Bob Yedid - IR Dr. Phillip Chan - CEO & President Kathleen Bloch - CFO Vince Capponi - COO Dr. Eric Mortensen - CMO Dr. Christian Steiner - VP of Sales and Marketing Chris Cramer - VP of Business Development.

Joshua Jennings - Cowen & Co Andrew D’Silva - B. Riley Evan Wang - Aegis Capital Brian Marckx - Zacks Investment Research Jason Kolbert - Maxim Group Gabrielle Zhou - Maxim Group Sean Lee - H.C. Wainwright.

Good day everyone and welcome to the CytoSorbents Second Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. Following the formal remarks, we will open the call for your questions. Please be advised that the call will be recorded as the Company's request.

At this time, I'd like to turn the call over to our moderator, Bob Yedid, Please go ahead Mr. Yedid..

Thank you and good afternoon. Welcome to CytoSorbents second quarter 2017 operating and financial results conference call. Joining me today from the Company are Dr. Phillip Chan, Chief Executive Officer and President; Kathleen Bloch, Chief Financial Officer; Vince Capponi, Chief Operating Officer; Dr. Eric Mortensen, Chief Medical Officer; Dr.

Christian Steiner, who is Vice President of Sales and Marketing joining us from Germany; and Chris Cramer, VP of Business Development. 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 August 7, 2017, 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 second quarter by Dr. Chan and Ms. Bloch. Following that presentation, we will open the line to your questions during the live Q&A session with the rest of the management team.

With those remarks at this time, it's now my pleasure to turn the call over to Dr. Phillip Chan. CEO.

Phil?.

Thank you very much, Bob, and good afternoon everyone. We appreciate the opportunity to review our second quarter 2017 financials and provide you with an update on our progress and accomplishment so far. It's been a busy year and we're very proud here of our team and the tremendous growth in revenue this quarter that we achieved.

Specifically, we achieved total revenue of 3.6 million and for the first time, we achieved $3 million in the quarter for CytoSorb sales on record direct and distributor sales. In addition, we have more than 27,000 CytoSorb treatments delivered and increased from 14,000 a year ago with continued strong reorder rates.

In addition, we have excellent progress on German CytoSorb reimbursement rates in a survey of many key accounts that covers both the device as well as the cost of the procedure. This is important as Germany is one of our largest contributors to revenue.

We're pleased to see that Germany recognizes the benefits of our CytoSorb treatment and are working to gain similar reimbursement outcomes in other countries. In addition, we extended our partnership during the quarter with Aferetica in Italy through 2021 with cumulative sales expected to exceed $10 million during that period for Italy alone.

Also as catalyst both CytoSorb and Fresenius will begin our co-marketing effort soon in five major countries. In addition, we expect that the eminent ECMO kit availability will also help catalyzed sales.

We're expecting that the second half of 2017 in terms of CytoSorb sales will exceed that of the first half of 2017 and we reiterate our guidance on achieving operating profitability in 2018. On the clinical front, we think Dr. Robert Bartlett, our former Chief Medical Officer, who is retired for his many years of support, guidance and camaraderie.

Although, it was difficult to do we found an exceptional replacement for Dr. Bartlett with the addition of Dr. Eric Mortensen, who started as our new Chief Medical Officer in June. Eric brings a wealth of experience in clinical and program development having held positions in global development at Pfizer, Glasko and Merck.

He has also worked extensively with the FDA on the regulatory approvals and will be leading our strategy.

Eric is well pedigreed with a degree in Biochemistry from Harvard College, a medical degree from Harvard University and the Massachusetts Institute of Technology Division of Health Sciences and Technology and a PhD in Biophysics from the Harvard Graduate School of Arts and Sciences.

He completed his internship and residency in Internal Medicine at the same Mass General Hospital in Boston and a fellowship in Gastroenterology at the University of Michigan Medical Center, Ann Arbor. We're very pleased to have him aboard guiding our programs.

We've also been very impressed by how quickly Eric has gotten up to speed meeting with key opinion leaders in our European clinical team and optimizing the REFRESH clinical trial design expect to start later this year.

He has also created an overarching clinical trial indicative strategy that he and his team will begin to execute upon in the near future. Our goals to prioritize company sponsored clinical trials and invest in a clinical development a core competency. Meanwhile, data publication has been accelerating.

Over the past 12 months, we've had two dozen peer reviewed journal articles that have published, highlighting the clinical usage of CytoSorb in a wide variety of indications. And they are approximately now 60 investigator-initiated studies in various stages of progress or planning with more data to come.

An interim analysis on nearly 200 patients from the CytoSorb International Registry has also been accepted for publication and we're pleased to continue the tradition of our case of week reports which many of our shareholders look forward to on a weekly basis, and many presentations at many major conferences highlighting ongoing treatments successes.

Finally, we've had some other good developments as well, as many of you know we've been discussing CAR T-cell immunotherapy for some time and recently the CAR-19 cancer immunotherapy program at the University of Pennsylvania led by our Scientific Advisory Board Member, Dr.

Carl June and licensed by Novartis, received the unanimous recommendation by the FDA Review Committee for approval. With one of the review experts calling it "the most exciting thing I've seen in my lifetime." Interestingly, cytokine release syndrome was common affecting nearly 50% of patients.

This may open an opportunity for fast-track CytoSorb approval in the United States for the syndication. In addition, our new manufacturing facility is in build-up phase and on-schedule to come online in the first quarter of 2018, which will increase our manufacturing capacity with some modification to approximately 80 million in sales.

Finally, we engaged with LifeSci Advisors as our Investor Relations firm to expand our investor network and shareholder base in both the U.S. as well as internationally.

We plan to be visible at multiple investor and industry conferences such as the European Society of Intensive Care Medicine Conference and the European Association of Cardiothoracic Surgery in Vienna, Austria, as well as the pending Military Health System Research Symposium also known as the Combat Casualty Care Conference later this month in Florida.

So with that, I'll turn the call over to Kathy for our financial overview.

Kathy?.

Thank you, Phil, and good afternoon everyone. For today's call, I will provide an update regarding CytoSorbents second quarter 2017 financial results including product sales progress and also provide an update around our working capital and cash runway.

So our total revenues which includes product sales and grant revenue were a record $3.6 million for the second quarter of 2017 as compared to approximately $2.2 million for the second quarter of 2016, an increase of approximately 60%.

CytoSorb product sales for the second quarter 2017 were approximately $3 million which is our best quarterly product sales ever. This represents a 64% increase over the product sales of approximately $1.9 million for Q2 2016.

Our Q2 2017 annualized product sales run rate rose to $12.2 million compared to our annualized run rate of approximately $7.4 million one-year ago. Q2 2017, gross margins rose to approximately $2.1 million, an increase of approximately $735,000 as compared to gross margins of approximately $1.3 million for Q2 2016.

And our gross profit margins on product sales were approximately 65% in Q2 2017 as compared to 68% for Q2 2016. This is primarily as a result of the mix of direct and distributor sales.

Turning to our six months financial results, CytoSorb product sales for first half of 2017 were approximately $5.6 million, which is a 63% increase over product sales of $3.5 million for the first half of 2017.

Grant revenue grew 79% from $582,000 for the first half of 2016 to $1 million for the first half of 2017, largely as a result of incremental revenue from new grants.

Total revenues which of course includes product sales and grant revenue were approximately 6.7 million for the first half of 2017, as compared to $4 million for the same period in 2016, an increase of approximately 66%. So let’s just look quickly at our quarter-over-quarter product sales.

Q2 2017 sales of $3 million were significantly higher and Q1 2017 sales of $2.6 million that's a 17% quarter-over-quarter increase in sales. And we saw increases in both direct and distributor sales during the quarter. In fact, they were both record levels.

The sales growth pace that we see in Q1 is continuing to attract to the positive growth patterns that we have seen over the past two years. And next, we’ll take a look at our trailing 12 months product sales chart. And here, we can clearly see the increasing trajectory that we are experiencing with regard to our product sales.

Our trailing 12 months product sales have climbed to $10.4 million for the 12 months ended June 30, 2017, as compared to $6 million for the 12 months ended June 30, 2016, which is an increase of 73%. Our three-year compound annual growth rate or CAGR was 81%.

And the underlying drivers of revenue growth remain unchanged and management expects that the second half of 2017 product sales will continue to climb and that they will in fact exceed first half 2017 product sales.

And finally, we have guided that we expect to reach operating breakeven, which excludes non-cash expenditures such as stock option expense and also excludes the costs of clinical trials, add approximately 20 million in annual revenue, and we remain confident that we can achieve this important milestone by 2018.

Now as of June 30, 2017, we had approximately $16.4 million in cash and cash equivalents. This includes the net proceeds of our $10.3 million financing in April of 2017 and also includes the 5 million received in June as a result of drawing down the second tranche of our debt facility with Bridge Bank.

Management believes that this will provide sufficient funding to support our operations through to at least the end of the year 2018. Turning to our capital structure briefly, as of June 30, 2017, we have approximately $33.2 million common shares on a fully diluted basis. And now, I’d like to turn the call back to Phil.

Phil?.

Thank you very much, Kathy. Recently, we had a lot of shareholder interest in our plans for sepsis and I want to take a moment to explain our strategy. As most of you know such as it remains the top 10 killer worldwide, it's a result of no results immune response to an infection and is driven by cytokine storm.

Based on recent estimates, it reflects approximately 30 million people worldwide every single year and is growing due to the aging baby boomer population were very susceptible to getting sepsis and well as the increase in drug resisting bacteria.

Today, severe sepsis kills approximately one in every three people despite the best medical treatment that includes the antibiotics. And it kills more people in U.S.

than either heart attacks, strokes or any single type of cancer for no proof that will be also treated with virtually no drugs, biologics or devices in Phase III clinical study, and at an average cost of more than 45,000 to treat hospitals are losing money annually. So, the sepsis crisis is now.

In May 2017, the World Health Organization or WHO mandated sepsis as a global health priority, and in July 2017, Bloomberg declared that America has a $27 billion of sepsis crisis.

As you can see from the chart from the Bloomberg on the right-hand side, the incidents of sepsis continues to rise and although standards of medical care continue to improve helping reduce the mortality of sepsis, and as we recognize sepsis earlier, the overall mortality sepsis has been declining.

There is no question that sepsis will remain an equal opportunity killer and is not going away any time soon. Now, sepsis has defied pretty much any solution. There have been more than 100 Phase II and Phase III clinical trials exploring the potential of different interventional strategies on sepsis.

And all these on the right-hand side have included the standard of care including antibiotics. So this was from an article in 2014 and we can add several more strategies to list now.

But as you can see here with the exceptional of the PROWESS Xigris trial, all of these have failed and even Xigris was subsequently taken off the market after a failed PROWESS SHOCK Trial. Currently, there are no approved therapies to treat sepsis and no one, not even us has pivotal data demonstrating efficacy of any therapy.

But that being said, there have been many attempts to try to improve this, and what I like to try to impress upon you is that we’re at the forefront of this treatment of sepsis. But looking at other studies, I would caution promising early studies.

So, one of the -- one well-publicized strategy to try to help patients with sepsis is early goal directed therapy. And what this was trying to do is before patients were admitted into the intensive care unit, the emergency room was using a product-wise based process to try to improve hemodynamics and oxygenation in those patients.

So there was a very promising 263 patients single standard randomized control trial between patients with severe sepsis or septic shock that either received protocol-based hemodynamic resuscitation or standard of care therapy, and mortality was a 30.5% in the treatment arm, it's reversed here but 30.5% in the treatment arm in the single-centered trial versus 46.5% in the controlled arm with the P value of point zero with P value of less than 0.01.

The problem is that in large scale multiple, multicenter studies including the ProCESS trial, the ARISE trial, the ProMISe trial as well as the PRISM metanalysis, which studied 3,723 patients from 138 countries that this early goal directed therapy showed no benefit in 90-day mortality.

Second promising early study was an orally-administration agent called talactoferrin. Talactoferrin or lactoferrin is a substance found in breast milk that was presumed to have an immune therapy type effect protecting infants against sepsis.

And there was a very promising 190 patient Phase II study demonstrating that orally-administered talactoferrin versus placebo led to a reduction in more mortality in patients without shock from 22.6% to 2.6% mortality with the P value of 0.03.

And all patients -- and when you considered all patients in their mortality, it reduced it from 26.6% to approximately 15% with the K value of 0.04. The promise is that subsequently in a Phase II, Phase III study in 77 centers in 10 countries, this large study was terminated after enrollment of 305 patients because of futility and safety concerns.

Now, there has also been a lot of publicity about steroids in sepsis and unfortunately those studies although initially is very promising have not panned out in large-scale clinical studies including the HYPRESS trial in 2016 that covered 380 patients with severe sepsis, but no shock.

And they were given approximately 200 milligrams per day for 5 days and then tapered out to day 11, but it showed no effect on the progression of shock and no improvement in 28 day or 90 day mortality.

Subsequently, the CORTICUS trial which was approximately 500 patients with septic shock, it had a similar regiment but these patients have a septic shock.

What the trial showed was that although there was a shorter time to reversal shock, there was no change in 2018 mortality which was roughly the same in both arms, but that's the treatment group had more new incidences of sepsis and super infection. So for this reason, steroids are not routinely recommended in the treatment of sepsis today.

So, there has been now a very widely public sized study called the vitamin C trial and this is a trial that was reported on earlier this year. It's a vitamin C, hydrocortisone and thiamine trial.

And this was a retrospective single center 47 consecutive patient trial in patients with severe sepsis or septic shock that were given daily treatments of 6 grams of IV vitamin C, 200 milligrams of hydrocortisone IV for 7 days. It's very similar to the CORTICUS as well as the HYPRESS trials, and 400 milligrams of IV thiamine each day.

And they compared this against a same center 47 consecutive patient historical control, and what they found was that hospital mortality was roughly 40% in the control versus 8.5% in the treated, and if you go back to the HYPRESS trial that was roughly the overall mortality that they saw in patients with no shock.

But although this is interesting data supported by a real mechanism of action, it is limited by the fact that it is a single center non-randomized controlled study. And when you look at the patients, they are very different from the patients that are typically in septic trials.

For example in most of our trials that we do, patients typically have multi-organ failure with on mechanical ventilation, many are on dialysis, most of them have septic shock.

But in this particular study, they had a relatively low severe illness with only about 22% in each group having septic shock requiring vasopressors, and in addition most only required a very short duration of use, approximately two days even in the controlled group.

In addition only about a quarter of the patients required mechanical ventilation as well as most patients also have evidence of just modest perfusion deficits with lactate of about 3 millimoles per liter in both the treatment and the control. And on top of that, there was a very short ICU stay, roughly a mean ICU stay about four days in both groups.

The most trials in severe sepsis and septic shock, particularly septic shock most patients were in the ICU for 12 to 18 days on average. And so, the fact that the control group left the ICU after four days, again suggested they were relatively not very sick.

So I think that although this is very interesting data and that it certainly justifies a larger multi center randomized control trial, we view this as a technology that is potentially complementary to our technology, but certainly nothing that what they've shown today would make our technology redundant.

So, why do we believe that? It is because that CytoSorb attack sepsis broadly.

Now, the value of steroids and vitamin C is to try to help for maintain the capillary barrier against leakage, so try to prevent capillary leak syndrome as well as to allow the blood vessel to respond to vasopressors and to have good vasomotor tone, which is one of the things that is missing in patients with septic shock.

An early goal directed therapy was trying to take up patients with fluid and make sure that their tissues were receiving adequate amounts of blood as well as oxygen. And so, all of these studies including the ones on that table that I just presented to you, typically focus on sepsis in one avenue that is gone wrong.

But when you look at a sepsis patient, it's typically many, many things that are going wrong at the same time. It’s kind of a system crashing all at ones. And one of the benefits to CytoSorb is that we attack sepsis broadly.

So we have very good data that CytoSorb reduces inflammatory cytokine and other factors that are perpetuating a hyper inflammatory response that is leading to organ failure and death. We also have now interesting data that CytoSorb can actually establish immune responsiveness in septic patients.

This is still very early data, but it is very interesting data from a mechanistic standpoint, most likely through the reduction of immunosuppressive side event. But one thing all these other technologies don’t do is the removal of bacterial toxins.

I said this before one of the reasons why MRSA or methicillin-resistant Staphylococcus aureus is so deadly. So MRSA is the leading cause of hospital-required infections in the country. One of the reasons why this is so deadly is not because it’s methicillin-resistant or antibiotic resistance.

In fact, we have about a dozen antibodies that will kill MRSA. But the reason why it is so deadly is because it produces a wide verity of toxins that will activate the immune response and cause hyperinflammation as well as destroy tissues directly. And we have very good data through our work with DARPA that we can remove these toxins.

In addition to the work with Dr. John Kellum at University of Pittsburgh Medical Center, we know that we can reestablish where we can force white blood cells to go to the site of infection and avoid those healthy -- otherwise healthy tissues that could be damaged by these activated white blood cells.

In addition, we've seen over and over again that we improve hemodynamic and like what they are seeing in vitamin C and steroids, we also reduce capillary leak syndrome. So we very much believe that we have -- we're at the forefront of sepsis research because no other single therapy has demonstrated this broad range of activity.

So our strategy in sepsis is to really try to play it smart and with Eric leading our clinical trial program, we've confidence that we will be able to do so.

Our goals are to avoid the heterogeneity inherent to most large scale pivotal trials in sepsis to take advantage of the unique mechanistic aspects of CytoSorb such as bacterial toxin removal benefit from the ever expanding clinical usage of Cytosorb and focus on subgroups where Cytosorb works well and reproducibly.

And instead of doing the very large scale all commerce trial, our goal is instead to focus on validating randomized control trials, but once where the effect of Cytosorb can be seen with a smaller number of patients.

And through this strategy, we believe that these studies will add to the widening body of clinical evidence of Cytosorb and help drive the therapy a standard of care. So with that, let me end our formal remarks. And operator, if you would please open it up for questions..

[Operator Instructions] And we will take our first question from Joshua Jennings with Cowen & Co. Please go ahead..

Just want to ask Phil, if you don’t mind. This one is on German reimbursement, I mean, clearly you had some comments in your prepared remarks.

But specifically, can -- should we be thinking about German hospitals and the recognition of the new codes specific to Cytosorb and the absorption with cytokine filtration as [indiscernible]? And if that is the case, was that something that happened during Q2 and was at the midpoint or at the latter stages of Q2? And should we think about German imbursement benefiting Cytosorb in the back half of the year?.

I think that for those familiar with that reimbursement system, what we said before is that hospitals typically negotiate their operating budgets with the hospital -- with the central payer, the reimbursement agency throughout the year.

Many do it in the first half of the year and that’s one of the reasons why we have a lot of feed from many of our key accounts, but some do in the second half of year as well. So I think that on a go forward basis certainly the progress that we had in the first half of the year will definitely help the second half of the year.

And as we progress through the second half of the year, those hospitals that have established the reimbursement that will continue to accelerate I think our adoption and usage in Germany..

Great and one follow-up with the question on the ECMO kit launch.

Can you give us a little bit more of a download on the opportunity there and any more specifics around timing when that can get into the market place?.

Yes, ECMO is extracorporeal membrane oxygenation and it was -- it's a device that can oxygenate blood outside of the body when the lungs cannot. And it's been used predominantly in the past as a rescue therapy when the mechanical ventilation fails.

So even piping in 100% oxygen into lungs peoples lungs are so filled with fluid or blood or debris that there is very little gas exchange that occurs into the blood, and those patients will develop refractory respiratory failure and die. So instead, our former Chief Medical Officer, Dr.

Robert Bartlett had pioneered ECMO, as a way to provide gas exchange outside of the body like you would do in open heart surgery for example.

I think there has been a resurgence in the interest in ECMO away from being just strictly a rescue therapy, but really being use as a primary therapy for not only gas exchange but also for hemodynamic support because of the new mode called venoarterial ECMO, which takes blood out of this veins and pumps it directly into the arteries.

So I think provides blood pressure support in doing so. I think that we have now as we disclosed last quarter, we've had more than a 1,000 ECMO treatments where CytoSorb has been used in conjunction with ECMO to help reduce the inflammatory toxins that area causing recent [indiscernible] havoc around the body particularly in the lungs.

And so, whereas ECMO is used again for gas exchange and hemodynamic support, it is nothing to reduce the toxic inflammatory burden that is common in patients with life-threatening illnesses in sepsis, burn injury, trauma, pancreatitis and many other illnesses.

But with our therapy, I think clinicians have been having success in helping stabilized those patients. So, we are by far one of the leaders in this field, we are the leader in this field I would argue.

And we believe that this is a very important growth area for us and this ECMO kit allows us to be able to swap out the device on a daily basis without causing any undue risk to the patient on ECMO..

And this is my last question just on the clinical development program in the U.S., the REFRESH trials. Congratulations on -- I know Dr. Mortensen any -- is there any timeline that you can provide? And I understand that there may be other specific timeline, but just in terms of the IDE submission for REFRESH 2.

Are you still on track to begin enrollment by the end of the year? And then lastly just, should we be expecting publication of REFRESH 1 sometime in 2017? Thanks for taking the questions..

Sure. So before I turn it over to Eric to comment on our timeline for REFRESH 2, the REFRESH 1 study has been published, we are responding to reviewer comments and will be resubmitting that back very shortly. That is plan for this month and so our hope is that, it is accepted and published this year, but we'll have to wait and see on that.

Eric would you like to try to comment on the timing of our submission and whether or not we are on track with REFRESH 2?.

Sure, Phil. Just first of all I answer the question I just want to thank you for the extraordinarily gracious introduction. Now, I'm happy to be coming on Board and just note that I hope to be able to satisfy the very high expectations you provided and fantastic being on Board the past 67 days at this point in time, so thanks for the entry.

Getting back to the question, currently, we expect the 2017 so much that we are planning for success at this point, and we are well underway and working with contract research organizations to have resources in place to support the study initiation with later this year.

Now off course that can be subject to a successful conclusion, but our discussions with the FDA and for that reason we are looking diligently to ensure that the study design incorporates in our prior discussions with the agencies as well as recent experience in this therapeutic area in order to be able to accelerate toward both clinical approval as well as the study initiation..

And moving on from B. Riley, we have Andrew D'Silva..

Just a couple of quick questions. First off, as you’re talking about growth particularly in Germany.

Do you feel like now that you’ve got this reimbursement code that even though your revenue base in Germany is larger than it has been previous years that the same growth rate from a percentage standpoint is possible, now that primary majority of the device and the procedures covered?.

Yes. I think there we're just scratching the surface of the market in Germany, but we’ve laid the foundation for growth. We have strong key opinion leader support from throughout the country. We have strong support for major medical societies, ranging from the German Sepsis Society to the Society of Nephrology and Cardiothoracic Surgery.

So we think that with this reimbursement and other societies for that matter. And with this reimbursement, increased reimbursement, we think that this will be relieving a major bottleneck on CytoSorb sales in Germany and expect to see an acceleration of CytoSorb growth and usage in Germany, as we go forward.

As we mentioned last year that we achieved a $1 million in a single hospital count, we think that is very easily plausible in many of our existing accounts on a go forward basis, and we hope to be able to show that to you in the coming quarters..

And just touching on a $1 million hospital.

Is there particularly indications that they’re seen or utilizing CytoSorb more in and having success in? And are they fully integrated throughout various divisions of that hospitals or just particularly one segment?.

We have strong usage in both critical care as well as in cardiac surgery at that account. So I think it helps to validate the focus on these two verticals..

Just a couple of more quick questions for you. Are you just spending a little bit time with the U.S. Military in various capacities? Is there anything new going on there? Obviously, they don’t need to go through the full approval process domestically to start placing orders in case of emergencies and things of that nature.

Can you give any color on how discussions are going or what opportunity might be lying ahead?.

Well, we’re looking very much for the MHSRS Conference, the medical -- it’s a medical scientific healthcare research symposium or the combat casualty care conference later this month.

We’ve actually been selected to present a number of posters and we will have quite a few meetings lined up to talk about some of the exciting new data that we have in our R&D program that are funded by the military as well as some others that are external collaborations with some other universities.

So we hope to be able to share those exciting data in the future. But I think that based on what we see, there is a lot of opportunity here to help our war fighters and our soldiers, our brave men and women in the future..

Last question, just as it relates to Novartis, Dr. June, Penn and CAR-T recommendation by the FDA. Could you may be explained a little bit of how that dynamic work there? I know that Novartis has a global collaboration agreement with Penn and Dr. June is the head of that division at Penn.

It tends to have highly involved with Novartis and if so, what is there solution right now for cytokines release syndrome? And how do you think things progress with you guys going forward?.

I can't really stick to the strategy at Penn. I would be out of place to do so. But that being said, I think that when you look at most of the CAR T cell immunotherapy therapy studies.

What you will find is that cytokine release syndrome is the primary adverse event that happens in this illness, whether or not it’s a traditional cytokine storm leading to organ failure and potentially death or it’s the encephalitis that occurs from on target but off tumor effects for the CAR T-cell immunotherapy therapy in the brain and others.

And we think that there is a role for CytoSorb in the treatment of those types of excessive inflammatory reactions. Today, the standard of care while the "standard of care therapy" is to use tocilizumab which is an anti-IL-6 receptor antagonist, as the first line therapy to try to control that cytokine release syndrome.

But if you talk to many in the industry that it sometimes works and sometimes works very well, but in many cases does not work and then they have to turn to high dose steroids, as it means that they exclude to shut off the immune response, but the problem with high steroids is that it can trigger apoptosis in the CAR T-cell immunotherapy therapy.

And when you're talking about -- if you look at some of the published reports that are out there that one therapy for one patient could cost north of a $0.25 million, what you don’t want to do is potentially jeopardized that immune therapy.

So what you want to do is just bring it under control, so that it can then hunt and seek outs the cancers and kills those cancer cells. So we think that CytoSorb represents a good interim strategy, a strategy between tocilizumab as well as between steroids as a way to treat cytokine release syndrome..

Moving on from Aegis Capital we have Evan Wang..

First of all regarding sepsis, I know you guys are getting more and more data from patients in Europe. Just wondering, if you can give some update on your thoughts on, what you guys need before you initiate a large U.S.

trial in sepsis?.

So I think as we try to outline in the presentation, the goal is not to do the big large scale study, all commerce study. I think that that has been one of the failings of most clinical trials is that heterogeneity that comes with taking all patients from all walks of infection, walks of life. That is not the way to do these clinical studies.

We believe that the smarter strategy is to focus on those subgroups where CytoSorb has worked very well and very reproducibly, and conduct initially validating studies in those areas. And then pivotal studies to either obtaining approval or expand the label for CytoSorb in the United States and elsewhere.

I think that we think that in many of these subgroups, the effect size has been observed to be so large that potentially those, even those large pivotal trials maybe not very large at all and therefore be a very good use of our resources.

So that sort of where we stand at the moment and I think again with the leadership of Eric Mortensen, we plan to execute upon that strategy..

Okay, thanks for clarifying.

And could you provide any kind of timeline for that?.

I think that we've been going over in many different trial designs and many different areas in sepsis where we've seen CytoSorb worked very well and that we are looking to try to get a study going on in the United States as well as studies abroad as well, and we will have more detail on that as the clinical team finalizes that those plans..

Okay, thanks.

And just a question on, do you guys happen to breakout the direct and the distributor proportion of product sales?.

We have not done direct versus distributor, but we have done Germany versus the rest of the world.

Kathy, would you want to comment on that?.

Yes, I think I can give you some color on that. So Germany represented about 67% of our total sales and while we have not for the first half of 2017, so while we haven’t revealed the contribution of the other direct countries, I can just tell you that it's minimal compared to Germany. So it's not reaching say 10% somewhere in between 0% and 10%.

So far still small. We just have started in Belgium and Luxemburg, so we really haven’t had a meaningful contribution from them yet..

Okay and I guess going forward.

Should we expect gross margins to stay around those 65% range for products or I guess what distributors trend down a little bit as Fresenius [indiscernible] sort of kick in more?.

It will vary by quarter depending on the mix of direct and distributor, but also on just a mix of distributors alone because we have different transfer pricing among the distributors. But I would say between 65% and 70% is what we can expect in the near term. And then I think it will improve once we move over and get the new facility up in running..

Moving on from Zacks Investment Research we have Brian Marckx..

So Kathy or Phil, whoever wants to say. Was there anything lumpy in the quarter? I know you get this question all the time and haven’t heard it yet, so I'll take the range this time.

Was there anything lumpy in this quarter in terms of revenue, stocking order any of the such that may make sequential revenue growth to Q3 kind of the headwind?.

I’ll take that. No. I mean, I think that it was pretty much strength across the Board. I think we’re seeing very good strength in direct sales, but also that a lot of the distributors have been moving forward as well. So, we’re looking forward to as we said strong second half of this year that is expected to exceed the first half..

In terms of the potential CAR T-cell immunotherapy opportunity, Phil.

Can you kind of give us sort of the -- what the near term looks like from CytoSorbents side in terms of next steps and then kind of the broader view? Is this something down the road that you think maybe potential collaboration opportunity assuming in the largest candidate is eventually FDA approved that you could potentially collaborate with Novartis?.

What I would say that we’ve been invited by many of the leading cancer centers that have been conducting this cancer immunotherapy trial to give a talk on our therapy. And I think there is strong interest across the Board to use therapy, but at the time mixing in a product that is not yet approved in the U.S.

with another product that’s not yet approved in United States, just could not be done. I think one of the reasons why we’re so excited by the pending likely approval of the Novartis program is that, that will likely happen in the next -- there has been wide speculation that, that will happen by the end of the year.

And if that happens then we could potentially be used them in post-market studies in looking at cytokine -- the treatment of cytokine release syndrome on an approved product.

But again, there is -- I think a lot of interest to do so just the timing in the past hasn't been right, but I think on a go forward basis, that represents a good opportunity for us. Now, from a collaboration standpoint with the cancer immunotherapy players, I think most actually know who we are and know our technology.

But again in the past, the timing wasn’t right. We hope that on a go forward basis with Novartis and then likely Kite getting the next approval. There may be opportunities for us there. And certainly our association with Dr. June is very helpful..

Okay. And then in terms of REFRESH 1 and potentially moving into the REFRESH 2.

Is there anything that you can talk about relative to your recent discussions with FDA, and any feedback that they’ve given you? And in particular, is there any concerns I guess relative to the safety profile that you saw in REFRESH 2 with getting IDE proved for 2?.

Yes. I think that we’ll have an update on REFRESH 2. With Eric coming on Board, I think we’ve delayed the submissions to the FDA a little bit because we wanted him to make sure that he was up to speed on all data analysis and up to speed on the clinical trial strategy.

I think he's done a fantastic job in terms of optimizing the protocol to try to increase the chances of both technical as well as clinical success, and we’ll have an update for you when appropriate..

[Operator Instructions] Next from Maxim Group we have Jason Kolbert..

Hi, guys. Jason is here with Gabrielle Zhou, I see that starts building but I think it'd be really helpful for us to step back a little bit and say, what it takes to guess a clinical mass for sales? And what would your target for clinical mass [indiscernible]? That’s the first part.

Yes, we're very excited about -- yes, we're very excited about the prospects in the U.S. clinical trial. What I'm trying to understand is given the week to week driving effort by the sales force in the globe.

What's it going to take to hit some more significant numbers?.

I think that what you're seeing already is that there is a very nice upper trend on year-over-year basis in terms of sales growth. I think that is reflecting that the progress that we're seeing both in our direct territories but also in our international sales.

And we expect that our partners and their progress will be able to being further catalyst to that growth. So I think that what you're not seeing is linear growth, right. You're seeing -- if you go back to that 12 month chart here that you can see, there is a very nice acceleration of growth.

Now, our interim target is to get the operating profitability. We think that that will be an important inflection point for our business, and we will significantly cut down on the cash needs of the Company, but also make our company much more attractive to a wide variety of different interested groups.

And so I think that 20 million sales we're guiding that we will hit that in 2018, representing a doubling of sales of trailing 12 month sales from this point, that's nice growth.

So I think that if you track the sales growth of other medical device companies for other companies in general, that growth is led to significant increases in market awareness and ownership of stocks across the Board..

Hi, it's Gabrielle Zhou. I do have a follow-up question in terms of increasing the sales.

So if you can deploy more resources, do you think expense raise as sales people to drive the revenue growth?.

I mean with greater resources that -- what we're trying to do is have a balance of strong growth but also the ability to achieve operating profitability. Growth obviously is the primary concern, but it's not growth in all cost. I think that you may have seen NxStage medical today. They've grown at a tremendous rate over the years.

They had about 375 million in sales. Fresenius just bought them for $2 billion, but they were still losing money as a company. It’s a fantastic company, fantastic products. We know them. We've collaborated with them in DARPA, but nearing profitability, they are on the verge of profitability and they were taken out for roughly five to six time sales.

So, we think that there is a lot of premium to be based on hitting that point. And again after we get the operating profitability -- that breakeven point, we expect a $0.50 on every dollar will drop to the bottom line. This could be very profitable company.

So, there was the balance that we're trying to achieve between growth as well as profitability, but certainly we're adding as we see fit -- while we're adding headcount in key areas where we think it will have the biggest bank for the buck in terms of driving future growth in the Company and we're not afraid to make those investments that we've been doing so..

Moving on from H.C. Wainwright will hear from Sean Lee..

I just have a quick one. You mentioned that Fresenius is planning to start co-marketing CytoSorb in five additional countries soon.

Could you provide a little more color on the relationship like how has it helped your revenues or at least helped CytoSorb with the visibility you are doing?.

Sure. While I think that before I turn it over to Chris for some commentary and some color, it's kind of very interesting when you look at the Fresenius acquisition in NxStage Medical that was announced today.

It fits very much in line with the overall strategy that Fresenius has to both grow in the hemodialysis market, but also grow in the critical care market. It's not well known that NxStage was actually a leader in critical care sales in the United States. It was one of the top two players next to Baxter in the U.S.

and their market share was actually very large. And so I think it plays into the overall strategy that Fresenius has speaking just strictly from what has been publically announced of strong interest in their believe that hemodialysis is a key to growth, but also that critical care is a key to growth.

So, we, I think, also fit in that strategy where we are the high margin disposable that fits into that whole game plan. That being said, let me have Chris maybe offer some color on where we are with that co-marketing agreement..

This is Chris. So, the co-marketing work has made some significant strides in Q2.

The generic process which we had worked out with the headquarters, things like the set up requirements in sales process rose responsibility has been kneel down and we now started to initiate discussions with the local in country FMC sales management as well as our distributors to co-ordinate the implementation for each countries, and this will move on a country-by-country basis.

And this is something that this will involve support from Dr. Christian Steiner and his teams.

So we're working closely to make this happen along with our distributors, and as Phil has said, we are planning to start with five countries right now that are all active with our products and the plan is to rollout it out, perfect the model and then scale it to other countries.

So just want to make sure as we take it broader beyond that which should be relatively easy to do once we have worked out all of the process across with an optimized kind of co-marketing models. So that's where we stand right now, so I think we will see it move relatively quickly as we finish off the rest of the year..

My second question is on the reimbursement. And from the looks for it, it had have been a major driver in the growth in German. We have news over the last two quarters.

Is the Company or any of your distributing partner looking to expand the reimbursement to in other countries as well?.

Absolutely, I think that we -- CytoSorb is being reimbursed or paid for to a variety of different mechanisms in different countries. But we certainly are looking to focus and have the resources focus on trying to achieve reimbursement or enhance reimbursement in major countries, where that our strategic to our overall growth.

So I think that, those plans are moving along, and I think with the addition of additional data, clinical data, and other things that we believe that, we will be making progressive improvements in reimbursement across the Board. So I think it just takes time. The things are not fast.

They actually require a lot of resources, but it is one of our -- the focuses of our commercialization efforts..

Ladies and gentlemen, that does conclude our question-and-answer session for today. I’d like to turn the floor back to management for any additional or closing remarks..

Well, thank you very much. Well, I just like to add that I’m very proud of the CytoSorbents' team and the work they’ve done to help us achieve the success we have to-date. In addition all of here at CytoSorbents extends a sincere thanks to our Board as well as all of you or well shareholders for your ongoing support.

As we look forward, we have several updates on our ongoing programs and look forward to providing regular updates on our quarterly call. So thanks everyone for taking the time for this update call. We appreciate your participation.

And if you have any additional questions, please reach out to Bob Yedid, at bob@lifesciadvisors.com, and we will try to get to you answers to your question where possible. Thanks very much..

Thank you. That does conclude our conference for today. I would like to thank everyone for their participation..