CTSO - NASDAQ

Good day, ladies and gentlemen, and welcome to the Q2 2025 Earnings Conference Call for Cytosorbents Corp. [Operator Instructions] This call is being recorded on Wednesday. I would now like to turn the conference over to Adanna Alexander, Investor Relations Consultant. Please go ahead.

Thank you, Sergio, and good afternoon, everyone. Welcome to Cytosorbents Corp Second Quarter 2025 Financial Results and recent Business Highlights Conference Call. Joining me today from the company for the prepared remarks are Dr. Phillip Chan, Chief Executive Officer; and Pete Mariani, Chief Financial Officer. 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 the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from results discussed today. The forward-looking statements we make reflect our views and estimates as of today, August 7, 2025, 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 2025. Following the presentation, we will open the line to analysts for questions. And now it's my pleasure to turn the call over to Dr. Phillip Chan. Phil?

Thank you very much, Adanna, and good afternoon, and welcome, everyone, to our second quarter 2025 earnings call. As a quick summary for those who are new to the company, CytoSorbents is a leader in the treatment of life-threatening conditions in the intensive care unit in cardiac surgery through blood purification and the removal of harmful substances from blood with our proprietary Sorbent bead technology. Cartridges filled with these beads are high-margin single-use disposables that are plug-and-play compatible with existing blood pump machines in the hospital, such as dialysis, ECMO and heart lung machines. Our technologies are used in a broad number of blood purification applications, specifically CytoSorb, our flagship product, which is approved in the European Union, is used primarily to treat life-threatening conditions in the intensive care unit in cardiac surgery such as sepsis and septic shock, acute respiratory distress syndrome, liver failure, blood thinner removal and infective endocarditis, just to name a few. CytoSorb is the anchor of our core international business with over -- with nearly 300,000 devices utilized to date in more than 70 countries worldwide, which drove $35.6 million in core product sales last year. Our second product, DrugSorb ATR is an investigational FDA breakthrough designated medical device intended to reduce the severity of perioperative bleeding in patients undergoing cardiac surgery due to blood thinning drugs. We're initially focused on the blood dinner Brilinta, also known as ticagrelor in patients undergoing CABG or coronary artery bypass graft surgery. Currently, we are navigating the appeals process with both FDA and Health Canada with final regulatory decisions expected this year. Meanwhile, we continue conducting premarket launch activities and if approved or authorized, plan to quickly begin our controlled market release at hand chosen cardiac surgery centers. Today, I will summarize our financial performance in the second quarter and follow that with a regulatory update on DrugSorb ATR. Next is part of our activities surrounding sepsis awareness month in September and World Sepsis Day on September 13. We will talk about the leadership role that Cytosorbents and its collaborators are playing in the treatment of sepsis and septic shock and give you information on our World Sepsis Day Global webinar on September 10. Finally, Pete will provide a more detailed financial update and discuss our progress in driving our core business to near breakeven by the end of this year with sufficient cash to fund our company initiatives. In the second quarter of 2025, we reported product sales of $9.6 million, representing a 9% year-over-year increase and up 4% on a constant currency basis compared to the same period last year. We're making encouraging progress with our proactive reorganization and strategic realignment of our German commercial team, which grew 22% year-over-year and sequentially in the quarter. Our other direct territories also saw continued strength, and our distributor sales were among the best ever, second only to our record second quarter last year. With Q2 behind us, we are pleased with our initial progress with our German reorganization and remain confident it will lead to stronger execution, improved performance and more robust sales growth in our overall business this year and beyond. Gross margin performance remained solid, holding steady at approximately 71%. And as Pete will review later, operating expenses were slightly higher in the quarter due to a few unique operating and strategic charges, but we remain committed to reducing core business operating costs and driving operational efficiencies to manage our total core business towards near breakeven as we exit 2025. Now for a quick update on DrugSorb ATR. Acute heart attack patients are often given blood thinners like Brilinta to help improve outcomes and prevent further clotting events. However, while Brilinta can be life-saving, it also creates a dangerous challenge for patients who require urgent coronary artery bypass or CABG surgery. Because Brilinta significantly increases the risk of serious, even life-threatening bleeding during surgery and after surgery, doctors must typically wait 3 to 5 days for the drug to wash out of the patient's system before operating. But in many cases, these patients simply can't wait. They are still having a heart attack and delaying surgery increases the risk of severe complications, including sudden cardiac death, for example. This also leads to higher costs, longer ICU stays and inefficient use of hospital resources. This is the critical gap that DrugSorb ATR is designed to fill. DrugSorb ATR is a breakthrough designated device that's specifically engineered to remove drugs like Brilinta from the blood during procedures such as CABG surgery, helping to reduce the risk of bleeding, enabling patients to get the surgery they need it when they need it. We believe DrugSorb ATR addresses a serious and growing unmet medical need in the U.S. and Canada, impacting tens of thousands of patients each year with an initial opportunity of more than $300 million and the potential to exceed $1 billion in sales as -- in total market opportunity as Brilinta becomes generic and DrugSorb ATR expands to additional uses. This device represents a compelling opportunity to improve patient care and drive long- term growth. Our company and technologies continue to demonstrate and be recognized for our ability to reduce the severity of bleeding in CABG patients caused by blood thinners such as Brilinta that represents a major global unmet medical need. At the EuroPCR Congress in May of this year, the world-leading course in interventional cardiovascular medicine with over 12,000 attendees, Professor Robert Story presented new comparative data from our STAR registry. The analysis included 150 CABG patients on Brilinta who were treated with CytoSorb compared to 644 controlled patients from a recently published meta-analysis who underwent CABG on Brilinta without CytoSorb. Key findings from the analysis showed that the use of CytoSorb was associated with a highly significant 2/3 reduction in the rates of severe CABG-related bleeding, 78% reduction in the need for large transfusion events that required 5 or more units of packed red blood cells and a 58% reduction in the need to go back to the operating room to find out why the patient keeps bleeding. Also in May, at the 73rd International Congress of the European Society for Cardiovascular and Endovascular Surgery, Professor Matthijs Tillman received the Best Oral Presentation Award for his talk entitled Early CABG with Intraoperative Hemoabsorption in patients on ticagrelor real-world data from the STAR Registry. These presentations and the positive response by their peers reflect the growing clinical interest in the use of CytoSorb for managing perioperative bleeding risk in patients undergoing CABG surgery on blood thinners and continues to strengthen the value of our technology in real-world settings. I will now provide an update on our regulatory progress in North America. Earlier this year, we submitted a de novo application to the U.S. FDA and a medical device license application to Health Canada, both of which -- actually, this was -- I apologize, this was late last year, we submitted these applications, both of which included data from our STAR-T randomized controlled trial and real- world evidence from the STAR registry. Following an interactive review with the FDA, we were able to resolve many of the issues raised. However, in April, the FDA issued a denial letter for our de novo request. In response, we pursued the formal appeals process and conducted an in-person hearing with the FDA last month. This hearing included a comprehensive presentation of our de novo submission with participation from senior FDA officials, the original FDA review team, our company leadership, regulatory counsel from our regulatory council, Duval & Associates and expert testimony from our external cardiac surgeon experts. As a designated breakthrough device, we continue to believe the remaining deficiencies in our de novo application can be effectively addressed and that our device meets the benefit to risk criteria for authorization under this pathway. We expect the FDA appeal process to conclude by the end of August. There are 3 possible outcomes. The original denial may be reversed outright and may be reversed with specific conditions or it may be upheld. In parallel, we continue to work with Health Canada following their notice of refusal issued in June which identified certain deficiencies in our submission. As part of Health Canada's prescribed reconsideration process, essentially an appeals process, and after discussions with Health Canada, the company has filed a Level 1 request for reconsideration. And with agreement from Health Canada, we plan to pursue the review following the completion of the company's review with the U.S. FDA. Despite these regulatory challenges, we remain optimistic. We continue to anticipate final decisions from both the FDA and Health Canada before the end of 2025 and are actively preparing for a potential North American commercial launch. Now a CytoSorb update. So in the last quarter review, we discussed a number of catalysts for CytoSorb growth. That said, we're excited to come back to one of our core applications and highlight how CytoSorb is helping to turn the tide of sepsis and septic shock. Sepsis is a complex and life-threatening medical condition that occurs when the body's inflammatory response to a serious infection spirals out of control. This runaway response is driven by excessive levels of cytokines, often called a cytokine storm as well as bacterial toxins and many, many other inflammatory mediators. If left unchecked, this massive inflammation can progress to septic shock, a severe and often fatal complication marked by circulatory collapse a lethal drop in blood pressure and widespread organ dysfunction caused by the failure to deliver oxygenated blood to organs. This inflammation can also drive a system crash of problems, including capillary leak and fluid overload, frequently ending in multi- organ failure and death. The global burden of sepsis is staggering. Each year, approximately 49 million people are affected worldwide and an estimated 11 million people die as a result. That's 1 in 5 deaths globally from any cause -- underscoring the scale and urgency of this problem. Despite advances in supportive care such as antibiotics, intravenous fluids, vasopressors and mechanical life support like mechanical ventilation and dialysis, mortality from sepsis and septic shock remains unacceptably high. Septic shock, for example, has an initial mortality of 30% to 50% that can escalate quickly to up to 100% with multiple organ failure and other complications. With the exception of antibiotics, most standard of care therapies are focused on treating the symptoms rather than treating the underlying inflammation driving the condition. That is why there's a critical and growing need for better therapies that go beyond supportive care to directly address the root causes of sepsis and septic shock and improve patient outcomes. As I mentioned before, September is sepsis awareness month and September 13 is World's Sepsis Day, important events that shine a spotlight on this often overlooked global crisis. They also highlight the urgent opportunity to innovate in a space where better solutions are desperately needed. For more than a decade, CytoSorbents has worked with clinicians and scientists from around the world to advance the treatment of sepsis and septic shock by complementing traditional antibiotics with the broad spectrum capability of CytoSorb. While antibiotics fight the infection, CytoSorb broadly targets the other key drivers of septic shock, including severe inflammation driven by cytokine storm and bacterial toxins, the fuel to the fire of inflammation, if you will, as well as circulatory collapse, capillary leak, fluid overload and organ failure, just to name a few. We believe this dual approach when combined with standard of care therapy, represents a paradigm shift in how to treat septic shock, emphasizing early, intensive and sufficiently long CytoSorb treatment, much like the principles guiding effective antibiotic therapy. In our July 31 press release entitled CytoSorbents leads a new era in sepsis treatment, we highlight the substantial body of published peer-reviewed literature that supports a comprehensive multifaceted approach to treating the underlying core problems in septic shock. But at the end of the day, what matters is that CytoSorb is enabling the achievement of core treatment goals in septic shock to help patients stabilize and recover. These include breaking the vicious cycle of uncontrolled inflammation, reversing shock and restoring oxygenated blood flow, promoting the repair of leaky blood vessels and allowing the active removal of excessive fluid and reducing fluid overload in organs that is essentially drowning the patient from inside out. Ultimately, these are all helping to prevent or treat multiple organ failure, which is the main reasons why patients die from sepsis and septic shock. But a great therapy used the wrong way is not going to have the desired effect, but that is why we continue to educate users that treating inflammation with CytoSorb is the same as treating the infection with antibiotics. You need to treat early, intensively. And just because the patient looks or feels better, you don't stop until you have completed the full course of treatment. We believe that this is the key to driving CytoSorb to outstanding clinical outcomes and standard of care. This year has been an outstanding year for new publications related to the use of CytoSorb in septic shock. These publications continue to validate the treatment concepts that we've just discussed. The first publication is from FRR and participating investigators in our international critical care registry called COSMOS. Data from the first 150 patients was recently published where 58% had septic shock and show clearly in a statistically significant way, the benefit of using CytoSorb in these patients when comparing hemodynamic stability, fluid balance and lung function before and after treatment. Overall mortality in these patients was lower than what was predicted by standardized and established critical care scores. Another important paper was published by Brlot and colleagues, demonstrating that in their large retrospective study in 175 septic shock patients treated with CytoSorb, the early and intensive treatment with CytoSorb double survival expectations and the more blood volumes you treat with CytoSorb, the higher the likelihood of survival. To drive the point home, the first meta-analysis in 744 septic shock patients, of which 449 were treated with CytoSorb was published by Steinhl and colleagues from the well-respected Cheritee Berlin Hospital in Germany. Their results showed that not only did CytoSorb reduce in-hospital mortality, but it also reduced by more than half 28- to 30-day all-cause mortality compared with septic patients who did not receive CytoSorb therapy. And that brings me to a plug for our World Sepsis Day Global webinar that I will be hosting entitled -- turning the Tide in Sepsis Septic shock, Real-World Insights with CytoSorb. This will happen on Wednesday, September 10, at 11:00 a.m., and webinar registration is required. The link is in our press release -- earnings press release today. This special session will feature physician user guests discussing CytoSorb therapy best practices and its impact in the fight against sepsis. With that, I will now turn it over to Pete to give a financial update. Pete?

Thank you, Phil, and good afternoon, everyone. Today, I'll be reviewing our Q2 financial performance and sharing our outlook for the balance of 2025. Q2 revenue was $9.6 million, an increase of 9% and 4% on a constant currency basis compared to $8.8 million in Q2 of 2024. As Phil noted, our growth was led by 22% growth both year-over-year and sequentially in Germany and continued strength in our other direct territories. And distributor sales were among our best ever, second only to a record Q2 in 2024. The realignment of our German commercial team and approach continues to be a key strategic initiative, and we are pleased with the progress we're making and expect that these actions will drive improved execution and results in the second half of the year. Gross margin for the quarter was 70.9%, which is consistent Q1 and full year of 2024 margins and lower than the 73.5% in Q2 of last year. The year-over-year decrease is primarily due to inventory write-offs in the period, and we expect inventory production volumes to continue to increase across the second half of the year to support growth in our core business and to prepare for anticipated launch of DrugSorb ATR in the U.S. and Canada later this year. Q2 operating expenses were $10.4 million or approximately $300,000 and 3% over the prior year due primarily to items that are unique to the quarter, including costs associated with the rebuild of our accounting team and controlled deficiency mitigations of $400,000 following the passing of our controller in early Q1. Additionally, we had higher regulatory legal consulting expenses related to our DrugSorb ATR appeals in the U.S. and Canada of nearly $200,000. -- and costs associated with our commercial -- our German commercial restructuring of approximately $400,000. And as discussed on our last call, we ramped up our DrugSorb ATR commercialization planning in the quarter, which accounted for approximately $350,000. These increases were mostly offset by lower R&D, royalties and stock comp totaling approximately $1 million. As a result, our Q2 operating loss was approximately $3.6 million for the quarter or flat year-over-year. And we had net income for the quarter of $1.9 million or $0.03 per basic and diluted share compared to a net loss of $4.3 million or $0.08 per basic and diluted share in the prior year. However, after eliminating the impact of foreign currency changes and noncash stock compensation in both periods, adjusted net loss for the quarter was $3.7 million or $0.06 per basic and $0.05 per diluted share compared to an adjusted net loss of $2.8 million or $0.05 per basic and diluted share in the prior year. Adjusted EBITDA loss for the quarter, which also excludes the impact of noncash stock compensation and changes in foreign currency, was $2.6 million compared to an adjusted EBITDA loss of $2.2 million in the prior year. Our total cash, cash equivalents and restricted cash was $11.7 million on June 30 compared to $13.1 million at the end of the first quarter of this year and includes $1.7 million of proceeds from the sale of our 2023 and amended 2022 net operating loss and R&D tax credits from the technology business tax certificate transfer program sponsored by the New Jersey Economic Development Authority. Excluding the $1.7 million proceeds, our net cash burn in the quarter was approximately $3.1 million, inclusive of items unique to the quarter. Our debt balance remains at $15 million, and our debt facility provides for an additional $5 million tranche, which is available at our discretion upon FDA approval of DrugSorb ATR prior to December 31. And as we look to the balance of the year, we continue to prioritize initiatives that drive revenue growth, improve our gross margins and reduce cost to lead our core business toward cash flow breakeven as we exit 2025 and allowing for investment in our North American commercial launch of DrugSorb ATR later this year and into 2026. And now let me turn the call back over to Phil.

Thanks very much, Pete. In summary, we believe CytoSorbents represents a clear and compelling value proposition. CytoSorb is a well-established, high-margin international business in critical care and cardiac surgery with strong momentum and clear pathways for growth. We're addressing major unmet medical needs with a proven scalable therapy, driving strong performance outside Germany while taking active steps to reignite growth in our largest market. With the goal of achieving near-term breakeven and long-term financial independence, we are strategically investing in growth, operational discipline and global market expansion. Importantly, we remain fully committed to bringing DrugSorb-ATR to the North American market. We're actively preparing for commercialization as we await regulatory decisions from the FDA and Health Canada, both expected in 2025. Because of that, we believe we are well positioned to unlock significant value in both our core and emerging businesses. With that, thank you very much for your patience and continued support. This concludes our prepared remarks. Operator, please open the line for questions. Thank you.

[Operator Instructions] Your first question comes from Michael Sarcone from Jefferies.

Phil, I was hoping maybe you can give us some more color. Two regulatory agencies have now issued denials for your submissions and you continue to express confidence. Is there anything else you can give us to just kind of help us get some more confidence or kind of feel confident as you do that you're going to reach the approval goal?

Yes. Mike, thanks for the question. I think that the appeals process was a very good event for us because it allowed us for the first time to really lay out the story of DrugSorb ATR and its impact on reducing the severity of perioperative bleeding in CABG patients in cardiac surgery, highlighting the strengths of our application, coupled with the support of external cardiac surgery experts, one who was a principal investigator of the study and one who was one of the pioneers of this application in Europe who came to give testimony to the FDA, not only the existing review team, but FDA senior officials. Because of that, we believe that we have put forth our best foot forward here, and we await a response from FDA, hopefully, by the end of this month. Now for Health Canada, we believe that -- and one of the reasons why we are waiting to conclude the FDA discussions is to ensure that Health Canada has the benefit of FDA's perspective before making their final decision in appeal.

Got it. That's helpful. And maybe just a follow-up on Germany. It sounds like the changes you've made are bearing fruit. Maybe you can give us an update on how things are trending quarter-to-date and quarterly updates there would be helpful.

Mike, in which sections of our business, I apologize, you were -- I couldn't quite hear.

My apologies. Just an update on Germany and how things are trending so far quarter-to-date. Your update -- your prepared commentary sounded pretty positive just on the organizational changes. I was just wondering how that's going so far.

We view the reorganization as a work in progress. And clearly, there are some structural and other things that we have been enacting that are intended to ultimately improve the efficiency of our German sales force and the effectiveness of our German sales team. And so second quarter results were very encouraging, showing a 22% increase sequentially as well as year-over-year. But we -- there's still more work to do. And -- but ultimately, we believe that the changes that we've made and continue to make will have a positive effect on the company's operations overall.

Your next question comes from Tom Kerr from Saks Research.

Great results guys. One quick clarification on Canada, the "request for reconsideration, that's effectively the same as your FDA appeal? Or is there more something else in Canada to do?

Yes. That -- what we have filed is an intent for reconsideration. That will be followed at the appropriate time with a formal appeal document, and it will then lead to ultimately what is essentially a formal appeals process like we have done with FDA. And so -- but again, we are -- and we're looking to push that off until after an FDA decision and Health Canada has agreed to do that.

Got it. And can you refresh our memory on the commercial launch rollout once approved in the U.S.? Are we talking fast rollout, careful, cautious rollout? How would you define that?

Yes. I think I'd classify it as purposeful rollout. We're going to be focused on our clinical accounts, the folks who participated in the clinical study and probably a handful of others that we know that are -- have shown interest and would like to be engaged with this process quickly. And I think it's going to be really important for us in the first 3 to 6 months to focus on those 22 accounts plus a handful of others that we will also roll in. and understand the pace of that rollout. So how quickly are we able to get access to the account? How quickly are we able to get to a reorder point and see volume in those accounts. I'm pretty pleased with the work. I know Phil is too. We're all pleased with the work that our team has done here, especially in the last 3 months or so to lay out a strategy that would allow us to effectively get in and evaluate these accounts quickly. And I think we've got a product that's going to be well received once we get through the FDA.

Got it. Sounds good. Two more quick ones. And that's great data on the sepsis and septic shock. But how does that translate to the business model? Is this a new line of business? Or does it just make CytoSor more marketable? How do you look at that affecting the business model?

So septic shock and sepsis and septic shock is one of the biggest applications in ICU today. It accounts for typically 10% to 20% of all patients in the intensive care unit. They either have sepsis or septic shock when they enter the ICU or they get it while they're in the ICU. That's a big problem. It accounts for up to 15% of a hospital's operating budget, and it's a place where hospitals routinely lose money because of the ineffective treatment of sepsis and septic shock with standard of care therapies. Sepsis and septic shock has been a core application for CytoSorb since the beginning. We estimate that it accounts for a large majority of our critical care revenue because of all the things that we discussed in our press release on July 31 in our earnings call today and on this -- and in the earnings release today as well. So it's an old, but still scratching the surface of this application. And where we are going right now, and this is one of the reasons why we're so excited is because we really do believe that with all of the data that has been published to date that we understand very well how to use our therapy best to achieve excellent outcomes in patients with sepsis and septic shock. And I think that our goal will be to teach users how to achieve those results and again, centered around the early aggressive and of the right duration treatment with CytoSorb to try to achieve these treatment goals of controlling deadly inflammation, stabilizing the patient, helping to reverse this capillary leak and importantly, get that fluid off of the patient that is essentially drowning them from within. So it's a problem. It's a puzzle that no one has been able to solve over decades of research and trials, et cetera. But we think that we are actually very close to helping physicians really figure out this puzzle. And that's one of the reasons why we're excited to have this webinar and to talk more in depth about the -- exactly what it is that we do.

Got it. That sounds great. That's kind of exciting for you guys. One more quick one, and I'll jump back in the queue. Sorry if I missed this in the prepared remarks about gross margins at 70.9%. Is that what we can expect in Q3 and Q4? Can you do better than that? How do we look at the gross margins for the rest of the year?

Well, gross margins have been in this range for a while. And I think that we've got opportunity to ramp production faster and do some additional things to improve our efficiencies in the production floor or on the production floor that I think gives us the opportunity to see higher gross margins. Again, not disappointed with 71% gross margins to be sure. But we certainly have an opportunity, I think, with normal efficiencies to bring that higher. And then secondly, with DrugSorb approval, -- we expect that to be a higher-margin product itself. So in time, I think we have the opportunity to see higher gross margins.

There are no further questions at this time. I will now turn the call over to management for closing remarks. Please go ahead.

Well, thank you, everyone, for joining the call today. If you do have any other questions, please feel free to reach out to us at [email protected]. We look forward to updating you in the next call. Have a great evening, everyone, and thank you very much. Have a good night.