Cytosorbents Corporation (NASDAQ:CTSO) Q1 2024 Earnings Call Transcript

Cytosorbents Corporation (NASDAQ:CTSO) Q1 2024 Earnings Call Transcript May 9, 2024

Cytosorbents Corporation beats earnings expectations. Reported EPS is $-0.11717, expectations were $-0.12. Cytosorbents Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good afternoon and welcome to CytoSorbents’ First Quarter 2024 Financial and Operating Results Conference Call. [Operator Instructions] Following the formal remarks, we will open the call for your questions. 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, Eric Ribner. Please go ahead, Mr. Ribner.

Eric Ribner: Thank you and good afternoon. Welcome to CytoSorbents’ first quarter 2024 financial and operating results conference call. Joining me from the company are Dr. Phil Chan, Chief Executive Officer; Vincent Capponi, President and Chief Operating Officer; Kathleen Bloch, Chief Financial Officer; Dr. Makis Deliargyris, Chief Medical Officer; Dr. Christian Steiner, Executive Vice President of Sales and Marketing; Christopher Cramer, Senior Vice President of Business Development. 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 Safe Harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from the results discussed today and therefore we refer you to 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 today as of May 9, 2024 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 first quarter of 2024 by Dr. Chan and Ms. Bloch. Following that 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 is my pleasure to turn the call over to Dr. Phillip Chan.

Phil Chan: Thank you very much, Eric and good afternoon, everyone. We are pleased to announce the achievement of $9 million in product sales in the first quarter of 2024, which is a 14% increase from $7.9 million a year ago and a 22% increase sequentially from $7.3 million in the fourth quarter of 2023. Another major accomplishment for the quarter was the expansion of our product gross margins to 76%. up 800 basis points from 68% in Q1 of 2023, excluding a one-time non-recurring inventory adjustment recorded in the first quarter of this year. This was squarely within our previous guidance of achieving 75% to 80% product gross margins during this year and highlights the scalability and efficiency of our state-of-the-art manufacturing facility and processes.

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Q&A Session

As you will hear from Makis later, our STAR-T data was presented for the first time by Principal Investigator, Dr. Michael Mack, at the 104th Annual Meeting of the American Association for Thoracic Surgery, or AATS, in Toronto, Canada, one of the most prestigious cardiothoracic surgery conferences in the world. We also hosted a virtual KOL and Analyst Investor Day earlier this week, featuring a review of the STAR-T pivotal trial results and real-world experience with blood thinner removal in Europe with a replay available by clicking this link here. Based on our current status, we believe we are on track to submit marketing applications in parallel for the investigational DrugSorb-ATR system to FDA as a de novo application and Health Canada in the third quarter of this year.

We have now cumulatively delivered more than 237,000 devices and expect to reach a quarter million devices this year. Later this quarter, we also expect to take delivery of and launch our PuriFi hemoperfusion pump in select international countries. We already have strong interest from customers in many countries, where dialysis is not well established and where an easy-to-use machine like PuriFi enables the treatment of patients with CytoSorb. In more established countries, like Germany, the availability and simplicity of PuriFi is expected to spur early usage of CytoSorb in the disease processes and may enable more types of treatment, such as the treatment of chronic liver disease. We are seeing strong customer responses to the new positive data being published on CytoSorb in a wealth of applications, such as acute liver disease, the first proof-of-concept randomized trial in a heart transplant, the first use cases in hemorrhagic shock, septic shock and fluid balance, improved survival in burn patients with sepsis and kidney injury, and a review article summarizing the benefit of CytoSorb in the treatment of acute respiratory distress syndrome, just to highlight a few.

One of the reasons we believe there is so much more room to grow is because CytoSorb addresses the core problem of severe uncontrolled inflammation in these life-threatening conditions that can otherwise lead to organ failure and death. At this time, I’d like to turn the call over to Kathy to cover financial highlights. Kathy?

Kathleen Bloch: Thank you, Phil and hello to everyone on the call today. I will be discussing our first quarter financial results, including revenue and gross margins and I will also be providing an update on our working capital and cash runway. Next slide, please. CytoSorb product sales were approximately $9 million in the first quarter of 2024 compared to $7.9 million in the first quarter of 2023, an increase of approximately $1.1 million or 14%. Our first quarter 2024 grant revenue was approximately $797,000 as compared to $1.5 million in the first quarter of 2023. And this decrease was due to the conclusion of several grants, which we completed in 2023. Our total first quarter 2024 revenue, which includes both product sales and grant revenue, was approximately $9.8 million as compared to $9.4 million in 2023 and product gross margin was 76% in 2024, an 800 basis point increase compared to product gross margin of 68% in 2023.

We do note that first quarter 2024 product gross margin calculations exclude the impact of a one-time inventory adjustment recorded during the quarter. Next slide, please. The blue bars of this chart represent our annual product sales for the trailing 12-month period ended March 31 for each year 2018 to 2024. We know that 2021 and 2022 product sales were favorably impacted, because CytoSorb was used extensively to treat COVID-19 patients. And of course, this usage ceased following the containment of the pandemic in the years ending March 31, 2023 and 2024. If we take a look at the orange trend arrow, which tracks along core non-COVID-19 revenue, we can say that post-COVID-19 12-month periods ending March 31, 2023 and 2024 continue to show positive growth in our core non-COVID-19 product sales.

The post-COVID market has been challenging for reasons we have already articulated. However, we are seeing improvements in the marketplace. Our year-over-year growth for the trailing 12 months ended March 31, 2024 increased by 10% compared to the previous 12 months. Additionally, exclusive of the impact of the COVID-19 sales in 2021 and ‘22, our overall CAGR for the 6 years ended March 31, 2024 is a respectable 13.3%. Next slide, please. Go back to that slide, I apologize. I also wanted to point out the green line, which tracks our year-over-year gross margins. This indicates a decline in 2023 and this was of course due to transitioning of full manufacturing operations from our old facility over to our new facility. In the first quarter of 2024, gross margins were 76%, excluding the impact of the one-time inventory adjustment and they are on par with our margin levels prior to the move to our new facility.

And we believe that we will be able to show further improvement in the 2024 gross margins as we continue to scale up production and realize additional manufacturing efficiencies. Next slide, please. This next slide shows our quarter-over-quarter product sales results. We already noticed that first quarter of 2024 product sales increased approximately 14% over first quarter 2023 product sales. We also want to point out here that first quarter product sales rose $1.6 million or 22% over the immediately prior quarter. Our first quarter 2024 product sales of $9 million represents the highest post-COVID-19 poor product sales quarter in our history. Next slide, please. As of March 31, 2024, we have $10.1 million in cash, which includes $1.5 million of restricted cash.

We believe that cash on hand is sufficient to fund the company’s operations into the fourth quarter of 2024. We continue to work to strengthen our balance sheet and reduce operating expenses through tight control over working capital, in particular, management of accounts receivable and inventory levels. Conservation of cash is a top corporate priority. We have reduced our headcount, adjusted our budgeted spending, and taken other measures to reduce our quarterly cash burn in 2024. We have also instituted and continued to maintain tight controls over spending and these actions are all expected to help preserve our cash runway. In addition, the company is actively pursuing alternative sources of capital. Our immediate focus is on non-dilutive debt financing and we are currently in active discussions with multiple debt lenders on this front.

So, that will conclude my remarks for today. And at this time, I am pleased to be able to turn the call over to my esteemed colleague, our Chief Medical Officer, Dr. Makis Deliargyris. Makis?

Makis Deliargyris: Thank you, Kathy. Next slide, please. Good afternoon to everyone on the call today. In the next few minutes, I will review the current state of our clinical and regulatory activities for the upcoming submissions to regulators in the U.S. and Canada that will hopefully provide you the necessary visibility into our efforts to make DrugSorb-ATR available to North American healthcare providers. First, I would like to remind everyone that DrugSorb-ATR is a breakthrough device. In fact, the FDA has granted two separate breakthrough designations for DrugSorb-ATR. First, for the removal of ticagrelor in patients undergoing urgent or emergent surgery and a second one for the removal of the two market-leading anticoagulants, apixaban, or Eloquist and rivaroxaban, or Xarelto for the same intended applications.

We believe that having breakthrough status is an important component of the DrugSorb-ATR regulatory strategy and let me explain why. First, the breakthrough program is specifically designed to provide timely access of novel devices addressing large unmet medical needs by speeding up both the development and the review phases of the process. The required criteria for a breakthrough device designation are listed on this slide. The first criterion was that the device provides for more effective treatment or diagnosis of life-threatening or irreversibly debilitating human disease or conditions. For the second criterion, the device must meet at least one of the following considerations that it represents a breakthrough technology that there are no approved or cleared alternatives, that it offers significant advantages over existing approved or cleared alternatives and that the device availability is in the best interest of patients.

Since 2015, the FDA has granted breakthrough device designation status to 192 cardiovascular and 83 GI and urology devices or diagnostics. This is relevant because the intended target population for DrugSorb-ATR are cardiovascular patients and GI urology will be the FDA review branch for our submissions. Finally, breakthrough designation submissions undergo priority review and need to meet the FDA rigorous standards for safety and effectiveness. Next slide, please. As we have stated on our press release and you just heard from our CEO, Dr. Phil Chan, the STAR-T results were recently presented at AATS and were also reviewed during our recent webinar, Key Opinion Leader and Analyst Investor Day, by study Principal Investigator, Dr. Michael Mack.

I urge you to listen to the webinar replay that you can find on the link provided to you that has presentations by all three STAR-T principal investigators and also an overview of the increasing adoption of anti-thrombotic removal in European cardiac surgical practice by the STAR Registry Principal Investigator, Dr. Michael Smoko. Let’s now review the highlights of the STAR-T results. First of all, the study matrix. There were 140 subjects randomized into the study. However, eight of those subjects did not receive a study device, and therefore the overall population comprises of 132 subjects. Among them, 92% underwent isolated coronary bypass grafting, or CABG surgery, while 8% underwent other types of cardiac operations. The enrollment was split approximately two-thirds of the subjects came from United States investigative sites and approximately one-third from Canadian investigative sites.

The study protocol was well executed with less than 10% of study subjects experiencing a major protocol deviation. Finally, study follow-up was 100% complete with zero patients lost to follow-up. Reviewing the safety in the overall population, the primary safety endpoint of the study was met as evidenced by three separate independent data safety monitoring board reviews that occurred after 40, 80, and 140 patients went into the trial. In each one of those reviews, the DSMB recommended continuation of the study and voiced no concerns around safety. Overall, adverse events were balanced between the device and the control arms in the trial. There were zero device-related serious adverse events reported. There were zero unanticipated device adverse events reported.

And there were zero device-related adverse events that led to discontinuation of the study. Turning now to efficacy, we assessed efficacy in the trial by looking postoperative bleeding. That was done via two composite endpoints that comprised of the universal definition of peripartic bleeding events and also by the chest tube drainage collected from each of the patients in the study. In addition, we executed an exploratory assessment of major bleeding. As we have reported previously, the primary composite endpoint in the overall population was not met. However, In the isolated CABG population, among patients who did not have any critical major protocol deviations, the so-called isolated CABG per protocol population, we observed the following findings.