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CTSO: Q4 / FY 2018: Record Product Sales in Q4, Jumps 51% in 2018

By Brian Marckx, CFA

NASDAQ:CTSO

READ THE FULL CTSO RESEARCH REPORT

Q4 / FY 2018 Preannouncement: Record Product Sales in Q4, Jumps 51% in 2018…

CytoSorbents (CTSO) preannounced expected product and total revenue for Q4 and fiscal 2018. For the quarter, product sales are anticipated to come in at $5.4M, implying growth of 26% yoy and up about 6% from Q3. This would also be a new record high, ahead of the prior best by about 3%. And while this is slightly below our $5.5M estimate, the difference is immaterial and has no effect on our forecasted EPS and little-to-no effect on modeled revenue in our out-years. For the full year, product sales are up 51% (from $13.4M in 2017) to $20.2M. Meanwhile, total sales expanded 27% yoy and ~3% from the prior quarter. For the full year, total sales increased 47% (from $15.2M in 2013) to $22.3M.

The press release notes that product margin will be “in excess of 72%” for the year – which may imply Q4 product margin might be a hair lower than the average of the first nine months of the year. Nonetheless, management is now guiding for product margin to reach 80% on a quarterly basis during 2019 – which is undoubtedly tied to the new and more efficient manufacturing facility, as well potentially from economies of scale from higher production volumes.

We have made incremental tweaks to our model to reflect the updated numbers. We also note that CTSO mentions that they recently implemented an “aggressive growth strategy” to drive growth in 2019 and beyond, implying that operating expenses may increase from previously anticipated levels. We have also incorporated these assumptions into our model.

In terms of operational progress…

REFRESH 2-AKI is expected to have enrolled 39 patients by the end of this week, up from 20 in early November and 24 at the end of December (the relative lull in enrollment through December likely reflects holiday slowdown). It appears that a number of new sites also recently came online, which should further catalyze the pace of enrollment, which had averaged ~2 patients per site per month but fell closer to 1 patient per site per month during the holidays. While 14 sites had been activated as of early November, 19 sites are now actively recruiting. We continue to estimate that full enrollment could realistically happen by mid-2020.

REMOVE, the Germany-based infective endocarditis study, has 87 patients enrolled, up from 62 in early November. CTSO notes that interim analysis of the first 50 patients is scheduled for this month.

Valuation
We are reiterating our $15/share price target.

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