By Brian Marckx, CFA
This morning (9/24/2012) CytoSorbents (OTC Markets:CTSO) announced that they were awarded the Phase II Small Business Innovation Research grant from the U.S. Army which the company had previously submitted for.
As a reminder, in December 2011, the U.S. Army Medical Research and Materiel Command awarded CytoSorbents a Phase I Small Business Innovation Research (SBIR) grant entitled “Investigation of CytoSorb cytokine and myoglobin removal in the treatment of trauma” valued at $100,000 over six months. Following completion of the Phase I portion (i.e. - planning phase), CTSO submitted for the Phase II grant. The Phase II portion is worth up to $1M and will include animal studies. A Phase III grant could follow which would entail human studies. This program is intended to yield animal and human data that can be used to treat trauma and burn patients in the future. This directly addresses the major reasons why warfighters dies - sepsis and infection, polytrauma, and burn injury - which could potentially open the door to other military funding programs if successful.
Similar to the DARPA awards, we view the Phase II SBIR grant significant not only from a near-term revenue and cash flow perspective (Ph II will pay up to $1MM over one year which we had already incorporated into our model), but potentially more importantly it provides CytoSorbents and their technology with greater awareness, expanded applications beyond sepsis and trauma (into burn and smoke injury), and further credible validation (U.S. Army has clearly taken notice and CTSO notes that the U.S. Air Force also has expressed interest in their technology).
In addition, the animal data from these grants and awards, assuming positive, can be used to support CTSO's clinical efforts in Europe and facilitate the commercialization overseas for trauma, burn and smoke injury. Following completion of the Phase II portion, human data from a potential Phase III award if granted, could potentially facilitate the company's U.S. program and help accelerate eventual U.S. approval and commercialization for non-sepsis related applications.
We cover CytoSorbents with an Outperform rating and $0.50 price target. See below for access to our 21-page report on CTSO.
Please visit Brian Marckx's coverage page at scr.zacks.com to access a free copy of the full research report.
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