CollPlant Stock: Collagen, 3D Bioprinting, and BioInks
What attracts many new investors to the stock market is a really exciting story which involves the promise of future riches. Outside of pharmaceutical stocks, you rarely find companies worth billions without meaningful revenues. We say “meaningful” because sometimes a company will generate small amounts of revenues forever without actually doing squat. That’s why we only invest in companies with meaningful revenues. Just check out this 3D bioprinting company that’s been making promises for as long as we can remember.
Why ARK Invest chooses to hold (checks Yahoo Finance) 8.52% of that company’s shares is beyond us. It shows that even sophisticated institutional investors are prone to chase stories as opposed to traction. Today, we’re going to talk about a 3D bioprinting company whose last four quarters of revenue (inconsistent as they were) exceeded 30 quarters’ worth of Organovo (ONVO) revenues.
CollPlant Biotechnologies – CLGN
Founded in 2004, CollPlant Biotechnologies (CLGN) has a story that’s quite compelling – genetically engineered tobacco plants that produce a superior form of collagen that has any number of advantages over what’s on the market today.
That’s the value proposition in a nutshell. Validation of their technology recently came in the form of a $14 million milestone payment recorded last quarter that was made by Allergan Aesthetics, the company behind the Botox brand. Before we get too excited, we need to gauge what the size of the potential opportunity is.
A Blue Ocean TAM
When looking at a stock’s potential, we need to consider the size of the opportunity they’re trying to capitalize on. This is called the total addressable market (TAM), and the type we look for is referred to as “blue ocean.” A couple of INSEAD MBA professors coined the term, and being the MBAs we are, we started using it without even looking up what it meant. Intuitively, it means a total market opportunity that’s so vast you could grow revenues for a decade at a triple-digit compound annual growth rate without even capturing a market share in the double digits. But it’s actually more profound than that. Says Investopedia:
A pure blue ocean market has no competitors. A blue ocean market business leader has first-mover advantages, cost advantages in marketing with no competition, the ability to set prices without competitive constraints, and the flexibility to take its offering in various directions.Credit: Investopedia
In other words, a blue ocean is a market that nobody occupies, that is until some BSD dominates it, Apple probably being the best example. It seems intuitive then, that the early market leader in a blue ocean will likely become the biggest shark.
You may think CollPlant has a blue ocean TAM because they’re the only company that can create collagen using tobacco plants, but that’s not true. First of all, the TAM on offer isn’t that big. Here are some numbers on the collagen market.
A $3.6 billion market just isn’t that big, even if it’s expected to grow to $6.3 billion by 2027. More importantly, it’s not blue ocean. This market already exists, and is being served by any number of companies producing collagen. Trying to displace a market that’s already in place is much easier said than done. Securing some partnership wins that consist of sporadic and uncertain cash flows doesn’t make for the sort of business we want to invest in, even if the company is run by a serial entrepreneur.
A Serial Entrepreneur
Whenever a company is making promises, we want to see who is making them. A 2018 article by ISRAEL21c lauds CollPlant’s Founder and Chief Scientist as a prolific serial entrepreneur, but it’s not about how many companies you can found. The type of serial entrepreneur we want to invest in is one with a track record of successful exits. Here’s a look at some of the companies this gentleman has founded.
- BioBetter – Founded last year and consists of a one-page website – literally, one page, and the worst email submission form ever made.
- PlantArcBio – Went public earlier this year on the Tel Aviv Stock Exchange and sports a market cap of $13 million.
- Paulee CleanTec – CollPlant founder listed as Chief Scientific Officer. Last press release appears to be in 2016.
- Sp Nano – Hasn’t had a press release since October 2017.
There were other companies mentioned in the article, some with no apparent website or a broken Crunchbase profile. There’s even a company building cellulose burgers which should have (checks calendar) debuted in Spring 2020.
Here’s another interesting tidbit. CollPlant’s founder also founded three companies we covered before – Valentis Nanotech, Melodea, and UBQ – all of which were featured in our piece on 8 Israeli Waste and Recycling Startups. The CEO of Valentis also happens to be CFO at Melodea, two companies that do something very similar, which seems like a conflict of interest. As for UBQ, they appear to be making some great progress. Earlier this year, 7,200 serving trays made with UBQ’s composite thermoplastic material were introduced in 30 McDonald’s restaurants in 20 Brazilian state capitals. It’s not the only success story that CollPlant’s founder has under his belt.
The ISRAEL21c article talks about a past successful exit that CollPlant’s founder had – a merger of two companies, CBD Technologies and FuturaGene – after which the resulting entity was sold for $100 million to Brazilian paper company Suzano in 2010. That’s great to hear, but that doesn’t change the fact that CollPlant’s founder is dabbling in way too much right now when his sole focus – as Chief Scientist of CollPlant – should be on the company that’s now trading on a major U.S. exchange. Since he owns just 1.6% of CollPlant – the same as the CEO – maybe he has bigger fish to fry. Or maybe he’s not the Chief Scientist anymore. We can’t tell, because the company’s latest annual report states conflicting information:
- Page 86 – Prof. Oded Shoseyov founded our subsidiary CollPlant Ltd. in 2004, and currently serves as our Chief Scientist since March 2019
- Page 107 – 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.
CollPlant and United Therapeutics
While the Allergan partnership looks great on the tin, we’re concerned with some recent news surrounding a relationship CollPlant had with United Therapeutics (UTHR), a company we’ve covered before. The relationship began in 2018 and was between a UTHR subsidiary, Lung Biotechnology, and CollPlant. Partnerships are often made and broken, but we’re very concerned about the disconnect on display.
On February 18, 2021, CollPlant issued a letter to shareholders which said the following:
We expanded our collaboration with United Therapeutics which exercised its option with CollPlant to cover a second lifesaving organ, human kidneys, in addition to lungs.Credit: CollPlant
One week later came this news:
CollPlant Biotechnologies (NASDAQ: CLGN) a regenerative and aesthetics medicine company, today announced that on February 24, 2021 it received a notice from Lung Biotechnology, a United Therapeutics subsidiary, informing the Company of the termination of the licensing agreement between the parties.Credit: CollPlant
Does this mean all relationships with both companies are void? Is that for kidneys and/or lungs? There appears to be a disconnect between what shareholders were told and what’s actually happening behind the scenes. A lack of clear information about what actually happened makes the whole thing appear as a big red flag.
A past look at CollPlant’s press releases going back to 2012 show an awful lot of progress by press release for their Vergenix product which still hasn’t brought in meaningful revenues for the company. As of last year, they’re still issuing press releases about product distribution, in some very obscure countries as well. That’s another red flag.
We’re always suspicious of companies that communicate too much with shareholders instead of showing traction in the form of revenues. It’s great CollPlant has a new website, but that’s not typically something you showcase to investors in a press release.
To Buy or Not to Buy
We like having an objective rule in place that keeps us from getting tempted to buy stories instead of revenue growth. With a current market cap of $192 million, CollPlant doesn’t even come close to meeting our $1 billion market cap cutoff. This small company may have a great story, but it’s far too risky for our liking, no matter what the market cap happens to be. We’ve spent the last decade looking at the potential of stocks with stories, and this one doesn’t pass the sniff test. We wish the company and its ambitious founder all the best.
Companies with stories love to tell them because that’s what attracts investors. Fair enough, but we don’t invest in them. A propensity to over communicate progress with shareholders is a red flag. So is having your hands in too many baskets, or having partnerships with large companies that suddenly change on a dime. While there may be half a dozen reasons why these things appear as they do, we’ve seen enough. CollPlant is a company we’ll be avoiding going forward.
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