Cytosorbents Corporation (NASDAQ:CTSO) Q4 2023 Earnings Call Transcript
Cytosorbents Corporation (NASDAQ:CTSO) Q4 2023 Earnings Call Transcript March 14, 2024
Cytosorbents Corporation isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good afternoon, and welcome to the CytoSorbents’ Fourth Quarter and Full-Year 2023 Financial and Operating Results Conference Call. At this time, all participants are in a listen-only mode. Following the formal remarks, we will open the call for your questions. 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, Eric Ribner. Please go ahead, Mr. Ribner.
Eric Ribner: Thank you, and good afternoon. Welcome to CytoSorbents’ fourth quarter and full-year 2023 financial and operating results conference call. Joining me today from the company are Dr. Phil Chan, Chief Executive Officer; Vincent Capponi, President and Chief Operating Officer; Kathleen Bloch, Chief Financial Officer; Dr. Makis Deliargyris, Chief Medical Officer; Dr. Christian Steiner, Executive Vice President of Sales and Marketing; and Managing Director of CytoSorbents Europe; Christopher Cramer, Senior Vice President of Business Development; and Dr. Irina Kulinets, Senior Vice President of Regulatory Affairs. Before I turn it 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 the 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 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 March 14, 2024, 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 fourth quarter and full-year 2023 by Dr. Chan and Ms. Bloch.
Following that presentation, we will open up the line to your questions during the live Q&A session with the rest of the management team. And now, it is my pleasure to turn the call over to Dr. Chan. Phil, the floor is yours.
Phillip P. Chan: Thank you very much, Eric. Today, I'd like to talk a little bit about our recent operational highlights. First of all, we're pleased to say that as of the end of 2023, we had more than 228,000 cumulative CytoSorb treatments delivered, which was up 17% from the end of 2022. Our European Union CE mark for CytoSorb was extended under the Medical Devices Directive, MDD, to the earlier of either December 2028 or when we achieve E.U. Medical Device Regulation Certification, also known as MDR, which effort is currently ongoing. We also entered into a new strategic partnership and temporary distribution agreement in India for CytoSorb with the publicly traded Indian pharmaceutical company, Eris Lifesciences, following its definitive agreement with Biocon Biologics to acquire Biocon’s Nephrology branded formulations unit and with it Biocon's key leadership and field force of these businesses, including the personnel who are commercializing CytoSorb in India.
Also of importance is our stand-alone hemoperfusion pump initiative. Our stand-alone pump initiative is expected to bring our next generation blood purification capability to countries that do not have a strong dialysis infrastructure. We're expecting to launch our new PuriFi pump later this year, following the expiration of our distribution agreement with Nikkiso Europe GmbH for its PureAdjust pump in September of last year. And this is a picture of the pump. This is how it will look. It's very easy to use. We've had excellent feedback from users who have been beta testing this unit, and we're very excited to be able to get this out into the market hopefully in the very near future. Moving on to the STAR-T trial. The pivotal STAR-T randomized controlled trial, we're pleased to say, was selected for a breakout presentation at the American Association of Thoracic Surgery Annual Meeting being held April 27 through 30 in Toronto, Canada.
The AATS Annual Meeting is one of the most prestigious cardiothoracic surgery conferences in the world and attracts users, not only cardiac surgeons, but perfusionists and a whole host of other, healthcare workers who are involved in cardiothoracic surgery to learn about new innovations and clinical data in the area of cardiothoracic surgery. Following this presentation, we plan to have a subsequent Analyst and Investor Day and provide a review of the data with investors and analysts by an esteemed thought leader panel. This will not be the same day as the AATS meeting presentation, but it will likely be either later that week or the following week. Based upon our additional analysis that we've done following our topline data announcement in December, we plan to submit now for regulatory approval of drugs or ATR to U.S. FDA and Health Canada in the second half of 2024 with the idea of reducing the severity of bleeding in patients undergoing isolated CABG surgery on the blood thinner of Brilinta.
Here you see is a tentative estimated STAR-T timeline where the final data analysis is pending imminently. We expect to have the data presented at this late breaking session at AATS in late April. Data from the STAR registry, which is a real world collection of data coming from Europe for using CytoSorb in the application to remove blood thinners, well, an analysis of that registry, the third analysis will be presented at the EuroPCR Conference in Europe in May 2024. If everything goes well, we will be in a position to submit to FDA in the second half of this year. Based upon FDA timelines, 45 days after submission, the FDA will give formal notice, if appropriate, of acceptance. And from there, it's about an eight months to 10 month process based upon FDA published timelines to, potential approval.
In the meantime, we will also be preparing the Health Canada submission and we'll hopefully be able to get that out before the end of this year, setting up a time line for the second half of 2025 to obtain potentially approval for FDA from FDA for DrugSorb-ATR and also approval from Health Canada as well. If things go well, we expect to begin commercialization shortly after receiving approval in the second half of 2025. We believe that focusing on our approval request on the isolated CABG population will not significantly change our U.S. and Canadian total addressable market opportunity given that patients on ticagrelor are needing isolated CABG represent the overwhelming majority facing this clinical need. And on the next slide, you can see that the numbers haven't changed much from what has been in our investor presentation.
There's about 65,000 patients on Brilinta needing emergent or urgent CABG surgery annually and about $5,000 of device that represents about a $325million initial U.S. and Canada total addressable market. We expect that the Brilinta market share will grow given that DrugSorb-ATR would make Brilinta the only reversible P2Y12 platelet inhibitor on the market and also because Brilinta goes off patent in 20 24 this year, likely leading to a drop in prices, which has been the major advantage of Plavix, which is generic in the United States market. Once that price differential goes away, we expect the superior drug, Brilinta, to gain market share, helping to potentially expand the total addressable market in the United States and Canada by twofold.
Now turning to our sales update, the press release I think goes over the sales highlights for 2023. However, I wanted to point out a few things. One is that core CytoSorb sales grew 10% year-over-year. And although that number is relatively modest, I think it masks some excellent performance that we have been seeing in our certain of our sales divisions. As you recall, we have a hybrid sales model where we sell direct in Germany. We sell direct internationally in 14 other countries with our own direct sales force and we sell in 60 other countries through our distributor and partner division. What we saw in 2023 was strong performance from our International Direct division, again accounting for 14 countries where they saw 27% sales growth to $6 million or roughly 19% of product sales for the year.
This is important as we look to continue to diversify our revenue base to really account for the 75 countries around the world where we sell CytoSorb today. Distributor partner sales in the first three quarters of 2024 actually grew 18% versus the same period in 2022, not including U.S. distributor sales. However, because of the change that we made and the decision to let the Nikkiso PureAdjust hemoperfusion distribution agreement, hemoperfusion pump distribution agreement expire in favor of bringing our own pump to market. This impacted ordering from distributors and wind up with a delay in distributor orders flipping into 2024. Because of this, overall sales growth for the year was 9%, not including U.S. distributor sales or 39% of product sales for the year.
And finally, direct sales in Germany grew 3%. Although the market have significantly improved in 2023, hospitals are still feeling the weight of the aftermath of COVID-19 in terms of staffing shortages, fewer ICU beds, fewer ICU patients, fewer high revenue generating procedures moving through the Intensive Care Unit, but also a range of additional costs driven by inflation, including energy and staffing costs as well. However, we are seeing significantly improved outlook for 2024, and we hope that this will begin a recovery in Germany. Germany represented 42% of our product sales last year. That said, we are currently tracking a proposal for healthcare reform at Germany's hospital system. In July 2023, Germany's federal and state governments issued a consensus white paper that could result in new laws that change how hospitals are funded.
Government payments to hospitals would deemphasize the DRG, also known as the diagnosis-related group lump sum payment system that incentivizes revenue generation through more patients treated and procedures performed and instead emphasized base payments focused on quality measures and appropriate patient care. This is expected to favor a shift of routine operations and procedures to outpatient centers, a consolidation of smaller hospitals into larger ones, and importantly an increased focus of remaining hospitals on sicker patients, more complex operations such as cardiothoracic surgery and organ transplant, and on therapies that help reduce the severity of illness and help patients recover faster. Given that the goal of our therapies is to improve clinical outcomes while reducing the cost of critical care and cardiac surgery by controlling deadly inflammation and other life-threatening conditions, while reducing the need for expensive life support measures that keep patients in the hospital, we believe such reform may favor our business in the longer term.
Hospital administrators expect such change will take careful planning and time, potentially even years to implement, and we look to track these developments with interest. Now many of you have seen this slide before where we talk about the extensive support of our technology by the U.S. government to the tune of about $50 million in grants and contracts and other non-dilutive funding. And on the left hand side, you see here three products that are actually being commercialized today. We typically focus on CytoSorb and we don't really talk too much about ECOS-300CY or VetResQ. But today, I wanted to try to do that. In addition, on the right hand side, our product is under current development. And one of the products, HemoDefend-BGA, for the development of universal plasma, is a program which we've received $17 million for in DoD grant funding to bring this to market.
And I thought I'd spend a slide on each of these products just to give you a flavor of what we're doing today. The ECOS-300CY is approved in the European Union for ex vivo organ perfusion and for solid organ transplant. Solid organ transplant is the main treatment option in advanced organ failure, but is limited by the availability of suitable and healthy organs. Ex vivo organ perfusion or otherwise known as EVOP with temperature controlled oxygenated nutrient rich fluid or blood is being increasingly used as an alternative to transporting the organ on ice to improve functioning of transplanted organs and to salvage substandard ones that would otherwise be discarded. However, it does not directly control inflammation within the organ that is often the core to the organ dysfunction that is seen perioperatively.
ECOS-300CY specifically E.U. approved to reduce inflammatory mediators during EVOP. And on the lower left hand side here, you can see an ex vivo organ perfusion machine by called the PerLife system by one of our partners Aferetica, who's been one of the pioneers in this space. And we work with them and provide a private label cartridge called PerSorb that plugs right into their system. And the goals and cited benefits of ECOS-300CY in early data are that it reduces inflammatory mediators, it helps to recondition poorly functioning organs that would normally be discarded, increasing the donor pool of organs and in early data in both pigs as well as in early human studies has been shown to reduce rates of primary graft dysfunction, particularly in lung transplant, helping to improve clinical outcomes.
On the next slide is VetResQ, which is essentially CytoSorb for companion animals. Now the COVID pandemic has driven companion animal ownership. Now, with 45% of U.S. households owning a dog and 26% owning a cat according to the American Veterinary Medical Society. Companion animals are prone to a wide variety of medical emergencies ranging from drug intoxication, heat stroke, infections such as leptospirosis, sepsis and septic shock, trauma and others. VetResQ brings the power of CytoSorb to veterinary medicine with three sizes of cartridges intended to treat the full size range of companion animals that you can see here. And in 2023, we had a limited but successful launch of VetResQ to a number of regional veterinary centers and in 2024, we'll debut our integrated all-in-one solution that includes a hemoperfusion pump for vets.
And last but not least, HemoDefend-BGA, which holds the promise of universal plasma. HemoDefend-BGA was developed to create universal plasma, which is plasma that does not need blood typing and can be given off-the-shelf to anyone in need regardless of blood type by removing anti-A and anti-B antibodies that make plasma blood type specific. And what you can see here on the right hand side is the current status of plasma logistics today where blood banks have to maintain pools of stores of Type A, Type B, Type AB and Type O plasma. But universal plasma would simplify those logistics to then a simple unit called universal plasma that could be given off-the-shelf to a patient regardless of their blood type. Many applications of life saving plasma include trauma resuscitation, treatment of critically ill patients and component purification, such as the isolation of clotting factors for hemophilia, for example, albumin for critical illness and IVIG for autoimmune disease treatment and infectious disease.
In the United States alone, more than 10,000 units of fresh frozen plasma are administered daily or 3.6 million units per year. And again, with more than $17 million in funding from the U.S. Department of Defense, CytoSorb has successfully developed and demonstrated a prototype, HemoDefend-BGA absorber, that removes anti-A and anti-B antibodies from human plasma with the goal of having our off-the-shelf, one size-fits-all blood type independent universal plasma provided that we can collaborate with the freeze-dried plasma provider to have that universal freeze-dried plasma in every ambulance and emergency room around the world. This is a big opportunity, and we have now met recently with FDA in preliminary discussions with the goal of advancing HemoDefend-BGA to human clinical trials and commercialization.
So with that, let me turn it over to Kathy, to go back and cover financial highlights for 2023. Kathy?
Kathleen Bloch: Thank you, Phil, and hello to everyone on the call. Today, I will discuss our full-year and fourth quarter 2023 financial results, including revenue, gross margins. I will also be providing an update on our working capital and cash runway. Next slide, please. Total 2023 revenue, which includes both product sales and grant revenue, was approximately $36.3 million as compared to $34.7 million in 2022, which is an increase of approximately $1.6 million or 5%. CytoSorb product sales were $31 million in 2023 compared to $28.6 million in 2022, which is an increase of approximately $2.4 million or 9%. There was an increase in the average exchange rate of the euro to the U.S. dollar and this favorably impacted 2023 CytoSorb product sales by approximately $780,000.
Other non-CytoSorb product revenue was $70,000 for 2023 compared to $787,000 for 2022, this due to the discontinuation of orders from a customer who no longer required a specialized polymer. Our product gross margin was 72% in 2023, up from 70% in 2022, and the company expects that gross margins will continue to improve into 2024 as we realize economies of scale at our new manufacturing facility. And finally, 2023 grant revenue was $5.3 million which is approximately the same as 2022 grant revenue. Next slide, please. This next slide or graph on which the blue bars represent our annual product sales for each year of 2017 to 2023. And we know that 2020 and 2021 product sales were very favorably impacted because CytoSorb was used to treat COVID-19 patients.
And of course, this usage ceased following the containment of the pandemic in subsequent years. Taking a look though at the orange trend line arrow, which tracks along the non-COVID revenue years, we see that 2022 and 2023 continues to show positive year-over-year growth in product sales. The post-COVID market has been challenging, particularly in Germany, for reasons already articulated by Phil in his comments. However, while gradual, we are seeing improvements in the marketplace, which we expect will bring more growth to our product sales for 2024 and into the future. I also want to just comment on the green line, which tracks our year-over-year gross margins, where we experienced a slight decline in 2022 when we began manufacturing at our new facility.
And this was a result of manufacturing inefficiencies. For example, we had to do test runs, as we brought the new facility into full operation. And again, we do expect to see improvements in product gross margins in 2024. Next slide please. Now I'd just like to briefly review our fourth quarter 2023 results. Total revenue for the fourth quarter of 2023, which includes both product sales and grant revenue, decreased 8% to approximately $8.7 million compared to approximately $9.4 million in the fourth quarter of 2022. CytoSorb product sales were $7.3 million in the fourth quarter of 2023 compared to $7.4 million in the fourth quarter of 2022, a decrease of 1%. The increase in the average exchange rate of the euro to the U.S. dollar favorably impacted fourth quarter 2023 CytoSorb product sales by approximately $369,000.
Other product revenue was $14,000 in 2023 compared to $246,000 in 2022, as we mentioned due to the discontinuation of orders from a customer who required a specialized polymer. And grant revenue in the fourth quarter of 2023 was $1.3 million compared to $1.7 million in the fourth quarter of 2022. Next slide please. As of December 31, 2023, we have $15.6 million in cash, which includes $1.5 million of restricted cash. This amount includes net proceeds of $9.8 million from our equity raised in December 2023 and approximately $4.5 million raised in 2023 utilizing our ATM facility. Conservation of cash is a corporate priority. We have adjusted our budget and we've taken measures to reduce our quarterly cash burn in 2024. We have also instituted and continue to maintain tight controls over spending.
These actions are expected to preserve our cash runway. We know that we will need to raise capital to support our ongoing operations in the future and the company is actively pursuing other sources of capital, including less or non-dilutive debt financing, royalty financing, strategic or direct investments, equity financing and or combinations thereof. And that concludes my remarks for today. At this time, I'm going to turn the call back over to Phil. Phil?
Phillip P. Chan: Thank you, Kathy. So in summary, today CytoSorb drives our growth. CytoSorb forms the company's foundation. It is EU approved and sold around the world, has generated more than $200 million in sales since launch, is a high margin razor blade business model with historical 80% blended product gross margin that has strong validation by customers, partners and government agencies. We believe we can return to and potentially even exceed our historic compound annual growth rate of approximately 25%. We have previously discussed a number of macro trends in healthcare that favor our therapies such as the aging population that is prone to critical illness, the use of blood thinners by millions of people worldwide to reduce the risk of heart attack and stroke and the epidemic of chronic liver disease that afflicts one in every five people globally.
Meanwhile, we have also discussed our numerous growth initiatives like our standalone pump initiative with the pending launch of our own PuriFi machine, the impact that supported data from STAR-T may have on the blood thinner opportunity worldwide, our global marketing agreement with Fresenius Medical Care where CytoSorb is the featured solution for cytokine, bilirubin and myoglobin removal on its critical care platforms worldwide. Our new EU trademark of expanding the dimension of blood purification that highlights the up to 40% to 50% of patients in the ICU where our therapies could be beneficial, and the relatively new applications with exciting recently published clinical data. Because of that, we believe that CytoSorb, which is designed to address the $20 billion to $30 billion worldwide total addressable market of major unmet medical needs in critical care cardiac surgery as well as liver and kidney disease gives us a massive potential growth engine going forward.
We believe this gives CytoSorbents the potential upside of a biotechnology company with a lower risk profile of a high margin medical device company with sales. But soon could STAR-T be successful and drugs of ATR, USFDA and Health Canada regulatory approval, we intend to commercialize drugs or ATR in both the United States and Canada, a potential second engine of growth working in tandem with CytoSorb to drive sales and ultimately profitability. At this stage, we believe our company represents an exceptional value proposition. So with that, operator, that ends our formal comments. Please open up the lines for questions.
See also 30 Most Spoken Languages in the World in 2050 and 20 Best Products For Acne-Prone Skin in 2024.
To continue reading the Q&A session, please click here.
