Cytosorbents Corporation

Good afternoon and welcome to Cytosurban's second quarter 2021 financial and operating results conference call. At this time, all participants are in a listen-only mode. 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, Terri-Ann Powers, Cytosurban's Vice President of Investor Relations and Corporate Communications. Please go ahead, Ms. Powers.

Thank you very much, Maria, and good afternoon and evening to everyone. Welcome to the Cytosorbent Second Quarter 2021 Financial and Operating Results Conference Call. Joining me today from the company are Dr. Philip Chan, Chief Executive Officer, Vincent Caponi, President and Chief Operating Officer, Kathleen Block, Chief Financial Officer, Dr. Estimio Stelior-Guerras, Chief Medical Officer, Dr. Christian Steiner, Executive Vice President in Sales and Marketing, as well as Managing Director of Cytosorbents Europe, and Christopher Kramer, 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 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 today as of August 3rd, 2021, and we assume no obligation to update these projections in the future. During today's call, we will have an overview presentation covering the operating and financial highlights for the second quarter by management. Following that presentation, we will open the line to your questions with the management team. At this time, it's now my pleasure to turn the call over to Dr. Philip Chan. Phil, go ahead.

Thank you, TeriAnn, and good afternoon, everyone. We had a busy and productive second quarter, As we got it during the last call, we received full FDA IDE approval to begin the US STAR-T trial with the DrugSERP ATR antithrombotic removal system, with first patient enrollments targeted for this quarter and study completion expected in 2022. We're very excited to begin enrolling this trial soon and are on track to do so. By the end of the quarter, we had delivered more than 143,000 cumulative Cytosorb cartridges to date, up 43% from 100,000 a year ago, with distribution across 68 countries. We've also treated more than 6,500 COVID-19 patients across more than 30 countries since the pandemic began, including here in the U.S. under FDA emergency use authorization granted in April of 2020. Cytosorb was registered and became commercially available in Singapore for all equivalent European Union indications, bringing the total number of countries where Cytosorb is distributed now to 68 countries. We also appointed Terri-Ann Powers as Vice President, Investor Relations and Corporate Communications at the start of June. Although here for just two months, Terri-Ann has done a great job of getting up to speed and making vital contributions to the company. She's now in the process of proactive investor and stakeholder outreach to build investor awareness and support of our company as we drive to continue significant sales growth abroad and work to open up the valuable U.S. market in the future. If you've not already met her, please feel free to reach out to her in the near future. Finally, as you saw from the cover slide in last Friday's press release, because of many of you, we successfully completed the Mission 100,000 international fundraising campaign to raise $100,000 for the global humanitarian organization CARE to fight the spread of COVID-19. We matched your generous donations, that of our friends, our business partners, our employees, and our shareholders, one for one. And last Friday at NASDAQ in New York Times Square, Vince, Kathy, and I were proud to present a $100,000 check to Chris Noble from CARE and simultaneously ring the opening bell with Chris at the NASDAQ's opening bell ceremony. From a financial standpoint, we also had a strong quarter. Total second quarter 2021 revenue was $12.0 million versus $9.8 million a year ago, a 23% increase. Second quarter 2021 product sales were $11.4 million versus 9.5 million a year ago, a 19% increase. Importantly, our core non-COVID-19 sales in the second quarter of 2021 grew a very healthy 38% year over year and accounted for 85% of our product sales. Blended gross margins were also 82% in the second quarter of 2021 versus 70% a year ago. And finally, we closed the quarter with a solid balance sheet of $65.6 million in cash and no long-term debt. Turning to COVID-19, as we've done throughout this pandemic, we believe the following information will be helpful in putting our guidance into perspective. COVID-19, driven recently by the Delta variant, has been evolving very rapidly with significant changes week to week. Here in the United States, we're in the midst of a fifth wave and seeing a rapid rise in new cases in southern, central, and southeastern states. Florida and Texas currently account for about a third of all new cases in the United States. Not surprisingly, 97% of new serious infections are unvaccinated. And although breakthrough infections in most vaccinated people have been mild to moderate so far, we are hearing that in some places like Florida, the new epicenter of the pandemic in the U.S., there is an increasing number of vaccinated people who are being hospitalized. Currently, the highly contagious Delta variant accounts for 83% of new U.S. infections, But recently, the Lambda strain has been found in Florida and can actually evade immunity from current vaccinations. And even booster shots are not expected to improve immunity to resistant strains like Lambda. In hard-hit areas like Florida and the South, hospitalization utilization is high, though death rates are still relatively low, though are expected to follow the curve of new cases. Internationally, COVID-19 continues to cycle through countries driven by new variants like the Delta variant and unvaccinated people. Outside of the U.S., we're seeing new surges in the U.K., Spain, Portugal, France, Russia, the Middle East, Southeast Asia, and South Africa. The good part is rates of vaccinations continues at a rapid clip. The chart on the lower left is the percentage of patients who are fully vaccinated, percentage of the population who are fully vaccinated or partially vaccinated in the entire population of key countries as of last week. And these numbers have actually increased by two to three percentage points as of this week, just to give you an idea of how fast the vaccinations are happening. Note that the roughly 50% vaccinated number in the U.S. is the entire population, whereas the number you often hear President Biden quote is 70% of the adult U.S. population. So 50% is everyone. The increasing rates of vaccination are obviously positive that will help reduce the severity and incidence of COVID-19 infections around the world. Therefore, those people who need ICU care. However, many, many people are still not vaccinated and are at high risk and could feel further waves of infection. So if you haven't already done so, please get vaccinated. Again, the risk of death of those getting COVID-19 is still about 2%. Roughly one in 50 people will die. and many more will be hospitalized and seriously ill. With now 4.2 million deaths worldwide and just about 200 million documented infections worldwide, it still needs to be taken very seriously. With the state of COVID-19 pandemic in mind and the countervailing effect of vaccinations on one hand decreasing infection and allowing us to get back to business versus new infections by new variants in unvaccinated people causing regional spikes in infection, we expect second half 2021 product revenue to be greater than product revenue in the first half of 2021. We expect continued strong growth in core underlying non-COVID sales with at least 30% year-over-year growth in the second half of 2021, as well as at least 30% year-over-year growth in the full year core underlying non-COVID product sales. And lastly, due to the uncertainty regarding the course of the COVID-19 pandemic, including vaccination rates and virus variant trends, we are unable to predict the level of COVID-19 sales in the second half of 2021. And to be conservative, we expect COVID-19 related sales to be less than 1 million in the second half of 2021. Turning to why we believe our core sales will continue to grow, It's the one-year anniversary of our secondary public offering where we raised $57.5 million. We have not been sitting idle on this cash, but rather using it to invest in key areas to drive our business. First, as Micah will detail later, we have been significantly expanding our clinical team and capabilities to support our company-sponsored studies as we know that data will drive adoption and sales. At the end of 2021, we expect to be enrolling seven different company-sponsored studies including the key STAR-T trial here in the United States. We have also been hiring aggressively, both here in the US and also in Europe, to support our current and future expected growth, now with more than 210 people company-wide, with most of the resources focused on sales, marketing, and manufacturing, as well as leveraging grant income to hire in for R&D. Next, you can see in these pictures our new headquarters based in Princeton, New Jersey, and future home to our new manufacturing facility, that will enable us to produce enough product to support 350 to 400 million in sales. Things are on track to have this facility up and running by the end of 2022, if not sooner. This is expected to have a significant impact on increasing scale and manufacturing efficiencies and improving our blended product gross margins, which were already among the highest in the industry at 82% last quarter. To support our sales, we've also invested in a new site assortment logistics hub in Germany. that will enable us to continue serving the world with our products. We've also made significant investments into our non-grant-funded pipeline, such as the ECOS 300CY cartridge for ex vivo organ perfusion for transplant that received EU approval last year, as well as other products like Cytosorb XL, Vet Rescue, and others. We also used our funds to retire our long-term debt that has eliminated our long-term interest expense, and it has given us a lot of financial flexibility. We've also increased production and increased our inventory to be able to respond rapidly to surgeries in demand for our product. And finally, we continue to expand internationally. We are also moving concurrently in parallel with the U.S. dual regulatory path substantial FDA marketing approval and have been steadily preparing for U.S. commercialization of drug-absorbed ATR with key hires and initiatives. Now, for more detail on the clinical program, Let me turn it over to our CMO, Dr. Efthymios Delideris, to give more detail on our progress. Mikus?