Collplant Shares Take Off on Indications of Strategic Deal

Speculation that Collplant Holdings is about to close a collaborative agreement with a multinational has pushed its shares 40% higher in two weeks. One candidate mentioned is Pfizer, although Collplant management has refused to say if this is the case.

Speculation that Collplant Holdings is about to close a collaborative agreement with a multinational has pushed its shares 40% higher in two weeks. One candidate mentioned is Pfizer, although Collplant management has refused to say if this is the case.

"We are in discussions and in the process of drawing up collaborative arrangements with more than one company, in several fields," said CEO Yehiel Tal. "The fact that we are being approached shows that there is a real need for our product and technology."

Collplant was founded in 2004, setting out to develop and produce collagen through the genetic engineering of tobacco plants. Collagen is the most dominant protein in the body, accounting for over 25% of total protein content. It is a structural protein, the main component of fibrous and connective tissue, both hard and soft, such as cartilage, tendons, skin, ligaments and bones.

Commercial collagen is produced from farm animals such as cattle and pigs and used in about 1,000 medical treatments. Collplant's founder and chief scientific officer, Prof. Oded Shoseyov, developed a process which imitates the production of collagen in the human body in genetically-engineered tobacco plants. After identifying the five genes responsible for collagen production, he inserted two of the genes in one plant and the other three into another. Crossbreeding the two produced a stable strain of tobacco plants that can mimic the human cell's manufacture of the protein.

Plant-based collagen has a number of advantages over the animal-based substitute. Most importantly perhaps is enhanced safety. An animal serving as the source of the product could suffer from an ailment or virus that could be passed on. Also, plant-based collagen won't cause an immune reaction.

A purer protein

Another advantage is that collagen from plants is composed of purer and more homogeneous molecules. These are more successfully used by human cells, such as those in the skin and blood vessels, as a platform for more rapid replication than can be achieved using animal collagen.

The company's products are not differentiated from others only due to safety issues, says Tal. "The higher concentration of collagen produced from tobacco than that from animals - 200 milligrams per milliliter as opposed to just three - and better control over the production process in plants, mean that we can produce a product with many functional advantages."

Among these advantages, Tal includes the economic benefits. "The genome of the tobacco plant has been researched and has become familiar. It is simple to manipulate and the plant's growth cycle is short, only four to six weeks long. This means that the harvested crop from any given piece of land can be maximized and production costs kept low. Also, the plant isn't part of the food chain, so that raising transgenic tobacco cannot contaminate or affect food crops such as corn."

Tal also points out the beneficial attributes of plant-based collagen: "strength, ability to produce a structure of unidirectional fibers, and faster reproductive rate of bone, cartilage and skin connective tissue, which means a quicker recovery rate for patients."

Unlike the human process for producing collagen, the plant's process saves the C-propeptide, a component of the amino acid chain that composes collagen. C-propeptide helps build up blood vessels, attracts cells to quicken the healing rate and helps avoid scarring. In Tal's opinion this should interest drug companies as well as those producing medical treatments.

Collplant has received patent certification in Europe for its collagen-producing technology. Its product, Collage, is commercially produced and serves as a raw material for other medical products. The company has a marketing and distribution arrangement with Funakoshi of Japan and has established contact with Sigma-Aldrich.

Even at the steep price of $2,000 to $2,500 per gram, global sales of animal collagen as a raw material for medical products is estimated at only $400 million a year. Since this market is limited, the owners and management of Collplant decided early in 2009 not to settle for producing collagen for use as a raw material, where the profit margin is 40%, but to enter a new field: the development and manufacture of plant-based collagen for products and solutions in reconstructive orthopedic medicine, where gross profit margins reach 80%.

The company's first product in this line is Vergenix, a sponge for the healing of chronic wounds and skin ulcers like pressure sores and diabetic wounds, based on genetically-engineered collagen. The product was submitted for U.S. Food and Drug Administration 510 (k ) clearance as a medical device in August, which, Collplant management believes, is a shorter and less expensive process than that for attaining drug clearance, and is expected to take several months.

The next product in Collplant's development pipeline, an injected gel to provide care for deep wounds and surgical incisions, is currently being tested on pigs. Its current competition in the market is an animal collagen injection of three milliliters priced at $2,500.

Collplant is primarily focusing on two markets growing at an annual rate of 10%: orthopedics and wound healing. The CEO estimates that, on the basis of a conservative average price of $3,000 per operation, the potential for procedures like cruciate ligament replacement in the knee, repairing torn shoulder, arm and hand tendons, lumbar fusion surgery, repair of herniated discs and cartilage surgery amounts to $3.7 billion a year in the U.S. alone.

The company's business model is based on two growth engines besides selling raw material. One is developing products in conjunction with specialized companies like Zimmer in sports medicine or Medtronic in muscular and skeletal systems, by predefining the partner's needs and integrating Collplant's collagen in the future product.

"This strategy enables us to utilize the company's technological systems to simultaneously develop several products with a relatively limited investment," explains CFO Alon Bloomenfeld, adding that this is far different from a strategy of developing a product from the technological stages through to its approval and sales, as was done by Protalix Biotherapeutics, another Israeli company that developed a plant-based system for producing proteins.

The other growth engine is making supply agreements with first-rate multinationals to replace the animal collagen component in their products with plant collagen, in a similar vein to OEM agreements.