |
| 529,000 | | |
$ | 5.33-9.22 | | |
4 years | |
10 years |
Directors | |
| 217,000 | | |
$ | 9.22 | | |
4 years | |
10 years |
| |
Year ended December 31, 2021 | |
|
| |
Award amount | | |
Exercise
price range | | |
Vesting
period | |
Expiration |
Employees | |
| 96,500 | | |
$ | 12.78-20.7 | | |
4 years | |
10 years |
Directors | |
| 23,000 | | |
$ | 15.2 | | |
4 years | |
10 years |
COLLPLANT BIOTECHNOLOGIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share and per
share amounts)
NOTE 8 - SHARE CAPITAL (continued)
| |
Year
ended December 31, 2020 | |
|
| |
Award amount | | |
Exercise
price range | | |
Vesting
period | |
Expiration |
Employees | |
| 317,909 | | |
$ | 10.08 | | |
4 years | |
10 years |
Directors | |
| 194,713 | | |
$ | 9.12-11.06 | | |
4 years | |
10 years |
| |
| | | |
| | | |
| |
|
The fair value of options granted to employees
on the date of grant was computed using the Black-Scholes model. The underlying data used for computing the fair value of the options
are as follows:
| |
Year ended December 31, | |
| |
2022 | | |
2021 | | |
2020 | |
Value of one ordinary share | |
$ | 5.03-9.22 | | |
$ | 11.9-20.37 | | |
$ | 7.86-10.5 | |
Dividend yield | |
| 0 | % | |
| 0 | % | |
| 0 | % |
Expected volatility | |
| 67.95-72.27 | % | |
| 65.36-66.49 | % | |
| 66.12-66.41 | % |
Risk-free interest rate | |
| 0.39-3.03 | % | |
| 0.64-1.37 | % | |
| 0.45-0.52 | % |
Expected term | |
| 6.11 years | | |
| 6.11 years | | |
| 6.11 years | |
The fair value of options
granted during 2022, 2021 and 2020 was $3,970, 1,094 and $2,952 respectively.
The total unrecognized compensation
cost of employee options at December 31, 2022 is $2,637, which is expected to be recognized over a weighted average period of 1.8
year.
A summary of options
data for the years ended December 31, 2022, 2021 and 2020, is as follows:
| |
Year ended December 31, | |
| |
2022 | | |
2021 | | |
2020 | |
Weighted-average grant date fair value of options granted, per option | |
$ | 5.32 | | |
| 9.16 | | |
| 5.76 | |
Total intrinsic value of the options exercised | |
| 221 | | |
| 869 | | |
| 82 | |
Total fair value of options vested | |
| 2,802 | | |
| 3,356 | | |
| 1,937 | |
COLLPLANT BIOTECHNOLOGIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share and per
share amounts)
NOTE 8 - SHARE CAPITAL (continued)
| |
2022 | |
| |
Number of options | | |
Weighted average exercise price | | |
weighted average remaining contractual term (in years) | | |
aggregate intrinsic value | |
Options outstanding at the beginning of the year | |
| 1,220,694 | | |
$ | 7.71 | | |
| 5.84 | | |
$ | 7,445 | |
Granted | |
| 746,000 | | |
| 8.54 | | |
| | | |
| | |
Exercised | |
| (39,457 | ) | |
| 4.42 | | |
| | | |
| | |
Expired | |
| (3,438 | ) | |
| 10.39 | | |
| | | |
| | |
Forfeited | |
| (55,050 | ) | |
| 11.48 | | |
| | | |
| | |
Options outstanding at the end of the year | |
| 1,868,749 | | |
| 7.85 | | |
| 6.81 | | |
| 14,818 | |
Options exercisable at the end of the year | |
| 914,373 | | |
$ | 6.79 | | |
| 4.34 | | |
$ | 6,209 | |
| |
| | | |
| | | |
| | | |
| | |
|
b. |
Option granted to non-employees |
|
|
The following table summarizes the number of options granted to non-employees under the Option Plan for the years ended December 31, 2022, 2021 and 2020, and related information. Amounts presented reflect the number of shares issued if the options will be exercised: |
| |
2022 | |
| |
Number of options | | |
Weighted average exercise price | | |
weighted average remaining contractual term (in years) | | |
aggregate intrinsic value | |
Options outstanding at the beginning of the year | |
| 15,416 | | |
$ | 16.04 | | |
| 2.54 | | |
| 314 | |
Options outstanding at the end of the year | |
| 15,416 | | |
$ | 16.04 | | |
| 1.79 | | |
| 202 | |
Options exercisable at the end of the year | |
| 9,766 | | |
$ | 8.47 | | |
| 1.52 | | |
| 65 | |
COLLPLANT BIOTECHNOLOGIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share and per
share amounts)
NOTE 8 - SHARE CAPITAL (continued)
The following
tables summarize information concerning outstanding and exercisable options as of December 31, 2022:
December 31, 2022 | |
Options outstanding | | |
Options exercisable | |
Exercise prices * | | |
Number of options outstanding at end of year | | |
Weighted average remaining contractual Life | | |
Number of options exercisable at end of year | | |
Weighted average remaining contractual life | |
$ | 25.58 | | |
| 6,666 | | |
| 2.38 | | |
| 1,329 | | |
| 2.38 | |
| 6.25 | | |
| 5,000 | | |
| 2.33 | | |
| 5,000 | | |
| 2.33 | |
| 15.2 | | |
| 23,000 | | |
| 8.41 | | |
| 8,625 | | |
| 8.41 | |
| 13.08 | | |
| 31,375 | | |
| 7.56 | | |
| 14,777 | | |
| 7.02 | |
| 12.78 | | |
| 30,000 | | |
| 8.24 | | |
| 13,125 | | |
| 8.24 | |
| 11.06 | | |
| 162,713 | | |
| 7.11 | | |
| 111,865 | | |
| 7.11 | |
| 10.08 | | |
| 286,198 | | |
| 7.19 | | |
| 183,303 | | |
| 7.06 | |
| 9.12 | | |
| 32,000 | | |
| 7.66 | | |
| 18,000 | | |
| 7.66 | |
| 5.07 | | |
| 188,625 | | |
| 3.04 | | |
| 175,277 | | |
| 3.04 | |
| 4.02 | | |
| 396,588 | | |
| 2.22 | | |
| 392,838 | | |
| 2.2 | |
| 9.22 | | |
| 591,000 | | |
| 9.22 | | |
| - | | |
| - | |
$ | 5.33 | | |
| 131,000 | | |
| 9.92 | | |
| - | | |
| - | |
| | | |
| 1,884,165 | | |
| | | |
| 924,139 | | |
| | |
| * | In U.S. dollars per Ordinary Share. |
|
c. |
The following table illustrates the effect of share-based compensation on the statements of operations: |
| |
Year ended December 31 | |
| |
2022 | | |
2021 | | |
2020 | |
Cost of revenues | |
$ | 22 | | |
$ | 78 | | |
$ | 66 | |
Research and development expenses | |
| 565 | | |
| 525 | | |
| 464 | |
General, administrative and marketing expenses | |
| 1,587 | | |
| 1,017 | | |
| 1,075 | |
| |
$ | 2,174 | | |
$ | 1,620 | | |
$ | 1,605 | |
COLLPLANT BIOTECHNOLOGIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share and per
share amounts)
NOTE 9 - INCOME TAX
The Company and its Israeli subsidiary
are taxed under Israel tax laws:
After the Company consummates its Net
Operating Losses, the corporate tax rate applicable for the years 2020-2022, is 23%.
The Company and its subsidiary have
tax assessments that are considered to be final through tax year 2017.
C. |
Losses for tax purposes carried forward to future years |
As of December 31, 2022, CollPlant
Biotechnologies Ltd. and CollPlant Ltd had approximately $21,075, and $66,339, respectively, of net carried forward tax losses
which are available to be offset against future taxable income in future with no limited period of use.
| |
| |
| |
2022 | | |
2021 | |
Deferred tax assets | |
| | |
| |
Net operating loss carry forward | |
| 20,105 | | |
| 14,391 | |
Research and development | |
| 1,736 | | |
| 1,280 | |
Offering costs | |
| 230 | | |
| - | |
Operating lease liabilities | |
| 670 | | |
| 830 | |
Share-based compensation | |
| 349 | | |
| - | |
Valuation of financial instruments | |
| - | | |
| (6 | ) |
Total gross deferred tax assets | |
| 23,090 | | |
| 16,495 | |
Less – valuation allowance | |
| (22,466 | ) | |
| (15,816 | ) |
| |
| | | |
| | |
Deferred tax liabilities: | |
| | | |
| | |
Operating lease assets | |
| (624 | ) | |
| (679 | ) |
Net deferred tax assets | |
| - | | |
| - | |
Realization of deferred tax assets is
contingent upon sufficient future taxable income during the period that deductible temporary differences and carried forward losses are
expected to be available to be offset against taxable income. As the achievement of required future taxable income is not likely, the
Company recorded a full valuation allowance.
E. |
Reconciliation of theoretical tax expenses to actual expenses |
The primary difference between the statutory
tax rate of the Company and the effective rate results virtually from the changes in valuation allowance in respect of carried forward
tax losses for tax purposes and research and development expenses due to the uncertainty of the realization of such tax benefits.
COLLPLANT BIOTECHNOLOGIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share and per
share amounts)
NOTE 9 - INCOME TAX (continued)
F. |
Uncertain tax positions |
As of December 31, 2022 and 2021,
the Company does not have a provision for uncertain tax positions.
G. |
Roll forward of valuation allowance: |
Balance at December 31, 2021 | |
$ | 15,816 | |
Additions | |
| 6,650 | |
Balance at December 31, 2022 | |
$ | 22,466 | |
NOTE 10 - SUPPLEMENTARY FINANCIAL STATEMENT
INFORMATION:
Balance sheets:
| |
December 31 | |
| |
2022 | | |
2021 | |
a. Accrued liabilities and other: | |
| |
Employees and institutions for employees | |
$ | 944 | | |
$ | 863 | |
Provisions for vacation and others | |
| 446 | | |
| 473 | |
Royalties and Other | |
| 53 | | |
| 93 | |
| |
$ | 1,443 | | |
$ | 1,429 | |
COLLPLANT BIOTECHNOLOGIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share and per
share amounts)
NOTE 10 - SUPPLEMENTARY FINANCIAL STATEMENT
INFORMATION (continued)
Statements of operations:
|
1) |
Disaggregated revenues |
| |
Year ended December 31 | |
| |
2022 | | |
2021 | | |
2020 | |
Revenues from licensing agreement (see Note 2(q)) | |
$ | - | | |
$ | 14,000 | | |
$ | 3,600 | |
Revenues from the sales of goods | |
| 299 | | |
| 1,595 | | |
| 2,108 | |
Revenues from the rendering of services | |
| - | | |
| 46 | | |
| 429 | |
Total revenues | |
$ | 299 | | |
$ | 15,641 | | |
$ | 6,137 | |
|
2) |
Revenues by geographical area (based on the location of customers): |
| |
Year ended December 31 | |
| |
2022 | | |
2021 | | |
2020 | |
United states and Canada | |
$ | 174 | | |
$ | 15,013 | | |
$ | 5,768 | |
Europe and Israel | |
| 125 | | |
| 628 | | |
| 369 | |
Total revenues | |
$ | 299 | | |
$ | 15,641 | | |
$ | 6,137 | |
Set forth below is a breakdown of the
Company’s revenue by major customers (major customer –revenues from these customers constitute at least 10% of total revenues
in a certain year):
| |
2022 | | |
2021 | | |
2020 | |
Customer A | |
$ | 9 | | |
$ | 14,770 | | |
$ | 822 | |
| |
| | | |
| | | |
| | |
Customer B | |
$ | 101 | | |
$ | *) | | |
$ | *) | |
| |
| | | |
| | | |
| | |
Customer C | |
$ | 158 | | |
$ | *) | | |
$ | *) | |
Customer D | |
$ | - | | |
$ | 169 | | |
$ | 4,929 | |
COLLPLANT BIOTECHNOLOGIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share and per
share amounts)
NOTE 10 - SUPPLEMENTARY FINANCIAL STATEMENT
INFORMATION (continued)
|
4) |
The changes in deferred revenues relating to goods that were not yet delivered are as follows: |
| |
2022 | | |
2021 | | |
2020 | |
Balance at beginning of year | |
$ | (32 | ) | |
$ | (207 | ) | |
$ | (942 | ) |
Contract liability recognized during the period | |
| - | | |
| (32 | ) | |
| (270 | ) |
Revenue recognized during the period | |
| 32 | | |
| 207 | | |
| 1,005 | |
| |
| | | |
| | | |
| | |
Balance at end of year | |
| - | | |
| (32 | ) | |
| (207 | ) |
Contract liability presented in current liabilities | |
| - | | |
| (32 | ) | |
| (207 | ) |
Contract liability presented in non-current liabilities | |
| - | | |
| - | | |
| - | |
All of the Company’s long-lived assets are
located in Israel.
d. |
Financial income (expenses) ,net |
| |
Year ended December 31 | |
| |
2022 | | |
2021 | | |
2020 | |
| |
| | |
| | |
| |
Exchange rate differences | |
$ | (115 | ) | |
$ | (38 | ) | |
$ | (181 | ) |
Bank and other fees | |
| (10 | ) | |
| (30 | ) | |
| (11 | ) |
Remeasurement of financial instruments | |
| - | | |
| 28 | | |
| 40 | |
Other financing expenses | |
| (24 | ) | |
| (7 | ) | |
| (23 | ) |
Interest on bank deposits | |
| 321 | | |
| 219 | | |
| - | |
Financial income (expenses), net | |
$ | 172 | | |
$ | 172 | | |
$ | (175 | ) |
NOTE 11 - SUBSEQUENT EVENTS
On February 21, 2023, Mr. Ami Sagy exercised 186,000
warrants into 186,000 ordinary shares in return for $774. These warrants were granted as part of November 9, 2017 Sagy purchase agreement,
pursuant to which the Company issued to Ami Sagy in a private placement, 186,000 ordinary shares for gross proceeds of $1,066, plus 186,000
warrants.
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