Cytosorbents Corporation

Good afternoon and welcome to the Cytosorbent's third 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, Vice President of Investor Relations and Corporate Communications. Please go ahead, Ms. Powers.

Thank you, Dave, and good afternoon and evening to everyone that is listening. Welcome to the Cytosorbents Third Quarter 2021 Financial and Operating Results Call. Joining me today from the company are Dr. Philip Chan, Cytosorbents Chief Executive Officer, Vincent Caponi, our President and Chief Operating Officer, Kathleen Block, our Chief Financial Officer, Dr. Estimios Mikas Delirgiris, Chief Medical Officer, Dr. Christian Steiner, Executive Vice President of Sales and Marketing and also Managing Director of Cytosorbents Europe. And finally, 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 Securities and Exchange Commission. Any projections as to the company's future performance represented by management include estimates today as of November 4th, 2021, and we assume no obligation to update these projections in the future. During today's call, we will also have an overview presentation covering the operating and financial highlights for the third quarter by management. Following that presentation, we will open up 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. Go ahead, Phil.

Thank you very much, Torianne. As we have discussed in a number of recent press releases, the past several months have brought us, for sure, challenges, but also opportunities. We'll have more detail in the upcoming slides, but here's a quick overview. As we disclosed earlier last month, total third quarter 2021 revenue was $9.8 million, including product sales of $8.9 million, with healthy blended product gross margins of 82%, combining higher direct sale margins with lower distributor margins. We closed the quarter with a solid cash balance of $61 million and no debt. On the operational side, we opened the U.S. STAR-T pivotal trial with the first patient enrolled into the study from the University of Maryland just recently. We also received our second breakthrough device designation, this time for the removal of the direct oral anticoagulants Eliquis and Xarelto during cardiothoracic surgery and received full FDA approval to initiate the STAR-T pivotal trial for this application in the span of only three months. In September, we announced top-line data from our U.S. Cytosorb Therapy in COVID-19, or CTC, registry, reporting high survival among 52 consecutive patients on Cytosorb and ECMO from five major U.S. ECMO centers. Last month, preliminary results from the long-awaited remove endocarditis study evaluating the use of Cytosorb in infective endocarditis were neutral, but showed a favorable adverse event profile and, again, validated the ability of Cytosorb to remove cytokines. We are pleased to report that Cytosorb is now distributed in more than 70 countries with the recent expansion to Thailand and the Ukraine. And overall, more than 152,000 cumulative Cytosorb treatments have been utilized to date, up 38% year over year. As we've done since the pandemic began, I would like to now give a quick overview of what we're seeing with COVID-19 since the second quarter earnings call in early August. This is particularly relevant this quarter due to the impact of COVID-19 on our financial results, especially in Germany. In the United States, COVID-19 has migrated from the southeast where the Delta variant drove the second worst surge in the country to date, now the western US and Alaska. According to the CDC, Delta continues to account for 99% of new US infections. To date, of those eligible 12 years of age or older, 68% of people are fully vaccinated, with 78% with at least one dose. Overall, 58% of the entire population is vaccinated. With the recent FDA approval and CDC recommendation of the lower dose Pfizer vaccine for children 5 to 11 years of age, representing about 8% of the U.S. population, the total vaccinated population is expected to go up significantly. What I'd like to point out on this slide are the lower right-hand figures on new daily COVID-19 cases in red, And then how the graphs of hospitalizations and deaths mirror new cases from a relative proportion standpoint. The graphs look very similar. High new cases yields high hospitalizations and deaths. And we'll come back to this as it relates to Germany. That said, in terms of worldwide COVID-19 cases, COVID-19 continues to migrate, now impacting countries like the UK and Germany, as well as Eastern Europe and Russia. Remarkably, after lagging the U.S. in terms of vaccinations in early August, the percentages of fully vaccinated people in major EU countries has generally surpassed the U.S., as you can see in the lower left corner. And again, in the lower right, you can see the relative proportionality of new cases and deaths. Finally, turning to Germany, I'd like to point out a few things that highlight what happened to us in the third quarter and where we are today. The top chart shows new cases of COVID-19 in Germany and the bottom graph shows deaths in Germany. First, at the purple vertical line, you can see where we were when we provided guidance in early August, where the rates of new COVID-19 cases and deaths were very low. Coupled with an initial lifting of restrictions in Germany and increased sales meetings, we were optimistic for a return to our core non-COVID-19 business in Germany. However, Rapidly over the course of weeks, the rates of new cases jumped significantly, prompting hospitals to continue or reinstate restrictions on elective procedures, limit outside visitors, including sales reps, and to reserve ICU resources already stretched thin by staffing shortages for pending critically ill COVID-19 patients. But during Q3, the numbers of critically ill patients expected did not materialize. Looking at these graphs, you can see something very different compared to the U.S. In the major surge in Germany in the fourth quarter of last year, the death rates were proportional to these new cases, as you can see from these two graphs, and as we've seen in the United States as well. However, in the subsequent surge earlier this year in Germany, the numbers of deaths were disproportionately low. And then with this last wave, the numbers of deaths reflecting ICU patients and severity of illness was very low. despite the third largest peak in new cases in Germany. In fact, this dissociation of high numbers of new cases but low numbers of deaths is the same trend we observe in other major EU countries, including the UK, France, Italy, and Spain. This is likely partly attributed to increased vaccination rates and the lower severity of illness among those vaccinated, as well as the age of those getting sick. So how did this dynamic affect us in Q3? As we have previously discussed, during the pandemic, core sales lost to COVID-19 restrictions were typically replaced by COVID-19 sales in Germany. However, in the third quarter, because of increased restrictions that decreased core non-COVID-19 sales and the low severity of COVID-19 illness, which decreased COVID-19 related sales, all happening in a traditionally seasonal third quarter, it led to weakness in Germany. In the past month, there's been a sudden spike in COVID-19 cases in Germany, with ICUs starting to fill up with COVID-19 patients and deaths increasing sharply. We're monitoring the situation closely to assess what impact, positive or negative, this may have on our business in Q4. But let me turn it over to Christian to give more color on what happened in Germany in the third quarter and how we're managing around the uncertainty related to COVID-19 this quarter.