Cytosorbents Corporation (NASDAQ:CTSO) Q3 2023 Earnings Call Transcript

Cytosorbents Corporation (NASDAQ:CTSO) Q3 2023 Earnings Call Transcript November 9, 2023

Cytosorbents Corporation misses on earnings expectations. Reported EPS is $-0.20718 EPS, expectations were $-0.12.

Operator: Good afternoon, and welcome to CytoSorbents third quarter 2023 financial and operating results conference call. [Operator Instructions]. Please be advised that the call will be recorded at the company’s request. At this time, I’d like to turn the call over to our moderator, Taylor Devlin. Please go ahead, Taylor.

Taylor Devlin: Thank you and good afternoon. Welcome to CytoSorbents’ third quarter 2023 financial and operating results conference call. Joining us today from the company are Dr. Phillip Chan, Chief Executive Officer; Vincent Capponi, President and Chief Operating Officer; Kathleen Bloch, Chief Financial Officer; Dr. Efthymios Deliargyris, Chief Medical Officer; Dr. Christian Steiner, Executive Vice President of Sales and Marketing and Managing Director of CytoSorbents Europe GmbH; Christopher Cramer, Senior Vice President of Business Development; and Dr. Irina Kulinets, Senior Vice President of Regulatory. Before I turn the call over to Dr. Chan, I’d like to remind listeners that during the call, management’s prepared remarks may contain forward-looking statements, which are subject to risks and uncertainties.

Management may make additional forward-looking statements in response to your questions today. Therefore, the company claims protection under the Safe Harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from results discussed today, and therefore, we refer you to a more detailed discussion of these risks and uncertainties in the company’s filings with the SEC. Any projections as to the company’s future performance represented by management include estimates as of today, November 9, 2023, and we assume no obligation to update these projections in the future as market conditions change. During today’s call, we will have an overview presentation covering the operating and financial highlights for the third quarter of 2023 by Dr. Chan and Ms. Bloch, as well as an update regarding the STAR-T clinical trial by Dr. Deliargyris.

Following their presentation, we will open the line to your questions during the live Q&A session with the rest of the management team. And now it’s my pleasure to turn the call over to Dr. Phillip Chan.

Phil Chan: Thank you very much, Taylor, and good afternoon, everyone. As I discussed in our earnings press release today, our core business is built upon our EU approved flagship CytoSorb blood purification therapy used in more than 221,000 human treatments with more than $205 million in sales to date, including $31.4 million in the last 12 months alone. CytoSorb addresses multibillion-dollar markets in critical care and cardiac surgery in 75 countries worldwide by treating deadly inflammation and other life-threatening conditions. These are common everyday ICU conditions like sepsis, trauma, burn injury, respiratory failure, liver failure, and complications of surgery where mortality is high despite standard therapies. With the world struggling in the aftermath of the pandemic with war, natural disasters, and illness, we believe our life-saving therapy has never been more relevant.

The DrugSorb-ART antithrombotic removal system is our other focus, having completed the US and Canadian pivotal STAR-T trial that was designed to demonstrate a reduction in perioperative bleeding in patients undergoing cardiothoracic surgery on Brilinta, also known as ticagrelor. Brilinta is increasingly the super aspirin blood thinner of choice for patients suffering from a heart attack or receiving a cardiac stent. Should the data, which currently remain blinded support US FDA and Health Canada regulatory approval, we’d open up an estimated $650 million total addressable market in these two countries alone, where we expect rapid adoption and strong user demand, reflecting our FDA breakthrough designation. We believe we’ve made excellent progress on both of these programs so far this year and are specifically pleased to report a 20% product sales growth in Q3 of this year versus a year ago that Kathy will discuss in more detail and our nearing database lock of the pivotal US and Canadian STAR-T trial and data analysis before year end.

The goal for today is to provide brief commentary on these topics, but to leave enough time for the Q&A session with the team at the end. Now I’d like to go over our recent operating progress. First, we completed the pivotal STAR-T trial in August following the last patient follow-up. The trial remains blinded and the database lock is nearing with completion of data analysis expected before year end. The International Star Registry highlighted low rates of CABG related perioperative bleeding in patients undergoing isolated CABG surgery with CytoSorb with two days of discontinuing Brilinta in the first and second analyses. We also exceeded 221,000 cumulative human treatments across 75 countries worldwide to date and have expanded our ANVISA registration of CytoSorb to treat shock in Brazil, which is Latin America’s largest medical device market and the seventh most populous country in the world.

We also highlighted how CytoSorb and ECOS-300CY are helping to shape the future of solid organ transplant by reducing inflammation during ex vivo organ perfusion, a strategy to potentially improve the quality and quantity of donated organs and improve transplant outcomes. And last but not least, Kathleen Bloch resumes her role as full-time Chief Financial Officer. I’d like to next cover the STAR-T pivotal trial update. When we talk to investors, many are not aware of the use case of Brilinta. So I thought that we would present that here. If you can see the graphics, you can see a man hunched over having a heart attack. In this patient, when they go into the emergency room, they typically get loaded on aspirin and a super aspirin like Brilinta in something called dual anti-platelet therapy.

These patients typically go to the cath lab to get a stent, which 90% of patients ultimately do. However 5% to 10% will often need open heart surgery because they are not eligible for stent due to widespread cardiovascular disease, intractable ischemia, and chest pain, or even complications of putting in a stent. If these patients go to surgery, however, with these blood thinner onboard, they will bleed. The only accepted therapy today is to wait. And patients typically wait in the intensive care unit and the step-down intensive care unit, or on hospital ward at a cost of approximately $6,000 a day in the intensive care and at approximately $4,000 a day in step-down ICU, and about $2,000 to $3,000 a day in a cardiac monitor bed. And they typically wait for three to five days in the hospital costing anywhere from $6,000 to $30,000 just to wait and wash out the drug.

These patients ultimately, then, go to surgery where they ultimately get the definitive procedure. Our value proposition for DrugSorb-ART is actually to bypass this entire waiting period and to actually get patients the definitive surgery that they need without delay while reducing or preventing bleeding complications by actively removing the drug from blood during surgery. So in terms of the STAR-T trial, what do we know? The STAR-T trial was completed in August with follow-up on 100% of patients at 30 centers in the United States and Canada. Data monitoring is nearing completion with database lock to follow. The STAR-T study data remain blinded to all parties and will not be unblinded until after database lock on the final statistical analysis will occur.

The results of the study are currently unknown. As noted previously, there were no device related safety issues with DrugSorb-ART raised in the first two scheduled Data and Safety Monitoring Board data reviews the last one at 80 patients. The final DSMB analysis will take place after database lock. We expect to complete our initial STAR-T data analysis before year end, and we intend to announce whether we believe the results from START-T can support an FDA marketing approval thereafter. Meanwhile, encouraging initial results from the International Star Registry demonstrate low rates of serious perioperative bleeding when CytoSorb, which uses an equivalent polymer technology to DrugSorb-ART, is used for this indication. Remember, again, CytoSorb is approved for this indication in the European Union.

With supportive data, our goal is to submit to the US FDA and Health Canada for regulatory approval in early 2024 with the potential of a faster review with our FDA breakthrough device designation targeting potential US FDA marketing approval by late ’24 or early 2025 For many discussions with cardiac surgeons in the United States, Canada, and abroad, we continue to validate the potential value proposition that DrugSorb-ART could have a successful and things that we’re already seeing with CytoSorb in Europe. Some of these potential benefits include for patients, the ability to get definitive surgery safely and without delay with low risk of bleeding complications. For surgeons, we solve the intraoperative and postoperative nightmare of bleeding due to blood thinners.

We could also potentially reduce the need for costly and time-consuming re-exploration surgery. And we could also relieve the surgical scheduling logjam due to patients still recovering from bleeding complications in the cardiothoracic ICU, allowing new patients to be operated on. For hospitals, we have the potential to reduce or eliminate the three to five day waiting period to wash out for winter that could again cost anywhere from $6,000 to $30,000, depending on where they wait. We also have the potential to reduce longer operative time due to bleeding costs, which can be more than $4,000 for every 30 minutes of extra time on the operating room table. We could also relieve the logjam of patients in the ICU who bleed allowing more revenue-generating surgeries for the hospital.

And on top of this, we may also help to improve a hospital’s Quality Star Rating as defined by CMS or Medicare & Medicaid by reducing serious adverse events like bleeding. The Star Rating helps hospitals differentiate themselves based on objective quality criteria, helping to drive patient traffic and procedural revenue, which is what all hospitals want. So this is one of the reasons why we believe DrugSorb-ART can be a potential win-win-win. When turning to CytoSorb, we are proud to say that we have now received trademark designation for the term expanding the dimension of blood purification in Europe. What does that exactly mean? CytoSorb is fundamentally different from but complementary to dialysis technology, which most people equate with blood purification technology.

However, we’re different because we remove a broad range of dissimilar toxins that dialysis does not remove well. Dialysis works like the kidney, it remove small molecules and water-soluble substances, metabolic waste products, et cetera, that the body produces. However, you are aware that you have a second major blood detoxification organ in your body, which is your liver and that is really what CytoSorb works to replace. It is capable of removing large molecules and fat-soluble substances, things like cytokine, inflammatory mediators, bacterial toxins, liver toxins, proteins and peptides, as well as fat-soluble drugs. And because of this, we are able to target deadly conditions that afflict millions of people. On the left-hand side, CytoSorb is helping to remove the fuel to the fire of massive uncontrolled inflammation that is often associated with organ failure and death in many, many common everyday conditions in the intensive care unit.

And on the right-hand side we’re reducing inflammation and blood thinners in cardiothoracic surgery, targeting reduction in complications of cardiac surgery like sepsis, bleeding, shock, and others. Now one thing I want to revisit is our global marketing agreement with Fresenius Medical Care because this is really where the expansion of blood purification comes in. Last year as you recall, we announced a new expanded global marketing agreement with long-time partner Fresenius Medical Care. The market leader in dialysis worldwide with a massive installed base of blood purification machines in ICUs around the world. Fresenius has now been marketing — begun marketing CytoSorb as the feature technology for cytokine bilirubin and myoglobin removal on its critical care platforms worldwide, excluding the United States.

But it is expected to officially launch a more comprehensive effort next year through sales force, website conferences, marketing literature, social media, and other platforms. The partnership again expands the dimension of blood purification with excellent synergy between the two companies. Fresenius dominates kidney replacement, blood purification technologies with its rival Baxter, where 10% to — addressing 10% to 15% of patients in the ICU that have failed kidneys. What we do, however, is that we strengthen and broaden the focus on the lucrative critical care segment and CytoSorb helps to address deadly inflammation and toxin overload that afflicts an estimated 40% to 50% of patients in the intensive care unit. CytoSorbents benefits from the global endorsement and push on Fresenius, massive sales and marketing platform.

And in return, we have agreed to subsidize this effort with a 0.9% royalty to Fresenius on ex US CytoSorb sales, making it a win-win for both organizations. To highlight that Fresenius and CytoSorbents are well aligned, I wanted to draw your attention to a Capital Markets Day presentation that Fresenius made earlier this year in April and in particular, highlight this slide. On the slide they’re talking about their assets in the company and basically categorizing them based — on the y-axis their strategic value to Fresenius and on the x-axis the potential to drive growth at Fresenius. And what you can see here in the red box is that critical care represents a major focus of the company that can drive both growth potential and strategic value for Fresenius.

On the right-hand side, you can see that circle represents roughly EUR500 million to EUR1 billion worldwide with roughly half of that in the United States. So at $30 million — in $31 million in trailing 12-month sales, we actually represent a significant portion of Fresenius’ overall critical care sales ex-US. So with that, let me turn it now over to Kathy Bloch, our Chief Financial Officer, to go over our financial highlights. Kathy?

Kathleen Bloch: Thank you, Phil, and greetings to everyone on the call today. For the quarter ended September 30, 2023, total revenue, which includes product sales and grant revenue was $8.8 million as compared to total revenue of $8.1 million in the third quarter of 2022, an increase of approximately 9%. Product sales for the third quarter 2023 were $7.8 million as compared to approximately $6.5 million in the third quarter of the prior year, representing an increase of approximately 20%. Third Quarter 2023 product gross margins were 72% compared to 55% for the third quarter of 2022. This predicted improvement in gross margins is expected to continue as we ramp up production at our new facility in Princeton, New Jersey. Our third quarter grant revenue was $1.1 million compared to $1.6 million in the same quarter of the prior year.

It’s lower because of the recent completion of several grants. Next slide, please. For the nine months ended September 30, 2023, total revenue was $27.7 million, an increase of approximately 9% over the $25.3 million in total revenue for the same period of 2022. Product sales for the nine months ended September 30, 2023, were $23.7 million as compared to approximately $21.7 million in the first nine months of 2022. And grant revenue was $3.9 million in the first nine months of 2023 compared to $3.6 million in the same period of 2022. Next slide, please. Now this chart depicts our trailing 12 months product sales broken down into COVID-19 related and core non-COVID-19 related product sales. Core product sales are $31.4 million in the trailing 12 months ended September 30, 2023, which is slightly higher than core product sales of $29.4 million in the prior year.

And while it is gradual, we are continuing to see improvements in the marketplace, including our sales team’s ability to better access health care workers in the hospitals, a return to face-to-face discussions with the physicians in the market as well. Next slide, please. This slide shows our quarterly product sales also broken down by COVID-19-related and non-COVID-19 related core product sales. And as you can see over the past six quarters, there have been no COVID-19 related sales. Three of the most recent four quarters have demonstrated sequential quarter over quarter growth in product sales. Q3 2023 core product sales while lower relative to Q2 2023 product sales are up 20% over Q3 2022 product sales. And we note that sales in the third quarter of the year are historically low due to seasonality as surgical procedures in the EU are lower during the summer months of July and August.

Next slide, please. I’d like to wrap up today’s remarks with some comments about our cash and cash runway. As of September 30, 2023, we had approximately $10 million in cash, which includes $1.7 million of restricted cash. Our average quarterly burn for 2023 has been approximately $4.6 million. This is down significantly from our average quarterly burn of $9.9 million in the same period of 2022. We will need to raise additional capital to support our ongoing operations in the future. As we disclosed in our Form 10-Q and earnings press release, we initiated an equity offering but terminated this process after determining that current market conditions and the terms of an offering would not be in the best interest of our shareholders. We are currently focused on a number of alternative sources of capital, including less or non-dilutive debt financing, royalty financing, strategic or direct investments, equity financing, and/or some combination thereof.

We hope to have an update on this front for our shareholders very soon. Meanwhile, we are continuing to maintain tight controls over cash and are continuously identifying and implementing cost reduction opportunities in our operations. And that concludes my remarks, and I’d like to turn the call back to Phill.

Phil Chan: Thank you, Kathy. As I’ve mentioned before, I’d like to reiterate our value proposition. Today CytoSorb drives our growth. CytoSorb forms as the company’s foundation with an EU approved product that’s sold around the world has generated approximately $205 million in sales since launch, has a high margin –. It’s a high-margin razor blade business model with historically high blended product gross margins that makes higher margin direct sales with lower margin distributor and product sales — and partner sales. We have strong validation by customers, partners, and government agencies and current sales support near breakeven, less clinical trial costs, which we believe helps to derisk the company and the investment opportunity.

We believe CytoSorb represents the fuel for future strong anticipated growth targeting the $20 billion to $30 billion worldwide total addressable market of major unmet medical needs in critical care, cardiac surgery as well as liver and kidney disease. We believe this gives CytoSorbents the potential upside of a biotechnology company with a lower risk profile of a high-margin medical device company with bill. That said, CytoSorb and DrugSorb could soon be dual growth engine for the company. STAR-T has now completed and is heading to database lock with initial data analysis expected this year. International usage and trial safety to date gives us confidence. If STAR-T be successful and DrugSorb-ART achieves US FDA and Health Canada regulatory approval, we intend to commercialize DrugSorb-ART in both the US and Canada.

They potentially major second engine of growth working in Canada with CytoSorb to drive sales. DrugSorb-ART is expected to have a higher ASP and product gross margin then CytoSorb and would open an expected US and Canadian TAM of $600 million to $650 million for Brilinta alone, where we expect significant penetration, given the major unmet need indicated by our FDA breakthrough device designation. And with CytoSorb and DrugSorb-ART driving sales, we expect to drive accelerated sales growth of the company with the goal of profitability soon thereafter. With that, that ends our formal remarks. Operator, please open up the line for the Q&A session.

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Q&A Session

Operator: [Operator Instructions]. And we will take our first question from Yuan Zhi with B. Riley.

Yuan Zhi: Thank you for taking our questions. And congrats on a good quarter. On the STAR-T file . The component two of the complete anapoint, can you talk about how did you arrive at the assumption of 40% UDPB Class II events in the control arm versus 24% in the DrugSorb-ART? Was it based on data from the open label trial or was it from real-world experience? Thank you.

Phil Chan: Yes, Yuan, thank you very much. And thanks again for your recent analysis of the potential success of this STAR-T trial that you published recently. Let me turn that over to Makis?

Efthymios Deliargyris: Yes. Thank you, Phil, and thank you, Yuan, for the question. So as we have previously shared the baseline risk for bleeding complications in patients undergoing surgery, while on ticagrelor without completing the washout period exceeds 50% as shown in the PLATO trial. Therefore, we started from that number and took a discount in relation to the control on bleed rates that we’re some for STAR-T trial and as you correctly noted, that it’s 40% of the protocol state. Regarding the treatment effect size with the use of DrugSorb-ART, we had to rely on the existing literature, which at the time represented the experience as published by , we showed reductions exceeding 50% in some of the components of the UDPB primary endpoint, including transfusions . On that effect size, we again took a discount and assumed for the purposes of the trial at 40% reduction which has led to a very adequately powered trial with the power of achieving 98%.

Yuan Zhi: Got it. And then a follow-up question on the STAR-T trial. So for the analysis timeline, can you talk about how long does it take for the database lock the analysis? Basically, can you talk about your confidence to share that data by year end, which is very important to the stock?

Efthymios Deliargyris: Yes. Thank you for the question. I think as Phil presented in the prepared remarks, the process leading to database lock is progressing well. And as we already stated, we think the lock is actually bearing. Once that happens, then the analysis process begins, which by itself requires time. It’s not an instantaneous process results. During this time, all the parties remain blinded. Regarding the release of the data, we plan to follow the conventional roads of reviewing the data internally, but also considering the submission for a major cardiovascular conference. Should we proceed that route, we would have to then obey the requirement relating to the embargo and the silent period of this conferences, when they consider original results of presentation.

However, as Phil again stated in the prepared remarks, we believe that by the end of this year, we will be able to provide to the public — make a public press release with our initial assessment of whether we believe the data will allow us to proceed to the next step, which is basically the submission to the FDA.

Yuan Zhi: Got it. That’s all from me. Thank you.

Phil Chan: Thank you.

Operator: And we will take our next question from Tom Kerr with Zacks Investment Research.

Tom Kerr: Good afternoon, guys. Any update on the European ICU bed market, particularly in Germany? Has that opened up anymore?

Phil Chan: Thanks, Tom, let me have Christian address that issue question. Christian? Christian, I think you may still be on mute. Well, Tom, let me try to address that question. So if you — we follow very closely what’s called the DIVI Registry, which is published by the German intensive care unit society in Germany, where they actually look at open beds, free beds, occupied beds, and beds that are still reserved for emergency purposes for COVID. And what we have seen is that the availability of ICU beds continues to be low, which I think speaks to the muted market in Germany. I think that it is much better than it had been particularly during COVID, where there was very tight ICU bed availability, but limited ICU beds overall.