Cytosorbents Corporation

Good afternoon, and welcome to the Cytosorbents Corp. First Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. Following the formal remarks, we will open the call for questions. Please be advised that the call will be recorded at the company's request. At this time, I would like to turn the call over to our moderator, Terry Ann Powers, Vice President of Investor Relations and Corporate Communications. Please go ahead, Ms. Powers. Thank you, Stacey. Good afternoon. Welcome to the Cytosorbent's first quarter 2022 financial and operating results conference call. Joining me today from the company are Dr. Philip Chand, our Chief Executive Officer, Vincent Caponi, President and Chief Operating Officer, Kathleen Block, Chief Financial Officer, Dr. Estimios Delirgiris, our Chief Medical Officer, Dr. Christian Steiner, Executive Vice President of Sales and Marketing and Managing Director of Cytosorbents Europe, and Christopher Kramer, our 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 May 3, 2022, 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 first quarter of 2022 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. Philip?

Thank you very much, Terryann. At the end of the first quarter, more than 170,000 cumulative cytosurge devices were utilized to date, up 30% year over year. The clinical U.S. trials in antithrombotic removal continue to progress, with the first patient enrolled in the STAR-D trial in April of this year, and with the STAR-T trial progressing towards its first enrollment milestone, its first DSMB, or Data Safety Monitoring Board meeting, when 40 patients are enrolled, anticipated this summer. We've talked previously about the USCTC registry, but now new data from 56 US critically ill patients being treated with ECMO and Cytosorb at five major ECMO centers under FDA emergency use authorization not only reiterates high survival of more than 70% of these patients, but early intervention appears to also help improve lung function and get patients off of ECMO. Meanwhile, we are pleased to bring on Ms. Ginny Kim to the Board of Directors. As Vice President of Smart Implants Technology and Data Solutions at Zimmer Biomet, and in the process of commercializing the world's first smart knee, Ginny brings a wealth of U.S. commercialization, marketing, and business development expertise to the board. We also established our U.K. operating subsidiary and hired Sean Whitmore, formerly the country manager for U.K. and Ireland for Livanova, to do the same for us. We intend to sell Cytosorb direct in the U.K. and Ireland, part of a strategy to increase direct sales territories over time. And finally, we successfully completed our European Union Notified Body Audit of our new Princeton, New Jersey manufacturing facility in April with no major findings. The facility is 95% complete and full certification is expected to come in the coming months, allowing us to begin manufacturing and shipping Cytosorb to customers all over the world. From a sales perspective, total revenue, which includes product sales and grant income, was 8.7 million for Q1 of this year versus 10.6 million a year ago. Product sales were 7.9 million in the first quarter of 2022, of which 7.6 million was core non-COVID product sales and 0.3 million was COVID-related, versus 10.1 million in product sales last year, of which 8.3 million was core and 1.8 million was COVID-related. Product gross margins remained healthy at 80%, 300 basis points higher than last year. First quarter 2022 core sales were stable. This is very important. It was on par with the third quarter and fourth quarter of last year in terms of core sales. And on a constant currency basis, that reflects roughly a 7% to 8% reduction in the euro to dollar exchange rate, the adjusted core sales for the first quarter of 2022 would have been $8.2 million, comparable to $8.3 million in the quarter a year ago. We had lower COVID-19-related revenue of only $0.3 million in the first quarter of 2022, compared to $1.8 million a year ago, which mainly accounts for the difference in product sales that you see. Lower COVID-19-related sales reflects the decreased need for Cytosorb due to the lower severity of COVID-19 illness related to rates of vaccination and natural immunity. In the first quarter of 2022, as outlined by the light blue vertical box that you see here overlaying these graphs, Germany experienced the highest COVID rates in the country since the pandemic began, worsened by a new BA.2 variant surge following our last earnings call that has delayed the recovery in Germany as well as our sales. First quarter 2022 Germany sales were 3.8 million versus 5.9 million a year ago, primarily affected by COVID-related issues at hospitals. And in the early part of the second quarter, the current quarter, we were seeing similar sales trends that we saw in Q1. Fortunately, cases are rapidly declining, just now breaking below 100,000 new cases a day. And as you can see from the map of Germany on the top left, The whole of Germany remains a hotspot, but is getting better. Vaccination rates at 77% of the population and natural immunity with one in three people in the country having been infected with COVID-19 are high in the country, and mortality remains low, which we believe portends an end to the pandemic very soon, we believe this year, where COVID morphs into a less severe perennial disease like seasonal influenza. Meanwhile, the picture is similar around the world with decreases in new COVID cases in general, but certainly with certain hotspots like Europe. Again, there are reasons to be optimistic about an end to the pandemic this year. 67% of the world population has now had at least one vaccine dose, and 61% are fully vaccinated. Major European countries have had high rates of vaccination, in general greater than 70%, as you can see on the right-hand graph table. And natural immunity from infection, as you can see from the far right-hand corner of that table, far right-hand column of that table. Mortality rates have dropped significantly in modern countries, approximating that seen with seasonal influenza. And importantly, treatment of COVID-19 illness is better understood now with new drug strategies and vaccines. And in fact, in many hospitals, COVID is an incidental finding in patients who are in the hospital for a completely different reason. But because of the trends we've been seeing since our last earnings call and guidance, in particular the surge in new BA.2 COVID cases in Germany late in Q1 that we believe has delayed the recovery in German hospitals and our German business, we are revising our guidance as follows. We expect COVID-19 cases and hospitalizations worldwide to continue to decline and expect to reach a more normalized operating environment as the year progresses. Because of this, we expect continued and progressive improvement in our underlying core non-COVID-19 business and expect growth in 2022 of core product sales on a constant currency basis. However, due to our limited visibility, we are removing specific growth targets with plans to revisit this later in the year when we have greater visibility. This expectation assumes, one, a gradual recovery of normalized hospital activity and sales access in Germany and other key countries. Two, no major economic slowdowns or major surges in COVID-19 infections caused by new COVID-19 variants. Three, little to no contribution to sales from Russia and neighboring countries that might be impacted by the war. And in 2021, sales from these geographies represented less than 4% of total product sales. We also expect these expectations assume no escalation of the Russia-Ukraine war to other countries. And we expect limited COVID-19-related product sales in 2022 due to high rates of vaccination and natural immunity that have reduced the severity of COVID-19 illness and need for hospitalization and ICU care, and with it, the use of Cytosorb in these patients. That said, we are not just waiting for conditions to improve. First of all, we are well capitalized with $44.7 million in cash to weather this turbulence and uncertainty. and we'll continue investing selectively on priority programs while taking proactive measures to significantly reduce our cash burn to end 2022 with more than $30 million in cash with the flexibility to add debt if needed. Meanwhile, we are laser focused on the following key objectives. First, open the U.S. market by obtaining FDA marketing approval for DrugServe ATR to remove blood thinning drugs during cardiothoracic surgery through the STAR-T and STAR-D trials. Second is to restore growth of course Cytosorb sales. Three is to transition Cytosorb production to our new manufacturing facility and headquarters in Princeton, New Jersey this year. And four, to forge and expand new and existing strategic partnerships to maximize the synergy between our technology and those of our partners while creating new global opportunities for growth. During this presentation, I've asked each person on the management team to provide additional color on these four goals. Meanwhile, we are working to restore sales growth and are pushing forward on a number of key initiatives to drive improved results as the pandemic abates, as well as future longer term growth. First of all, we have a strong customer base to resume sales growth from. Christian will provide some color on this. second we have now established three distinct therapy divisions within our commercial operations including critical care cardiovascular and liver and kidney and other applications to develop these markets internationally under the leadership of dedicated medical and commercial subject matter experts who will work closely with our sales teams to best serve the needs and interests of our customers christian will discuss some of these early successes of this initiative in his comments. Third, we have a growing strategy of exclusive hospital chain partnerships. We're now the preferred supplier of hemo adsorption technology to the three largest private hospital chains in Germany, including, as announced yesterday, Asclepios, Cliniken, GmbH. And finally, we have many new applications that we believe will drive usage of Cytosorb across a broad range of different applications. Some of the ones that we wanted to highlight and that we talk about in our press release, so I won't spend too much time on them, but it's the reversal of shock, which has been found recently to afflict about 10% of ICU patients with septic shock and an additional 8% of patients admitted to the ICU who develop shock at some point during their hospital stay with a very high mortality of 38%. And this is something that Cytosorb has been used for around the world to reverse, and we believe that this will be a major application, continue to be a major application for us going forward. Second application is in the treatment of acute liver disease, where Cytosorb was found to outperform the market-leading MARS platform, which is manufactured by Baxter, in the in vitro removal of many liver toxins, but has had the added benefit of removing cytokines and inflammatory mediators while being much easier to use. And in fact, in real-world usage, Cytosorb has replaced MARS at many accounts. With one in 11 people worldwide who have chronic liver disease that may deteriorate and require hospitalization and blood purification, through our liver-kidney division, we aim to drive Cytosorb as a therapy of choice in these patients. And the final one that I want to highlight is in lung injury. As I mentioned before, our USCTC registry highlights the high survival of critically ill COVID-19 patients with acute respiratory distress syndrome treated with Cytosorb and ECMO under FDA emergency use authorization. We believe that these data demonstrate a therapeutic strategy of enhanced lung rest using the combined therapies that can be extrapolated to the treatment of ARDS in non-COVID patients, what we believe is a very large market. And then we have also examples of longer-term growth initiatives. First of all, Chris, our Vice President of Business Development, will talk more about our standalone blood pump business model strategy for driving usage of Cytosorb outside of standard dialysis machines that are found in the hospital today. Second, Christian will talk more about expansion of direct sales territories, as we discussed with the expansion into the UK. And finally, Mikas will talk about our investment in many important clinical studies and give an update on these key studies in multiple clinical areas. Together, we believe we have a very robust strategy to drive this company to success. And we'll have some more comments in just a moment. So with that, I'd like to turn it over to Vince to provide a brief update on the manufacturing facility expansion.

Vince? Thank you, Phil. I'm happy to report we're on track with the build out of the new facility. We've outgrown the existing facility and this move provides us much needed space and flexibility. From a historical perspective, we started with just 2,000 square feet and grown the operation to more than 22,000 square feet by acquiring space in our business park as it became available. This type of growth led to limitations in material processing and the addition of personnel as we plan for eventual U.S. commercialization. Our new facility, on the other hand, provides us the flexibility to add new product lines, optimize process flow, improve logistics, and much-needed office space. We will begin the transition to the new site in May as a lease expires in the old facility, allowing us to eliminate this duplicative rent. Startup of the new facility has progressed nicely despite the many delivery disruptions for construction material and supplies due to COVID and limited availability of trades to perform the construction. The manufacturing facility is approximately 95% complete. All equipment has been placed, qualified and audited by our notified body with positive results. We are very pleased with the outcome of the audit and our manufacturing quality product development, and regulatory teams for this outstanding accomplishment. We will begin production in Q2 releasing that product for sale once we've received the final updated site certificate. With the site qualified, we can now begin the process of bringing our administrative, R&D, and production personnel together into one location. We will have accomplished our goal of increasing capacity providing the infrastructure to lower costs as the business grows, improve operational efficiencies, and provide a new home for our future U.S. sales team as we commercialize DrugSorb ATR. I have a couple slides here I'd like to show you of the new facility. The first slide is actually the outside of the new facility here in Princeton, New Jersey. Wait for it to come up.