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spk10: Good afternoon and welcome to SIDO's Second Quarter 2022 Financial and Operating Results Conference Call. At this time, all participants are in a listen-only mode. Following the former 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, Amy Vogel. Please go ahead, Ms. Vogel.
spk11: Thank you and good afternoon. Welcome to the CITUS Servant Second Quarter 2022 Financial and Operating Results Conference Call. Joining me today from the company are Dr. Philip Chan, Chief Executive Officer, Vincent Caponi, Chief Operating Officer and President, Kathleen Block, Chief Financial Officer, Dr. Efemios Deliar-Garris, Chief Medical Officer, Dr. Christian Steiner, Executive Vice President of Sales and Marketing, and Managing Director of Cytosorbents Europe, GMBH, 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 plan of 1995. Actual results may differ from the 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, August 2nd, 2022, 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 second quarter by management. Following that presentation, we will open the line to your questions during the live Q&A session with the rest of the management team. At this time, it's now my pleasure to turn the call over to Dr. Philip Chan.
spk04: Thank you very much, Amy, and good afternoon, everyone. We continue to make progress in the second quarter. First, as of the end of the second quarter, more than 179,000 cumulative cytosol devices have been utilized, up from more than 143,000 last year. Next, we announced today the signing of an expanded global marketing agreement with Fresenius Medical Care, where cytosol will become a featured blood purification therapy on Fresenius Medical Care's critical care platforms. We also entered into a three-year supplier agreement with the Sklepios Group, one of the largest private hospital operators in Germany. We partnered with Nikiso to distribute the Pure Adjust Hemoperfusion blood pump and supplies in a total of 14 countries, a key part of our standalone machine strategy to expand the market for our products. We also hosted the 2020-22 Cytoserve World Users Meeting that highlighted the broad market potential of Cytoserve as an interdisciplinary therapeutic approach for a wide range of life-threatening illnesses. And finally, we relocated and established our company headquarters and manufacturing in Princeton, New Jersey, in what was a great day for employees and our company. From a financial standpoint, total revenue, which includes product sales and grant income for the second quarter of 2022, was 8.5 million versus 12 million in the second quarter a year ago. Product sales were 7.3 million which was mainly core with negligible COVID-19 sales, compared to 11.4 million in product sales in the second quarter a year ago, of which 9.7 million was core and 1.7 million was COVID-19 related. Despite the drop in product sales, as you can see from this table, it's important to note that Q2 2020-22 core sales were stable with the prior three quarters on a constant currency basis, reflecting a 12% reduction in the euro to dollar exchange rate year over year, where adjusted core sales would have been $8.2 million. So clearly not the growth we are seeking. The results have been stable despite continued softness in the German market. Turning to Germany in the second quarter of 2022, Germany began a slow recovery from the worst COVID-19 infection surge of the pandemic, while dealing with yet another surge in new cases during the quarter, driven by the BA.5 variant. We continue to see the fallout of COVID in the German market with continued staffing shortages, budget issues, elective procedure restrictions, and continued but improved visitation restrictions. In addition, fatigue and poor morale amongst many healthcare providers continues. During the second quarter, for example, there was an 11-week healthcare worker strike in Western Germany that affected all of the university hospitals that serve a region That is home to 20% of Germany's population, postponing more than 10,000 surgical procedures and closing hospital wards. Needless to say, our sales in this region were very weak. Second quarter 2022 Germany sales were 3 million versus 6.1 million a year ago, reflecting many of the hospital related challenges that I just mentioned. However, we believe the alarm of COVID in Germany is beginning to fade due to the current low severity of illness of recent strains and that businesses, including hospitals, are adjusting and moving forward without major restrictions, as we've seen in the U.S. market. Although not yet showing up in our numbers, we see early but encouraging signs of improvement, including more customer visits in Germany during the quarter, continued strong positive support from customers, where the feedback on lower orders in Germany have been primarily due to hospital challenges such as staffing shortages, budgets, ICU capacity, and lower numbers of severely ill patients, a significantly increased flow of positive data on cytosol across both critical care and cardiac surgery, greater in-person attendance of healthcare providers at conferences, and improved cross-functional synergy within our company based on our new therapy area vertical strategy and leadership. And importantly, there have been recent developments that have the potential to drive future sales. For example, We have recently announced a preferred supplier agreement with the Sklepios Group, one of the largest private hospital networks in Germany, making Cytoserve available to all 170 healthcare facilities in the network without restriction. We also have had positive early response to our standalone blood pump strategy with our new partner Nikiso, intended to drive easy and earlier Cytoserve use and expand the market for blood purification, particularly in patients who need our therapy but do not yet need dialysis. with numerous equipment trials occurring or scheduled. And finally, as Chris will discuss in greater detail today, we announced a new expanded global marketing agreement with Fresenius, the market leader in dialysis worldwide with headquarters and a world-class sales and marketing team within Germany.
spk03: In summary, we continue to be laser focused on our 2022 strategic objectives.
spk04: These include, one, opening the US market by obtaining FDA marketing approval for DrugServe ATR to remove blood thinning drugs during cardiothoracic surgery through our STAR-T and STAR-D trials. Two, restoring growth of cytosol. Three, transitioning full cytosol production to our new manufacturing facility in Princeton, New Jersey this year. And four, forging and expanding new and existing strategic partnerships to maximize the synergy between our technology and those of our partners while creating new global opportunities for growth. Fresenius and Nikiso are just two examples of this. Today, you'll hear more detail on each of these areas from each person on the management team, and we'll specifically discuss key issues such as cash and cash burn and product gross margin. With that, I will turn the call over to Kathy for our financial overview. Kathy?
spk05: Thank you, Phil, and hello to everyone on the call today. I will briefly review Citus Urban's second quarter results in my remarks today, and in addition, I will provide an update around our working capital and cash for the remainder of 2022. Next slide, please. Total revenue, including product sales and grant income, was $8.5 million in the second quarter of 2022, as compared to $12 million in the second quarter of 2021. Product sales, for the second quarter of 2022 were $7.3 million as compared to $11.4 million in sales in the same quarter of 2021. The lower Euro to dollar exchange rate negatively impacted sales by $840,000 in the second quarter of 2022. In addition, COVID-19 sales were negligible in the second quarter of 2022 as compared to an estimated $1.7 million in COVID-19 product sales in 2021. Direct sales were $3.4 million lower in the second quarter of 2022 due to continuing COVID-19 pandemic market restrictions and also unfavorable currency conversions as previously discussed. Our grant income was $1.2 million in the second quarter of 2022 compared to $659,000 for the prior year quarter. And our second quarter 2022 product gross margins were 67% compared to 82% for the second quarter of 2021 due to inefficiencies caused by the necessary production shutdowns, which were associated with the relocation to our new production facility. I'll speak more about that in a little bit. Next slide, please. Looking at our quarterly sales trends over time, broken down by core and COVID-19 sales, we can see that the COVID-19 sales have declined to virtually zero in the most recent quarter. And as Phil discussed earlier, our constant currency core sales for Q2 2022 were comparable to the average currency adjusted core sales in the prior three quarters. Next slide, please. Turning to our trailing 12 months of product sales graph, which breaks out core versus COVID-19 sales. COVID-19 sales were 8.8 million in the trailing 12 months ended June 30th, 2021, as compared to $3.1 million in the trailing 12 month period ended June 30th, 2022. which is a decrease of approximately $5.7 million. Additionally, the decline in the euro to dollar exchange rate negatively impacted sales in the trailing 12 months end of June 30th, 2022. This was by approximately $1.6 million. On a constant currency basis, core product sales for the trailing 12 months end of June 30th, 2022 were approximately $32.3 million. which is a 6% decrease from core product sales of $34.5 million in the previous year. Also depicted here on the chart on the orange line are our second quarter gross margins, which showed steady improvement from 2017 to 2021. And then in the second quarter of 2022, product gross margins were 67%. That's the orange circle shown in the bar for the trailing 12 months ended 2022. And this is due to the necessary production shutdowns associated with the relocation of our new production facility. And we do expect product gross margins to return to their previous levels as we complete the relocation of the new facility expected by the end of this year. as we exit our lease at the old facility, which expires December 31, 2022, and as we begin to recapture manufacturing efficiencies driven by improving market conditions and increased product demand. Next slide, please. We ended this quarter with $31.9 million in cash, which includes $1.7 million of restricted cash. I'll provide additional color on our expectations with regard to cash for the remainder of 2022 in just a moment. And our cap table shows that we have approximately 49.4 million shares outstanding on a fully diluted basis. Next slide, please. Our cash burn for the second quarter 2022 was approximately $12.9 million, which is quite high compared to our historical average cash burn of approximately $5.7 million per quarter, which is what we experienced for the previous five quarters. So I would like today to explain a few of the material factors occurring in the quarter that influenced the burn. Second quarter 2022 included non-recurrent expenditures of $4.8 million, which were related to the construction, capital improvement, and other costs associated with the build-out of our new manufacturing facility. Now, as of June 31st, 2022, most of the costs associated with the new facility have now been incurred, except for an estimated approximately $300,000 in additional costs, which remain to be paid over the rest of 2022. In addition, inefficiencies caused by the production downtime associated with the relocation to our new production facility unfavorably impacted our cash burn in the quarter by approximately $1 million. And then in addition, grants and accounts receivable grew by $600,000 over the quarter. So excluding these aforementioned factors, our burn for the second quarter of 2022 would have been approximately $6.5 million. Next slide, please. In addition to the items impacting our cash burn, which were already mentioned, we have also strategically increased our inventory levels during the first half of 2022 in anticipation of production downtime associated with the relocation of our manufacturing facility. By the end of 2022, we expect to reduce our inventory by approximately $1 million, which will provide a source of working capital in the future. And with the completion of our new manufacturing facility, our spend is laser-focused on and fully aligned with our strategic priorities, those being key clinical trials, in particular, our STAR-T and STAR-D trials to support U.S. FDA marketing approval, and also sales and marketing. In our last quarterly call, we announced that we have taken measures to reduce our quarterly cash burn by $2 million per quarter in Q3 and Q4 of 2022. And we are currently actively engaged in making further reductions to our operating costs to reduce our future cash burn. These reductions have not yet been fully quantified. We're working on that. With the headwinds we're experiencing of macroeconomic and geopolitical uncertainty, that are out of our direct control, including a recovery of the German markets. We expect that our business, and in particular product sales, may continue to be challenging for the remainder of 2022. We believe we will be able to fund our operating needs with cash on hand, and we expect to continue to end the year having approximately $30 million in cash. This will include borrowing a portion of the debt available to us under the Bridge Bank loan commitment. This concludes my remarks for today. At this time, it's my pleasure to turn the call over to our Executive Vice President of Sales and Marketing, Dr. Christian Steiner. Christian, go ahead.
spk01: Thank you, Cathy. This is Christian Steiner calling from Berlin, Germany. Good afternoon, everyone, to the United States and good evening to Europe. As we have heard from Phil and Cathy, the macroeconomic situation for the whole medical device industry and also for our company remains challenging due to the changes in the healthcare systems. These include shortage of trained personnel and different allocation of resources and funds compared to the pre-pandemic times. Furthermore, we have to catch up for all the missed communications with our customers and potential users due to visit restrictions, lack of opportunities to educate at conferences and other events, and trainings and in-services which could not be conducted. However, the response we have received from our users, customers, partners, and the market is widely positive and very encouraging, although not yet translated into growing sales of our size of therapy. First slide, please. My first slide shows a list of our key initiatives, which I have presented to you at the last earnings call, and I want to give you an update for each of these different points. This will mainly include, number one, details on the development of our customer base in our direct sales markets, and second, what the progress has been in our key therapeutic areas of critical care, cardiovascular, and liver kidney. And then in number three to six, the changes and expansions to improve our sales structure and processes with new partnerships, an expansion of our direct sales footprint, and our recently announced standalone size of treatment and hemoperfusion platform strategy.
spk03: Next slide, please.
spk01: The upper chart of this slide shows that the number of active customers in the direct markets has not changed over the last few quarters. The transparent red area represents the time of the pandemic, which is still ongoing. The current special situation in Europe and Germany is characterized by a shortage of personnel, locked ICU beds, and limited patient numbers, as it has been also reported by other medical device companies. This led to a slight decline in the number of buying customers and less applications in those accounts in Q2. However, the better accessibility of our customers, doctors and healthcare professionals, resulted, for example, in a 42% increase of visits in the German sales territories compared to Q1, as shown in the lower chart. But the chart also shows that we need another increase of 47% to get to the average quarterly visit numbers before the pandemic. One must understand that we could not visit and train many users and customers on cytosol therapy for almost two and a half years. The re-establishment of our working relationships and re-initiated trainings and medical discussions bring back a lot of enthusiasm and excitement for the therapy. We have experienced this excitement and powerful movement firsthand at our World Users Meeting on July 2nd in Berlin, Germany, marking the 10th anniversary of cytosol therapy commercialization.
spk03: Next slide, please.
spk01: This brings us to the second important topic on what progress have we made with our focus on the key therapeutic areas. Almost 300 key opinion leaders, clinicians, and researchers came from all over the world, specifically 40 countries, to discuss advances, new data, and best practices on the use of our cytosol therapy. It has been the common understanding that it is very important to select the right patient start therapy early and treat aggressively, and importantly, treat long enough to ensure the best therapeutic results. These are the lessons learned from studies that have not met the desired endpoints in the past. Data and results of four new studies have been presented at the World Users Meeting and will be published in the next weeks and months. These publications of new positive clinical data are the fuel for our commercialization and sales engines. There's an enormously full pipeline of new evidence and data waiting to be published in all three key therapeutic areas of critical care, cardiovascular, and liver kidney. Dr. Delia Geeres, our chief medical officer, will give you a more detailed overview later in his presentation. One study, which also has been presented by Professor Sandra Lindstedt at the World Users Meeting, is meanwhile published in the prestigious journal nature communications. Here it was shown in an animal model that the quality and usability of transplant organs, in this case pig lungs, and the results of the actual transplantation can be dramatically improved by using our adsorption technology during ex vivo lung perfusion. In these weeks after the World Users Meeting, the clinical evaluation of the approach has been started in the human trial. All the developments on the field of transplant organ preservation and reconstitution have led us to decide to make further efforts to advance our special product ECOS 300CY, which is approved in the CE markets for this application. The relevant factors for this decision are the recent successes of our technology and the possibility of contributing to the alleviation of the worldwide organ shortage. The highest priority in introducing cytosol therapy, however, is to deliver the best possible product to the clinicians to really make a difference with their patients. That includes, on one hand side, that we always enable them to maximize their therapy results. Right patient, right timing, right dosing is a core of our initiative to give the best treatment guidance and train users to tailor the therapy according to the patient diagnosis and conditions. Personalized therapy will be the final result. On the other hand, we want to provide the best technological solution. The excellent safety record, the ease of use, and the blood purification performance of Cytosol are unique. The removal of specific substances, which normally are taken out from the blood by the liver and part of the kidneys, is not efficiently performed by standard dialysis approaches. we are adding a new dimension to blood purification and numerous new therapy opportunities continue to emerge.
spk03: Next slide, please. On this page, I have summarized the remaining initiatives from my first slide.
spk01: At three, as we have outlined during the last earnings call, partnerships as an exclusive or preferred supplier with hospitals or hospital chains play a key role in our direct markets. We have announced a partnership with Asklepios, one of the biggest hospital chains in Germany last time, but there are constantly discussions and negotiations ongoing in the background. We will update you when we have finalized those. Reimbursement, on the other hand, has a similar importance in the context and is even more difficult to achieve. However, we hope to have relevant updates shortly. At four, we have recently reported the establishment of our UK subsidiary as part of our direct sales expansion strategy. Now we can update you that the UK subsidiary is fully operational and embedded in our corporate financial and IT systems. We have received the first direct orders and are planning for more. Five. We have started another growth initiative recently which is our standalone platform surgery. This means that we can position our own blood pump with the customers that is in addition to the existing platforms in the hospital which we routinely are using. This creates different advantages and independence as well as therapy opportunities in several settings as we discussed last time. Now that the availability of our solution with partner Nikiso could be expanded to 14 countries, we are establishing all necessary sales and after sales processes. There is a very strong interest and we were able to start quite a number of equipment trials already and are scheduling others. At six. Last but not least, I want to give a progress update in regards to our sales partnerships. Of course, there are always discussions and negotiations ongoing in the different markets. We want to maximize the performance of our partners while building a fruitful, path-growing relationship for both sides. One partnership is and will be very relevant for us, and this is our new expanded partnership with Fresenius Medical Care, which will be explained to you in more detail by Chris Kramer, our VP of Business Development, in a few minutes. I just want to point out again that we have a technology in our hands that is opening up a new dimension in blood purification. The combination of Cytosorb with the technologies of FMC will create many more opportunities for both companies, for the treating doctors and healthcare professionals, and of course for the patients.
spk03: And last slide, please.
spk01: To summarize, I can say that we are still facing a challenging environment on our way to get back to pre-pandemic growth rates. However, we see encouraging indicators and exciting responses from the markets, which we believe will push us forward to new heights in this phase of commercialization. This includes the much improved accessibility of our customers. Also, we are experiencing a starting pull effect from the medical scientific community. More and more research groups and clinicians request to collaborate and come with their own projects and ideas. This also led to a nicely filled pipeline of new positive evidence which will be published within the next weeks and months. And we are also progressing with our standalone platform surgery and see a growing demand. And we have created new opportunities with our extended partnership with FMC And with this, it is my pleasure to hand over to Chris Kramer, VP of Business Development. Chris.
spk07: Thanks, Christian. We're very excited about today's announcement with Presenius Medical Care, the world's leading provider of products and services for patients with renal diseases, which we believe takes our partnership to the next level. The new agreement leverages FMP's global marketing horsepower while positioning site as the feature of blood purification therapy on their critical care platforms. This agreement increases the commitment from both parties and ensures an ongoing and consistent level of marketing, promotional activity, and messaging in support of Cytosaur by FMC to go beyond the prior co-marketing agreement in a number of important ways. That said, let me take a moment to describe in more detail what's included and how it will help to increase awareness and accelerate adoption of Cytosorb, as well as provide the foundation for future innovations. The new global marketing agreement encompasses a multi collaboration designed to seize new sales opportunities and jointly develop future innovation. A key aspect of this agreement is that SMC will be responsible for executing a worldwide strategy excluding the United States, for the marketing and promotion of Cytosorb in combination with its critical care products. These events and activities will utilize a highly visible and prominent marketing channels, including various FMC-led, in-person, virtual, social media, and web-based marketing programs featuring Cytosorb and will highlight the cooperation between two companies in the field of critical care. For example, 13 major international congresses in all regions of the world, excluding the U.S., have been identified where FMC will execute Cytosorb-focused marketing and promotional events. In addition to actively marketing and promoting Cytosorb on its critical care platforms, another key aspect of these campaigns will be about making Cytosorb a featured therapy for the removal of cytokines bilirubin and myoglobin. The process is similar to hemodialysis mastered by Fresenius Medical Care to treat kidney failure, which removes accumulated small to medium-sized water-soluble molecules and toxins from the bloodstream. However, Cytosorb adds the ability to remove large molecules and toxins that are poorly removed by hemodialysis. Combined, the two therapies work together in a complementary manner to provide treatment for a broad range of conditions in the intensive care unit That said, we believe that Cytosorb adds a powerful new dimension of blood purification to FMC's critical portfolio, and this will play an important role in differentiating Cytosorb in the market with customers and against competing blood purification technologies. Next slide, please. Serving as an important foundation of the program, FMC has committed to continue to certify compatibility between Cytosorb and critical care platforms. With the ability to seamlessly integrate Cytosorb with the FMC multi-filtrate pro acute dialysis platform that is routinely used throughout the world today, this plays an important role in ensuring access to care for Cytosorb and demonstrates our ongoing commitment to providing the highest quality solutions for our customers. Also, we've agreed to form a joint innovation Group to capitalize on near-term commercial opportunities, like design indication-specific marketing campaigns, penetrating competitive accounts, and winning tenders. We will also leverage this working group to identify and bring to market future new product offerings and solutions in the critical care space. We believe that by working together, we have the potential to unlock new opportunities and create sustained growth for both companies. Finally, in consideration of the contributions by FMC to this collaboration, we've agreed to subsidize a portion of the marketing cost through a royalty payment of 0.9% of net cytosol sales to FMC based on estimated cytosol device sales in the intensive care unit on FMC platforms, again, excluding the United States. So in summary, this new global marketing agreement enables us to communicate the benefits of Cytosorb broadly and consistently to more customers throughout the world, and to execute targeted marketing and promotional campaigns in collaboration with FNC. As a result, we believe this program will help increase awareness and accelerate the adoption of Cytosorb. In addition, we will work continue to work closely with FMC to ensure that we maximize our near-term commercial impact to win new business and grow sales and to jointly develop future innovations that we can maintain and extend our leadership position in the healthcare space. Thank you for your time today. That concludes my remarks. And with that, I'll turn it over to our Chief Medical Officer, Athemios Delegeres.
spk03: Athemios?
spk02: Thank you, Chris, and congratulations on the very exciting news of the Fresenius Partnership. Good afternoon, everyone, and thank you for joining our second quarter earnings call. For the next few minutes, I will provide you with updates on our clinical studies, and we'll also review with you a long list of recent positive data readouts that we believe will serve as catalysts to our business. On the clinical front, we continue to make progress executing our studies and we're now shifting our focus to driving enrollment. To execute these studies, we are working with major academic institutions around the world and we continue to observe across the board the long-lasting impact of the pandemic on these sites, specifically relating to staffing shortages. Having said that, we have made strong progress in the first phase of execution by getting the majority of the sites participating in our studies up and running. Accordingly, we are now shifting our focus and resources for the second executional phase of these studies, which is enrollment. Our FDA programs, the START-T and the START-D studies, remain our top priority, and our clinical teams are now laser-focused on driving enrollment in both of these studies. There will be more to come on these two studies on the next slide. Importantly, one of our programs, the CTC registry, is now completed, and we're executing the third phase centered on data readouts and publications. We have also made significant progress in generating new positive data in support of our business. These efforts are led by our global medical affairs team that are now fully integrated within the therapeutic area verticals that you already heard from Christian referenced earlier. As noted on this slide, 13 new original publications are already out this year, and we expect this number to continue to grow with more papers coming out before the end of the year. We are also targeting major international conferences with original new data readouts with seven presentations scheduled within the next few months, including a presentation on the value a proposition of antithrombotic removal in Germany at the European Society of Cardiology in August. New data with early initiation of Cytosorb together with ECMO will be presented at the ELSO meeting in September. And two very exciting new data releases at the European Association of Cardiothoracic Surgery later in October, including a randomized clinical trial in heart transplantation and the main results from the CTC registry data on acute liver failure, and more data in septic shock. Next slide, please. Turning now our attention to our FDA studies, STAR-T and STAR-D, we are happy to report that both studies have at least 20 sites activated in recruiting patients into the studies. To add sites to both studies to a total of all sites now open, our operational plan resources and focus has shifted from study startup activities to activities driving enrollment. For STAR-T, our efforts focus on helping sites identify eligible patients on ticagrelor. We plan to add the remaining sites from ticagrelor hotbeds, mainly regions where ticagrelor is the dominant agent used in acute coronary syndrome treatment protocols. For STAR-D, Although we're still early in the process, we continue to see strong interest for drug-absorbed ATR and are encouraged by the high numbers of cardiac surgery patients on DOACs that are reported by the participating sites. As we have previously communicated, both studies are targeting three pre-specified milestones, with the first one being the DSMB safety review after 40 patients are enrolled. For START-T, We expect this milestone to be reached in the next few months. For STAR-D, as noted already, we're still a little bit early in the process, but now we're actively collecting screening log data from sites that should help us gain better visibility on study progress, but also inform us on strategies to drive enrollment. Next slide, please. Let's shift now to our non-FTA programs. As noted already, the CTC registry is now completed and data readouts are ongoing. Interim results on the first 52 patients have been previously presented and published. And next, we will be reporting the final results on 100 ECMO patients treated with SIDASHOAD at the upcoming European Society of Intensive Care Medicine meeting in October. These final results have also been submitted for publication. Next is PROCESS, a randomized clinical trial in patients with septic shock. The study is now actively enrolling with the majority of sites open and actively recruiting patients. We continue to project that the milestone of the interim analysis that will be triggered after 80 patients are enrolled will be reached in 2023. Moving on to the HEP1FIRE single arm pilot study in patients with acute liver failure, we have experienced delays. And as such, we are now exploring options to optimize the execution of the study and plan to relaunch it early in 2023. Moving on now to our two international registries. Our STAR registry has made significant progress and is now actively enrolling patients in four European countries, including the UK, Germany, Austria, and Luxembourg. and we will be expanding to additional countries before the end of the year. Based on the brisk enrollment pace to date, we anticipate multiple data readouts at major international cardiac surgery conferences in 2023. And finally, the COSMOS registry, I'm happy to report that is also now actively enrolling patients in Spain, and we're soon targeting to open Germany as a second country enrolling in the study. Although early in the process and without great visibility yet on the enrollment pace, we still continue to project that COSMOS will also be providing data readouts in 2023. Next slide, please. I would now like to turn our attention to the long list of new positive data readouts with the use of our technology across multiple clinical indications and applications. This work has been prioritized by our global medical teams in collaboration with some of the most renowned international key opinion leaders have produced this very impressive inventory of publications. The current slide summarizes the outputs in critical care and liver and kidney therapeutic areas. In aggregate, six original papers have already been published this year and are shown in green on the table. Three more papers have been accepted publications and are currently in press. These are shown in light blue. And as noted already, there are four original data presentations at upcoming international conferences that are highlighted in blue in this table. You will note that this new data span across a multitude of disease states, including sepsis and septic shock, treatment of acute pancreatitis and acute liver failure, and comprometted use of a cytosol device with ECMO. We have also recently published a comparative analysis between cytosorb and a competitive device and demonstrated that our technology provides more efficient and profound cytokine removal. Finally, although the majority of clinical evidence still originates from Germany, please note that we now have contributions from multiple different geographies, including the U.S., France, and India. all the published papers listed here are in peer review indexed journals, and as such, they're all available online. We are of course more than happy to provide copies of these papers upon request.
spk03: Next slide, please.
spk02: Similar to the previous slide, what you see here is a summary of new positive evidence that has been generated in cardiovascular applications. In aggregate, Seven original papers have been published this year. And once again, they're noted in green highlight on this table. And three more papers have been submitted for publications and are shown here in light purple. The blue entries represent the three original presentations of upcoming conferences, including the health economic analysis for anti-thrombotic removal, demonstrating significant cost savings in the German market that will be presented at the European Society of Cardiology meeting in August. and the very exciting randomized clinical trial results with Sadosorb in heart transplantation, a first data set of its kind that will be presented at the European Association of Cardiothoracic Surgery early in October, together with an additional original data set at the same meeting in patients undergoing surgery for staphylococcal endocarditis. Once again, you will note that these data in the majority are originating from Germany. But you also see contributions from U.S., Canada, while the randomized clinical trial already mentioned is originating from Hungary. And as Christian already discussed, we have an incredibly exciting study published from Sweden in lung transplantation in pigs in a highly ranked and renowned scientific journal, which is none other than Nature Communications. You can see that the evidence is mounting. for the benefits and value with the use of our technology for anti-thrombotic drug removal and high-risk endocarditis surgery. However, we're equally excited about the new emerging evidence in heart and lung transplantation that we believe represent new and exciting areas of growth for our technology. Once again, all the published papers are in peer-reviewed index journals, and as such, they're available online. We are more than happy to provide copies upon request.
spk03: Next slide, please.
spk02: So, in conclusion, we have made progress in the clinical programs and are now shifting our focus from phase one start-up activities to phase two activities that will drive enrollment. The FDA programs, START-T and DEAL, remain our top priorities. Both are actively now enrolled with over 20 sites. We anticipate accelerated enrollment going forward, with a critical mass of sites now activated and our operational shift in focus to enrollment. Our EU programs are also progressing, with Process, STAR, and COSMOS leading the way. HepOnFire, on the other hand, will undergo an optimization and will be relaunching this trial in 2023. And finally, Large number of positive publications in peer-reviewed journals and more positive data readouts coming at international conferences should create significant tailwinds for our critical care cardiovascular and liver and kidney markets. Thank you for your attention, and with that, I would like to turn over the call to our President and Chief Operating Officer, Vince Caponi. Vince?
spk08: Thank you, Mike. Thank you, Micahs. Q2 marked an additional progress towards consolidating our operations into the new College Road facility. On March 31st, we closed our original Deer Park facility that housed our administrative, R&D, and device manufacturing operation. In June, we achieved another milestone with the first saleable devices being produced from the new facility. Though polymer is still being produced in our second location in Deer Park, We expect to decommission this plant by the end of December and relocate the remaining operation to our new facility. This will mark a significant milestone, bringing the entire U.S.-based site assortments team into one location. Next slide, please. During this transitional phase, we experienced a four-week shutdown to relocate and commission our existing fill lines in the new facility, as well as relocate our R&D labs. Our production and R&D teams came together to make this move happen in a very short period of time, helping to defray costs by utilizing our own personnel. As expected, we experienced higher costs in this transitionary period due to lower production outputs and less overhead absorption. We expect our costs will be higher through the end of the year as we continue to carry rent for both the Deer Park polymer production facility and our new facility. In 2023, we expect gross margins to return to previous levels as we complete the relocation to the new facility and can begin to capture manufacturing efficiencies driven by elimination of duplicate rent and increased product demand as a result of improving market conditions. As volume increases, we will continue to see improvements in gross margin, much in the way we observed for Cytosorb at the previous scale. Next slide, please. As we follow along with our clinical progress in STAR-T and STAR-D, we are making initial preparations for the potential DrugSorb ATR launch. We have assembled a dedicated launch team focused on completing those key items in support of regulatory filings and clinical outreach initiatives. These include product branding, defining product configurations, identification of accessories, and establishing product usability through our star clinical sites. In addition, our commercial team is actively engaged with our clinical group to identify new potential study sites. We recently attended the American Association of Thoracic Surgeons where we actively engaged with researchers to explore their interest in participating in the STAR trials. In addition to supporting our STAR clinical site identification, these early commercial activities will establish the necessary contacts to allow rapid access to the market once approved, once approval has been achieved. Next slide, please. In summary, As a team, we are focused on launching DrugSorb ATR into the market in the fastest, most efficient way possible. Thank you. This now concludes my remarks, and I would like to turn it back to Phil. Phil?
spk04: Thanks very much, Vince. In summary, we're navigating through this period of uncertainty with a focus on tight fiscal management while investing in our key priorities. To reiterate, these are, one, restoration of sales growth, two, our U.S. clinical program STAR T and STAR D, and potential future FDA approvals, three, fully opening our new manufacturing facility in Princeton, New Jersey, and four, new partnerships to drive growth. Although there's always more work to do, we believe this strategy will result in a stronger company poised to take Cytosorbance to the next level of growth. That concludes our current prepared remarks. operator, please open the call up for the Q&A session.
spk11: Thank you.
spk10: As a reminder, if you do have a question, please press star 1 on your touchtone phone. Please make sure your mute button is turned off to allow your signal to reach our equipment. Our first question is from Zach Wiener with Jefferies. Please proceed with your question.
spk09: Hey, thanks for taking my questions. I just want to start with hospital trends. in Europe and particularly in Germany. I know you guys talked a bit about it on the call. And then just if you could give a bit more color as to some of the potential revenue that was lost due to the strike in Germany. Thanks.
spk04: Yeah. Thanks, Zach. Christian, would you like to comment on the hospital situation in Germany?
spk01: Thank you very much, Zach, for the question. As you say, there are a number of facts which play into this business in Germany. One, of course, is the recent strike in the hospitals in what's called North Rhine-Westphalia. That's one of the biggest states of Germany with around 20% of the population. And this obviously has impacted our business significantly. So all the big hospitals, meaning university hospitals and all the hospitals with more than 1,000 hospital beds have been down just to emergency procedures and operations. And this obviously had a big impact on our business. And secondly, of course, we have kind of relaxed restrictions. regarding the hospital excess. However, now or in second quarter and also now in third quarter, the problem is that many of the staff members are infected and often this leads to a restricted or reduced operation of the hospitals. These are the main points, I think, regarding the business in Germany. Does that answer your question?
spk09: That does. It's very helpful. And then just one on the STAR-T, STAR-D trials. I know you have talked about in the past some overlap in terms of hospitals in those trials. Can you talk about what percentage of sites that are enrolled are overlapped or essentially are doing both STAR-T and STAR-D and some of the synergies that we should expect due to that overlap and then I guess just how we should think about timeline of those trials. Thanks for taking the question.
spk03: Thanks, Zach. Micah, would you like to take that?
spk02: Sure. Thanks for the question. We now, as I mentioned on the call, have the bulk of the sites in both sites activated, and approximately 80%, maybe a little over 80%, are participating in both trials. So that actually exceeds our initial plan of having about two-thirds of the sites overlapping. We now are over 80% overlap. And the type of synergies that we expect, part of those synergies we already experienced in the startup phase. where we saw the execution of contracts, the execution of IRB submissions move in a faster pace with star D than with star T based on the pre-existing work. As we're moving now in phase two, driving enrollment of the studies, example of the synergies, of course, include that any time we engage with these sites, we can now talk about both trials instead of having to visit separate sites and discuss individual each study and so on. The second thing is that in addition to be executed in the same location, these studies are also basically identical in the study-related procedures. So educating the sites and ensuring they're executing according to the protocols now applies to both trials. And then finally, the feedback we're getting from sites is once they start enrolling and they see that both the study itself, the study-related procedures are not difficult to execute, and the familiarity with the device increases, we believe that that will accelerate their ability to recruit in both of these trials. And then finally, you know, at the source of these patients, although many of them are coming through the emergency room on multiple occasions, these patients are also referred from outside hospitals. So being able to participate in both studies, that increases the capture radius for these hospitals from the referring centers based on the fact that it now can target patients in multiple agents and not just Ticagrelor or DOACs. So I hope that answers your question. There was relating the synergies. And then the last part, if I remember, was if we can provide, you know, give you an update about the progress in the studies. I think we already provided some, you know, comments on the state of execution we are now. We are actively now shifting from the startup phase to helping these sides identify eligible patients and educate these sides with the intent of improving enrollments. You also heard commentary both from Christian, Phil, and myself about the lasting impact of the pandemic on these sites. And we certainly saw that during the startup phase that these sites are still struggling to fill positions for their staff that were lost during the pandemic. So, again, we are targeting the first milestone with STAR-T to be coming in the next few months. And then hopefully in the near future with the new information coming from screening logs, from start D as it's beginning enrollment, we should be a little more visible at the path forward for the second study as well.
spk03: Very helpful. Thanks for taking the questions.
spk10: Our next question is from Josh Jennings with Cowan. Please proceed with your question.
spk06: Hi. This is Brian here for Josh. Thanks for taking my questions. I wanted to start with just the sales expectations embedded in the guidance now. So you referenced some improvements in key markets. I recognize there are a lot of variables affecting the guidance currently, but can you frame how you're thinking about the back half of the year compared to the first half, 22 sales, and maybe even the sequential trends for the third and fourth quarter and how these could compare to those in a typical year?
spk04: Yeah, Brian, thank you very much. Yeah, as we discussed in the last call, we actually withdrew yearly guidance based on the number of variables out there that we have little control over and the slow recovery of the German markets. I think what you're hearing from us today is that, you know, we are seeing early but encouraging improvement in our core markets. It has not yet translated as of the end of the second quarter. into improvements in our financial results. And we're cautious about the second half, particularly given that the third quarter is typically seasonal with vacations and where many people across Europe are typically going on vacation in July and August. So Q4 typically is our strongest quarter of the year. We expect that that will be the case again this year, but we are taking a wait and see attitude. But in the meantime, again, tightly controlling our financial costs and conserving cash while actively pursuing the things that will help drive our business going forward.
spk06: Okay, thank you. And I wanted to follow up with maybe a more specific question about the start trial timeline. So you'd previously outlined some timelines for finishing enrollment for both studies. Is it safe to assume that both trials are generally tracking within three months of these prior enrollment targets? And just anything you can help with how you're seeing enrollment trends at already activated clinical sites? Thanks again for taking the question.
spk03: Sure. Mike, did you want to comment on that?
spk02: Sure. Starting from the back end of the question, the three-month window, based on what we have communicated previously, yes, we think that still applies. And based on our guidance today, the STAR-T will be the first trial to hit that first milestone. The enrollment pace, we believe, will track the number of sites activated. So we expect now, moving forward, to have enrollment pick up simply because as a function of having the bulk of the sites activated, while in previous months we were working with fewer sites open. STAR-D is still early, as I mentioned, so the enthusiasm obviously is a positive sign that we're seeing from sites, and the fact that early evidence coming from their screening logs seems that they do see these patients, but we don't have enough data yet to be able to provide you with an estimated timetable for STAR-D as it comes to hitting its first milestone. Once we achieve the first milestone, which is one-third of enrollment, we will obviously be tracking towards the second important one, which is the interim analysis. And we think, you know, we'll have better visibility towards that on our next earnings call.
spk10: Our next question comes from Sean Lee from HCU Wainwright. Please proceed with your question.
spk12: Good afternoon, guys, and thanks for taking my questions. First, I'd like to congratulate you on the new agreement with Fresenius. I was wondering if you could provide some more color on how much sales is FMC responsible for right now for you guys, and what do you expect the growth can get to with the new agreement in place?
spk04: Yeah. Hi, Sean. I'll let Chris comment on this a little bit, but today most of our sales are either driven by us directly in our direct sales territories or by our independent distributors in other countries around the world. We have a co-marketing agreement with Fresenius that has existed previously, but it is not a targeted agreement that we have now where Fresenius is now actually financially incentivized to drive marketing of Cytosorb. And also, we did not have at that time this commitment to make Cytosorb a featured blood purification therapy for the removal of cytokines, myoglobin, and bilirubin. So we think that the new agreement has, first of all, It's a much bigger win-win for both companies. It represents an increase in commitment for both sides to move forward the partnership in a very constructive and positive way and believe that because it is a global partnership where it extends everywhere, with the exception of the United States, that it has the capacity, given that Presenius is the number one or number two player in and critical care around the world in terms of placement of their machines, in terms of their sales force and marketing presence, that it has the potential to really drive sales of Cytosaur in the future. But again, they will be doing marketing, we will be doing the selling, but we think that that will be a great mix. With that, maybe turn it over to Chris, maybe for some additional color. Chris?
spk07: Yeah. Thank you. So I think that was a good, I think that the big drivers here, number one, you know, she had mentioned, you know, COVID, um, we really hadn't had the same to customers and to account we had before. So a big part of really what we're doing is trying to get the site of sort of message out to users. Number two, I think really piggybacks on piggybacks on what Mike has had mentioned is that we've got new data coming out. And, you know, there really isn't a better way to kind of bring this new data to customers than having a horsepower and megaphone that FMC brings to this. We've got 13-plus Congresses lined up where we're going to have a chance for them to really kind of supplement what our sales and marketing team is doing. And I think, you know, this innovation group was the last piece that I just wanted to mention that I think could have an impact on sales and There's a component. There's also a near-term component to that. And we've talked about designing really indication-specific marketing campaigns. And you can think about the therapeutic areas that we play in right now in areas like sepsis and maybe liver where we think we can really make some headway in that message out and really discussing how we penetrate more competitive accounts where it's in the best interest for both to really access those accounts and, of course, winning tenders. And I think there's a lot of things we can do in combination with collaboration that can help accelerate sales. So I hope that answers your question.
spk12: Yep, that was very helpful. Thanks. My second question is on the STAR-T and STAR-D trials. With the two planned interim readouts, DSMB reviews, will we see any data releases at those times?
spk02: Yeah, thanks for the question. So, the first milestone is a safety review. So, in that regard, the DSMB will review the blinded data and unblinded data and will provide us with a recommendation. relating the status of the study continue or require potential modifications. The second analysis after 80 patients, so two-thirds through enrollment, includes both a second safety review, so they will repeat the similar kind of exercise that they do after 40 patients, but they would also, under pre-specified criteria, evaluate efficacy. So it's no longer just a safety review. Based on those results, on unblinded data, the DSMB will come back with a recommendation of whether to continue the study or stop the study based on the efficacy results they have already reviewed. At that point, we will communicate the DSMB recommendation. And according to what that recommendation is, for example, if the study is stopped for efficacy, that will soon there follow with the release of the data if the study is going to be completed. So if the study is ongoing, we will remain blinded to the data and we will not be releasing any data until the study completion. I hope that answers the question.
spk12: Yep, that was helpful. And my final question is on the potential commercial launch of DirectSwap in the U.S. I see that you guys already started some preparations to that end. So I was wondering whether you've decided to do an independent launch and direct sales or through partners or some sort of a hybrid model?
spk08: Yeah, Vince, did you want to comment on that? Sure. Sure, I'll do that. So we're looking at doing a hybrid model. You know, clearly there are certain markets that would be best serviced by distributors where there are other areas, geographic areas, where we intend to go Direct and part of the outreach program that we're going through right now working with clinical is helping us get an understanding of, you know, who are going to be key players and what markets. We're also doing a significant amount of market research to understand where, you know, the largest amount of ticaglors being used within the country, which will also help us, Sean, identify where we want to go direct. I think that's... Yep, that...
spk12: That's all that I have. Thanks again for taking my questions. Thanks, Sean.
spk10: At this time, I would like to turn it back over to management for any additional or closing remarks.
spk04: Well, thank you very much, everyone, for joining the call today. If you do have any other questions, please feel free to reach out to Amy Vogel at A-V-O-G-E-L at PlanetServants.com, and we'll try to reply to your questions where possible. We look forward to our next quarterly call. Thank you very much.
spk10: Thank you. That concludes our conference for today. I'd like to thank everyone for their participation.
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