Cytosorbents Corporation

Good day and welcome to the Cytosorbents Corporation third quarter 2022 earnings conference call. Today's call is being recorded at the request of the company. At this time, all participants will be in a listen-only mode. At this time, I'd like to turn the conference over to Michelle Almonte. Please go ahead.

Thank you and good afternoon. Following the formal remarks today, we will open the call for your questions. Please be advised that the call will be recorded at the company's request. 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. Estimio Celio-Guerres, Chief Medical Officer, Dr. Christian Steiner, Executive Vice President of Sales and Marketing and Managing Director of Cytosorbents Europe, GMBH, and Christopher Kramer, VP 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 November 3rd, 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 third 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.

Thank you very much, Michelle, and good afternoon, everyone. From an operational standpoint, we've been making good progress. As we continue to celebrate our 10th year of commercialization of Cytosorb, we've had 186,000 cumulative Cytosorb devices utilized as of the end of the third quarter, up from around 152,000 last year. As Micah will discuss in his comments in greater detail, the START-T trial is enrolling well, and we expect to achieve the first milestone of 40 patients this month. This puts us on track to potentially complete the study by summer of next year. Yesterday, we announced final key data from the USCTC registry on 100 critically ill COVID-19 patients with refractory respiratory failure from five US ECMO centers, where enhanced lung rest with Cytosorb and ECMO, led to a 90-day survival of 74%, and where early intervention yielded better clinical outcomes. During the third quarter, we achieved ISO 13485 certification of our Princeton, New Jersey manufacturing facility. We also had some excellent news on the reimbursement front, with reimbursement of Cytosorb by the Israeli Ministry of Health for cardiothoracic surgeries, which will go into effect in 2023, and reimbursement from the Turkish Ministry of Health for critical care and cardiothoracic surgery application. We recently announced two major awards for our HumanFM BGA product that enables universal plasma that could be given to any patient. The Department of Defense has awarded us a $2 million two-year award to develop commercial-ready devices for preclinical porcine studies and a $4.3 million three-year award to customize a device to enable freeze-dried universal plasma that could be used off the shelf for patients in trauma and in military service. Finally, we announced the release of new cardiac surgery data at EAX 2022, highlighting new positive data using Cytosurf intraoperatively during cardiothoracic surgery to improve outcomes in staph aureus, endocarditis, heart transplantation, and antithrombotic drug removal, and also received a $282,000 award from NIH to test new and existing polymers for cytokine and LPS endotoxin removal to advance new treatments for deadly gram-negative sepsis. With that, I will now turn it over to Kathy Block to cover our financial performance for the quarter. Kathy?

Thank you very much, Phil, and hello to everyone on the call today. I will briefly review Cytoservin's third quarter financial results, and in addition, I will provide an update around our working capital for 2022 and beyond. Next slide, please. Total revenue, including product sales and grant income, was $8.1 million in the third quarter of 2022 as compared to $9.8 million in the third quarter of 2021. Product sales for the third quarter of 2022 were $6.5 million as compared to $8.9 million in product sales in the same quarter in 2021. The lower euro to dollar exchange rate negatively impacted 2022 sales by $771,000. In addition, COVID-19 site of serve sales were negligible in the third quarter of the current year as compared to an estimated $1.1 million in COVID-19 product sales in the prior year. Product sales continue to be negatively impacted by COVID-19 pandemic market restrictions. On a constant currency basis, however, third quarter 2022 core non-COVID sales were $7.2 million, and this represents a 7% decrease from the $7.8 million in core non-COVID sales a year ago. Our grant income was $1.6 million in the third quarter of 2022 as compared to $859,000 in the prior year. Next slide, please. Looking at our quarterly sales trends over time, broken down by core and COVID-19 sales, we can see that COVID-19 sales have declined to virtually zero in the last two quarters. COVID-related sales were negligible in 2022, compared to $6.3 million in the year 2021. Next slide, please. This slide is our trailing 12 months product sales graph, and it breaks out our core versus our COVID-19 sales. COVID-19 sales were 7.1 million in the trailing 12 months ended September 30th, 21, compared to $2 million in the trailing 12-month period ended September 30, 2022, a decrease of approximately $5.1 million. Additionally, the decline in the euro-to-dollar exchange ratio negatively impacted sales in the trailing 12 months ended September 30, 2022, by approximately $2.7 million. On a constant currency basis, Core product sales for the trailing 12 months ended September 30, 2022, were approximately $32.1 million, which is an 8% decrease from core product sales of $34.8 million in the trailing 12-month period ended September 30, 2021. This year-over-year decrease in product sales is due to COVID-19 pandemic market-driven conditions. Although improving, continued staffing shortages, reductions in ICU bed capacity, decreased elective surgical procedures, hospital budgets, and hospital restrictions continue to limit our access to hospital personnel. Also depicted on this chart on the orange line are our third quarter gross margins, which showed steady improvement from 2016 to 2021. Q3 2022 product gross margin includes a one-time charge of approximately $600,000 because of inventory damage due to a refrigeration equipment failure in the quarter. By the way, we are seeking to recover this loss through an insurance claim, but the amount of the recovery has not yet been determined. Excluding this non-recurrent charge, our product gross margin for Q3 was 64%. That's shown as the orange dot in the Q3 2022 bar. The decrease in gross profit was due to devaluation of the euro compared to the U.S. dollar, inefficiencies associated with lower production due to a decrease in sales, and the process of relocating our production activities to our new facility. We do expect product gross margins to return to previous levels as we complete the relocation to the new facility by the end of this year, exit our lease at the old facility, which expires December 31st, 2022, and as we begin to recapture manufacturing efficiencies driven by improving market conditions and increased product demand. Next slide, please. Our cash burn for the third quarter of 2022 was approximately $7.8 million, which is higher than expected due to reductions in gross margins resulting from the decrease in the Euro to US dollar exchange rate, lower sales, and higher cost of sales because of inefficiencies associated with lower production. We ended the quarter with 24.2 million in cash, and that includes 1.7 million of restricted cash. Given the headwinds 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 experience challenges for the remainder of 2022 and possibly into 2023. Our spend is laser-focused on and fully aligned with our strategic priorities, in particular efforts to support U.S. FDA approval. And we remain actively engaged in making further reductions to our operating costs to reduce our future cash burn. I'll say more about that in just a minute. Our cap table here shows that we have approximately 52.1 million shares outstanding on a fully diluted basis. Now back to our cash runway. Next slide, please. As of September 30th, 2022, we have 24.2 million in cash, which includes restricted cash. We intend to utilize a portion of our $15 million debt facility to further bolster our working capital. The proceeds from the loan, along with our existing cash on hand, are expected to provide funding for our operating needs into 2024. Cash conservation is, however, an important corporate priority, and we are continuing to focus on controlling our expenses. Already this year, we've reduced overall headcount, including full and part-time employees and consultants by 10%. In addition, we've shifted our R&D personnel to grant-funded programs, and those programs have an extensive $1.2 million backlog. The focus of our clinical team on Star T and the pause of Star D will cut over $4 million from our 2023 operating expenditures. And going forward, we expect to identify more opportunities for cost savings. Our spend is focused on and fully aligned with our strategic priority, in particular, our STAR-T trial designed to support U.S. FDA approval. Our goal is, through a combination of driving an increase in sales and gross margin, along with cost-cutting measures, to significantly reduce our cash burn and extend our operating runway. That concludes my remarks for today. And at this time, it is my pleasure to turn the call over to our Executive Vice President of Sales and Marketing, Dr. Christian Steiner. Christian, please go ahead.

Thank you, Cathy. Good afternoon to everyone from the United States and good evening to Europe. As we have heard from Phil and Cathy, the macroeconomic situation for many medical device companies, but especially also for cytosolvents, with its paradigm shifting therapy approach remains challenging. I reported at the last call that we have started to catch up for all the missed communications to our customers due to visit restrictions and the lack of opportunities to see, educate and grow our Cytosorb users community and furthermore that the response we get currently from our customers and partners from the market is widely positive and very encouraging.

First slide please.

Today I want to give you a little more flavor how the state of the Cytosorb users community has developed. I will show you how the enormous number of activities of our medical and commercial teams is fueling the excitement about Cytosorb. More and more key opinion leaders from different medical specialties are supporting us and the involvement in specific projects to further develop our therapy is growing. I also want to emphasize some of our growth opportunities and initiatives, such as the recent agreement with Fresenius Medicare in the therapeutic areas of critical care and liver-kidney, the importance of our standalone blood pump strategy, and some of our new application fields in our therapeutic areas.

Next slide, please.

I have mentioned during the last call that we had a Cytosol World Users Meeting in July in Berlin to demonstrate the state of the art of oral therapy after 10 years of market development. Almost 300 key opinion leaders, clinicians, and researchers came from all over the world to discuss advances, new data, and best practice of the use of cytosol therapy. The preview presentations of four major new data sets in different clinical indications marked the highlights of this international scientific conference. These applications included infective endocarditis, heart transplantation, protection of kidney function during open heart surgery, and the protection and reconstitution of lung transplants. All these studies have meanwhile been published or are in the progress or process to publication. Also, these positive clinical data on science of use have been presented at different international conferences. Another scientific event of similar importance has been organized and conducted by our Italian partner, Indistributo Afferentica, in Milano, Italy. Again, more than 300 participants from around 30 countries have had discussions focusing on cytosol therapy and transplant organ perfusion. After our presentations, there were more than 80 posters presented with interesting new data.

Next slide, please.

The bigger audiences, however, are obviously at the big international medical congresses, often conducted by the different medical societies. You can see on this slide that we were able to place many of the new studies at these big congresses. That included the CDC data at the ELSO conference in Boston, United States, and at the European Society of Intensive Care Medicine, ESICM Congress in Paris, France. Our chief medical officer, Dr. Delia Geares, will give you more insights here in a few minutes. In our cardiovascular therapeutic area, the controlled randomized study in heart transplantation patients and the big data set in infective endocarditis have been presented at the annual congress of the European Association of Cardiothoracic Surgeons in Milano, Italy. A very new and exciting finding was shown at the HIE, a German conference in Berlin. It was found that Sideswap treatments used to lower myoglobin levels after, for example, polytrauma, are protecting the kidneys from acute kidney failure. And the earlier mentioned study on protecting lung transplants, which has been published in Nature Communications, was also presented at the Ostrotransplant Conference in Austria. All these presentations of studies are inducing more discussions, awareness, and eventually will lead to adoption of side job therapy. On this page, I have just listed many more conferences or symposia where our teams have promoted the therapy during the third quarter. These smaller meetings and events give us more opportunity to meet the users and get contact to possible new customers. This is just a selection. There are more regional meetings which have been visited by our sales teams. My last slide is showing you again the selection of growth initiatives we are continuously working on. At one, the global marketing agreement with Fresenius Medical Care. We are convinced that side job therapy is in fact expanding the dimensions of blood purification. After our discussions, FMC has started to agree with this new paradigm and wanted to add this to their customer offering. Cytosorb is now the featured solution for FMC customers to remove cytokines, bilirubin and myoglobin from the blood of the different patients. We believe that this collaboration will amplify our messages and increase the awareness of cytosorb therapy. The network and brand of FMC obviously will increase our reach and give us access to new customers. Number two, standalone blood pump strategy. We are still in the early stage of the rollout. We are testing different offerings for our customers and are increasing the number of trials. This strategy has clearly the potential to drive early and greater usage of Cytosol. Estimations are suggesting that this could expand the theoretical target market to a 30% to 40% share of all ICU patients. Number three, therapy area focus in critical care, cardiovascular and liver kidney is allowing us to address exactly the customer and patient needs. For example, can Cytosol be marketed as the most capable, easy-to-use extracorporeal liver support therapy available on the market? On the field of kidney diseases, we can now position Silosorb for myoglobinemia. Number four, our partnerships with Asclepius and Helios. Helios and Asclepius are two of the largest private hospital networks in Germany. Having these agreements in place is a prerequisite to do business in the hospitals of these chains and is opening doors to many new accounts. These hospital groups have a strong focus on reducing costs and improving clinical outcomes. And five, additional application fields at our therapeutic areas. That is probably the chapter with most growth opportunities for the future because of the mechanism of action of this absorption therapy. For the time being, we need to focus and don't want to spread too wide. However, the indications listed here are currently emerging and you will hear a little bit more about these during this call and of course in the future. These indications include lung failure and lung dysfunction, heart failure and heart transplantation, kidney protection and myoglobinemia and last but not least transplant organ perfusion and protection. About the first one, the lung failure and lung dysfunction, we will hear a little bit more from Dr. Delia Giris. And about the transplant organ perfusion, our VP of business development will elaborate a little bit more. With this, I want to hand over to my colleague, Dr. Delia Giris, our chief medical officer. Mic is.

Thank you, Christian, and good afternoon, everyone.

On today's clinical update, the theme will be visibility and prioritization. The first slide, the summary slide, outlines the highlights of my presentation that will include Star T as our lead horse to the U.S. market that we are now prioritizing with all of our resources to ensure speedy execution. Star T enrollment update showing an uptick, and now with our updated guidance that we project to hit milestone number one with 40 patients enrolled later this month. We recently received FDA approval to expand STAR-T to Canada, a country with very high rates of tachycardic use. And with better visibility now into the enrollment rate of STAR-T, we are projecting that the trial will complete next summer. Meanwhile, STAR-D activities will temporarily pause to allow greater focus on STAR-T and to preserve cash in the short term. STAR-D will resume as STAR-T crosses the finish line or as our financial situation improves, whichever comes first. Our international STAR registry is enrolling fast, highlighting the increasing penetration of antifibrotic removal in the real world based on a dominant clinical and economic value proposition. And I will share some more data on that topic later. The constant stream of positive data with SataShore in cardiac surgery and critical care is continuing. And right now, we have over 20 original presentations and publications already this year. And most recently, we presented the main results of our CPC registry at the European Society of Intensive Care Medicine with excellent outcomes. with our pioneering enhanced lung strategy, enhanced lung rest strategy, combining the use of Cytosol plus ECMO in patients with severe respiratory failure, otherwise termed ARDS.

Next slide, please. Now for the STAR-T study specifically.

We are very encouraged by the enrollment pace of STAR-T and the increasing numbers of sites that are actively enrolling. We anticipate reaching 40 patients later this month, which will trigger the first scheduled DSMB meeting, and we anticipate for that to take place approximately two months later after we reach the enrollment target to allow for the 30-day follow-up to complete and for some data cleaning. We will be issuing a press release when we hit the 40-patient mark, so please stay tuned. We received FDA approval to expand the study to Canada. And we believe that this will be an additional tailwind to enrollment based on the following. First, ticagrelor use in Canada is ubiquitous, as it is the preferred agent for ACS treatment protocol. So we anticipate high numbers of eligible patients to participate in the study. Second, Canadian sites are very high volume centers and have an excellent track record in executing CT surgery trials, frequently finishing as top enrollers in these trials. And third, we are delighted to have Dr. Richard Whitlock as our principal investigator for Canada. Dr. Whitlock is an internationally renowned investigator with an established network of high-performing sites in Canada that will all be included in the STAR-T. All operational steps to open Canada are actively progressing, including a completed submission to Health Canada. With increased STAR-T visibility now, we can project the timeline to milestone completion, as shown in this table below. As already mentioned, we anticipate hitting the first milestone later this month, and we anticipate and project that we will reach the enrollment number of 80 patients that will trigger the second DSMB meeting and the interim analysis sometime in the spring of next year. Should the trial continue to its full 120 patient enrollment. We anticipate that to take place next summer. Next slide, please. CRT is our fastest path to the U.S. market, and based on the trial progress to date and some important market dynamics, it is increasingly apparent that we need to speed its execution and focus our research to it. The study is progressing well. And with our full attention and all of our resources, we believe that we can further fuel this momentum and further speed up study execution. The expansion to Canada is a positive development, and with adequate resourcing, has the potential to significantly further accelerate enrollment, but may also have positive downstream implications for Canadian approval of drugs or APR. In addition to the trial-specific reasons to accelerate, there are important market dynamics evolving that make speed to market highly desirable for us to capitalize on this growing opportunity. First, ticagrelor goes generic in 2024. This will likely remove the high cost that is currently serving as a key barrier to broader adoption. Otherwise stated, ticagrelor use is expected to grow with generic availability. Second, ticagrelor monotherapy is increasingly considered by cardiologists as a potentially better approach than aspirin for cardiovascular protection in high-risk patients. The implication of this treatment paradigm shift is that bicarbonate use could shift from being a drug prescribed for 12 months to actually becoming a lifelong therapy. Simply put, this means more patients treated for longer periods of time.

Also,

the potential for first mover advantage in the market. Although we always believe that drug removal is the preferred strategy to drug reversal for preventing bleeding in these patients, some events that you have likely seen unfold recently would likely complicate the path forward to a potentially competitive technology and development that is currently focusing on tachycardia reversal. And finally, we're seeing how this application is playing in the real world with a broad and enthusiastic adoption for anti-thrombotic removal. Our international STAR registry is ahead of schedule, and as of today, we have enrolled 125 patients already in the registry, and we are already beginning the initial data readout submission to international conferences targeting presentation next year.

Next slide.

With our increased focus on accelerating STAR-T to a speedy completion, we will shift from a parallel to a sequential execution of the two STAR studies. Accordingly, we are pausing STAR-D activities and will focus all of our resources on STAR-T execution. It is very important to emphasize that there are no clinical or safety issues and that this is solely a business decision. We remain fully committed to STAR-D and we will resume activities once STAR-T crosses the finish line or when our financial position improves, whichever comes first. We anticipate that this action will have minimal impact on our open sites since almost all of them, in fact more than 90%, are also active in STAR-T and will now remain focused on accelerating enrollment in that trial. We plan to take advantage of this pause to fine-tune the study based on learnings to date and introduce any necessary fixes to ensure that we'll have speedy enrollment once the study resumes enrollment. Finally, with the sequential execution of the START trials, we will observe significant near-term cost savings in 2023, estimated at approximately $4 million.

Next slide.

Shifting focus now from our U.S. FDA trials We'll spend the next couple of minutes reviewing the highlights of the exciting new data presented recently at major international conferences that we believe will be crucial catalysts in driving the growth of our business. The data on the next few slides were also discussed in greater detail in recent press releases that are also available online for you to review. Let's start with a brief overview of the presentations at the European Association of Cardiothoracic Surgery in early October in Milan, Italy. This is the largest conference in cardiac surgery outside of the U.S. It's a major forum, very exciting data being presented. First, a multicenter report from Germany demonstrated the benefits of using cytosol in high-risk patients undergoing cardiac surgery for staph aureus endocarditis. It is important to remind everyone that this type of endocarditis, staph aureus endocarditis, is the most serious type and is associated with significantly higher mortality rates than the other types of endocarditis. The main observations from this study were that cytosol improved the postoperative course by reducing the need for vasopressor support to maintain hemodynamics in these patients, and that it significantly reduced both sepsis-related but also overall mortality. In fact, the reduction in mortality was so profound that only five patients would need to be treated to prevent the death. Moving on to antithrombotic removal, they were also presented on both the clinical but also the economic benefits for this application. In addition to impressive and significant reductions in bleeding, including fewer transfusions, less chest tube drainage, and elimination of the risk for repeat surgery to control bleeding, the investigators executed a dedicated economic analysis that showed a total cost savings of €4,200 per case, inclusive of the cost of the device. These cost benefits were primarily driven by reductions in operative times and also fewer days spent in the ICU. Finally, Very exciting was the first ever presentation of randomized clinical trial data in heart transplantation from Hungary. In that study, the investigators were able to show that the use of cytosol was once again associated with a smoother postoperative course and less frequent occurrence of postoperative vasoplegia that in turn translated into shorter times on mechanical ventilation, lower rates of acute kidney injury, and overall, three and a half pure days spent in the ICU. With these type of data, we believe that our therapy offers a robust value proposition to heart surgeons around the world, a sentiment that was echoed during our interactions with the conference participants. Next slide, please. You've already heard about our exciting data from the CPC registry that was presented at the European Society of Intensive Care Medicine just a few days ago. Once again, I'd like to refer you to a recent press release that discusses the results and details. But I'd like to share some highlights with you as well today. As a reminder, the CPC registry was executed in the United States under emergency use authorization for the treatment of critically ill COVID-19 patients with respiratory failure. The final data set of the registry comprises of 100 of the sickest type of COVID-19 patients who required life support with extracorporeal membrane oxygenation, otherwise known as ECMO, that were treated at five large academic US centers. The clinical teams at those centers employed a strategy of enhanced lung rest in these patients with a combined use of Cytosol and ECMO. The rationale for the strategy is that ECMO use helps to rest the lungs and avoids ventilator-induced lung injury, while Cyrosorb actively removes cytokines and other inflammatory toxins that can cause blood vessel injury and capillary leak syndrome, a key feature of ARDS. The goal, therefore, of this enhanced lung rest strategy is to allow the lungs to rest but also to heal. which we believe is the key to reversing ARDS, getting these patients off mechanical support with ECMO and mechanical vaccination, and ultimately allowing them to survive. The CTC registry reported excellent outcomes with high survival rates of 74% that compare favorably to survival with ECMO alone as reported by the International Ulcer Registry and specifically a 52% survival for US patients in the registry. An additional very important observation from the CTC registry data was that to gain the most benefit with this combined strategy, Cytostrope should be started as early as possible and before irreversible organ damage is present. We are very bullish on the CTC data for multiple reasons. First, this is the largest and only multicenter data set with Cytosol Plus ECMO, trumping all of the other information with this application. Second, the excellent outcomes observed in the registry serve as validation of our enhanced lungless strategy. And third, we believe that these data are relevant to broader ARDS and ECMO treatment populations.

Finally, as Chris

Our VP of Business Development will discuss in much greater detail in the next part of the presentation. It is the exact same pathophysiologic mechanisms at play that we believe support the benefit of our ECOS technology for organ preservation.

Next slide. So to summarize. Next slide, please.

Start T is accelerating, and we have a new tailwind coming with the addition of Canada. With our increased visibility, we project milestone number one to hit this month and milestone two and three next spring and summer respectively. Speedy execution of Start T is our top priority. We will look to capitalize on favorable dynamics, both study-related but also market-related dynamics. We are pausing Start D increase our focus on STAR-T, but also contribute significant cost savings in 2023, estimated to be $4 million. Our STAR registry is ahead of schedule, demonstrating the increased adoption of anti-thrombotic removal as standard of care in real-world practice. In regards to our medical efforts, supporting our business remains a top priority of our therapeutic area medical teams. And we anticipate increasing adoption of our therapy on the heels of the data that I just reviewed with you from multiple different presentations and publications, all positive, recently released.

And with that, I would like to turn the call over to Chris. Chris?

Thank you, Micah. I'd like to talk to you today about a new opportunity for cytosorbance technology in the field of transplantation. There's a high demand for more transplants throughout the world. Today, more than 165,000 people in the US and Europe are on the transplant waiting list. Unfortunately, the annual supply of donors is not keeping pace with that demand. Each year, just over half the organs needed by patients on the waiting list are donated either by donation after brain death or donation after circulatory death. Roughly 92,000 organs or 55% of the overall need. This organ donor shortage is expected to grow as demand for organs outweighs the supply. On top of the supply-demand imbalance, there's a low utilization rate of these donated organs due to the inherent limitations of cold storage and the resulting high rates of hyperinflammation. Static cold storage, the current standard, presents physiologically adverse conditions for the organ and often results in severe ischemia. In addition, donor organs are often irreversibly damaged due to hyperinflammation. These combined effects result in very low utilization levels, and today only 10% to 30% of donor organs are utilized, leading to a severe demand-supply imbalance in organ transplants. A new approach called ex vivo perfusion, or EVP, aims to preserve or improve organs for transplant and increase the organ donor pool. However, because EVP does not reduce hyperinflammation, it also represents a new opportunity for cytosorbent technology to play an important role in organ transplantation by mitigating cytokine release and removing harmful inflammatory mediators. Next slide, please. We now have publications documenting the use and positive effects of cytosorbent technology in ex vivo organ perfusion and transplantation across multiple solid organ types, including heart, lung, kidney, and liver. Of note is the recent publication in Nature Communications, one of the leading scientific journals in the world, on the reduction of primary graft dysfunction using cytokine adsorption during organ preservation and after lung transplantation. This study looked at the use of cytokine absorption with Cytosorb in a porcine ARDS model, the results of which mirror the benefits and positive results we observed in the CTC registry that Mike has talked about. In this study, the lungs from 16 donor pigs were treated with or without Cytosorb during ex vivo lung perfusion, or EVLP, and post-transplantation using extracorporeal hemoperfusion. The treatment with Cytosorb significantly decreased cytokine levels during EVLP and decreased levels of immune cells post-transplantation. Histology demonstrated fewer signs of lung injury across both treatment periods, and the incidence of primary graft dysfunction was significantly reduced among treated animals. Overall, cytokine absorption with Cytosorb was able to restore lung function and reduce primary graft dysfunction in lung transplantation. In the concluding remarks, the authors stated that EVLP with Cytosorm will, quote, increase the availability of donor lungs and increase the tolerability of donor lungs in the recipient. Next slide, please. We are well-positioned to move on this opportunity today with ECOS 300-CY. The ECOS 300CY sorbent cartridge has similar cytokine and inflammatory mediator removal capability to Cytosorb. But unlike Cytosorb, it was specifically EU approved in October 2020 to remove cytokines and inflammatory mediators during ex vivo organ perfusion for transplant. When used in the field of ex vivo perfusion, the goal of ECOS 300CY is to limit irreversible organ damage, restore organ function, and to be used as a bridge to transplant by mitigating cytokine release and the harmful inflammatory mediators. In the competitive EVP market, we believe ECOS-300CY could provide clinically meaningful benefits and be an important differentiator for ex vivo perfusion product offerings. As a proof of concept, Cytosorbents is providing the ECOS-300CY cartridge on a non-exclusive basis under private label, trade name Persorb, to Aparetica for the use with their per life ex vivo organ perfusion platform for kidney and liver transplant. Confirmed interoperability and is currently available in Italy. Next slide. We believe that additional partnering opportunities exist across the multi-billion dollar organ transplant ecosystem for Cytosorbents technology. both with our current partners as well as with additional new partners. For example, the ex-vivo opportunity has the potential to unlock new growth opportunities and is relevant to our current partners like Fresenius Medical Care and Terumo Cardiovascular that provide products for transplant surgery as well as organ support therapies like CRT for kidney support and ECMO for heart and lung support. Like we just talked about, ECOS 300 CY also has the potential to provide clinically meaningful benefits and to be an important differentiator in the highly competitive field of ex vivo perfusion systems, where multiple companies are developing systems aimed at preserving or improving organs for transplant and increasing the organ donor pool. And last, it makes cytoservant technology relevant to a wide range of additional new partners, including pharma and biotech companies with immunosuppressant and immunomodulator therapies. organ procurement organizations like UNOS, ESOT, and others, and new players in the surgical equipment and organ support fields like J&J, Medtronic, and others. That said, we are very excited about these promising results and believe that the use of Cytosorbents technology in ex vivo perfusion will help to increase the pool of viable organs for transplant and lead to better outcomes for patients undergoing organ transplantation. Next slide, please. I'd like to switch gears now and give a brief update on our global marketing collaboration with FMC. FMC's global marketing efforts for Cytosorb are currently underway. As a reminder, as part of our agreement, FMC will market Cytosorb as a featured technology for cytokine, bilirubin, and myoglobin removal on its critical care platforms worldwide. That said, I'm pleased to report that Cytosorb can now be found on FMC's corporate website at preseniusmedicalcare.com, where it's prominently featured in the acute blood purification section. Note, this is a separate site from the FMC North America site. We are also working closely with FMC to prepare for multiple major international congresses. There will be a number of key events in various regions throughout the world in Q4, And, of course, the EasyCam Congress in Brussels in March of next year, where we expect FMC to actively promote Cytosorb. Also, I'm excited about several marketing initiatives that will go live on various social media platforms in the next couple of weeks. Unfortunately, I can't say more about that right now, but I'm looking forward to it. Overall, there's a lot of good stuff going on to increase the awareness and the impact of our Cytosorb marketing efforts. and to bring the Cytosaur message to a much broader audience. That said, I look forward to having more updates to talk about on future calls. With that, I'd like to conclude my remarks and hand it over to our President and Chief Operating Officer, Vince Caponi. Vince?

Thanks, Chris.

We continue to make progress both in our new facility relocation and startup as well as our R&D programs. In Q3, we received our ISO 13485 certificate for the new facility and prepared for our first polymerization trials, and we fully expect to relocate the remaining operation to our new facility by the end of December. In addition, we received two grants related to the Hemodefend BGA product supporting preclinical animal testing and scale-up of the technology. Next slide, please. Q3 proved to be an excellent quarter for additional DOD funding with our Hemodefend BGA program with two new grants approved, providing nearly $6.5 million in new funding. Our Hemodefend BGA program will facilitate the development of universal plasma, low titer whole blood, and universal freeze-dried plasma. The military has shown significant interest in universal freeze-dried plasma given the advantages of simple storage, long shelf life, and ease of transport, key attributes required for military application. We believe the very attributes the military is interested in these new blood products will facilitate adoption in the civilian markets as well and provide a significant opportunity in the future. Our R&D teams remain focused on advancing these programs to support the development, and monetization of these assets. Next slide, please. Our new ISO 1345 certificate in hand, we now start the large task of beginning re-registration of Cytosorb in the 60 plus countries outside the EU. The majority of the countries can be registered within three months of notification, but some countries may take as much as a year to do so. We have conducted a significant planning for this registration process and believe we are well prepared. However, as with any regulatory process, there can be delays, but we do not believe this will occur. Regarding polymer production scale-up, we have begun the process of running our polymer trials, having completed our initial validation work. We believe based on early testing, we are on track to begin producing from the new plant by the end of November and shut down of the existing facility by the end of December. Improving operational efficiency and lowering product costs are key objectives. But during the month of September, we experienced an equipment failure resulting in a loss of product. We have an insurance claim which is currently under review and we believe we will be able to recover a portion of the loss. We have resolved the problem, but our Q3 product costs were adversely affected and impacted our product gross margins. With the upcoming shutdown of the old facility, we expect to use our labor to help with the move. Even so, we believe our Q4 costs will be similar to Q2. Looking forward to 2023 consolidation of all operations into our new facility, Expected recovery of core business and resulting increase in unit demand will facilitate recovery of our gross margins back to previous levels of 80%. And with increasing volumes, we expect we can exceed a gross margin of 80% as we go forward. Next slide, please. Inflation remains a concern of all businesses. these days, and we are no exception. Our polymer product is manufactured using oil-derived raw materials, and we've experienced a number of raw material price increases. In addition, we've also experienced transportation cost increases due to increasing fuel prices. We recognize these trends early in COVID-19 pandemic and took steps to minimize the impact by placing large orders of key raw materials with multiple releases and using ocean shipping where possible. Both of these strategies have helped mute the impact of price increases and have not significantly affected our cost of goods sold. In summary, as a team, we remain focused, prepared for the DrugSorb ATR launch, advancing our R&D programs, and consolidating our entire U.S. organization into our new facility. Thank you. This concludes my remarks. Now I would like to turn it back to Phil. Phil?

Thank you very much, Vince. Now I'd like to summarize the key points of today's discussion. First, STAR-T is enrolling well, and we expect to achieve the first milestone of STAR-T this month and are focusing our resources on driving this trial to completion, including adding Canadian centers, which we believe will accelerate enrollment. As Mike has discussed, we have many reasons to prioritize this trial. Along these lines, we will also temporarily pause Star D to focus on Star T and save roughly $4 million in costs in 2023, but are absolutely committed to Star D and will resume at the appropriate time. Our markets are facing numerous challenges related to the COVID pandemic and geopolitical uncertainty in the macroeconomic factors. The third quarter sales reflects this and the traditional seasonal third quarter. Recovery will likely be gradual. But that said, we have lots of reasons to be optimistic about an eventual return to growth. First and maybe most importantly, we still have the excitement and energy amongst our users. They're eager to learn about all the new advances and discoveries that we're making and putting that knowledge to work in their own practices. Meanwhile, we are working on many initiatives to drive sales and even growth in this challenging environment. Cash preservation is paramount. With the goal of adding non-diluted debt by year end, and actively controlling expenses by reducing or eliminating non-core, non-priority items. Our new manufacturing facility is expected to be fully online by year end, and we have high confidence in returning product gross margins to historic levels. And finally, we have many exciting new areas of expansion with positive data to help drive future growth. These include the treatment of acute respiratory distress syndrome, liver dysfunction and failure, antithrombotic drug removal, organ transplant, ex vivo organ perfusion, and many others. That concludes our prepared remarks. Operator, if you would, please open up the call to the Q&A session.

Thank you. 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 let us know to treat your equipment.

And we'll take our first question from Zach Weiner with Jefferies.

Hey, everyone. Thanks for taking the question. I just want to start on Germany. Can you talk about performance in the region and sales rep access as the quarter progressed and any color you can provide on how things are trending in the early parts of the fourth quarter?

Thanks, Zach.

Christian, would you like to comment on that?

Yes, sure. Hi, Zach. Thank you for the question. The situation, I think, is generally unchanged from the last call in terms of ICU bed availability. So in general, the big hospitals have a reduction of ICU bed capacity by about 25% to 35%. which is mainly based on the lack of personnel. So because of the pandemic, lots of doctors and healthcare professionals have quit their duties, and so it's very difficult for the hospitals to keep the capacity they had pre-pandemic. of course, has impact on different other things. This has impact on patients they can accept from other hospitals, and this has also impact on the surgery procedures the hospitals can perform. And all these, obviously, all these processes are feeding our patient funnel, if you want to say so. So that's why the number of patients is still limited at the moment and we hope that especially the surgical programs are re-ramping and re-ramping and going up in the next few weeks and months. So in general the situation from the customer access has improved. We have still not the 100% number of visits as we had it in average before the pandemic. This is mainly because of certain regulations that you can enter hospitals only with fixed appointments. Obviously we have those but in the past we also used cold calls very much to go to different customers and potential customers. This option is limited at the moment and this obviously also is impacting the acquisition of new customers yeah this is I think the general situation and but again what has been said several times in this call it's it's interesting that the the visits we are having and the discussions are really overwhelmingly positive for the the users are very much open and and happy to have these discussions again, get new information about the therapy, get new data and have these discussions and analysis how to treat patients better. So the response from the customers and users is I would say 95% positive. And also in the past we have discussed applications which were unfavorable or neutral And we could show in many discussions with the users that those studies are often selecting the wrong patients or having the not up-to-date treatment regimen. And all these obviously can lead to less optimum outcome of these therapies. So we have initiated a number of programs, for example, One is called, and we have talked about this, right patient, right timing, right dosing. And this is focusing and addressing that the patient selection is clear and you have the right patients, which is sick enough but not too sick, that the therapy is initiated early. And we have seen this in the CDC data again. And that the number of treatments per patient has to be adequate, and this leads more and more to a new therapy regimen and many indications, and will lead also to more consumption, I'm pretty sure. Is this answering your question?

Yeah, no, that's helpful, thank you. One on STAR-T and the decision on STAR-D, I know you had talked about some synergies between the two trials, And can you talk about how those synergies obviously will be impacted with the pause of the STAR-D trial and any rough timelines on when that trial will restart? Micah, would you like to take that? Sure.

So thanks for the question. The main synergies that most of our sites are executing both trials. So in that regard, you know, the decision to pause STAR-D doesn't really impact our sites who will continue to screen and enroll but now be focused in one of the two trials. We think that the increased focus may also help enrollment in addition to obviously our own increased focus by shifting our resources to the one trial right now. The timing of resumption depends on two things. Primarily, the completion of STAR-T, and for the first time today, we kind of gave a projection for that based on the increased visibility we have now. And it also revolves a little bit around a financial situation. So should that improve ahead of the STAR-T completing, there is a chance that we would, you know, initiate, resume STAR-D earlier. But more than likely, we see these trials now playing out sequentially instead of being in parallel. So as we're crossing the line in STAR-T, we will resume STAR-D again. And we estimate that for STAR-T, as we said today, will occur sometime next summer, if we end up going all the way to the end, meaning to the 120 patients.

That's helpful. One last one, if I could sneak in. I know you guys have a lot going on in the R&D and the pipeline and things of that nature. You know, besides STAR-T, I guess, are there, you know, if you could pick one or two products Opportunities that you're most excited about most in your term that that could drive revenue What would those be and could you size those opportunities? Thanks taking the questions?

You want to take this one?

Yeah so what you heard today is that from many of the speakers from the management team that our application has very very you know, broad range of applications that it can provide significant, substantial, important, meaningful clinical benefits. In that regard, you know, we are executing two registries, as you know, in Europe, one called the Cosmos Registry and the other one that I referenced today, the Star Registry, which are meant to gather real-world data at all these applications. They're very broad in nature. It will allow us to be able to get high-fidelity data outcome data across a multitude of applications. I think that type of data, which would be similar to the CTC data we presented today, will be very significant in forming our decision on what would be the next development target following antithrombotic removal. But for now, you know, the absolute laser focus is star T and right behind it star D. You know, we said it a few times today. I just want to emphasize it once again. We are not walking away from Star D. This is a temporary pause based on the strategic considerations and business considerations we discussed, but we are completely committed to Star D. So we have two trials to execute. And then by that time, we're hoping to have the third one in the works. But for now, I would just defer to some more data coming out of our registry to inform our next development targets.

Very helpful. Thanks for taking the questions. Thanks, Zach.

Next, we'll hear from Sean Lee with AC Wainwright.

Good afternoon, guys, and thanks for taking my questions. I'm just wondering, are there any additional steps you guys are taking to mitigate the effect of the inflationary environment, the pressures on the hospital budgets and also the USD and the EU exchange rates. Since these are headwinds that we probably likely gonna see for the next six to 12 months.

Kathy, did you want to take that?

Yeah, thanks Sean for the question. We've been very fortunate that we've been able to keep costs down to some extent by volume ordering, especially on the production side. So that's been helpful. We have seen increases in obtaining and retaining personnel, which we've been dealing with over the last nine months or so. And then, Sean, I think you know with regard to the Euro, we think that we have a natural hedge, right? Because although our sales go down when the Euro goes down because of the exchange rate differences, We also have substantial expenditures in euros and those go down as well. So, so we, we do feel that that that is probably the most effective hedge that we have and other financial instruments that we've looked at are extremely expensive to implement and require projecting cash flows, which at this early stage of our company, we're. in terms of product sales, et cetera, and the difficult market conditions that we have right now, we're not comfortable really doing that to a large extent.

I see. Thanks for the additional comment. My second question is on Last month, Faith Bio declared bankruptcy, and they have an agreement to sell their product, the bantracimab, which is for the removal of ticagrelor, to another undisclosed large pharma. I was just wondering whether this has any impact on your development timeline.

Thanks very much, Sean, for the question. Maybe, Micah, if you'd like to take that.

Sure.

Thanks. Yeah, thanks for the question. I alluded to this in my prepared remarks that this is a very recent development that, you know, FaceBio announced that they filed for bankruptcy, and that probably complicates the path forward for them and Ventrasimab. You know, we don't use Ventrasimab as obviously a direct analog to our therapy. We believe the approaches are very different. We continue to strongly believe that when it comes to preventing bleeding, our drug removal approach is a better strategy than drug reversal, which is what a lot of these agents can do. Obviously, we don't have any data to support that. We're basing it on mechanistic approaches that are very different, and we believe ours is better. And also, of course, by a real-world experience in Europe that is also so positive. So in that regard, based on the development study that they executed, the reversal trial, they were targeting similar patients. They were trying to reverse psychiatry ahead of surgery to prevent bleeding, while we obviously removed the drug during surgery to reduce bleeding. So a little different strategies, but to some extent, they could be viewed as competitive. So We think that further opens up the road for us, and that's why we mentioned the first-mover advantage potentially for us, since Mitrasumab had already filed the application with the FDA. So, again, without commenting too much on what the future looks like for them, we do view that also as an important dynamic in our favor moving forward.

Yeah, and, Sean, you know, one of the advantages that we have is that our technology can be incorporated during cardiac surgery intraoperatively into the heart-lung machine circuit and remove drugs during the surgery. And it's not limited to one specific drug. In fact, DrugServe ATR can remove not just ticagrelor, but it can remove the DOACs. We have data that it can remove the direct Raman inhibitors like Pradaxa. So we believe that this will be a one-stop shop for or cardiothoracic surgery applications to remove these blood thinners because it really doesn't matter what kind of blood thinner it is, provided that it's reversible. Unlike the reversal agents, the biological reversal agents, which are extremely expensive, have a very limited shelf life, and it's very specific to a particular agent. You know, we have a shelf life of three years at room temperature, and our product can be very easily integrated without any transition problems going from the surgery to the ICU. This is just one and done in surgery, and it's over, and it can be implemented very rapidly into the heart and lung machine. So we think that there's a lot of advantages that we have over that, and obviously we'll see how things play out for them, but we've always considered ourselves as a unique solution to this very vexing problem.

I see. Thanks again for taking my questions. Thanks very much, Sean. Our final question will come from Josh Jennings with Cowen.

Hi, this is Brian here for Josh. Thank you for taking my questions. I have two on Star T related milestones, if I could. First, I wanted to ask specifically about the filing plan. So, assuming you complete enrollment of STAR-T next summer, is the plan to immediately make an FDA submission based on those results alone? Or is your plan to make the regulatory filing, or I guess filing, sometime after you complete STAR-D based on the two trials' combined results?

Brian, we consider these two very separate events. So one will be to, one filing will be for the removal of Ticagrelor, and the START-T trial will have all the data, hopefully, that will support that FDA marketing application. And then START-D, which would be for the removal of the DOACs like Eliquis and Xarelto, would come later after we finish that trial, and hopefully it will be used to just expand the label for DrugSorb ATR.

Okay, that makes sense. And then I wanted to ask about the DSMB reviews. So, is the first review focused solely on safety, and is it the second review that provides the opportunity to either resize the trial or conclude it early? Any details you can provide on the objectives of the two reviews would be really helpful, and what, if anything, you intend to communicate to investors about each of the review's findings. So thanks again.

Micah, would you like to cover that one? Sure, thanks.

Okay, first of all, apologies. I was meant to provide that clarity in my slide, but I didn't spend too much time explaining. But we have, you know, two pre-specified, actually three pre-specified DSMB meetings in the trial. The first one is at 33% enrollment. That's the one that's coming next that we're very close to. And this will focus on safety. So once we randomize the 40th patient in the study, then we will require the necessary time to complete the study follow-up, which is about 30 days. During that time, clean the data, convene the meeting, have the meeting, provide us back with a recommendation. and then execute the study. So continue executing the study, hopefully. But the plan for communication is that, first of all, you will hear when we hit the 40 patients, and then the next milestone would be when the DSMB actually convenes, holds a safety review, and reports back with a finding. The second one, which is pre-specified, again, at two-thirds enrollment, after 80 patients are enrolled, it's a combined safety review again, but also a dedicated interim analysis. In that review, the same group, the DSMB, will actually look at the efficacy that the trial has after 80 patients by reviewing unblinded adjudicated data. So the execution of that meeting is going to be operationally a little more complex, but the intent is that they're able to take a look Because if the efficacy is already established based on pre-specified statistical boundaries, then the DSMB has the option to recommend that we stop early for efficacy. And at the same time, of course, they will review safety again. So that's the second milestone. That's when we hit 80 patients. And then, you know, according to when those reports come in from DSMB, we'll see where we'll be in the trial. We might be close to the finish line anyway. So we'll make that determination then. So to summarize, after 40 patients, just safety. After 80 patients, safety and a formal interim analysis. And then the final DSMB review that will take place at whenever we complete the trial to give a formal final review of the safety. I hope that helps.

Yes, that's very clear. Thank you.

And at this time, I would like to turn it back to management for any additional closing remarks.

Thank you, everyone, for joining the call today. If you do have any other questions, please feel free to reach out to Michelle Almonte at malmonte, A-L-M-O-N-T-E, at siteofservants.com, and we'll try to reply to your questions where possible. We look forward to our next quarterly call. Thank you very much, everyone, and good night.

Thank you. That concludes our conference for today. I'd like to thank everyone for their participation.