Jeremy Feffer – Investor Relations-LifeSci Advisors, LLC Phillip Chan – President and Chief Executive Officer Kathy Bloch – Chief Financial Officer Vincent Capponi – Chief Operating Officer Eric Mortensen – Chief Medical Officer Christian Steiner – Vice President-Sales and Marketing.

Josh Jennings – Cowen Andrew D’Silva – B. Riley FBR Sean Lee – H.C. Wainwright Brian Marckx – Zacks Investment Research Eric Black – Davidson.

Good afternoon, and welcome to the Cytosorbents Second Quarter 2018 Financial and Operating Results Conference Call. [Operator Instructions] Please be advised that the call will be recorded at the company’s request. At this time, I’d like to turn the call over to our moderator, Jeremy Feffer. Please go ahead, Mr. Feffer..

Thank you, Cassie, and good afternoon. Welcome to Cytosorbents’ second quarter 2018 financial and operating results conference call. Joining me today from the company are Dr. Phillip Chan, Chief Executive Officer and President; Vincent Capponi, Chief Operating Officer; Kathy Bloch, Chief Financial Officer; Dr. Eric Mortensen, Chief Medical Officer; Dr.

Christian Steiner, Vice President of Sales and Marketing from Germany. Before I turn the call over to Dr. Chan, I’d like to remind listeners that during the call management’s prepared remarks may contain forward-looking statements which are subject to risks and uncertainties.

Management may make additional forward-looking statements in response to your questions today. Therefore, the company claims protection under Safe Harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

Actual results may differ from results discussed today and therefore we refer you to a more detailed discussion of these risks and uncertainties in the company’s filings with the SEC.

Any projections as to the company’s future performance represented by management include estimates today as of August 2, 2018, 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 first 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. At this time it’s now my pleasure to turn the call over to Dr.

Phillip Chan.

Phil?.

Thank you very much, Jeremy, and good afternoon, everyone. We had an outstanding second quarter. During the quarter we achieved more than $46,000 Cytosorbents treatment delivered, CytoSorb treatments delivered cumulatively, up from 27,000 a year ago.

We also had record trailing 12-month total revenue of $19.1 million, including record 12-month product sales of $17.4 million, fueled by a mix of strong direct and distributor and partner activity. We were also very well capitalized, with a healthy cash balance of $25.3 million as of the end of the second quarter.

And during the end of the quarter we officially opened our new manufacturing plant, now in commercial production, that is expected to help expand blended product gross margins, which mix higher margin direct sales with lower margin distributor and partner sales well beyond the current 74%.

During the quarter we were also added to the Russell 2000 Small Cap and Russell 3000 indexes. And now CytoSorb has had an expansion of its label to now include the reduction of bilirubin in liver disease and myoglobin in severe trauma, as mentioned in the press release, has potential to significantly expand the usage of CytoSorb.

In terms of a clinical trial update, we are pleased to announce that the REMOVE Endocarditis trial, which is being funded by the German government, has now enrolled 40 patients at six centers.

This is a 250-patient randomized controlled trial evaluating the safety and efficacy of CytoSorb to improve organ dysfunction when used intraoperatively during valve replacement surgery for infective endocarditis. In terms of our U.S.

REFRESH two pivotal trial, which is a 400-patient randomized controlled trial, a PMA trial, multicenter adaptive study targeting the reduction of postoperative acute kidney injury using CytoSorb during complex cardiac surgery, we have now expanded our active sites to a total of seven sites with three additional complete sites that have completed clinical trial agreements, and an additional 19 sites completing start up activities.

At the reputation of key clinical advisors, a protocol amendment was to expand the inclusion criteria, improve operational aspects of the patient screening process, enhance the rate of enrollment, and ultimately increase the applicable market that CytoSorb could address if approved.

Changes were backtested to the patients’ screening logs, and this amendment is expected to be approved this quarter by the FDA.

Meanwhile we plan to be ready with 15 to 20 active sites recruiting when the amendment goes into effect, driving what we believe will be a step function in enrollment at roughly one patient per site per month, rather than the gradual increase in enrollment that we would’ve seen during the early part of this study.

And last but not least, our HemoDefend pivotal trial is moving towards its start. HemoDefend is a point-of-care filter that removes non-infectious contaminants from transfused packed red blood red cells, and the U.S. pivotal trial for this product is expected to start in the first quarter of 2019.

Currently we are validating our device builds and will be building out clinical devices later this year. With that I’d like to turn the call over to Kathy for our financial overview.

Kathy?.

Thank you very much, Phil, and good afternoon, everyone. Today I’ll provide an update regarding Cytosorbents’ second quarter 2018 financial results, and in addition I’ll provide an update around our working capital and our cash runway.

CytoSorb product sales for the second quarter of 2018 were approximately $5.2 million, which of course represents our best quarterly product sales ever. This is in fact a 73% increase over product sales of approximately $3 million for the second quarter of 2017.

This increase was largely driven by an increase in direct sales from both new customers and repeat orders from existing customers, along with an increase in distributor sales, as well as a stronger euro.

Based upon our second quarter 2018 results, we are currently at an annualized product sale ran rate of approximately $21 million, as compared to approximately $12.2 million just one year ago.

Total revenues, which includes both product sales and grant revenue, were approximately $5.8 million for the second quarter of 2018, as compared to approximately $3.6 million for Q2 2017, an increase of approximately 61%.

Second quarter 2018 gross profit grew to appropriately $4 million, an increase of approximately $1.9 million, a 90% increase over gross profit of approximately $2.1 million for the second quarter of 2017.

And finally our gross profit margins on product sales were approximately 74% for the second quarter of 2018, up from 65% for the second quarter of 2017, primarily as a result of the achievement of manufacturing efficiencies at our existing facility, and this does not yet reflect the additional benefits that we expect to achieve from our new manufacturing facility that became operational at the very end of the second quarter 2018.

Turning to our six-month financial results, product sales for the first half of 2018 were approximately $9.7 million, a 72% increase over product sales of approximately $5.6 million for the first half of 2017.

And once again increases in direct and distributor sales are the major contributors to revenue growth, and, to a lesser extent, we also benefited from a stronger euro. Grant revenue was approximately $1 million for the six months ended June 30, 2018, relatively unchanged from the same period in 2017.

And our total revenues, which includes product sales and grant revenues, were approximately $10.7 million for the first half of 2018, as compared to $6.7 million for the same period in 2017, an increase of approximately 60%. And next we’ll look at our quarter-over-quarter product sales growth.

With this quarter, Q2 2018, we have achieved our 24th consecutive quarter of year-over-year quarterly growth. As mentioned previously, our annualized run rate is now at $21 million annually. Q2 2018 sales of $5.2 million were significantly higher than Q1 2018 sales, as well, but approximately $4.4 million.

This represents an 18% sequential quarter-over-quarter growth in sales. And, most importantly, management believes the underlying drivers of revenue growth have remained unchanged, and we continue to be very optimistic about continuing sales growth, particularly with regard to the second half of 2018.

And next, looking at our trailing 12-month product sales, over the past three years the company has experienced a 73% compound annual growth rate. Overall, our annual product sales growth exhibits a very strong trajectory, and we expect continuation of this trend for the future.

As we have previously stated, one of our key milestones for 2018 is the achievement of operating profitability, which excludes noncash expenses and clinical trial costs on a quarterly basis. In Q2 2018 we have narrowed our operating loss as defined to approximately $300,000.

So with that we remain very confident that we will reach our goal of achieving operating breakeven as defined on a quarterly basis this year. Turning to working capital, as of June 30, 2018, we had approximately $25.3 million in cash and cash equivalents. This provides a very solid foundation for the company.

We believe that the existing cash runway will allow us to meet all of our operating and clinical trial needs well into 2020. Tuning to our capital structure briefly, as of June 30, 2017, we have approximately 36.3 million common shares outstanding on a fully diluted basis. And now I’d like to turn the call back over to Phil..

Thank you very much, Kathy. In terms of our guidance for the second half we expect that the second half CytoSorb sales will exceed first half CytoSorb sales. We also continue to expect solid growth and the achievement of operating profitability in 2018 on a quarterly basis, less noncash expenses and clinical trial costs.

And, again, we anticipate expansion in blended product gross margins, currently at 74% as we scale up production from our new manufacturing facility. This concludes our current prepared remarks. Operator, please open up the call for the Q&A session..

[Operator Instructions]. And I’ll take our first question from Josh Jennings with Cowen..

I was hoping to start off with just on the – with the Germany performance looked stellar, I think 75% year-over-year growth.

Can you just help us think about the drivers there? I mean, should we be thinking that the understanding of the dedicated reimbursement code has finally kicked in more fairly throughout Germany? Is it also an inclusion of just more broad-based utilization, more indications, or deeper at certain centers? Any incremental color you can give us with that outperformance in Germany would be great..

Sure. I think that we benefit from the fact that we’ve been in Germany the longest, and we have a dedicated sales force there. Our sales team based out of Berlin, Germany, is on the order of about 38 people at the current moment.

And because of that dedicated effort I think that CytoSorb is very well known throughout the country amongst intensivists as well many of the cardiac surgery centers throughout the country.

We have the support of many major key opinion leaders throughout the country, as well as we are in most of the major university and public hospitals throughout the country.

We also benefit, I think, from the fact that, as you mentioned, we have received dedicated reimbursement for CytoSorb that was negotiated in 2017, and we are beginning to see that having a significant impact on the willingness to order CytoSorb now that it is fully reimbursed at most of the sites that we have surveyed.

So, I think that when you look at CytoSorb in Germany, what we are seeing is something that is developing into more of a pull market versus a push market and we are seeing a lot of activity, a lot of interest from clinicians, not just in Germany but actually in other parts of the world, wanting to use our therapy because they’ve heard how the therapy has helped patients from their colleagues in other hospitals.

But with that let me turn it over to Christian, our Vice President of Sales and Marketing, who’s based out of Germany and who’s led our commercial efforts to date, for some color.

Christian?.

Yes, thank you, Phil. Yes, in principal what Phil said is the most important thing. So we have been in Germany for a long time, so we have the most experience there and also we have the strongest team there. The direct sales team all says they are 100% dedicated to this one product and introduction and development of the therapy.

But I think there also come a number of other things and have to be taken into account, which is when departments and people gain more experience with the therapy and, of course, they think about how to widen the use, and because there are so many patients, and most of those businesses operating courses are associated with systemic inflammation, so there is a lot of different other indications coming onto the plate, and this includes next to septic shock and cataract surgery patients, which is our focus so far, all the patients like with cardiac arrest or recently added liver dysfunction patients because we got the CE approval for this.

So all this together I think leads to a stronger [indiscernible] and especially in Germany..

Great, thanks. Then I had a follow-up for Kathy just on the new manufacturing facility. It sounds like you are going to get a margin benefit even as soon as third quarter.

But maybe any other details you can share, including when you think you may reach 100% of CytoSorb manufacturing in the new facility, and is there any risk in terms of inventory changes from having externally manufactured products to the earliest internally manufactured products?.

Yes, maybe I’ll leave the capacity and production levels to Vince to handle, but, Josh, just to say I think our blended gross margins of 74% based on efficiencies that we achieved in the old manufacturing facility, we are expecting to come out with improved margins in Q3, then again in Q4 and into 2019.

And I think we have stated that we expect those blended gross margins to rise to 80% and even better given some additional time. So, and I don’t know if Vince would like to comment on the capacity and how we’re going to manage the scale-up..

Sure, sure. Yes, thanks, Kathy. So right now where we are in the plant, as we mentioned before, we have the approval. The plant has actually been started up, and we’re actually doing blended production, both out of the current facility and the new facility. We’re actually transitioning out of the old facility.

I fully expect by the end of August that we will be 100% producing actually out of the new facility. To Kathy’s point about the increase in gross margin, we expect to see probably the full impact of that plant sometime in the fourth quarter. Inventory-wise, we will be obviously increasingly some inventory of product coming out of that new plant.

But I think as we’ve previously discussed we’re only at 50% capacity of that plant with the current first stage, with a very small additional capital. I can actually double the capacity of that plant.

So we actually only have the first half of the capacity actually running, and as sales grow we’ll actually bring then on the second phase of the capacity, again, for very minor expenditure from a capital standpoint..

Thanks. That’s helpful. And just last question for you, Phil. Just you’ve announced some recent distribution agreements in a handful of new countries. And just wondering how we should be thinking about the impact here in the second half of the year.

Are there any stocking agreements associated there? And then also I think that you swapped out the UK distributor, and should we be thinking about any disruption in England and Ireland in the near term. Thanks so much for taking the questions..

Yes, no, thanks a lot, Josh. And just to add on a little bit to the previous question, I think that the new facility at full capacity is expended to be able to produce roughly $80 million in sales, product sales. And so I think that we fully expect to get there in the next several years, I think, next three to five years.

I think that in terms of our distributor network, I think the last press was a little press release was a little bit of a catch-up press release, because we’ve been having a lot of these distributors working with us in some fashion for several months. And so we do not expect to see any major stocking orders going forward.

What we would hope to see is more of a recreation order pattern from these organizations. In terms of the UK distributor also, I think the UK is a very complicated market to get into, and our sales out of the UK have been nominal to date. And so I think that with the new distributor we hope to see that change.

We also are currently working toward on driving nice recommendation for CytoSorb, and that is an active program that we have ongoing. But I would not expect that the UK would be a meaningful contributor to sales for the remainder of this year..

Thanks, Phil..

[Operator Instructions] And we’ll now take our next question from Andrew D’Silva with B. Riley FBR..

Hey, thanks for taking my question. Congrats on the progress. I just have a couple of quick ones here. Just standard my every-quarter question, were bookings or any large stocking orders taken during the quarter? And the only reason I ask that is you – on your second quarter conference call you said that Q2 would be stronger than Q1.

You typically don’t give that kind of quarterly granularity, and I was just curious what gave you that confidence on the last quarterly call..

Yes, so there were no major stocking orders. I think what we were seeing is a very strong organic growth pattern of reorders. The bulk of our – the vast bulk of our sales are reorders from existing accounts. We have opened up new accounts, as well, but those types of stocking orders are typically very small.

And typically in our direct sales territories in particular accounts are ordering on an as-needed basis and are not carrying significant inventory.

I think that the confidence in providing that guidance that Q2 would be stronger than Q1 and now our new guidance that the second half of 2018 will be stronger than the first half of 2018 is because of the order patterns that we’re seeing and the momentum that we’re seeing in the marketplace.

At a lot of conferences, for example, we see a very distinct change in the booth traffic, for example, just to give you a little bit of color. Previously, it was a lot of discussion with people who had never even heard about CytoSorb and trying to convince them that CytoSorb is something that would be worth trying.

Now we’re in fact seeing a lot of people just coming up to the booth and saying sign me up, please come visit me and let’s get this going at my institution. So it’s that kind of shift in momentum that we’re seeing that gives us confidence that we should be able to continue strong growth, particularly as measured on a year-to-year basis.

And, again, we would reiterate that we really do believe that, although we are seeing strong growth now, we are only scratching the surface of this opportunity and believe, in fact, that more rapid growth is ahead of us..

Okay. That’s very good to hear, and that gives a really good segue into my next question. And it’s really just tied to what other clinical opportunities are you seeing. I know sepsis has been a big focus. We’ve touched base on CAR T a couple of times.

Are you seeing any opportunities to maybe be involved or pursue your own clinical trials for either of those indications? And then obviously CAR T might have to be in conjunction with another company, but with the Novartis and Gilead expect to get approval fairly soon, I think Gilead in Q3, it seems like you’re pretty well positioned for use in Germany if that happens..

Yes, I think that we’re watching that very closely they’ve already been recommended for approval, and then we’re just waiting for the final approval. And I think what we’ve been doing is positioning ourselves such that we are in a position to be used as a therapy to treat cytokine release syndrome in the CAR T-cell immunotherapy space.

So I think that’s an active program that we have ongoing internally. In terms of any kind of business development efforts, we’ll leave that for a future discussion. I think in terms of other applications, one of the things that we spent a little bit of time on in the press release is actually these new markets of liver disease and trauma.

Now, we’ve talked about liver disease and trauma in the past, and there’s certainly a significant inflammatory component in these diseases.

However, the expanded label of being able to now reduce bilirubin, which is a toxin that is – that accumulates in people with liver disease, particularly acute liver disease, as well as myoglobin that is released by damaged muscle and severe trauma, represent significant growth opportunities for the company, because now not only can they reduce cytokines, but they can also be treated on label for the reduction of these toxins.

And so, as I mentioned, the numbers of people with liver disease are staggering around the world. And, again, it’s driven by three major problems. One is the development of either viral hepatitis from food contamination or through sexual contact. Second major driver is alcoholism. And the third major driver is fatty liver.

And you’ve heard of a number of companies that have done very well in addressing, for example, NASH, or non-alcoholic steatohepatitis, or often called fatty liver.

And we are being used in the acute exacerbations of chronic liver disease, when patients wind up in the hospital in a decompensated state with an acute exacerbation of their existing chronic liver disease and helping to stabilize those patients. And I think what we’ll see in the future is a strong demand for our technology for the use liver support.

Let me turn it over to Christian Steiner again. Christian, just as background, began his career at Teraklin, which developed the MARS liver dialysis therapy, which is used widely around the world today. And maybe, Christian, you could talk a little bit about what you’re seeing in the marketplace in the treatment of liver disease..

Yes, thank you, Phil. Yes, what you said is absolutely right. So, liver dysfunction is a particular problem in acute care. CytoSorb as it is placed on the market now as a therapy for calming down systemic inflammation, I think it’s perfectly positioned to take over the market, which is, for example, now covered by other liver support systems.

In the past, the scientists and clinicians thought that the purification of the blood from the liver toxins like the bilirubin, the surrogate, marker, bile acids and others, are enough to [indiscernible] patients.

But in fact these substances are kind of fueling the information, and CytoSorb is able to cover both of these areas, removing the toxins and stabilizing the patient inflammation, and this together I think leads to the clinical improvement.

And we have seen the use of CytoSorb in liver dysfunction and liver failure already before the approval, but now with the CE mark approval I think there is going to be a more accelerated growth in this area..

And just my final question just related to Fresenius, with everything going on with the next stage merger and the extension and the time line and divestiture and all the moving parts going on there, have you seen any sort of disruption with your progress there, and how do you think or how do you see things evolving, assuming that the merger is completed?.

Well, I think that what you’ve seen from Fresenius is a real focus on developing the critical care markets. They are the number one or number two players in installed base of dialysis machines around the world.

They, with the acquisition of – with the pending acquisition of Next Stage, would now be squarely in neck-and-neck position with Baxter, Gambro, and be very well positioned to help gain market share in the U.S. market.

Several years ago they also acquired another, a Germany company called Xenios and acquired a product called the Novalung, and Novalung is an extracorporeal membrane oxygenation-type technology, and it is very good at gas exchange, particularly carbon dioxide exchange.

But these ECMO systems that are sold by most of the major cardiac surgery players are gaining rapidly in popularity as a way to help stabilize patients who have very severe respiratory failure. And with the new modality called venoarterial ECMO is helping to stabilize to patients who have some element of hemodynamic instability.

But the thing about ECMO is that it does not – it only is supportive care. It does not actually reduce inflammation. And that is one of the reasons why CytoSorb has now been estimated to have been used in more than 2,500 ECMO treatments.

So, while ECMO is used to help with gas exchange, CytoSorb is being used to reduce the inflammatory mediators that are driving continued lung injury and other organ dysfunction. So when you look at Fresenius, I think that we fit very well into that strategy of acute care.

And as the razor blade disposable that works in their installed base of dialysis machines found throughout Europe and the rest of the world, in next stages machines that are a dominant player in the U.S. critical care market, as well as now the new machines that they’ve acquired from Xenios, including the Novalung.

And so we continue to have a very strong relationship with Fresenius, and we’ll see how that market develops and how that begins to impact our sales. So it’s something that we’re looking forward to..

Okay, thank you very much for the color, and good luck going forward for the rest of this year..

Great. Thanks Andy..

[Operator Instructions] We’ll take our next question from Sean Lee with H.C. Wainwright..

My first question is on the REFRESH two study. I know that Phil mentioned that you guys are filing a protocol amendment to help extend the patient group.

So what kind of patient expansion can we expect from this amendment, or could you provide some more color on that?.

Sure.

Eric, would you like to take this question?.

Sure. Sure, Phil. Logical question. Let me just take one quick step back to remind you of what our overall strategy was in regard to the operational piece for the REFRESH two study. As I talked to you about the end of last quarter we have a simple three-step process that we had in mind.

One, get our experienced sites, that is experience with REFRESH 1, quickly up and going. Two, get a better understanding as to how the protocol is working at those sites.

And then, three, very rapidly, by virtue of having brought onboard a very experienced group of clinical trialists here at CytoSorb, to make sure that we then bring onboard the sites that will actually drive recruitment very quickly once we have a study design we well understand. We are very proud of our team.

They were able to actually get the entire cohort of the REFRESH one team of sites on-boarded in the last quarter.

We then were able in the course of about two months to be able to use the experience from those sites and their screening to better understand what the characteristics of this study design would be like in the Cytosorbents trial, the REFRESH two trial, because as you know, I mean, basically the challenge is what you write down on paper and then how it actually performs in the actual field.

So what we were able to do is working with sites that were well familiar with the REFRESH one protocol to be able to understand what would be able to optimize the study. I wanted to actually keep my study funnel.

It was a little bit tight at the beginning, because the bottom line is you can’t take out those patients that have poor characteristics and then decrease your risk and make it very challenging [indiscernible] adequate study power. But you can always open your funnel a little bit wider.

As you kind of expected, our funnel was a little bit tight at the beginning, and our study coordinators really helped us in terms of identifying a couple of areas where they thought there’d be a significant opportunity to be able to enroll appropriate patients that would not alter the desired risk for AKI but would make it a lot easier to be enroll the study.

I can give you a couple of examples. One is I had included an upper age cap in the initial trial design, mostly for operational aspects, but now seeing that that’s really not necessary in the actual study.

And also they helped us in terms of identifying how best to streamline the description of patients with regard to their baseline renal risk factors so that felt actually really help referring physicians identifying the appropriate patients.

So what we basically have done is by backchecking against their screening logs we’re very confident that we’re seeing a significant multiplier. One center indicated that they would go from two patients in the two months we looked at them to 30 patients being eligible.

And after revealing those patients with our key clinical leaders, our key clinical advisors, they felt that this was a very logical approach to end up using. So we’ve now discussed this with the FDA, have submitted an amendment, and are waiting shortly for approval on that amendment. In the meantime, we’re not just waiting on that amendment.

Part of the point of bringing onboard a very experienced clinical trialist group was to make sure that we could really take ownership over the critical piece of the study startup, which is site identification and site initiation, because with a device like CytoSorb you really need to make sure that you have the capacity for physician to physician discussions with investigators, conversations with study coordinators and perfusionists that will really maintain excitement, properly educate, properly train those sites so when you end up having your study then approve the amendment they can get out of the gate and get racing at high speed.

So what we’re doing right now is we’re basically bringing onboard the WAVE two sites very rapidly. We’re, frankly, ahead of industry baseline metrics overall.

And as Phil, I think, mentioned at the beginning of the presentation we now have 29 centers that we’ve already now gone through site evaluation and approval for continued contracting, 19 centers that are in the active startup process. So we expect to be able to meet the desired target of centers by the end of third quarter.

And when we have the amended protocol we expect to see very rapid increase in patient recruitment..

Thank you, Eric. That was very helpful. With regards to the planned hemodefense study starting in 2019, we haven’t heard that much details about the program.

Could you tell us a little more about what still needs to be done on [indiscernible], and what would the pivotal study entail?.

Yes, let me hand that over to Vince.

Vince?.

Sure. So, where we are, Sean, right now is we actually are, I think, as you saw in the press release, we’ve actually completed all the tooling for this project and have begun to do essentially the validation product builds.

With those validation builds we then intend to start to begin our clinical build for the product, which will be done later this year. In the meantime, we’re preparing the IDE based on some of the discussions we’ve had with FDA for preparation of submission of that towards the end of this year. We are going to go into the clinic.

We’re planning on first quarter next year. This is a fairly well-defined process for these types of blood filters. It’s basically going to be two sites and roughly 20 patients to actually do the trial.

So compared to some of the things that Eric is working on this is relatively straightforward, if you will, from a clinical trial standpoint and the fact that it’s very well defined by the agency..

My final question is on the cost line. I thought there was also a jump this quarter on the SG&A costs, so I was wondering whether that was a one-time thing or is that the new level we can expect going forward..

Kathy, do you want to take that?.

Sure, I’ll take that. So, Sean, I think that the biggest impact there was noncash stock compensation expense and also noncash restricted stock expense, which was about $2.5 million. Part of the increase in the expense is related to the rise in our stock price, which makes these stock awards more expensive. But of course that’s noncash.

That was really the biggest item driving this. Whether we’ll continue to see that in the future, I think you will, because the board reward the employees and management with milestone options. So I think as our stock price goes up that noncash expense will probably continue..

Okay, no, that’s understandable. Just wanted to know like what caused the jump. Thank you for the additional color..

And we’ll take our next question from Brian Marckx with Zacks Investment Research..

Hi, everybody, and congrats on the quarter.

Relative to the REFRESH two protocol amendment, opening the EB enrollment criteria funnel, is there – does that in any way compromise the market opportunity or the potential competitiveness in the AKI indication, assuming you get approval?.

I would actually say, I’m now dealing with only speculation, I would actually say that that improve your opportunity by widening the number of patients for whom you have study eligibility. Again, I usually try to end up doing things fairly tight at the beginning of the protocol. Again, you can’t undo an enrollment.

But if you end up finding that you have an appropriate population you would then become a little bit more liberal after you have your shakedown cruise, as it were. That allows you to have a wider range of patients, unless I misunderstood your question..

No, you didn’t. You didn’t misunderstand. I guess the other part of the question was does it essentially bump up against something that’s already in the market or a procedure that’s already in the market by opening up the population that’s eligible for inclusion in the trial, the competitiveness of. . ..

There are no therapies for patients right now. I mean, that’s the really sad case. It’s a very severe unmet need right now in this area.

The past 20 or 30 years of research have – we are improving the way that we try to manage patients in terms of food restrictions and identification of those at risk, but despite all that there really has not been anything with the exception of maybe a Phase two trial last year that was successful, one drug.

Broadly we have not seen an ability to be able to prevent these patients from having severe outcomes. So at least in the area of speculation I don’t really see that we are facing a significant competitive threat with the design of the study that we have..

And then on the label expansion in Europe with the myoglobin and bilirubin reduction, Phil, have you seen since that approval, have you seen orders that you think that you may not have gotten or customers that you may not have gotten without the label expansion, or use of your device that they may not have used it without the label expansion?.

Yes, I mean, I think that one of the reasons why we sought a label expansion was we were hearing from clinicians that they wanted it, and they wanted to be able to use it on label for the removal of bilirubin and on label for the removal of myoglobin.

So can we – do we have the level of granular about whether or not this has made the difference between sale or no sale? I don’t think we have that kind of level of detail.

But we do, looking at the broader picture and the size of the liver market, liver disease market, and the size of the trauma market, we believe that this will only help, in fact, accelerate sales. Christian, I don’t know if you have any additional insight there..

Yes, I think what you said is right, that the current users, the early users, they have asked for label expansion because they have seen that the use of CytoSorb in these makes a lot of sense.

For example, in myoglobin anemia after trauma or after even in septic cases or intoxication this can happen, the CytoSorb is apparently the most effective device to remove myoglobin and to really use it and – as the labor. They were asking for this.

So the more for the investment it also have some additional reason [indiscernible] not seeing the reason for this, for the use of the therapy. For example, before it was only in brackets the increased cytokines, then they would not grant the reimbursement. So now with the extension like for myoglobin, then of course they have to..

Okay. So there was a reimbursement aspect to it, sounds like, at least with some institutions..

Yes, it’s the same reimbursement, only the number of patients where we can use the therapy has increased. The reimbursement in Germany is the same. It’s the same code. It’s the same amount of money..

All right, great. Thanks, guys..

Thanks, Brian..

And we’ll take our next question from Eric Black with Davidson..

Hello, congratulations on the quarter. Very impressive. You guys have a lot to celebrate, but lot of work ahead of you..

Thanks, Eric..

Two really quick questions. One was on the new facility. I think I remember reading one of your recent press releases that this new facility will allow the company to increase manufacturing production by four times.

My question is if that’s true is that the maximum output of this new facility, or just kind of like the next threshold?.

Eric?.

I’m sorry, Phil. I was going to go ahead and take that..

Yes, absolutely..

So, this is really the first threshold. We will be able to do $40 million with this first phase that we have started up now and actually are producing from, and then we have the ability to yet double this on top to get to roughly an $80 million business. And that’s, again, with really less than a $100,000 investment we would be able to do that..

Oh, that’s great. Yes, I’m surprised I don’t sense more enthusiasm from your voice about this capability. My next question – yes, so boring questions I’ve heard so far.

My next question is about, if possible, if you could take me through your sales process, or part of your sales process, in terms of like business development, given the success of the technology.

Is it primarily with distributors, or is it now that you have this data behind you is it easier to approach different institutions? I know different countries there’s different rules and things like that, but I’m just trying to get a gauge of I don’t want to say the aggressiveness, but the intensity of the sales team, and what sort of resistance, if any, are you guys seeing recently with this new data that you guys have out on the products?.

I can turn it over to Christian for a little bit more color. I mean, I think that the – we are selling into large unmet medical needs. In fact, the unmet medical need in critical care is one of the largest unmet medical needs in all of medicine. And so the reason for that is that there’s very little in the way of active therapies in that market.

It’s mostly supportive care therapies, like life support machines, like mechanical ventilation when the lungs fail, or dialysis when the kidneys fail. Because of that, doctors are often left between a rock and a hard place in terms of trying to manage their patients.

For example, their patients are often hemodynamically unstable, but because they have severe capillary leak syndrome all the fluid that they give them intravenously leaks out into their blood vessels, into their tissues, into their lungs, into their kidneys, into other places.

And that obviously is counterproductive, because fluid represents a major oxygen barrier and a barrier to oxygen delivery. The second thing is that in terms of – so the need out there is very large for a product like ours. And even, for example, the use of vasopressors, vasopressors are very dangerous.

They wind up causing ischemia in the arms and the legs. They cause lactic acidosis and a host of other problems because of a failure to deliver oxygen to the body by sacrificing oxygen delivery for trying to drive blood centrally to vital organs.

So with that being said, the need is great, and so when we go in there in the sales process and we talk to clinicians they’re typically extremely receptive to the technology. The concept of excessive inflammation that drives organ dysfunction and organ failure, leading ultimately to death in many patients, is very well understood.

And so I think it’s about trying the technology. And I think we’ve gotten to a point now where we’ve had so much data in so many different applications that we can go in there and show them that a case report or a case series for a patient that looks just like the one that they’re trying to manage.

And oftentimes we wind up with a very positive outcome, and that positive outcome is often the light bulb that goes off in their head that the technology works. And so I think that as we – when we first started, the market awareness of CytoSorb was relatively low.

I think in Germany, for example, the market awareness of CytoSorb is now extremely high, and the willingness to use the therapy, again, is – it’s moving to a pull market rather than a push market. So with that maybe Christian, if you had any other color to add..

Yes, like what – if you’re at liberty to describe the length of your new client onboarding process, is it still lengthy, or – I mean, you guys decide. I know you have to be careful with what you reveal..

Yes, no, I mean, I think that we haven’t disclosed what that sale cycle is, but with any new technology the first sale is always the longest, and it’s on the order of months, and it typically takes repeat visits to be able to get that first order.

But I think once the order starts, and they see how CytoSorb has benefited their patients, the reorder cycle becomes shorter and shorter. So typically the reorders start off once a quarter. We have many places where they’re ordering on a weekly or every two week basis.

So, Christian, any other comments there?.

No, I think you’re right. So it’s, of course, a process which is accelerating over time because awareness in the market is increasing. So when we bring a new market into the portfolio, as we have shown with [indiscernible], then of course there you have to start again from scratch.

But the overall situation improves in terms of in the medical community and also in terms of data. But I think that’s also in the development course of the different markets there are different stages.

While in the beginning you of course will have to start with key opinion leaders and with the heads of departments, step by step you can approach different levels of doctor. Also, for example, the nurses.

The nurses have lots of power to decide on therapies for the patients, but they, because they are around the patient all the time, they can indicate to the doctors this might be a patient suitable for this and this therapy, and this is what we’re addressing more and more, so that the prescription of the doctors, the frequency of prescription by the doctors can get increased by this.

And, of course, this is only possible in the more developed market. When we start in different countries or even in different hospitals, then of course you cannot go right away and work with the nurses. So there’s different phases and different geographical markets but also different hospitals..

And that’s the best approach is through the doctors now, not through the purchasers of the institutions and things like that?.

No, still, I mean, at the moment still, of course, we need to go through the prescribers.

Once we have strong data that the therapy in fact saves money in the course of the disease, and we are very convinced that we can show this in the future, then of course administration of hospitals or even hospital chains will be [indiscernible] then and can go from different [indiscernible] into the market..

And at this time I would like to turn it back to management..

Well, thank you all for your participation today. If you have any other questions, please feel free to reach out to Jeremy Feffer at jeremy@lifesciadvisors.com, and we’ll try to reply to your questions where possible. We look forward to our next quarterly call. Thank you, everyone, very much. Good night..

That concludes today’s presentation. Thank you for your participation. You may now disconnect..