Jeremy Feffer - Investor Relations Phillip Chan - Chief Executive Officer and President Vincent Capponi - Chief Operating Officer Kathy Bloch - Chief Financial Officer Eric Mortensen - Chief Medical Officer Christian Steiner - Vice President, Sales and Marketing Chris Cramer - Vice President, Business Development.

Andrew D’Silva - B. Riley FBR Bryan Bergin - Cowen and Company Jason McCarthy - Maxim Group Sean Lee - H.C. Wainwright.

Good afternoon and welcome to the Cytosorbents Third 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 would like to turn the call over to our moderator, Jeremy Feffer. Please go ahead, sir..

Thank you, Jessica and good afternoon. Welcome to Cytosorbents’ third 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; and Chris Cramer, Vice President of Business Development. Before I turn the call over to Dr. Chan, I would like to remind listeners that during the call management’s prepared remarks may contain forward-looking statements which are subject to risks and uncertainties.

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

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

Any projections as to the company’s future performance represented by management include estimates today as of November 6, 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 third 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 were pleased to have achieved more than 51,000 Cytosorbents treatments delivered cumulatively from 31,000 a year ago.

We achieved record trailing 12-month total revenue of $21.1 million, including record 12-month product sales of $19.1 million, with a mix of strong direct and distributor and partner sales in a total of 53 countries.

The company is well-capitalized with a healthy cash balance of $24.9 million as of the end of the third quarter providing sufficient working capital into the second half of 2020. We have blended product gross margins of 72% that are expected to rise now at full production in Q4 2019 is from the new manufacturing facility.

During the quarter, we also debut the per-life organ preservation system with our partner, Aferetica for organ transplant, which uses Cytosorbents’ proprietary serving technology at the 27th International Congress of the Transplantation Society. We also received a CytoSorb Procedure Code in Switzerland that is currently pending payment designation.

In terms of the clinical trial update, I am pleased to announce good progress on our U.S. REFRESH 2-AKI pivotal trial. As you recall, this is a 400-patient randomized controlled PMA multi-center adaptive trial targeting reduction of postoperative acute kidney injury using CytoSorb intra-operatively during complex cardiac surgery.

The protocol amendment that we discussed on the previous earnings call was approved by the FDA in September with subsequent approvals by the ethics committees at our clinical trial sites. The trial site feedback based upon the modified enrollment criteria has been that it is an easier protocol to enroll with more eligible patients.

I am pleased to announce that we have now enrolled 20 patients into the study, among 14 active clinical trial sites, with a total of 25 sites to be active in the near future. Because of this, we are expecting enrollment to accelerate in this study.

In terms of the REMOVE Endocarditis trial that is being funded by the German government, as you recall, this is a 250-patient randomized controlled trial that is evaluating the safety and efficacy of CytoSorb to improve organ dysfunction when used intra-operatively during valve replacement surgery for infective endocarditis.

The first patient was enrolled in January and now the trial has enrolled a total 62 patients at 9 clinical centers. There was a planned interim analysis on the first 50 patients focused on inflammatory mediators such as cytokines that is planned for the next several months. Last but not least, our HemoDefend pivotal trial.

Recall that this is a point-of-care filter that removes noninfectious contaminants from transfused packed red blood cells. The U.S. pivotal trial is designed to support U.S. FDA approval of HemoDefend for packed red blood cells and is expected to start in early 2019.

And we have been working closely with National Heart, Lung and Blood Institute, a division of NIH to fund and prepare this study. With that, I will turn the call over to Kathy for a financial overview.

Kathy?.

Thank you, Phil and good afternoon everyone. For today’s call, I will provide an update regarding our third quarter 2018 financial results, including product sales and in addition I will provide an update around our working capital and cash runway.

CytoSorb product sales for Q3 2018 were approximately $5.1 million, which represents a 48% increase over product sales of approximately $3.4 million for Q3 of 2017. This increase was driven by an increase in direct sales from both new customers and repeat orders from existing customers, along with an increase in distributor sales.

The decline in the euro had a negative impact on Q3 2018 sales and I will discuss this in more detail in a few moments.

Total revenues, which includes product sales and grant revenue were approximately $5.7 million for the third quarter of 2018 as compared to approximately $3.8 million for the third quarter of 2017, which is an increase of approximately 80%.

In Q3 2018, gross profit grew to approximately $3.7 million, an increase of approximately $1.4 million, a 61% increase over gross product profit of approximately $2.3 million for Q3 2017. Gross profit margins on product sales were approximately 72% for Q3 2018, which is up from 69% for Q3 2017.

This is primarily due to year-over-year reductions in the cost of devices manufactured as a result of production efficiencies we were able to achieve.

Turning now to our 9 months ended September 30, 2018 financial results, product sales for 2018 were approximately $14.8 million, which is a 63% increase over product sales of $9.1 million for the same period of 2017. Increases in direct and distributor sales are the major contributors to revenue growth also aided by a stronger euro to U.S.

dollar average exchange rate.

Grant revenue was approximately $1.6 million for the 9 months ended September 30, 2018, an increase of 16% over grant revenues of $1.4 million for the same period of 2017 and total revenues, which includes product sales and grant revenues were approximately $16.4 million for the 9 month period of 2018 as compared to total revenue of approximately $10.5 million for the 9 month period of 2017 which is an increase of approximately 56%.

Now, let’s take a closer look at our quarter-over-quarter product sales. Q3 2018 product sales of $5.1 million were slightly below Q2 2018 product sales and there were a number of factors underlying this slight reduction in quarter-over-quarter sales.

First and more importantly, Q3 2018 sales were negatively impact by a decrease in the euro to dollar exchange rate, the effect of which reduced Q3 2018 reported sales by approximately $178,000.

In other words, if the exchange rate had remained unchanged from the second quarter of the year, Q3 2018 sales would have been approximately $5.28 million or an increase of $35,000 over Q2 2018.

In addition in the third quarter of 2018, despite record CytoSorb unit shipments, we had a higher percentage of distributor sales, which have lower margins and lower selling prices than direct sales than in the second quarter of 2018.

And finally, many European businesses slowdown in the third quarter due to summer vacations not only by workers, but also customers in July and August especially.

Given the concentration of our business in Europe, we were surprised that this was really the first time, the first year in which we have seen this slowdown impact our financial results to this magnitude. That being said, our track record of 25 consecutive quarters of year-over-year sales increases remains intact.

And most significantly, we believe the underlying drivers of revenue growth remains strong and that our year-over-year growth patterns will remain consistent and strengthened in the future.

So turning to our trailing 12 month year-over-year product sales chart, over the past 3 years, the company has experienced a 77% compound annual growth rate and overall, our annual product sales growth exhibits a very strong growth trajectory and we expect that to continue into the future.

Now, turning to working capital and our cap table, as of September 30, 2018, we remained very well-capitalized with approximately $24.9 million in cash, which provides a solid foundation for the company. In the third quarter of 2018, we did utilize our at-the-market, ATM equity facility with Cantor Fitzgerald.

We sold approximately 48,000 shares at an average price of $12.60, which generated net proceeds of approximately $605,000. And as we said before, we believe the ATM provides an efficient and cost effective way for us to raise funds for the company.

We believe that the existing cash runway will allow us to meet our operating and clinical trial needs well into the second half of 2020. Turning to our capital structure as of September 30, 2018, we have approximately 36.4 million common shares on a fully diluted basis. And with that, I would like to turn the call back to Phil..

Thank you very much, Kathy. In addition to our prior guidance that second half product sales will be greater than first half product sales, we have additionally refined our guidance and expect that Q4 2018 product sales will exceed Q3 2018 product sales.

We also continue to expect solid growth and achievement of operating profitability in 2018 on a quarterly basis less non-cash expenses and clinical trial costs this quarter. We were again very close to achieving this objective in the third quarter of 2018 with an operating loss as defined of approximately $380,000.

We anticipate expansion in blended product gross margins currently at 72% as we scale up production from our new manufacturing facility. That currently concludes our prepared remarks. Operator, please open up the call for the Q&A session..

Thank you. [Operator Instructions] We will go first to Andrew D’Silva with B. Riley FBR..

Hi, good afternoon. Sorry if I missed this one.

I have been hopping between a couple of calls, but do you have any updates related to any of your investigator-initiated studies, you had about a dozen or so a couple of quarters ago that were expected to publish and I was wondering if you knew how the pipeline looks right now from that standpoint?.

Hi, Andy. How are you doing? Well, the investigator-initiated studies continue and in fact we are starting new ones all of the time. If you look at the pace of publications you will see actually number of studies that are currently being published. These range from case series and small randomized controlled studies.

Some of these were started many years ago and only are getting published now as those studies have been completed and are finally getting to publication. But that pipeline of investigator-initiated studies continues to be robust and we continue to support those with scientific input and clinical input from our clinical team..

Okay, great. And then I guess put two questions into one, out of the 53 countries that you noted that you noticed – noted that you distribute worldwide.

How many have actually established product registrations thus far and are able to actually sell the product? And then out of the 20 patients that you have enrolled in REFRESH 2, how many were enrolled after the protocol is changed and the sites up to 14 [ph]?.

Yes. Let me let that over to Vince to talk about product registrations. Vince, I don’t know if you can give a little color on that..

So, hey, Andy, so on the product registrations we’re almost I'd say 90% of those countries are registered. Right now, the activity is bringing up at least from our end is in-servicing those countries to do the training and basically bring the distributors up to speed.

But that – from that perspective probably about 90% of them are actually fully registered at this point..

And – thanks, Vince, and I think from your second question, I think the majority of the enrollments have been after the protocol has – after the protocol amendment has been submitted and approved.

So we expect that we had mentioned last time that a lot of the clinical trial sites were wanted to wait until the FDA actually approved the protocol amendment before aggressively enrolling. We did have one clinical trial site that, that was enrolling ahead of that using the new protocol guidelines, but they had already work that through their system.

So we expect that enrollment to accelerate now that they have gotten the final protocol approved..

And we’ll take our next question from Josh Jennings with Cowen and Company..

Thank you..

Hi, Josh..

This is Bryan here for Josh.

Hi, Phil, how are you?.

Good..

I wanted to start with product sales.

So I understand the impact of the Euro and the greater percentage of distributor sales, but can you discuss the reason you’re confident, you’re facing a modest amount of seasonality rather than something more company-specific in Europe?.

Yes. So maybe let me turn it over to Christian to give some color on that.

Christian?.

Yes. Thank you, Phil. Hi, Bryan. Yes, I think the business in the vacation time is normally always a little bit slower.

So this year I think we have seen the first time that our business has been impacted by this more, so especially like in surgery lot of collective surgery has been postponed because of vacation of doctors and surgeons and this had an impact especially in cardiac surgery.

And also I think the unusual hot summer in Central Europe had an impact on the number of patients in – especially in the septic field. So additionally, I think all our analysis of the business have shown that there is no other reason for the slower growth of the business and also other companies I think have seen the same picture in this field..

Okay. Thank you. And for a follow-up, I wanted to ask on REFRESH 2, the entries on ClinicalTrials.gov suggest there was just two amendments made to the protocol, including the removal of the HCAP [ph] that you discussed last quarter.

So my question is, were there more than two changes made to the protocol, and I guess, more importantly, does the amended protocol reflect the totality of what you proposed to the FDA, and by that I mean, the actual one you're working with now does that reflect the totality of what you proposed?.

Yes. That is correct. But let me turn it over to Eric to give some more color on that.

Eric?.

Sure, Phil. So let me just speak. This is actually Amendment D, but we have to bear in mind, that some of the amendments are really more administrative, are really in line.

The – what we really talked about this really changed the kinetics study recruitment really reflects the change that we made in this last round, which as you just noted one was the change in the HCAP, two, was that we also added in the well-established risk factor for AKI of obesity, which is a BMI of greater than or equal to 30 kilograms per meter square.

And then finally, I think it goes to just how much small changes in terms of [indiscernible] the protocol can really improve is implementation.

A large part of what we just did was to actually make it very clear to study coordinators that we were looking at patients both with mild and moderate renal impairment and baseline, and what we basically have seen is that coordinators have a very limited period of time to really evaluate patients on the intake from their study, their surgical wire listing [ph] and so very small change can really improve their ability to very rapidly identify the appropriate patients.

So what we’re really hearing frankly, I can give you just one quote from state coordinators, make sure that we have gotten some thinking that we had no qualified patients during pre-screening have seen majority of the case schedule now meets exclusion criteria.

So it really has made a very big change so that you can see that those 12 patients just in about a month and a half time makes a big change from our previous rate of recruitment..

We’ll now take our next question from Jason McCarthy with Maxim Group..

Hi, thanks for taking my question.

So first I’d just like to see if you can provide bit of an update with regards to MACE label expansion into myoglobin and bilirubin specifically related to any progress in uptake in those indications? And then just more broadly, which therapeutic areas you consider the most important for driving growth in CytoSorb revenues going forward?.

Yes. I think that the two major indications that we have currently are in sepsis. And so sepsis dominates the critical care applications that we currently have. And then in cardiac surgery, which represents about a quarter of all of our cases.

It is the use of CytoSorb in various indications in cardiac surgery either preemptively to help stabilize patients going into surgery, during surgery to help stabilize patients intraoperatively, for example, patients undergoing endocarditis surgery and then postoperatively for patients who develop postoperative SIRS.

In terms of the label expansion that we had, that we announced earlier, this is something that we pursued because of the demand from physicians wanting to use our therapy on label for these particular applications.

And so again the addition of bilirubin removal added the ability to treat patients with liver failure specifically as a liver dialysis therapy and to be able to treat them on label.

And then the addition of myoglobin to label allowed us to help treat patients with severe crush injury and rhabdomyolysis, which is caused by muscle crush injury, which releases toxic myoglobin into the bloodstream that can accumulate in the kidneys and can cause kidney failure, which is an independent risk factor for death in trauma, sort of trauma.

So we are seeing some initial good uptake in those fields, but I don't think that the real effect on our sales growth is being felt yet. I think this is still developing area and – but one where we think has – one – but areas where we think have tremendous opportunity for the company and for our CytoSorb technology.

So I think that liver disease alone is a massive problem worldwide. It’s estimated that 300 million people in China alone for example have some form of chronic liver disease.

And just to be clear the patients that we are treating are the patients who wind up getting acute exacerbations of liver disease and wind up in the hospital with decompensated liver disease or patients who get into acute hepatitis from alcoholism or other acute toxicity. So – but these markets are very big.

We believe that it will complement our current – the current applications that are – where CytoSorb is already being used..

Okay, thank you. And then just one more related to CAR-T. I’d like to see if you go into a bit more detail in your plans for positioning CytoSorb in these patients with regards to the CRS? And then also if you could possibly leverage data from REFRESH 2 in the U.S.

and then only require small label expansion studies rather than full trials?.

So, for CAR T-cell immunotherapy, we believe that this is a very high profile area, where a lot of money is being spent and where there is a lot of optimism over the new treatments coming to market and the ones already approved on the market.

Now, Yescarta and Kymriah, one by Gilead and one by Novartis are now both approved in the United States as well as in the European Union.

And we have already been approached by a number of cancer centers in Europe whose hospitals have already had experience using our product in critical illnesses to also now collaborate with us on working to treat cytokine release syndrome.

We also have an active outreach program in Europe as well, where we are approaching these clinical oncology centers to be able to have CytoSorb to have it positioned for use in these various – in the treatment of cytokine release syndrome. We believe that it represents a very viable alternative to steroids.

So, it’s currently the first line treatment is atezolizumab, which is an injection of an IL-6 receptor antagonist and we believe that, that will likely be used as first line treatment.

But in many studies, atezolizumab is not effective alone and often requires the need for steroids and we believe that ultimately we can be used instead of steroids, because steroids have the potential to cause damage to the Car T-cell immunotherapy cells causing potential apoptosis of those cells and potentially impacting long-term complete and partial response rates.

And so we believe that CytoSorb represents a superior alternative to steroids and that’s how we are currently positioning CytoSorb today in the European Union and then the United States will have hopefully an update on our activities here in the U.S., but that is something that we will talk about in the future..

[Operator Instructions] We will go next to Sean Lee with H.C. Wainwright..

Good afternoon, guys. I just have a quick question on the dedicated procedural code for Switzerland.

Could you highlight given provide a little bit more color on how that’s different from what’s available now? And although I know you guys don’t breakout per country results, how important is Switzerland for your direct sales operations and do you expect this approval to make material impact to your overall sales?.

Yes. I think that Germany, Austria and Switzerland represent our top direct sales territories, Germany, obviously being the number one, but Austria and Switzerland also being very strong. The prior reimbursement in Switzerland was based upon a more generic code with incomplete reimbursement.

And what the procedural code has the potential to allow is for now full reimbursement of CytoSorb as well as the underlying procedure itself and the ancillary products the same way that we have now full reimbursement in many, many hospitals throughout Germany.

So, Switzerland is widely regarded in Europe as having one of the best healthcare systems providing their citizens with top-of-the-line medical therapies.

And so getting reimbursement in Switzerland is very important not only from a revenue generation standpoint, where we do believe that it can become mature over time, but also from a perception issue given the high profile nature of Swiss medicine..

Thank you..

And it appears there are no further questions at this time. I would like to turn the conference back to management for any additional or closing remarks..

Well, thank you very much everyone for your participation today. And if you do have any other questions, please feel free to reach out to Jeremy Feffer at jeremy@lifesciadvisors.com and we will try to reply to your questions where possible.

In addition, if any of the analysts had additional questions or comments, we are available for follow-up conference call. We look forward to our next quarterly call. Thank you very much everyone for participating. Good night..

Thank you. That concludes our conference for today..