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CTSO: Busy and Productive Last Few Months

By Brian Marckx, CFA

U.S. Human Study, Case Study Publication, Increase in KOL's, Increased distribution, more….

CytoSorbents (OTC BB:CTSO) reported results for the second quarter ending June 30, 2013 on August 14th.  Total revenue was $292k, up 151% from $116k in Q2 2012.  CytoSorb sales increased 287% yoy to $128k while grant revenue increased 96% to $164k.  While CytoSorb sales fell sequentially and were lower than our number, they remain at levels significantly higher than any quarter in 2012 and we continue to expect product sales to grow throughout the current year, aided by expansion in distribution and awareness building efforts.  Operating expenses were $1.5 million, roughly flat from Q1 and in-line with our expectations.  Net income and EPS were ($2.0)MM and ($0.01) compared to our ($1.9)MM and ($0.01) estimates. 

CytsoSorbents also continues to make progress on the operational front - including commercialization, awareness building, product development, and government grants - all of which we expect to benefit the early sales efforts but, more importantly, to help validate the technology.  Highlights in this regard in just the last few months alone include; beefed up distribution in Europe, FDA approval of the first U.S. based human study in critically ill patients (funded by the U.S. Air Force), initiation of the Phase II Small Business Innovation Research grant from the U.S. Army, presentation on HemoDefend by Dr. Chan at the Military Health System Research Symposium, publication of an important study in the journal Blood Purification detailing intervention with CytoSorb in a critically-ill patient which resulted in a decrease in cytokines, preparation and submission of additional studies for publication, commencement of additional investigator-initiated studies with several more planned, an increase in the number of KOL's interested in CytoSorb, and acceptance of abstracts for presentation at the German Sepsis Society meeting in September.

We remain strong believers in management and the CytoSorb technology and while we continue to expect somewhat of an extended runway until substantial commercialization, believe the company is making meaningful headway in the initial overseas launch, with product development and in awareness-building.

Operational Update

Importantly, CytoSorbents and their flagship product CytoSorb have made meaningful progress in 2012 and into 2013.  Some recent and ongoing highlights include; CytoSorb is generating sales from recurring orders, CytoSorb sales in the first half of 2013 six times as much as in the first half of 2012 (although remain at a low level), the company is seeing ever-increasing interest and use of CytoSorb for clinical use and in investigator-initiated studies, the range of illnesses and complications that CytoSorb is being used to treat is increasing, early feedback is that CytoSorb appears to be effective in improving outcomes of critically ill patients, and the company is broadening their sales and distribution capabilities.

Of particular significance is growing interest in CytoSorb from clinicians and key opinion leaders.  This, along with the ongoing dosing study in Germany, is what we think will be pivotal in accelerating uptake and interest of CytoSorb for clinical use as well as providing support for initiation of U.S. clinical studies.  In June the FDA approved the first U.S. based human study of CytoSorb in critically ill patients - which we view as a meaningful milestone towards eventual approval and commencement of larger <_st13a_place _w3a_st="on">U.S. studies in support of a regulatory filing.

In a fairly short period of time CTSO has introduced the device to and garnered meaningful interest from some highly influential thought leaders in the field of sepsis and other critical care illnesses. Future recommendations and potentially published manuscripts from some of these thought leaders, including investigators from the German dosing study, could wield meaningful influence - the fruits of which we think may be seen in the short-to-mid term.

Indications are that early feedback relative to safety and efficacy is very encouraging.  As an example, the company notes in a recent investor presentation specific instances where CytoSorb was credited with helping save the lives of critically ill patients.  Publication of the first CytoSorb case report happened in the journal Blood Purification in July which highlighted how CytoSorb was able to reduce key cytokines in a critically ill patient with septic shock.   Also of significance is that while CytoSorb has largely been used in instances where the patient is so critically ill that there's little to lose by trying the device, with the recent additional confidence of its efficacy this is now starting to progress where the device is being introduced at an earlier stage of intervention (another sign of substantial support, in our opinion).

Another particular highlight is progress with CytoSorb in complications from cardiac surgery, a potentially significant market.  We had viewed this as more of a back-burner application but with this program moving forward and an unmet need for a clearly effective standard of care, we think this application could potentially begin to bear fruit in the mid-term.  This will be something we will keep our eye on.

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 CytoSorbents Report

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