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Edited Transcript of CTSO.OQ earnings conference call or presentation 5-Nov-19 9:45pm GMT

Q3 2019 Cytosorbents Corp Earnings Call

Nov 9, 2019 (Thomson StreetEvents) -- Edited Transcript of Cytosorbents Corp earnings conference call or presentation Tuesday, November 5, 2019 at 9:45:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Christopher Cramer

Cytosorbents Corporation - VP of Business Development

* Eric R. Mortensen

Cytosorbents Corporation - Chief Medical Officer

* Jeremy Feffer

LifeSci Advisors, LLC - MD

* Kathleen P. Bloch

Cytosorbents Corporation - CFO & Secretary

* Phillip P. Chan

Cytosorbents Corporation - CEO, President & Director

* Vincent J. Capponi

Cytosorbents Corporation - COO

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Conference Call Participants

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* Andrew Jacob D'Silva

B. Riley FBR, Inc., Research Division - Senior Analyst

* Brian W. Marckx

Zacks Investment Research, Inc. - Director of Research and Senior Medical Technology, Medical Device & Diagnostics Analyst

* Jason Howard Kolbert

Dawson James Securities, Inc., Research Division - Director of Research

* Joshua Thomas Jennings

Cowen and Company, LLC, Research Division - MD & Senior Research Analyst

* Michael Okunewitch

Maxim Group LLC, Research Division - Equity Research Associate

* Sean Lee

H.C. Wainwright & Co, LLC, Research Division - Equity Research Associate

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Presentation

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Operator [1]

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Good afternoon, and welcome to the Cytosorbents' Third Quarter 2019 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.

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Jeremy Feffer, LifeSci Advisors, LLC - MD [2]

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Thank you, Saatchi, and good afternoon. Welcome to Cytosorbents' Third Quarter 2019 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; Kathleen Bloch, Chief Financial Officer; Dr. Eric Mortensen, Chief Medical Officer; Dr. Christian Steiner, Senior 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'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 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 5, 2019 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 the 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 my pleasure to turn the call over to Dr. Chan. Phil?

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Phillip P. Chan, Cytosorbents Corporation - CEO, President & Director [3]

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Thank you very much, Jeremy and good afternoon everyone. I'm pleased to say that the third quarter results came in generally in line with our expectations, particularly given seasonal aspects of the summer quarter as well as foreign exchange effects. During the quarter, we achieved 73,000 cumulative CytoSorb treatments delivered, up from 51,000 a year ago. Trailing 12-month total revenue was $23.6 million including product sales and grant income versus $21.1 million a year ago.

Blended product gross margins expanded to 77% in the third quarter and orders from Q of 3 distributor partners that were discussed in the first quarter earnings call had ordered in the third quarter. We extended [site] distribution to total 58 countries with Latin American expansion to Brazil, Colombia and Costa Rica and we received renewal of our CytoSorb CE Mark through May the 24 and our annual ISO 1345 certification of our manufacturing facility, through September 2020.

During the quarter we also made significant clinical progress, including the near completion of the removed trial, refresh 2-AKI trial progress also this first study start of clinical trial designed to evaluate CytoSorb for the treatment of cytokine release syndrome and encephalopathy caused by cytokine release syndrome in CAR T-cell immunotherapy patients and also the start of our new United Kingdom ties trial for the removal of Ticagrelor, a blood thinner that is often a problem in emergency surgery patients that causes unwanted bleeding.

With that, let me turn it over to Kathy to talk about the financial highlights of the quarter and I'll be back again afterwards to talk about how we drive significant growth in 2020. Kathy?

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Kathleen P. Bloch, Cytosorbents Corporation - CFO & Secretary [4]

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Well, thank you, Phil, and good afternoon, everyone. So for today's call, I'll provide an update regarding our third quarter 2019 financial results, which includes product sales progress. And in addition, I'll provide an update around our working capital and cash runway. So CytoSorb product sales for the third quarter of 2019 were $5.7 million, which is a 12.3% increase over product sales of approximately $5.1 million for Q3 of 2018.

This increase was driven by an increase in direct sales of approximately $891,000 resulting from sales to both new customers and repeat orders from existing customers, offset by a decrease in distributor sales of approximately $266,000. The euro to dollar exchange rate declined from an average rate of $1.16 in the third quarter of 2018 to an average rate of $1.11 in the third quarter of 2019.

And in fact, if the euro to dollar exchange rate had remain unchanged from the third quarter of 2018, Q3 2019 product sales would have been approximately $239,000 higher than actually reported or approximately $6 million, which represents an increase of 17% over Q3 2018 product sales. Our total revenues, which include our product sales as well as grant revenue, were approximately $6.1 million for the third quarter of 2019 as compared to approximately $5.7 million for Q3 of 2018, an increase of approximately 6%.

Third quarter 2019 gross profit grew to approximately $4.4 million, an increase of more than 19% or $709,000 over gross profit of approximately $3.7 million for the third quarter of 2018. And we're also pleased to report that our gross profit margins on product sales were approximately 77% for Q3 of 2019 as compared to 72% for the third quarter of 2018 and this is primarily as a result of the achievement of manufacturing efficiencies.

So now, we'll turn to our 9 months financial results. Product sales for the first 9 months of 2019 were approximately $16.2 million, which is an increase of 9% over product sales of $14.8 million for the same period of 2018. And once again, the euro to dollar exchange rate results -- the euro to dollar exchange rate declined from an average rate of $1.19 in the first 9 months of 2018 to an average rate of $1.12 in the first 9 months of 2019. And once again, if the euro to dollar exchange rate had remain unchanged from 2018, our 9 months 2019 product sales would have been approximately $977,000 higher than actually reported or approximately $17.1 million, which would be an increase of 16% over the prior year's product sales.

Grant revenue was approximately $1.4 million for the first 9 months of 2019 compared to approximately $1.6 million for the same period of 2018, just due to the timing of grant revenues. And our total revenues were approximately $17.5 million for the first 9 months of 2019 as compared to $16.4 million for the same period of 2018, an increase of approximately 7%.

Next, we'll look at our quarter-over-quarter product sales. Our third quarter 2019 product sales were approximately $5.7 million. This is a slight decline from our record $5.8 million in product sales reported in Q2 2019. This slight decline in quarter-over-quarter sales is similar to what occurred in the prior year in Q3 2018 and is we believe a result of the slowdown and operating procedures in the summer months in Europe in particular in Germany.

So next, we'll look at our trailing 12 months product sales. And as you can see from this chart, overall, our annual product sales growth continues to exhibit a very solid growth trajectory. And despite quarter-to-quarter variability, we expect a continuation of this overall positive trend in the future with the return to higher rates of growth in sales, particularly in 2020 as a result of our sales growth strategy. And Phil will be discussing this in more detail in a few minutes.

We've also provided on this chart and the red line, our blended gross margins for the third quarter of each year 2014 through 2019. These gross margins blend our higher margin direct sales with our lower margin distributor sales. And one can observe the continuous year-over-year improvement we've been making in growing our product gross margins. For the third quarter of 2019, our gross margins rose to 77% and looking forward, we continue to target achieving 80% blended gross margins in the fourth quarter of 2019.

And finally, a few words on working capital. As of September 30, 2019, we had approximately $16 million in cash, which we believe provides a solid operating foundation for the company. We believe the existing cash runway will allow us to meet our operating needs well into 2020. And as we discussed previously, we have the, at the market facility with co-agents Jefferies and B Riley FBR in place, which allows us to raise up to $25 million in equity. We haven't used it yet, but this ATM provides an efficient cost-effective way for us to raise funds for the company if that is needed.

And as you are aware in the past, we have been very careful with regard to our use of the ATM, always trying to strike a balance between having a strong balance sheet, which provides adequate capital to meet our operating and clinical trial objectives but also avoiding shareholder dilution.

And turning to our capital structure, as of September 30, we have approximately 37.5 million common shares outstanding on a fully diluted basis.

And with that, I'd like to turn the call back over to Phil. Phil?

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Phillip P. Chan, Cytosorbents Corporation - CEO, President & Director [5]

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Thank you very much, Kathy. We expect a strong finish in 2019 a year of modest growth. But the real story we believe is Cytosorbents 2020, where we're protecting faster growth ahead. There's many reasons why we believe this is possible. So first of all direct sales were approximately 75% of our product sales with higher product gross margins. And because of that, we made an effort to double the number of direct sales countries from 5 to 10 in 2019 adding Poland and Sweden, the Netherlands, Norway and Denmark to our existing territories of Germany, Austria, Switzerland, Belgium and Luxembourg, where we had been going direct for a number of years. All with a combined population of approximately 190 million people.

We also expanded our countries overall, to 58 with registration pending at major countries, including Brazil, Mexico, South Korea and Colombia that add more than 440 million people to the population that CytoSorb could potentially serve. Since 2018, we added 50 people or an approximate 50% increase in head count to now 155 employees across the company with many key hires in the past 3 to 6 months. This was not an easy task. In fact, the challenge to find the right people in a very tight labor market in Germany and in Europe in general as well as challenging labor laws delayed our ability to bring these people on in time to impact 2019 sales in a significant way.

However, we have the bulk of our team on board and we believe that having them on board is right in time for impacting 2020 sales. We significantly strengthened the commercial organization by doubling the customer facing sales reps and specialists, particularly in Germany. We subdivided management of direct sales to be able to take into account all of the business opportunities that we have across those 10 countries.

We also brought a new leadership and expanded our leadership of distributor and partner sales. We also brought in a new Head of Marketing, who will report to Dr. Christian Steiner, our SVP of Sales and Marketing and bolstered manufacturing quality clinical support as well as reimbursement personnel. This increase in manpower, we believe on able and more focused targeting of key accounts with modest impact this year. But this increase in head count is expected to be a major catalyst for strong growth in 2020.

On top of that, we believe that demand for CytoSorb continues to grow. CytoSorb sales are driven primarily by reorders with approximately 85% of our invoices from repeat customers. And what we have been seeing is that the average number of CytoSorb Cartridges per invoice continues to grow at many accounts demonstrating increased usage and adoption. The usage is increasing, we believe because CytoSorb is helping physicians regain control of their very sick patients particularly, in controlling complications of inflammation.

Clinical data generation continues to be robust with more than 120 publications in peer-reviewed scientific and medical journals and clinicians have honed in on key areas where CytoSorb works well such as sepsis cardiac surgery liver failure, and many other applications. These new applications and new data are expected to drive more rapid adoption and broader-based usage.

What are the studies we discussed recently in a press release? And this was a retrospective study evaluating the use of CytoSorb in patients with septic shock on renal replacement therapy, which implies that their kidneys have failed, which is an independent risk factor for death in patients with septic shock. In this retrospective study evaluating primary end points of 2018 mortality, they evaluated to sets of patients. One set of patients were patients just receiving continuous renal replacement therapy alone and that was about 49 patients, whereas patients treated with CytoSorb amounted to 67 patients.

What we saw in this patient population -- in these 2 groups was that before treatment ever started the CytoSorb patients were sicker as measured by the surface score, which is a sequential organ failure Assessment score of 13.8 in the treatment arm versus 12.8 in the control arm and that predicts and mortality of 75% in the CytoSorb arm versus 68% in the control. The authors used something called a stabilized inverse probability of treatment weights or IPTW that is commonly used an observational studies to adjust for differences in baseline characteristics. In fact, if you look in articles being reported in the New England Journal Medicine Jim and others, this is a commonly used statistical analytical technique.

In doing so they demonstrated that CytoSorb showed a decreased mortality, CytoSorb treatment led to decreased mortality, a 53% versus 72% in the control arm. And this data suggests that 19 patients in every 100 patients with septic shock on continuous renal replacement therapy might be saved with CytoSorb. This is one of the largest studies looking at the impact of CytoSorb on mortality and when you control for baseline characteristics of these patients the data are very encouraging.

Now, another study that was done that we've been talking about recently has been the use of CytoSorb the investigational use of CytoSorb to remove anti-thrombotic drugs like rivaroxaban and Ticangrelor. These are often called blood thinners.

And this class of anti-thrombotic drugs of which Eliquis, Xarelto, Pradaxa, Brilinta and Plavix are among some of the common names, these drugs have collective sales worldwide of more than $20 billion, where millions of people around the world are on these drugs. So in the United States alone, where the 6 million people are actually on these blood thinners as of a 2015 estimate because they are used to try to reduce stroke risk and risk of heart attacks in patients who have undergone either stent placement for coronary artery disease or who've had a heart attack in the recent past.

There are other drugs in this class also that are used in patients with other types of risk factors for developing stroke or heart attacks such as people with atrial fibrillation, people with peripheral artery disease, people with underlying pulmonary embolism or deep vein thrombosis. And these are some of the most common we prescribe drugs in the world.

The problem with this is that approximately 4% of patients will have an acute cardiac event due to their underlying cardiac disease or underlying co-morbid disease that will require either urgent or emerging cardiac surgery. Examples of this are, for example, clot inside a newly placed stent in the coronary artery or damage to the coronary artery like a coronary artery dissection that requires CABG operation, a coronary artery bypass graft open heart operation or someone who comes in with complaints of chest pain only to find out that they have a dissecting aortic aneurysm that will potentially rupture and kill them if something is not done immediately.

However, when these patients come in with these blood thinners on board, it greatly reduces their ability to clot. And approximately 30% of patients that undergo emergency cardiac surgery will suffer severe or massive or bleeding perioperatively. A very interesting study came out recently from St. York Hospital in Hamburg, Germany, one of the oldest hospitals in Europe and a major cardiac surgery center.

They evaluated 55 patients on either Ticagrelor which is also known as BRILINTA and rivaroxaban also known as Xarelto that underwent emergency cardiac surgery. Of these 39 were treated with CytoSorb interoperatively in this investigational application. And what they found was very interesting, patients not using CytoSorb had significant bleeding complications. And that those using CytoSorb had significantly reduced need for red blood cell transfusions and platelets, they had statistically significant reduction in surgical drainage, having it in many cases, they had a reduced need for rethoracotomy where 37.5% of patients in the control arm required a re-opening of their chest cavity and a re-exploration of what could potentially be bleeding, whereas none of the patients in the CytoSorb treatment arm would require rethoracotomy.

They also saw a reduced length of operation, reduced time in the intensive care unit and a reduced hospital stay, all of which were statistically significant. And in a separate cost-effectiveness analysis that was done in the United Kingdom, they concluded a savings of approximately $5,000 per case due to these clinical benefits. So we believe that, although this is currently an investigational application of the therapy, that this potentially, if we obtained European Union label expansion for CytoSorb for this application, this could be a very significant driver of sales in 2020.

Now, another catalysts talking about data is the projected near term data catalyst. We have a number of studies that have either started or are ongoing and the major ones are shown here on this slide. First of all, the Germany removed endocarditis randomized controlled trial is now at its target enrollment of 250 patients well ahead of schedule. They have decided to enroll up to an additional 15 patients to account for potential dropouts, and that is expected to conclude by year-end. Once that -- once the study is done, the investigators believe that they will have analysis of their data and a presentation of their data in mid-2020.

Second study is the U.S. REFRESH 2-AKI pivotal trial, randomized controlled trial where are now currently 144 patients are enrolled, out of a target of 100 patients. And an interim analysis at 200 patients is expected at the end of the first quarter into the second quarter of 2020.

The third trial is a new trial. And this is the United Kingdom TISORB study where we will -- it is a company-sponsored study where we will be looking specifically at the ability of CytoSorb to remove Ticagrelor, one of these blood thinners that we talked about in the prior slide and its effect on platelet function and a companion study will also look at cost-effectiveness analysis as well as efficacy in terms of reduction in bleeding events in that study. The primary study is expected to complete in the third quarter of 2020 and Eric -- Dr. Eric Mortensen, our Chief Medical Officer will comment on the importance of that study and this program in general, a little bit later.

And then the fourth study is our HemoDefend IDE is our HemoDefend study and we fully expect to have the IDE filed by the end of this year and we are working very hard to do that with potential approval in 2020. So with that said, in terms of guidance, we have not historically given specific financial guidance on quarterly results until the quarter has been completed. However, we do expect that the fourth quarter 2019 product sales will exceed a year ago's fourth quarter product sales and we fully expect that the second half of this year product sales will exceed those of the first half of this year. And as Kathy mentioned, we reiterate our guidance that we expect to achieve blended product gross margins of 80% on a quarterly basis this year.

With that, that ends our formal comments. And operator, please open the call up for the Q&A session.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is from Josh Jennings of Cowen & Company.

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Joshua Thomas Jennings, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [2]

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I appreciate the update on the outlook for some high-level commentary on 2020. Apologies for the background noise here. But I wanted to just get some further color, just in terms of where you are with this move towards a stronger direct sales force, but also broadening the reach of your distributors into new territories. I mean it seems as if you still battling a headwind on the distributor revenue side. And just -- and also you're still very early in terms of adding direct reps in different territories.

So I guess the direct question is can you just talk about ex-Germany direct sales and but in new ranges in terms of getting the sales force to where you want it to be? And then also on the distributor side they're ramping up in the new territories, can you just give us an update on where you are distributors taking quarters, I believe you said 2 out of 3 are taking orders so far. And then do you expect distributor revenues to grow in 2020?

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Phillip P. Chan, Cytosorbents Corporation - CEO, President & Director [3]

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Thanks, Josh. So taking the distributor issue first, as we disclosed in the first quarter of this year that we had 3 major distributors that stopped ordering for the moment because of primarily inventory issues, one of those was Fresenius Medical Care and there are particular issue is that as they transition from European sales to seeking registration of CytoSorb in Mexico and South Korea, they were left with quite a bit of European inventory that the current territories that they have in Europe including France, the Czech Republic and Finland. They continue to make good progress against that inventory. But until we get registration in Mexico and until we get registration in South Korea, they're -- they have been holding off on ordering because they can't order until they get registration in Mexico and South Korea and that they can't transfer European inventory to those countries.

But the other 2 distributors are ordering now and they are back to kind of their typical order pattern. We brought in a new Head of International Sales that focused on distributors and partners at the very beginning of 2019 and she has done a fantastic job in building out that organization where it is now, where we have regional managers that basically are resident in their region instead of trying to manage those territories from Germany, for example, that speaks the local languages and have been very hard at work in helping to develop the distributor territories and various countries.

And so although the impact of their efforts are not readily apparent this year, I think that there's been a lot of market development and a lot of infrastructure built and a lot of goodwill generated where we feel that the distributor cohort, the 48 countries that we have will actually be a strong driver of sales in 2020. So in terms of the direct sales outside of Germany, so clearly Germany, this quarter I think accounted for about 60% of our sales and is a very important country as I mentioned before, the largest medical device market in the European Union and the third largest in the world. And again, we have doubled the customer-facing folks in Germany. We've subdivided Germany, so that our sales reps can focus in on our core accounts and really detail them the way that they need to detail them in order to take advantage of the strong demand in Germany that we see.

That said, outside of Germany, the sales, for example, in Austria and Switzerland continue to be robust. I think that Switzerland, with hopefully a pending assignment of a reimbursement value to the procedure code that we achieved more than a year ago, that should also be a catalyst for sales in Switzerland. Now the other countries that we talked about also have a lot of potential. One of the strongest ones is in Poland and here we just started selling in Poland with our direct sales force in April of this year, and what we can report is that there has been a lot of great progress amongst the sales team within Poland and at both generating, keeping in leader interest and support, going to conferences and really working with Polish physicians and health care workers to drive awareness and usage of this product.

So in 2020 for example, we expect that Poland will be a solid contributor to overall sales. But the other countries, also I think are benefiting from a renewed focus. And as I mentioned, we brought in a head of direct sales outside of Germany. We have one person focus specifically on Germany and a new person focus specifically on the nine other countries outside of Germany, where we're going direct. And I think that new focus, we've been very encouraged by the progress that he has made so far. He's just been on board for just a couple of months now. But I think that he is integrated very well and I'm very confident that, after having met with him many times now and having heard his strategy for those countries, he will be able to really drive continued growth in the ex-Germany direct countries.

I don't know if that's helpful to you, but I think that there is a lot of people that we brought on recently. Again, really the key players coming on in the past 3 to 6 months, and it takes a little bit of time to get to know the product, get to know the company, get to know the people, build the strategy and implement strategy. But again, we feel that we're very well positioned for a strong 2020 start and we believe that having this infrastructure on board will definitely benefit Q4, which is why we're confident about ending the year in a strong way.

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Joshua Thomas Jennings, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [4]

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No, that was super helpful. That's actually detailed. And just my follow-up is, we appreciate the clinical signal CytoSorb in surgery patients who are in a coagulated and reversing in a coagulated status. I just wanted a multipart question here. First, I just wanted to make sure I heard you correctly. Do you think that this could be a driver of this indication in 2020? Could you just talk about the CE Mark approval pathway, whether you need more data, whether you can submit with the data set that you've downloaded today in a previous press release?

The second, is there a future clinical trial, with using reversing Xarelto as well, is that potentially in the pipeline? I know you have a lot in front of you, with the initial trial that you announced, but just had that question as well.

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Phillip P. Chan, Cytosorbents Corporation - CEO, President & Director [5]

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Yes, absolutely. Thanks, Josh. Well, what I would say is that we believe that this is a very important category. This is a very important potential application for CytoSorb where the effect is very pronounced. And you know, let me turn it over, actually to Dr. Eric Mortensen, our Chief Medical Officer, who has been really instrumental in taking some of these studies and then really developing them, such that we are to the point where we are today and beyond. So Eric, maybe if you wanted to comment on some of the feedback that you've heard about this particular application? Maybe comment on the cost-economic analysis that you helped drive and then maybe some other color on this application.

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Eric R. Mortensen, Cytosorbents Corporation - Chief Medical Officer [6]

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Sure, Phil, happy to do so. No, actually very happy to speak about this program, because it's extraordinarily satisfying to open up this area of development opportunity in there, then also represents a very significant region of unmet need for patients. We ended up having a very busy year. And then a particularly busy quarter that it's been very satisfying in progressing this program. I believe you have already seen from earlier this year, the work that Phil has talked about from St. George Hospital in Hamburg and I don't know if people really fully appreciate just how challenging it can be for surgeons and for the internal managing these patients.

Because what we basically have heard from physicians in Germany and France, from the UK and here in the US, is that basically when you end up having these patients in a need for emergency surgery, you realize on the one hand, you have no choice but to take them to the OR, on the other hand, it can turn into a complete nightmare and you have no idea just how severe the bleeding can be. So we were very fortunate to end up having both the retrospective data from St. George Hamburg as well as ongoing there and collecting to provide characterization of the potential benefits in this exploratory indication in removal of Ticagrelor and other antithrombotic and other anticoagulant medications.

And we've also been using this opportunity then to leverage that data, to be able to provide a solid reimbursement and registration opportunity. Now Phil mentioned the manuscript that we presented, actually published just last month. It was extremely satisfying to be able to find that there was enough robust data out of the work from St. George Hamburg, that we've been able to work with economists and the George's student in the UK, at University of Newcastle, to be put together what was considered to be a very, very dominant strategy, for the treatment of patients and Phil has already mentioned that provided an assessment that in the UK modeled for reimbursement.

Based upon the results that we're seeing from St. George Hospital in Hamburg, you'd be talking about approximately $5,000 per patient saved, not to mention the significant decrease in the risk of bleeding for these patients. So based upon that work and obviously we are having ongoing discussions with payers to end up presenting that data, we have now decided to initiate last week a prospective, multicenter UK trial, intend to demonstrate the consistency of results for removal and reversal platelet inhibition in a prospective way, as opposed to the investigator-initiated trial that included both a perspective and retrospective patients.

Now that's just started last week, but we already had the first patient on the same week once that was initiated and we were anticipating to have, just based upon the rate with which patients have these problems, to have results available for the second half of 2020. And just to personalize this area a little bit, when speaking with physicians in Scotland, in the UK what I end up hearing is that basically they optimal have 1 to 3 patients per week. They end up coming in and they basically have to trying to temper rise them, while they might have and they try to coagulate them, or they are being forced to take them to surgery, if they have severe enough ischemic disease and then just based on consequences.

As a matter of fact, during the presentation of our data at the European Cardiothoracic meetings in Lisbon last month, 1 surgeon who would actually use the device on 2 patients as an off-label exploratory use, not associated the company, indicated that he was basically just shocked by the schematic improvement he saw in terms of patients bleeding. So we are extraordinarily excited to have an opportunity to be able to bring forward what we hope will be an important therapeutic advance, we're still in an experimental mode, but as I've noted, we hope to have data for you in the second half of next year.

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Phillip P. Chan, Cytosorbents Corporation - CEO, President & Director [7]

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And maybe, Vince, if you wanted to comment on the EU label expansion efforts.

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Vincent J. Capponi, Cytosorbents Corporation - COO [8]

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Great. Thanks, Phil. Good talking to you, Josh. Basically, we are aggressively pursuing expansion of our label based on these data that were observed in Hamburg. As Eric mentioned, that data was very compelling, had great statistics behind it, which we think is quite possible to bring that forth as a label expansion. So we are actively working on that now and hoping to hear back from the regulators soon on their assessment of our filing and the expansion of label for specifically Ticagrelor.

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Operator [9]

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The next question is from Andrew D'Silva of B. Riley FBR.

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Andrew Jacob D'Silva, B. Riley FBR, Inc., Research Division - Senior Analyst [10]

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Sorry if you highlighted this, but I was moving between calls, I'll start with just presented as far as they go. While you're transitioning countries from them managing sales to you going direct, what happens during that transition period? Are they still the touch point with hospitals that they were working with, or is it a light switch and then everything is handed over from presenting us to you?

And then just examining their corporate structure, it seems like a lot of overlaps between Mexico in the US kind of both fall under the North American banner there, is there anything we can take away with that as far as your progress, and as things go forward with refresh to do?

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Phillip P. Chan, Cytosorbents Corporation - CEO, President & Director [11]

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Yes, I didn't quite catch the last part of your question about the US and refresh too, could you maybe state that one more time, please?

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Andrew Jacob D'Silva, B. Riley FBR, Inc., Research Division - Senior Analyst [12]

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Yes. So just looking at Fresenius' corporate structure and Mexico in the US both fall under their North American banner. I was curious since the leadership of that division is obviously going to be overseeing the Mexico aspect of the launch, is there any sense of how that will progress after REFRESH II is completed and then assuming you're able to enter the US market?

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Phillip P. Chan, Cytosorbents Corporation - CEO, President & Director [13]

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I think with Fresenius, the handoff has been pretty smooth in the countries that they've exited and that we've taken over. This was the negotiated item in return for giving exclusive distribution rights to Fresenius in Mexico and South Korea. Most of our distributors have some kind of tail, but what I can say is that the transition has been very smooth. We're up and running and we've been working to bring our knowledge, our experience, our resources that we've built over many years and our expertise and direct sales to these markets and I think things are going well.

I think in the United States, as you say, the head of Fresenius, Mexico, is a very important person in the Fresenius North America team and I think we're very pleased by the level of enthusiasm of the leadership there for the product. Because I think that's really what will make the partnership ultimately successful is having a mandate from the top to basically drive sales of this product. I think as we've discussed before, I think Fresenius is a company that is an expert in machines, blood purification machines in both chronic dialysis, but also hospital-based acute care dialysis. They are also one of the leaders in disposables for those markets and understand, I think that having high margin disposables that tap a much larger market than it does people with renal failure in the ICU, for example, is a positive, and is a very good strategy.

So Chris Kramer, our VP of Business Development is online who also works with closely with Fresenius, I don't know if you had any other comments, Chris?

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Christopher Cramer, Cytosorbents Corporation - VP of Business Development [14]

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Yes, thanks, Phil. I think you covered just about everything. With respect to Europe, you're right. We negotiated that transition, FMC has been very cooperative with us in making that happen with the exception of maybe a few tenders in Poland, by and large that is we're managing those new territories under our direct sales. With Mexico, Andrew, you're correct, it does fall into North America. It does give us some access to the U.S. management team, which I think is a good thing.

Right now, Mexico has its own -- FMC Mexico has its own management team and org structure, which we've been primarily interacting with and they've been fantastic, they've really prioritized our product and you can see it in terms of how they support it and how they put resources towards it. With respect to just getting market clearance, I think we're pretty close in Mexico. I'm keeping my fingers crossed it's with the Mexican health authority right now and we're hopeful that we can get it before the end of the year.

But we're seeing a lot of pre-launch activities being run by the FMC Mexico organization, we've already had sales training with completion of marketing collateral and we've created a really nice CytoSorb branded exhibition booth, which is quite impressive. It's actually one of the bigger and better ones that I've seen from our distributors. I'm really enthusiastic about that. And then for the first time last week they exhibit it's at a customer conference in Lyon, Mexico.

So I'm seeing a lot of good things coming out healthy in the FMC territories. We see them growing after we've reorganized the sales territory and we're seeing a lot of good progress and support coming out of the FMC Mexico organization. Also the Korea organization too, I shouldn't leave them out, they've been also very supportive.

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Andrew Jacob D'Silva, B. Riley FBR, Inc., Research Division - Senior Analyst [15]

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Okay. Great to hear. And then as far as the direct sales go, would the expectation be just on a lob averages obviously is going to be the highs and lows. But that a salesperson on average outside of Germany from your direct sales force would be able to generate as much in sales over time as or a German sales Rep would? And then as far as the TISORB trial goes, if that's successful, should we also expect that it could result in a label expansion similar to how we were talking about move in the U.S. after REFRESH 2 is completed in this and you get approval there?

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Phillip P. Chan, Cytosorbents Corporation - CEO, President & Director [16]

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So I think in terms of the direct -- the productivity of direct sales reps outside of Germany. Certainly, we believe that they can -- and they are being actually highly productive in a number of different countries. I think in Germany, we benefit from having all of the pieces in place very significant key opinion leader support, direct reimbursement for the product, Medical Society support and having in Germany for a long period of time. In other countries, that where we're going direct not all the pieces are necessarily in place, but we are working very hard to put those pieces in place, particularly our reimbursement where some of the new data that we have is actually quite compelling.

But that being said, we believe that a direct sales rep has the ability to do potentially millions of dollars in sale. When you look at Germany there already on the 1 or 3 quarters of $2 million in sales per rep in Germany. And that's one of the reasons why we've been expanding the sales force in Germany, because the opportunity is so vast and there's just -- it would be much more efficient with more people. And again, this is one of the reasons why we believe that with this increased head count that we've brought on board, the vast majority of which are on board now that this will have a very significant impact on 2020 sales.

Now your second question about the TISORB trial. The TISORB trial is intended to provide, as Eric mentioned, additional data to support this product in the marketplace. But as Vince has mentioned to you, we are already actively seeking label expansion for CytoSorb in the EU, based upon the data we already have. Now as it relates to the U.S. clinical strategy, this is a problem that is global. The use of these anti-thrombotic agents again $20 billion worth of sales, millions of people on these drugs all over the world is the problem all over the world, but particularly in the United States where you know every patient that gets a stent should be on dual antiplatelet therapy of aspirin and one of these anti-platelet agents for example, right. And so -- and in the United States is probably where the penetrants of these drugs are the highest. And so -- but because of that, the problem is also the highest or at least up there, amongst modern medicine, westernized medicine countries. So we'll have more detail on our U.S. regulatory strategy in the future, but suffice it to say that all of this data is very helpful towards our U.S. regulatory strategy.

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Andrew Jacob D'Silva, B. Riley FBR, Inc., Research Division - Senior Analyst [17]

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Okay. Great. Good luck closing out 2019.

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Operator [18]

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The next question is from Sean Lee of HC Wainwright.

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Sean Lee, H.C. Wainwright & Co, LLC, Research Division - Equity Research Associate [19]

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Just some core questions on the research pipeline. So according to this slide, we can expect to see an interim readout from the REFRESH 2 study in the first half of next year. Could you provide a little bit more color on what can we see from that interim analysis?

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Phillip P. Chan, Cytosorbents Corporation - CEO, President & Director [20]

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Sure. Eric, do you want to take that question?

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Eric R. Mortensen, Cytosorbents Corporation - Chief Medical Officer [21]

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Well, let's say, what will be able to see from our analysis will be whether or not we need to have any rebalancing, we can getting a size of estimation, since the assumptions that we had with the FDA were based upon a certain rate and anticipated rate of AKI. But I do want to reemphasize, I've been asked before, we'll be releasing that information. In order to maintain the integrity of the study, we will not be sharing the results by the interim analysis with analysts. Our goal is to make sure that the FDA has no questions if this was conducted in a way that will provide very robust and compliant data. But that estimation will be extremely useful to us to make sure that we are on track with regard to the number of patients that we will need in order to be able to achieve statistically significant result for the trial.

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Sean Lee, H.C. Wainwright & Co, LLC, Research Division - Equity Research Associate [22]

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Okay. So will we see any kind of public disclosures?

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Eric R. Mortensen, Cytosorbents Corporation - Chief Medical Officer [23]

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Not in terms of numbers. I mean basically it's a blinded trial, so we would potentially compromise the integrity of the trial by releasing results of the interim analysis.

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Phillip P. Chan, Cytosorbents Corporation - CEO, President & Director [24]

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What would be announced is that if one any results from that interim analysis -- any results in terms of whether or not the trial needs to be expanded? Or whether or not there were any safety issues that were of concerned, but I think that what the major message would be, is that obviously, if the DSMB recommended continuation of the trial that would be a very positive message.

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Sean Lee, H.C. Wainwright & Co, LLC, Research Division - Equity Research Associate [25]

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Okay. You mentioned the potential for expansion or rebalancing. What are the criteria you're using for those to determine whether the study is either extend -- to be explained or will be rebalanced?

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Eric R. Mortensen, Cytosorbents Corporation - Chief Medical Officer [26]

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The interim analysis is designed in the processing with, we're not, we are overpowered, underpowered for assessment futility as well as assessments for any safety findings. And as Phil noted, the Data Safety Monitoring Board will be reviewing the results of that analysis to make sure that they concur that there is a reasonable basis for progressing for the study, if one were to see that there was a larger (inaudible) signal, one can make a decision about a change downward in terms of size of the study. And similarly, if one sees that the number of patients with event rates is smaller than anticipated, one might have a need to increase the number. I will not speculate right now because that would be implied that I've already done the interim analysis.

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Sean Lee, H.C. Wainwright & Co, LLC, Research Division - Equity Research Associate [27]

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I see, thanks for the clarification. My second question is on the TISORB study, could you provide a little bit more detail on that in terms of patient side end points, what exactly you're looking for?

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Eric R. Mortensen, Cytosorbents Corporation - Chief Medical Officer [28]

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Sure, happy to do so. I would also note that we have posted the study on clinicaltrials.gov, so I'll be happy to speak to it now, but if you it's always seems easier to see things in writing them from a verbal statement. The TISORB trial is designed is a multicenter perspective pharmacodynamic trial to confirm that the use of CytoSorb in a parallel circuit during cardiopulmonary bypass in those patients who are presenting to overall for treatment of ischemic events in the setting of surgery with Ticagrelor on board, they will end up showing that we can in the producing both the concentration of Ticagrelor in a clinically significant way as well as reversing the inhibition of platelet function that is produced by Ticagrelor platelets.

So the primary end point is designed and providing the public (inaudible) demonstration that were moving drug and improving platelet function, but we will of course also be assessing when a number of clinically relevant end points that have both patient value as well as reimbursement value in terms of the incidence of the transfusion, red blood cell transfusion, perioperative bleeding, the need for refill academy, all the findings that were so impactful, not only in sounds study but that also ended up greatly impressing the reviewers of pharmacoeconomics online to publish the paper because of the demonstrated benefit of therapy and NHS model. So our hope is to be able to end confirming that the prospective fashion and thereby demonstrate that you don't only have clinical benefit, but also help economic benefit with the use of CytoSorb.

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Operator [29]

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The next question is from Jason McCarthy of Maxim Group.

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Michael Okunewitch, Maxim Group LLC, Research Division - Equity Research Associate [30]

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Mike Okunewitch on for Jason and I'd to say congrats on the progress. It seems like there's been a lot going on these past few months. So I think the first one is relating to the removal of anticoagulants in the cardiovascular surgical setting because we saw some very interesting data from that. Considering you're pursuing expansion based on the existing data how early. Do you think we could see a label expansion or at least hear an update on the path forward?

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Phillip P. Chan, Cytosorbents Corporation - CEO, President & Director [31]

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I'll let Vince answer that one.

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Vincent J. Capponi, Cytosorbents Corporation - COO [32]

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Right. Vince, maybe comment again, please?

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Phillip P. Chan, Cytosorbents Corporation - CEO, President & Director [33]

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Sure. So again it's too early to tell exactly the timing on this. It's a regulatory body and at least within Europe for the label expansion, they don't function under statutes like the FDA where you have a 90-day statute for them to respond on the submission, so we are working closely with them and looking to try to get this done as quickly as we can, but I'm not in a position yet to exactly say what the timing of that might be. Again with the transition that's occurring in Europe right now between MDD and MDR. I think all the notified bodies to be quite frank with you right now are pretty much overwhelmed with the amount of work they have. So unfortunately, I can't give more clarity on the timing of that at least at this point.

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Michael Okunewitch, Maxim Group LLC, Research Division - Equity Research Associate [34]

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Yes. I understand. One more on the economic impact, considering that is per patient savings of around $5,000. Could you give us an idea of how big of a total economic impact this could have on the European health care markets?

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Eric R. Mortensen, Cytosorbents Corporation - Chief Medical Officer [35]

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I confess I don't happen to have that, I'm not sure. Phil has -- haven't done that analysis. And we'll talk some (inaudible) patient value.

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Phillip P. Chan, Cytosorbents Corporation - CEO, President & Director [36]

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Yes. I mean I think that there is actually a lot of -- so this is a major unmet medical need. So from a clinical value, I think if you ask any cardiac surgeon about this issue of these anti-thrombotic and emergency cardiac surgery, you'll get a very uniform answer, it's a very challenging problem that causes severe patient morbidity and mortality. I think that from an economic standpoint, it's hard to estimate, exactly how big of a problem this is. But when your account, for example, in the United States, again these drugs, the typical recommendation for dual anti-platelet therapy is after you get a stent put in, you should be on these drugs for a year afterwards.

And so at least, and so if you have chronic, under chronic underlying problem you could be on these drugs definitely. And so if you say that there is a million there is approximately 1 stents placed every year in the United States obviously some patients get more than one stent. But if the standard of care is to be on these anti-platelet agents, then you're talking about a large number of patients on these agents. And then when you talk about a fraction of patients who require emergency cardiac surgery.

You're talking about roughly 4% to 5% of patients. But then what you don't talk about is the, and what we haven't talked about is really the urgent patients. And these are patients where they need surgery, but they may not need immediate surgery. But they can't go to surgery because they have these blood thinners on board. Otherwise, there are at high risk of bleeding. So these patients sit at risk of potentially something that happening to them from a clinical standpoint, they sit in the hospital, waiting days off in 3 to 5 days for the drug to wash out before they can be considered for cardiac surgery.

There is a significant, this is a much larger population than the population and there is a significant cost that hospital systems are incurring. Because of these patients basically just sitting in a hospital bed for up to a week at a time. And so if we can actually take those patients if cardiac and the problem is real. We've talked to many cardiac surgeons who said, we have these large cohorts of patients who are just waiting for cardiac surgery. And if I had the ability and confidence because of using a therapy like CytoSorb to take them to the OIR right away. That is in the patient's best interest because again they wait at risk so that the underlying reason why they need surgery may ultimately hurt them but also that it has a, a significant cost benefit to the hospital. And so anyway, so the hard to quantitate but that's a little bit of the color of the problem.

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Michael Okunewitch, Maxim Group LLC, Research Division - Equity Research Associate [37]

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Very helpful. And again, congrats on the progress.

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Operator [38]

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The next question is from Jason Kolbert of Dawson James.

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Jason Howard Kolbert, Dawson James Securities, Inc., Research Division - Director of Research [39]

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I guess as we get to the end of an hour, it's appropriate to close on HemoDefend. I know you've mentioned that very, very briefly, but can you talk just a little bit about the plan to follow the IDE by year-end then help me understand how at 2020 approval is possible?

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Phillip P. Chan, Cytosorbents Corporation - CEO, President & Director [40]

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Sure, Jason. Thank you. Let me hand it over to Vince, who has been leading this effort. Vince?

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Vincent J. Capponi, Cytosorbents Corporation - COO [41]

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Great. Thanks, Phil. So Jason, we're in the process right now of completing all the engineering validations, et cetera for the HemoDefend IDE that also includes doing the external testing that several blood banks with respect to the device and removal of potassium, our intent is to file by the end of the year. So we're actually in the process of preparing the IDE right now. So our -- again, our goal is to file by the end of the year and I think we're aggressively targeting that. That with -- the trial for a blood filter is unbelievably simple compared the things that we have to do in Germany and what Eric leads on the clinical side, this is going to be a 2 sites and it will involve I think it's about 20 patients. So we believe getting a de novo 510(k)

(technical difficulty)

really possible, it just doesn't have the complexity associated with it that your typical extracorporeal therapy in treating critically ill patient dose. So we think that there is good opportunity to get that obviously approved -- filed and approved in in 2020.

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Jason Howard Kolbert, Dawson James Securities, Inc., Research Division - Director of Research [42]

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And can you talk a little bit, what might the market opportunity be if I were to look at some of the other blood filters that are out there at Millipore, Paul [, I mean they're pretty significant businesses, albeit, the margins are going to be different. But can you talk a little bit about what the known market size is and where you think the margins might be on that product?

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Phillip P. Chan, Cytosorbents Corporation - CEO, President & Director [43]

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So I think, yes, so I think that we have specifically designed HemoDefend to be able to hit price points that the blood transfusion market requires and still make a nice profit from those devices. And the overall the market worldwide is a 100 million packed red blood cell transfusions a year, but I think our goal is to focus on really where is the greatest need. The purpose of HemoDefend is to try to reduce transfusion reactions and complications of transfusions caused by noninfectious contaminants of blood and that includes a wide range of different factors.

And so the risk of transfusion reaction is really in the patients who get a lot of blood and so these are critically ill patients. These are patients undergoing a high-risk surgeries like cardiac surgery and orthopedic surgery where blood loss is at large losses common the resuscitation of people who are bleeding from GI bleeds for example and also in the pediatric population where there is some particular need set our devices well suited to help fill. So that market opportunity. We have not finalized the business model.

Yet we have the ability to bring this direct as I've mentioned, you know, a lot of the applications critical care high risk surgery, you've heard this before in our other business model for CytoSorb and because of that we have the ability to get this into those channels relatively easily and in the United States, we certainly have developed quite a bit of experience and in being able to bring this product direct.

That said, there are a number of major players in the field. Many of whom are connected to the strategic partners we have today, for example, Fresenius Kabi, one of the largest blood transfusion companies in the world, Terumo BCT. One of the largest -- again another one of the largest blood purification, another one of the largest blood transfusion companies in the world and companies like human ethics and others. So again, we haven't -- as we get closer to potential approval, we have already ongoing a lot of efforts to try to evaluate what is the best strategy. And as we get closer to a potential approval we'll have that in much greater detail for you.

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Jason Howard Kolbert, Dawson James Securities, Inc., Research Division - Director of Research [44]

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It's always a pleasure to hear kind of your detailed comments and those your team, companies come a long way. Thanks.

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Operator [45]

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The next question is from Brian Marckx of Zacks Investment Research.

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Brian W. Marckx, Zacks Investment Research, Inc. - Director of Research and Senior Medical Technology, Medical Device & Diagnostics Analyst [46]

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I think relative to the period of this bleeding risk pursue, you mentioned that U.S. label expansion is not necessarily dependent on the results, but TISORB study just for clarity, relative to the EU rework label expansion is it specific to Ticagrelor or is it more general and would include the other anti-thrombotic?

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Phillip P. Chan, Cytosorbents Corporation - CEO, President & Director [47]

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It is specific to Ticagrelor, which is currently the most favored drug following stent placement for example in cardiac cath, Plavix and Efient are some of the other ones that are also very important. But initially it will be for that, but our goal is to expand the usage of CytoSorb to other anti-thrombotic agents and that is part of the strategy.

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Brian W. Marckx, Zacks Investment Research, Inc. - Director of Research and Senior Medical Technology, Medical Device & Diagnostics Analyst [48]

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Is it fair to assume that if TISORB is successful that you would follow with similar studies in the other anti-thrombotic?

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Phillip P. Chan, Cytosorbents Corporation - CEO, President & Director [49]

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Yes, there is different -- there's different dynamics and with the different drugs but yes, that is the goal.

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Operator [50]

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This concludes the question-and-answer session. At this time, I would like to turn it back to Dr. Chan for any additional or closing remarks.

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Phillip P. Chan, Cytosorbents Corporation - CEO, President & Director [51]

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Thank you, everyone, for your participation today. If you do have any other questions, please feel reach -- feel free to reach out to Jeremy Feffer at jeremy@lifescienceadvisors.com and we'll try to reply to your questions where possible. We look forward to our next quarterly call. Thank you, everyone, very much. Good night.

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Operator [52]

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Thank you. That concludes our conference for today. Thank you for your participation.