Greetings. And welcome to the CollPlant Biotechnologies Third Quarter 2023 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Dory Kurowski with LifeSci. Thank you. You may begin.

Good morning. I would like to welcome everyone to CollPlant Biotechnologies’ financial results conference call for the third quarter ended September 30, 2023 and corporate business update. With us on the call today from CollPlant are Yehiel Tal, Chief Executive Officer, who will provide an overview of the company’s programs and forthcoming updates; and Eran Rotem, Deputy CEO and Chief Financial Officer, who will provide a summary of CollPlant’s financial results for the third quarter ending September 30, 2023. Before we get started, I would like to remind everyone that statements made on this conference call may include forward-looking statements. Actual events or results could differ materially from those expressed or implied by any forward-looking statements as a result of various risks, uncertainties and other factors, including those set forth in the Risk Factors section of CollPlant’s filings with the Securities and Exchange Commission. These filings can be found at www.sec.gov or on CollPlant’s website at www.collplant.com. In addition, any forward-looking statements made on this call represent CollPlant’s views only as of today, November 29, 2023 and should not be relied upon as representing the company’s views as of any subsequent dates. CollPlant management specifically disclaims any obligation to update or revise any of these forward-looking statements. Finally, CollPlant management will refer to certain financial measures not reported in accordance with GAAP on this call. You can find reconciliations of these non-GAAP financial measures to the GAAP financial measures in the earnings press release that CollPlant published earlier today and which is available on CollPlant’s website at ir.collplant.com. With that, let me turn the call over to Yehiel Tal, Chief Executive Officer of CollPlant Biotechnologies. Please go ahead, sir.

Good morning, everyone. And thank you for joining us today on CollPlant investor conference call to discuss our third quarter 2023 financial results and corporate development. As you know, Isarel has been in a state of war since October 7. First on and foremost, I want to communicate to you about how we have been managing CollPlant during this time. It has very unfortunately been a significant part of our daily life. When the war started, CollPlant’s management team implemented two key objectives. The first one was maintaining company operations, including R&D and general operations, in support of the company's objectives, and the second objective was to maintain employees' safety and security. At the beginning of the war, we established a crisis team comprised of management members that are closely monitoring all aspects of our company operations. This team is charged with key responsibilities, including maintaining ongoing communication with business partners, critical suppliers, major shareholders, analysts, bankers, and others, as well as strengthening ties with CollPlant’s employees. In addition, approximately 10% of CollPlant’s employees were drafted to the army at the beginning of the war, and of course, we keep in touch with them. As of today, we can report that CollPlant 's production plan and main development programs have been minimally affected as a result of the war. Specifically, we can say that collagen production continues according to plan and that we continue to maintain an ongoing dialogue with our partners. The moral of our employees these days is reasonable according to the circumstances and their desire to come to the site and contribute to CollPlant is commendable and at a good level. As Eran will expand upon later, we also took the initiative to make the necessary adjustments to the company's budget to accommodate the current challenging market…

Thank you, Yehiel. Good morning, everyone. I will now review our financial results for the three and nine months period ending September 30, 2023. GAAP revenues for the third quarter ended September 30, 2023 were $43,000 and included mainly income from sales of our bioink and rhCollagen, a decrease of $66,000 compared to $109,000 in the third quarter ended September 30, 2022. GAAP revenues for the nine months period ended September 30, 2023, were $10.7 million and included mainly revenues from AbbVie, CollPlant's business partner. Revenues increased by $10.5 million compared to $241,000 in the same period last year. The increase is mainly related to the achievement of a milestone with respect to the AbbVie agreement, which triggered a $10 million payment, and in addition, an increase in income from sales of CollPlant's rhCollagen products. As we said previously, according to the agreement with AbbVie, CollPlant is also eligible to receive up to an additional $26 million in milestone payments for the dermal filler product, as well as royalty payments and fees for the manufacture and supply of rhCollagen once the product will be in the commercial phase. GAAP cost of revenues for Q3 2022 was $278,000 compared to $264,000 in Q3 2022. Cost of revenues includes mainly the cost of the company's rhCollagen -based products and royalties to the Israeli Innovation Authority, or IIA, for the company's sales. GAAP cost of revenues for the nine months ended September 30, 2023 was $1.2 million compared to $338,000 in the nine months ended September 30, 2022. The increase in the amount of approximately $880,000 is mainly comprised of $312,000 in royalties expenses to the IIA, mainly related to the milestone payment received from AbbVie, and $430,000 relating to the sales of BioInk, VergenixFG and rhCollagen. GAAP operating expenses for Q3 2023…

[Operator Instructions] Our first question comes from Swayampakula Ramakanth with H.C. Wainwright.

Thank you. This is RK from HC Wainwright. Good afternoon, Yehiel and Eran. I hope you and your families are safe and doing well. I know it's tough times out there. Just thinking about the different development programs that you folks are focusing on, and to start off with the dermal and soft tissue filler. So, Eran, thanks for telling us that there is $26 million still out there in terms of milestone payments. Just for us to understand, what's the next milestone that you need to achieve to receive the next payment from AbbVie?

Thanks, RK, for your kind words. And to your question, yes, it's correct. We have regarding -- only regarding the dermal filler product, which is one product out of the agreement with AbbVie. We are left now with an additional $26 million that will come against the milestone. Just to remind the audience, we already received $24 million, $14 million as an upfront and another $10 million in the third quarter of this year. So we may disclose the details of the agreement only in accordance with our partners' agreement, only with agreed agreement. And accordingly, in the past, we did disclose that the milestone payments will be triggered upon the achievement of the following topics. One is a milestone for development, clinical trial, regulatory, and commercial sales. So those are the milestones that we disclosed that, at the beginning of the agreement, we disclosed that those are the milestones that are in front of us. And at this stage, we are unable to share information about the timeline for the next milestone.

Fair enough. And then regarding the breast implant. So what's the development strategy, especially after the next large animal study that you're planning to initiate soon?

Thank you, RK, for the question. This is Yehiel speaking. The large animal studies, this is, I’ll give you the long answer, the large animal study that we conducted so far were intended to practice the surgical protocol and optimize the design of the implant. We reported the results of these studies as demonstrated tissue regeneration, muscularization, and no adverse events. The upcoming large animal study is intended to evaluate commercial-sized implants, and we plan to launch it in December of 2023. In this study, we have two endpoints. The longer one is 12 months. The first one is three months. And this study will help us to converge into the final implant design in terms of geometry and the biomaterials that the implant is made of. This 100 TC study will be followed by a GLP pivotal study, is that its data will serve us for the ID submission to FDA. In any case, discussions with the FDA, for example, like Type C meeting, these discussions are planned for 2025. And regarding the time to commercialization, it is premature to address this question. The timing can be determined only after we get the IV approval, which by itself would be a major achievement of the company. At this point of time, I would say it is going to take few years before this product hits the market and at this point of time it is too early to be more precise than that. And I would like to emphasize that breast implant is a multidisciplinary program, and this program involves developing of technological building blocks that were not existing until now, until we developed them. And consequently, we are developing a product in a very detailed manner to ensure that the product will eventually perform over time and, of course, maintaining the patient's safety. So I hope that this is addressing your question.

Yes, thank you very much, Yehiel. And then the last question from me is on Gut-on-a-Chip. So I believe you terminated your agreement with Tel Aviv University and Sheba Medical Center recently. Just trying to understand the rationale behind that and also how keen are you in trying to get either a development partner or a commercial partner for the Gut-on-a-Chip product?

Yes. Thank you, RK, for the question. So first of all, after one year of collaboration, we have decided that CollPlant can take upon itself the Gut-on-a-Chip product development and we evolved an in-house resource based on the knowhow that has been accumulated. The product development team has been restructured and the development plan was adjusted and optimized to accommodate the new program organization. Now, of course, by the time that we will validate, we go by stages in the development process. So the next stage will be to develop a model to mimic a healthy gut tissue. And then later on, we will use the ulcerative colitis disease onto this model and add other components such as PDMC and also microbiome to have a full model. So we believe that when we will have a healthy tissue model, we will be in a position to start seeking for a collaborator. The collaborator can be for drug discovery purposes, but also for personalized medicine applications. So I hope that this is addressing your question.

Our next question comes from Ben Haynor with Alliance Global Partners.

Good day, gentlemen. Can you hear me, okay? Excellent. So just a quick one on the runway, the two-year runway. Can you remind us, does that include expected payments from AbbVie milestone payments?

So we are talking about the dermal filler, right?

Or the option products. I mean other AbbVie, potential for AbbVie milestones or options to be, are they included in that two-year runway? I guess is the shorter way of asking.

No. The two-year runway, which is a very important piece of information, the two-year runway is only counting on the $29 million that we already have in our banks. Yes, we are not including the potential additional milestone achievement or exercise of an option product or a new agreement.

Okay, that's helpful. I just wanted to make sure I was clear there. And then on the Gut-on-a-Chip, the next development activities, what sort of goes into that? How soon do you think you could sign up a collaborator or partner on that? Just any color on kind of what investors should expect to hear next?

I believe that by the time that we can show a model of a healthy gut tissue, which is going to be the next major milestone, and shows that this model is validated, and the plan that we have to take it to the next level of inducing the ulcerative colitis model, I think that at the time that we have a healthy tissue model and the plan, we can present to a potential partner, this would be the time to seek for the partner.

Okay. So then it's dependent on getting the healthy tissue model where you want it and then whatever negotiation time that might be required with partners.

Right. Exactly. And we are progressing in the healthy tissue model. We managed to grow a pectin layer on the model, which is the basic of the model, and also to form a blood vessel. So I think we are progressing very nicely according to the plan. And by the time we will have a validated healthy tissue model, then it will be the time to talk to a partner. By the way, this technology that we are developing can later on be expanded to different tissue models because gut tissue model is quite complex. So all the building blocks that we are establishing for this model can later on be used to develop with other partners different models like skin, like lung, whatever.

Okay. That makes sense. Everything seems pretty straightforward. That's all I had. Thoughts go out to you and everyone in Israel. Thanks for taking the questions, guys.

We've reached the end of the question and answer session. I'd now like to turn the call back over to Eran Rotem for closing comments.

Okay, so thank you, everyone. Our vision is to be the leaders in regenerative medicine, helping people live longer and better through our innovative collagen technology. Consequently, our goal is to create better alternatives and options for the future, such as novel regenerative products for medical aesthetics applications and unlimited supply of spare parts for the human body, including life-saving organs, medical treatment that is tailored for the individual characteristics for each patient, and drugs developed without the need for animal testing. In closing, I want to reiterate our upcoming goals for the remainder of 2023 and through the first half of 2024. We plan to continue to advance development of paradigm-shifting regenerative dermal and soft tissue filler program with AbbVie, initiate the study in large animals with commercial-sized breast implant to generate additional safety and efficacy data in support of commercialization of this program, advance our Gut-on-a-Chip development program to deliver a functional model that mimics gut tissue, including permeability feature, and continue to form collaborations with industry leaders related to the use of our rhCollagen. Thank you everyone for your time this morning and for joining us for today's conference call. We leave you with this closing slide featuring our very important and valued CollPlant team members. Operator? Operator, you can now close the call.

Thank you. This concludes today's conference. You may disconnect your lines at this time. And we thank you for your participation.