Amy Phillips – Pascale Communications, Investor Relations Phillip Chan – President and Chief Executive Officer Kathleen Bloch – Chief Financial Officer Vincent Capponi – Chief Operating Officer Chris Cramer – Vice President-Business Development.

Jason Wittes – Aegis Capital Andrew D'Silva – B. Riley Jason Kolbert – Maxim Group Brian Marckx – Zacks.

Good day ladies and gentlemen, and welcome to the CytoSorbents Third Quarter 2016 Operating and Financial Results Conference Call. Joining me for today's call from the Company are Dr. Phillip Chan, Chief Executive Officer and President; Vince Capponi, Chief Operating Officer; Kathleen Bloch, Chief Financial Officer; Dr.

Christian Steiner, VP of Sales and Marketing from Germany and Chris Cramer, VP of Business Development. Before I turn the call over, 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 7, 2016, 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 financial and operating highlights for the third quarter by Dr. Chan and Ms. Bloch. Following that presentation, we will open the line for your questions during the live Q&A session with the rest of the management. It is now my pleasure to turn the call over to Amy Phillips.

Please go ahead..

Thank you very much moderator and welcome everyone to the call. For those new to the story, I first like to give a quick overview what we view followed then by our quarterly financial and operating progress.

So CytoSorbents is a leader in clinical care immune therapy, we are leading the prevention of treatment of life-threatening inflammation in the ICU as well as cardiac surgery using CytoSorb blood purification.

On Slide 4, CytoSorb is designed to remove the fuel to the fire of inflammation targeting a $20 billion opportunity in critical care medicine also in cardiac surgery. CytoSorb is approved in the European Union as the only specifically approved extracorporeal Cytokine filter broadly indicated for used in any situation where cytokines are elevated.

CytoSorb has removed Cytokines as well as many other inflammatory mediators such as free hemoglobin, bacterial toxins, myoglobin and activated complement and is plug-n-play compatible with standard dialysis and heart lung machines stand in hospitals today.

We are pleased to state that CytoSorb now has been used safely and has been well powered in now approximately 17,000 human treatments which is up from 14,000 treatments last quarter.

The goal of CytoSorb is try to control this deadly inflammation as the means to prevent or treat organ failure which is the leading cause of death in the intensive care unit today.

Our goal with CytoSorb is to treat patients early and aggressively thereby hoping to try to improve patient outcome and survival while decreasing the massive cost of ICU and patient care.

And given the many, many different illnesses and conditions where CytoSorb has been used successfully to-date we truly believe that CytoSorb has the potential to revolutionize critical care medicine.

And on Slide 6, this is why we believe that CytoSorb is uniquely positioned to lead this revolution in critical care medicine because frankly the world needs a product like CytoSorb.

As we know on left hand side, there have been many, many different types of viral outbreaks such as H1N1, Swine Flu Influenza, Ebola, MERS, SARS and many other diseases where inflammation has played a very dangerous role in the development of organ failure and death and these patients, and that's exactly what CytoSorb is designed to control.

On the right hand side of its one of the 30 million people who are afflicted with severe sepsis septic shock every single year around the world with approximately 10 million people die, and unfortunately as I have mentioned in a recent interview on Sirius XM Doctor Radio sepsis is an equal opportunity tour showing the old and the young to which and the poor, black or white, republican or democrat, and unfortunately sepsis does not discriminate and it is a major unmet medical need today where one person dies every three to four seconds around the world.

CytoSorb is also potentially useful in many, many different other illnesses where inflammation again plays a detrimental role and these include natural disasters like hurricanes, earthquakes, tornados and other natural disasters as well as common place tragedies that happen every day including motor vehicle accidents, fires, other types of complicated conditions and illnesses.

And ahead of Veterans Day, this Friday, inflammation also plays a deadly role in soldiers drying from diseases -- from conditions such as penetrating wound infection, trauma and burn injury and as well as the thousands of people who are injured or who die every single year from tourist activities.

One of the reasons why CytoSorb is so uniquely positioned here as outlined in the slide is because the common threat in all of these injuries and illnesses is uncontrolled severe deadly inflammation and that's what CytoSorb is designed to control.

So with that let me turn it over to Kathy and to talk about how CytoSorb is being received by the market today. Kathy..

Thank you, Phil and good afternoon everyone. For today's call I will be provide an update regarding CytoSorbents' third quarter 2016 financial results including our product sales progress, an update around our working capital and cash run rate and some trends regarding our operating progress towards breakeven.

CytoSorb product sales for the Q3 2016 doubled to $2.14 million as compared to product sales of approximately $1.07 million for Q3 2015. Our Q3 2016 annualized product sales run rate rose to $8.6 million as compared to an annualized run rate of approximately $4.3 million one year ago.

Total revenues, which includes product sales and grant revenues were approximately $2.4 million for Q3 2016 as compared to approximately $1.3 million for Q3 2015, which is an increase of approximately 79%. In Q3 2016 our gross profit of $1.4 million has more than doubled as compared to gross profits of approximately $705,000 for the Q3 of 2015.

And we continue to experience strong gross profit margins on product sales. For Q3 2016 gross profit margins were approximately 68% largely as a result of the sales mix as compared to gross profit margins of approximately 63% for Q3 2015. And now let's take a look at our quarter-over-quarter product sales.

Our third quarter 2016 product sales of approximately $2.14 million represented our best quarterly product sales ever and it represents our first quarter of more $2 million in CytoSorb products sales. Q3 2016 product sales were approximately $290,000 or 16% higher than the previous quarter of Q2 2016.

Q3 2016 represents now our sixth consecutive period for which we have reported quarter-over-quarter product growth as well as our fifth consecutive quarter of record sales. We also note that the change in euro relative to the dollar did not have a material impact on our sales when comparing 2016 to 2015.

Now turning to our nine months financial results, CytoSorb product sales for the first nine months of 2016 were approximately $5.6 million, which is 119% increase over product sales of $2.5 million for the first nine months of 2015.

Grants and other income grew 76% from $482,000 for the first nine months of 2015 to $850,000 for the first nine months of 2016.

Total revenue which includes product sales and grant and other income were approximately $6.4 million for the nine months ended September 30, 2016 as compared to $3 million for the same period in 2015 which is an increase of approximately 113%. Next, we'll take a look at our trailing 12 months product sales chart.

This chart clearly illustrates the trailing 12 months product sales from the last four years and it clearly demonstrates the increasing trajectory we are experiencing in our products sales. With sales for the 12 months ended September 30, 2016 of approximately $7.1 million, an increase of 107% over the one year ago period.

In fact our three year compound annual growth rate or CAGR was 128%. We expect this very positive trajectory in product sales to continue into the coming years for a number of reasons.

First, reorders from direct sales continued to strengthen particularly as CytoSorb os being used as a de facto standard of care for certain conditions at a number of major hospitals. We see a tremendous growth opportunity in our direct sales territories as we approach a critical mass of awareness and positive usage.

International sales are expected to grow more rapidly with 32 countries of the 42 countries where we are distributed now contributing to revenue. We have invested a significant amount of resources to make sure that we have staffed this part of our business appropriately and provide the attention to detail that needs and deserves.

In addition, we know that in 2017 all three of our major strategic partners, Fresenius, Terumo, Biocon will be selling CytoSorb actively in their territories in those critical care and cardiac surgeries acting as a further driver of growth.

And finally, as Phil will describe in a few moments, there is more and more data being generated which we believe will lead to momentum in clinical usage, reimbursement, and transition of the therapy to standard of care. Let's look at the world map, and I'll just have a few comments regarding the most recent additions to our sales network.

With regard to distributors in September 2016, we entered into a multi-country strategic partnership with Terumo Cardiovascular Group. Phil will provide more information about this exciting new partnership later on in the call.

In October 2016, we announced an exclusive agreement with Foxx Medical Chile to distribute CytoSorb in Chile which represents our entrance into the continent of South America. In addition, we have expanded our direct sales team into Belgium and Luxemburg.

These are markets located directly adjacent to Germany and they provide a unique opportunity for additional high margin direct market sales.

Now turning to take a look at our working capital position, as of September 30, 2016, we had approximately $6.4 million in cash which is expected to provide funding for our operations through the second half of 2017.

In addition to increased gross margins from higher expected product sales and the additional $5 million in debt which we may draw down from our credit facility with Bridge Bank.

We are looking at a number of different strategies to obtain the funding for our operations and clinical studies including leveraging the balance sheets of current and potential strategic partners, additional research and development grants and contracts, non-dilutive sources of capital, traditional equity financing among other mechanisms.

As of September 30, 2016 we have approximately $29.5 million common shares on a fully diluted basis. Looking to the future, as our sales continue to grow, we are rapidly moving towards cash flow breakeven which we expect we can achieve within two years time at approximately $20 million in annual revenues.

This next chart shows a very important relationship between products sales, the line on the bottom and operating expenses, the line on the top. The bottom line shows the rapid increase in CytoSorb sales which we have just talked about. The top line depicts fixed operating costs.

To be perfectly clear fixed operating costs by its definition excludes variable costs which were about 18% of product sales over our recent history, clinical trial costs and non-cash stock option expense.

You can see that fixed operating costs grew rapidly in 2014 and '15 as we invested the resources needed to commercialize CytoSorb throughout the world including our direct sales team, our international sales teams, further additions to manufacturing marketing and support staff.

In 2016 however, increases to fixed operating costs declined because we had for the most part built the infrastructure needed for commercialization of CytoSorb. While we still expect to add certain fixed operating costs in future, we believe those additions will be relatively small when compared to expected revenue growth.

We expect that CytoSorb sales and gross profit margins meanwhile will continue to climb driving us to operating cash flow breakeven and profitability. And this is why we are so confident about achieving operational cash flow breakeven in the near-term probably within two years if not sooner.

Once breakeven is reached – every incremental revenue dollar is expected to produce approximately $0.50 in operating income driving exceptional profitability. And with that, I'd like to turn the call back to Phil..

Thank you very much, Kathy. So what I like to do is focus on our operating highlights for the quarter. And one of our major accomplishments was the completion of our U.S.1 REFRESH trial where we confirm safety.

REFRESH stands for the reduction in free hemoglobin trial and this was a 40-patient 8-center study, evaluating the safety and efficacy of intra-operative CytoSorb usage in a heart lung machine during complex cardiac surgery and elective non-emergent cardiac surgery that is expected to last longer than three hours.

This includes very complex procedures such as aortic reconstruction, multiple valve replacements, cabbage reduce and other types of procedures. Our primary endpoint for the study was safety predominantly and the reduction in plasma free hemoglobin that can cause post-operative complications. We ran the study in major U.S.

cardiac surgery centers such as Texas Heart Institute, Columbia University, University of Pennsylvania as well as The University of Pittsburgh Medical Center. A total of 46 patients were enrolled with approximately 40 patients with evaluable biomarker data.

We are pleased to say that the Date Safety Monitoring Board evaluated all adverse and serious adverse events in the control and treatment arms and concluded that there was no safety issue with CytoSorb therapy which achieved a primary safety endpoint of the trial.

This was a in fact the first randomized controlled trial using CytoSorb in high risk cardiac surgery demonstrating safety. So as we have mentioned the endpoint of the study was reduction in free hemoglobin and free hemoglobin is a known toxin that is generated during open heart surgery caused by hemolysis of red blood cells.

Free hemoglobin not only causes the formation of oxygen radicals that can damage blood vessels and vital organs but it is also a very potent scavenger of nitric oxide which is a major vasodilator in the blood stream and in the body in patients who have very low levels of circulating nitric oxide they might up having very high resistance levels to blood flow through their body and to their vital organs adding to stress on the heart following open heart surgery.

So this was a trial where -- it was a trial that was intended to demonstrate for the first time, the real time reduction in free hemoglobin that no one had been able to demonstrate before and because of this the Company's cardiac surgery advisors and investigators strongly recommended meeting with the FDA first and then presenting these promising data at a U.S.

based Cardio-Thoracic Surgery meeting such as the Society of Thoracic Surgery Conference at the end of January or the American Association of Thoracic Surgery Conference at the end of April. Again this was a U.S. based study amongst U.S. trial sites, U.S. investigators and they felt that it was prudent to announce these data there.

Now our goal is for the term success of the Company and because of that we decided to elect to delay the release of these data at that time.

The FDA was primarily concerned about safety in this study because this was the first time that CytoSorb had ever been used in high risk cardiac surgery patients in a randomized controlled trial and they wanted to make sure that there no untoward adverse events from the use of that study which we were able to demonstrate that that was not the case.

And the second part of this study though was this free hemoglobin endpoint.

The FDA was primarily wanted to know that in our control arm that there were -- that we had selected the right inclusion and exclusion criteria that would enable us to select patients with high levels of free hemoglobin, and be able to do something about that with our CytoSorb therapy.

So given what we know we feel very confident that we will be able to begin a REFRESH 2 study next year following a meeting with the FDA to discuss these data in the clinical path that should happen within the next several months.

Our goal is to define the clinical path for potential approval of CytoSorb in the United States in the area of cardiac surgery through either a De Novo 510(k) path or PMA path, and that's something that will be decided in our discussions with the FDA. So there are other more studies underway as well.

We have a broad clinical program in Europe with 58 investigators initiated studies in various stages including several that have completed and nearly half has started or are currently enrolling. And these studies were in the gamut from success cardiac surgery, postoperative inflammation, liver failure, trauma, and many other applications.

And in addition, we have a number of Company sponsored trials in cardiac surgery and such as that will start next year in both Europe as well as in the United States.

There are more than two dozen publications ranging from case reports, case series, and small randomized controlled studies that have been submitted or being prepared for submission including the University of Greifswald refractory shock trail that we talked about last time, a second analysis of the International CytoSorb registry by the University of Jena that should hopefully published before the end of this year and the first known successfully treaded case of malaria using CytoSorb as you may know malaria is one of the biggest public health vaccs around the world today.

These data will be extremely helpful in driving continued usage and adoption of CytoSorb as well as reimbursement of CytoSorb in many different markets.

Now a major -- another major accomplishment for the Company was the expansion of our strategic partners to now three major partners in the area of cardiac surgery, real dialysis in the intensive care unit as well as immunotherapy.

And although we won't discuss in great detail Fresenius and Biocon today, I would just like to say that those relationships are going on very well. The one that I want to talk about today is really the Terumo partnership which we announced a couple months ago.

We entered into a multiyear partnership with Terumo Cardiovascular Group which is a global leader in medical devices for cardiac and vascular surgery and for cardiac surgery applications. And this included the initial exclusive distribution of CytoSorb in France, Denmark, Norway, Sweden, Finland, as well as Island.

Terumo has committed to annual minimum purchases to maintain exclusivity and it represents we believe strong validation of our technology and opens the door to potential expansion to other markets such as Japan which is the second largest medical device market in the world.

And at the EACTS conference or the European Association of Cardio-Thoracic Surgery Conference in Barcelona, Spain as well as in a post conference perfusions meeting that attracted more than 40 to 45 perfusionists from around France.

We work closely with them in their marketing launch ahead of beginning their sales launch and initial orders to us expected in the very near future. And on the right hand side where you can see some pictures from those events on the top there are many representatives from Terumo as well as our Company.

In the middle is our boost at Terumo with some of the leaders at Terumo Cardiovascular, and on the lower panel is one of the educational sessions and the training village that we gave and on the left side in that picture you can see the CytoSorb treatment pack as well as our device installed onto the Terumo heart lung machine.

On the next slide, what we believe that all of this means is that it represents strong technology validation of CytoSorb. So what you've seen already is now $80 million in grant and contract funding from the U.S. Government from agencies like DARPA, the U.S. Army, NIH, HHS and others.

We have now 17,000 human treatments and growing and we also have validation of our technology in the area of cardiac surgery as well as intensive care unit from three of the major players in the world include Fresenius, Terumo, and Biocon.

Switching gears for a minute, I'd like to also talk about our new product that is an advance development called CytoSorb-XL.

So we announced CytoSorb-XL a couple months ago and this is a next generation porous polymer bead technology that combines the ability to remove lipopolysaccharide endotoxin which is a major toxin associated with gram negative bacteria like E. coli.

And it combines it with the robust cytokine, toxin, and inflammatory mediator reduction achieved by CytoSorb. So again Endotoxin is a very potent stimulator of cytokine storm that often results in septic shock in serious gram negative bacterial infections, such as a burst appendix or urinary tract infections and certain hospital acquired infections.

And in a head-to-head comparison, CytoSorb-XL matched the level of endotoxin reduction as a leading endotoxin adsorber, Toraymyxin in an in vitro plasma recirculation system.

CytoSorb-XL is expected to offer secured performance to standalone endotoxin filters through the removal of not only endotoxin but also -- again a broad range of inflammatory mediators that drive uncontrolled deadly inflammation where we believe one plus one equals three.

And importantly, CytoSorb-XL and and its novel endotoxin binding chemistry are the subject of a broad composition of matter patent application, intended to protect the technology worldwide for the next two decades. We believe that CytoSorb-XL will succeed CytoSorb within the next five years.

Last but not least, we have also done a lot to increase the media coverage as well as the awareness of CytoSorbents and CytoSorb in the marketplace.

One, we launched our new corporate website at www.cytosorbents.com, if you haven't visited that recently, I encourage you to go there is a tremendous amount of new information there on our technology and our Company.

In addition, we also have the cytosorb.com website that covers a lot of the clinical data related to our therapy that is growing in usage in the European Union and aboard. Next we also have been fortunate to have increasing media coverage as well recently featured in Forbes, Benzinga. We were on the Street.com.

As I mentioned I was interviewed for SiriusXM Satellite Radio on Doctor Radio and other publications, and we believe that there are more to come. And last but not least, our Analyst Coverage has shifted as people have moved from firm to firm but we are now covered by Aegis Capital, H.C. Wainwright, B.

Riley, Maxim, WBB Securities as well as Zacks Research. So finally to talk about the outlook for the second half of 2016, we have not historically given financial guidance on quarter results until the quarter has been completed.

In fact, the chart that Kathy went over talking about cash flow breakeven just basically puts in the current revenue from the third quarter as the estimated revenue for the fourth quarter. So please do not read too much into number. However we are currently expecting a very strong Q4 with the achievement of numerous operating milestones.

In addition, we reiterate our guidance that we expect the second half of 2016 CytoSorb sales as well as total revenue to exceed those in the first half of 2016. So with that I would like to open it for questions and answers. Operator, please continue..

[Operator Instructions] We'll go to our first caller, Jason Wittes with Aegis Capital. Please go ahead..

Okay. Hi thank you for taking the question. Maybe if you could --you mentioned the partnerships that you have.

Was there any focus particularly on Fresenius in terms of where they are in training and what your expectations are this year and maybe a little bit into next year in terms of rollout?.

Yeah. Before I turn it over to Chris for some colored commentary, Fresenius just launched in May of 2016, so less than six months ago they began marketing and selling CytoSorb into their six territories of France, Denmark, Norway, Sweden, Finland and Poland.

So what I would say is that, they have been doing a very nice job particularly with the marketing of CytoSorb and they have already -- they have been selling the product now in their key accounts for plus five or so months.

Chris, would you like to maybe give a little bit more color on that?.

Sure. Thanks Phil. For Fresenius, I would say, things are going are very well as Phil had mentioned. After they initiated commercial efforts earlier this year, they have done a nice job of getting CytoSorb out to their customers. So far they have created a full set of marketing materials about four pieces.

They are doing a very nice job of articulating the benefits of CytoSorb. In addition, from what we've seen their sales force has a strong network. They have been trained and they are active in the market, and on top of that I would say, they are out in front of customers on a regular basis. They are talking about CytoSorb.

They are actively competing to win business in all six countries, and in some cases, even through tenders. I would say, at this point, this is all a result of getting customers to use the product and they have only witnessed firsthand multiple success stories.

We are currently working with them and their customers to have their stories published wherever it's possible. So overall things are headed in the right direction, I would say. Looking forward, we'll be sitting down with them to review progress and to develop a game plan for next year.

I would say, with everyone focused on driving sales, I am looking forward to 2017 and we expect it to be a positive year for everyone..

Okay. I turn will turn myself to just this one and then maybe just follow-up to that one question and then maybe just if you could touch on Terumo as well and whether even REFRESH 1 may have some influence on their marketing efforts..

Phil, do you want me to take or do you want to answer it?.

Yeah, go ahead Chris..

Yeah. First of all I just want to say, we are very excited to welcome Terumo as our newest partner, and as Phil mentioned we sign that agreement in September and I think as everyone has seen, we've been working very closely to get them prepared for the sales launch.

So far they have gotten the word out to a lot of potential customers at EDACs and as well as the follow-up meeting as Phil had mentioned and needs at the perfusionists meeting. At this stage we are in the final stage of what I call the setup phase and so we are very close to having everything ready.

So we are just finalizing a lot of the operational details, the purchasing stuff, getting some dedicated marketing of collateral approved, and shortly we'll be conducting training for the Terumo sales force. And once that's all in place, they can hit the market and start selling.

Just one thing to add, I think it's worth noting is that, and Phil alluded to this is that, we'll be releasing a new CytoSorb CPB that has been really tailored for use in cardiac surgery. So in addition to CytoSorb, the kit itself also includes components that allow customers to quickly and easily implement CytoSorb on the heart lung platform.

It's really nicely done. It showcases some of our new packaging and graphics which I think are also great, and have been very well received by the market. So it's a good time right now on that side of the business. So overall, things are going well.

We expect Terumo to place an initial order and beginning very soon, and what I would say is given their install base and what we've seen so far I think they should be able to make a strong push into the market with what we have.

I would say on top of that to the other part of your question with REFRESH data in hand, I think that would only accelerate and enhance what they are already doing. So I view it as additive to what I think is already good situation..

Great, thanks. I'll jump back in queue..

[Operator Instructions]. We'll go to Andrew D'Silva with B. Riley..

Hi good afternoon. Thanks for taking my call. So I guess my question just relates to the sales dynamic during the period. Maybe give a little bit of color or granularity on the spread. Was it pretty evenly spread out between direct and indirect sales? And then you mentioned in your prepared remarks that you are becoming a de facto of standard of care.

Can you maybe elaborate on those indications as well?.

Yeah. I think that because we started direct sales about a year before we even began any kind of international sales effort. Direct sales continued to represent a bulk of our overall sales. Although distributor sales as well as partner sales are coming on strong, and so because of that natural delay again more focused on direct sales currently.

But again as Kathy mentioned as Fresenius, Terumo and Biocon began hitting on all cylinders next year and the investments that we've made in our international sales division began to bear fruit. We expect that these distributor and partner sales will pick up significantly going forward.

Your second question Andy was…?.

Just in your prepared remarks you said CytoSorb is becoming a de facto of standard of care.

I was wondering if you could let me know what the indications that you're seeing and become more prevalent in?.

Yeah. So there are a number of indications where CytoSorb is being used regularly today. We have mentioned this on previous calls. One of the areas is in trauma and then reduction in myoglobin caused by crush injury to muscle. And this myoglobin can actually lead to kidney failure and increase the risk of death in trauma patients significantly.

And certain hospitals like the University of Hamburg - Eppendorf and others have been incorporating this into their treatment modalities as a de facto standard of care because they have seen it work so many times and they have seen it reduce myoglobin and have positive outcomes for their patients so many times that they are using it on a regular basis in those select patient populations.

In the area of cardiac surgery, we are seeing CytoSorb being used in again high risk cardiac surgery patients either where they enter surgery unstable from diseases like endocarditis or heart failure requiring vasopressors or as a prophylactic method when patients are undergoing this complex cardiac surgery procedures such as the ones that we are evaluating in the REFRESH 1 and future REFRESH 2 studies.

But there are many others things like liver failure, we are seeing it used more and more -- we may not be necessarily de facto standard of care yet, but we can see definitely a path to getting there even without necessarily doing large scale pivotal studies given the tremendous need for new therapies in these various areas..

Great, thanks.

Just I guess the follow-up was, since direct sales are still the bulk of revenue, I'm assuming stocking orders, they were no major stocking orders that would have influenced the quarter or went out of the norm?.

I think it's very encouraging that our business is that, it is based predominantly on reorders and steady organic growth and usage of our product through the markets that we serve.

There is always going to be a little bit of lumpiness based on initial stocking orders and other things, but by far the vast majority of our revenues are from reorders coming from existing customers who are using the product on a continuous basis..

Great. Thank you very much. Good luck going forward..

Sure. Thanks, Andy..

Our next question comes from Jason Kolbert with Maxim Group..

Hi guys. A couple of questions, can we talk a little bit about margins. Right now margins, gross top-line margins seem to be running around 45% which is not bad.

At what point does that scale start to tweak a little bit higher?.

So Kathy maybe let me have you take that one..

Okay. Sure. So I do think that there are a couple of things that are going to contribute to higher margins in the near-term, probably the most important one are several initiatives that we have underway to reduce costs in our production of the product.

That's probably going to be significant not in 2016, but in 2017, I think it will have a big increase. The second thing which is less direct and linear will be establishing reimbursement within many of the countries that we're in.

This is an initiative that we have put forth for the Company and as reimbursement is achieved we will be able to achieve higher selling prices and so I think that would be a secondary influence to improve gross margin..

Yeah. Just to be clear, Jason, our blended product gross margins today that combined higher margin -- direct sales gross margins versus lower margin indirect distributor and partner sales, it's currently 68%.

What you're seeing is the blended gross margin that you're referring to incorporates not only our product sales but also are on research and development grants and contracts, and those margins are typically lower because we bill our R&D expenses against those revenues so on a more or full basis.

So that's why the margin appears to be lower but when we look at just our product gross margins, they are actually quite high..

Got you and that makes sense. I'm looking at the model and that's very consistent with the way we are modeling the Company. Phil, can we just talk a little bit kind of changing gears to more a clinical outlook. REFRESH 2 becomes very critical particularly when we start talking about the start of REFRESH 2 in 2017.

Can you just talk with me a little bit about what kind of discussions you're anticipating with the FDA particularly in terms of the regulatory path and maybe the size of the clinical trial? And I realize it's very early and you're probably limited in what you can say.

Maybe you could talk just a little bit about what would be the best case scenario for you in terms of the outcome with discussions with the agency?.

Sure. Well, I guess to reiterate again, I believe that we have the data necessary to move on to a REFRESH 2 study based on our safety as well as free hemoglobin data. So I think that's one that's very important.

The second part of the story though revolves around what is the clinical path that the FDA will guide us on whether or not it is a PMA path or whether or not it maybe a De Novo 510(k) path.

When we discussed this with the FDA prior to REFRESH 1, the FDA was basically wanted to see again safety first and then also wanted to see whether or not free hemoglobin was a problem in our target patient population and whether or not we could predict those patients that were having problems with high levels of free hemoglobin.

They basically stated that there could be two potential paths to U.S. approval.

One path would be potentially through De Novo 510(k) path where we could get approved as a tool, potentially as a tool for the reduction in free hemoglobin, and we would have to demonstrate that with clinical significance in a pivotal study, but that study would be relatively small.

We estimate that that study would be about 100 to 150 patient tops that we could conduct at a probably a dozen or so cardiac surgery sites and get that study done within a year at relatively modest cost and potentially be on the market in 2018.

But we continue to expect that the default pathway will be the PMA path where we would be looking at clinical outcomes as the endpoint of the trial.

By the way, the De Novo 510(k) trial, we discuss this internally many times and believe that they are advantages of getting approved early through the De Novo 510(k) path, but do realize that it's going to be very important to have clinical outcomes data to be able to support reimbursement and usage in the marketplace.

So we've talked internally about having an adapted trial design where would get the data that we would need to get this approved as a free hemoglobin filter, but we would keep the trial open and enrolling to get enough patients to be able to demonstrate clinical benefit of the device and certain clinical outcomes.

So that is one strategy that we could take. The second path as I mentioned was the default pathway was the PMA path.

This would be roughly a 300 to 500 patients trial we're taking place of the course of that two years putting a potential approval timeframe in the 2019 timeframe, but this would be a trial where we would be looking to see whether or not CytoSorb could improve clinical outcomes such as reduction in progressions in kidney injury, a reduction in need for ventilator support, the reduction in the need for postoperative extracorporeal life support like vasopressors and ECMO, and also days in the intensive care unit.

So that trial would be again bigger. We would hopefully be able to work with the major strategic partner on a trial like that which is we believe certainly within the realm of possibility.

With that being said, that is something that we could fund ourselves as well, but again two years timeframe and potentially be in front for the FDA and approved into 2019 timeframe..

Phil, thank you for a very clear answer, yeah. So I appreciate that, yeah. Thank you. I think you hit all my points. Thank you..

Okay. Thank you, Jason..

We'll go to Brian Marckx with Zacks Investment Research..

Hi everybody and congratulations on the great quarter. So wondering if you could talk about the free hemoglobin data at all and if you can add anything more that you can talk about there in terms of what you had hoped to I guess.

And then do you expect to announce the data prior to your meeting with FDA or your potential future IDE filing?.

Yes. I apologize when I was talking and there was an interruption from the music, I think I was maybe clear than I could have been, but with that being said, I think that again Dr.

Parmer described the hemoglobin data as promising and again I think the FDA was looking to see that we had the right criteria to select patients with high levels of free hemoglobin and that we were able to reduce those levels or at least show a trend of benefits reducing those levels with our CytoSorb device.

Now again the pivotal trial where we demonstrate this statistically significant reduction in free hemoglobin if we haven't demonstrated already, but I think that's -- and so given all of that we believe that we have the data that the FDA needs to give us the green light to move forward to the REFRESH 2 study.

We won't know that until obviously talking with the FDA and presenting those data to them, but we feel that the data that we have are compelling..

Okay.

In terms of the clinical sites, are there any additional clinical sites that you all bringing on board with REFRESH 2 and then any requisite IOB approvals that you need before moving into REFRESH 2?.

So we think that we can jump start REFRESH 2 and get with just a modification of clinical trial contracts from our existing sites, we can jump start that trial very quickly and begin getting patient enrolments very quickly on that study.

In a De Novo 510(k) study again, we will look to extend that trial base slightly from the nine centers that we used in REFRESH 2 to dozen or so centers. So we don't think that that process will be delayed much if we went down that route.

Now if we went through the PMA path we believe that this is study that would require approximately 40 sites and in order to enroll that trial rapidly and from what we've seen a single site can enroll many patients per month but taking a very conservative view on roughly half a patient per site per month which is we believe is quite conservative given how easy it is to run this trail.

Again all you are doing is using CytoSorb during the open heart surgery procedure in the machine and then you're just taking blood samples and recording data on those patients during their ICU stay in the recovery period.

So this is not like an ICU trial where you're treating for seven days, this is a one in time kind of trial much easier to get enrolled.

With that being said that process obviously would require a ramp up of our sites and we've already been talking to many well regarding cardiac surgery institutions to participate in a REFRESH 2 study, but again we would be right there starting with a number of our existing sites for REFRESH 2 and would look to rapidly bring on additional sites for PMA trial..

Great. Thank you, Phil..

Sure. Thanks Brian..

Thank you. At this time I'd like to turn the conference back over to management for any additional or closing remarks..

Great. Well if there are no further questions I just wanted to thank everyone for joining us on the call today. And if you do have any questions that did not get answered, please feel free to reach out to Amy Vogel at avogel@cytosorbents.com and we will try to get back to you answers to your question where possible.

Thank you very much, and have a nice evening..

Thank you. That concludes our conference for today. I would like to thank everyone for their participation. Have a great day..