Cytosorbents Q1 2023 Earnings Call Transcript

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Provided by Quartr
May 2, 2023

There are 7 speakers on the call.

Operator

Afternoon, and welcome to the CytoSorbent First Quarter 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 would like to turn the call over to our moderator, Taylor Dablin.

Operator

Please go ahead, Taylor.

Speaker 1

Thank you, and good afternoon. Welcome to CytoSorbents' Q1 2023 Financial and Operating Results Conference Call. Joining me today from the company are Doctor. Philip Chan, Chief Executive Officer Vincent Capponi, President and Chief Operating Officer Kathleen Bloch, Interim Chief Financial Officer Doctor. Estemios Deliaguirreis, Chief Medical Officer, Doctor.

Speaker 1

Christian Steiner, Executive Vice President of Sales and Marketing and Managing Director of CytoSorbents Europe GmbH Christopher Kramer, Senior Vice President of Business Development and Doctor. Irina Kolinitz, Senior Vice President of Regulatory. Before I turn the call over to Doctor. 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.

Speaker 1

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 May 2, 2023, and we assume no obligation to update these projections in the near future as market conditions change. During today's call, we will have an overview presentation covering the operating and financial highlights for the Q1 of 2023 by Doctor. Chan and Ms.

Speaker 1

Bloch. Following that presentation, we will open the line to your questions during the live Q and A session with the rest of the management team. And now, it's my pleasure to turn the call over to Doctor. Philip Chan.

Speaker 2

Thank you very much, Taylor, and good afternoon, everyone.

Speaker 3

First of

Speaker 2

all, it's my pleasure to be here today to discuss some of our recent operating highlights. First, we surpassed 200,000 cumulative As of the end of Q1 of 2023, the number was more than 203,000 cumulative treatments worldwide. Next, the pivotal START T trial achieved its 2nd milestone of 80 patients enrolled on schedule after achieving the 1st milestone of 40 patients enrolled in November of 2022. This triggered a second independent Data and Safety Monitoring Board review that is expected to initiate shortly and be complete in the next few months. The Q1 of 2023 was a solid quarter with total revenue of $9,400,000 including product sales of 7,900,000 representing sequential growth from both Q4 last year and from a year ago on a currency adjusted core basis.

Speaker 2

This was the first time in the past 5 years that first quarter Core sales exceeded a typically strong Q4. We also ended Q1 2023 with a healthy cash balance of $20,700,000 Next, Al Krause, our Board Chairman, announced his retirement at the end of his term next month after 20 years of leadership with the company. Michael Bator, our current Board Director, will succeed him as Board Chairman, pending the results of the upcoming annual meeting in June. Next, we recently highlighted a key publication in critical care definitively underscoring the power of CytoSorb To reduce cytokine storm during systemic hyper inflammation caused by a key toxin called endotoxin that is responsible for inflammation in half of sepsis cases in a well controlled human study. And finally, we hosted a successful and highly attended research symposium at the International Symposium of Intensive Care Medicine And Emergency Medicine or ISICEM 2023, one of the premier most influential critical care conferences in the world highlighting data using CytoSorb As we discussed in the shareholder letter at the beginning of the year, In 2023, we are focused on 3 major objectives.

Speaker 2

The first is opening the U. S. And Canadian markets. The second is a return to sales growth. And third is a Reduction of our cash burn with a tight control over expenses.

Speaker 2

For the sake of today's call, we will keep our prepared remarks limited First, allow me to provide a little more color on our objective to open the U. S. And Canadian markets with DrugSorb ATR. As many of you are aware, drug XRV ATR and Start T remains the core focus of our clinical efforts and the vehicle expected to open the U. S.

Speaker 2

And Canadian markets. We've received 2 FDA breakthrough device designations for drugs of ATR to remove blood thinning medications that can increase the risk Our own internal projections. Since recently announcing the achievement of 80 patients enrolled, the study continues to enroll well. Nearly all trial sites are enrolling with strong contribution by both U. S.

Speaker 2

And Canadian centers and there is high enthusiasm for the study by all trial centers. We are pushing to complete Starte enrollment by the summer with top line data expected as soon as possible and before the end of the year. If positive, This would trigger regulatory submissions to both U. S. FDA and Health Canada.

Speaker 2

In parallel to the clinical program, We're also executing on our regulatory strategy that at this stage includes strengthening the regulatory team, planning for regulatory future submissions to both U. S. FDA and Health Canada and driving interdepartmental alignment and responsibilities to meet our regulatory objectives and timelines. Finally, we are waiting on an update from CMS on their transitional coverage of emerging technologies or TSET proposal that can provide 4 years of coverage to relevant approved breakthrough devices such as drugstore, ACR. Although we discussed the rationale of deciding to forego the interim analysis of 80 patients in the last earnings call and again in the recent press release On achieving the 2nd enrollment milestone of 80 patients in the START T trial, allow me to give some additional color.

Speaker 2

As discussed recently, the rapid pace of enrollment of Start T led us to elect to forego a formal interim analysis on the first 80 patients. To fully understand this decision, it's important to clarify that the original intent of this interim analysis was to provide the opportunity to stop the trial early, And our projections suggest that the trial will likely be completed by the time a formal interim analysis that by the way requires fully monitored clean, locked Adjudicated data would have been completed. Accordingly, a trial that is fully enrolled cannot be stopped early, making an interim analysis of no value. And such and because of that, we are now focusing our efforts on the final analysis. We believe it's also important to emphasize that there are no other considerations or information underlying this decision and that the STAR T Study data remains fully blinded.

Speaker 2

The next milestone for StartQ is the 2nd independent data safety monitoring board safety evaluation After the first 80 patients, which we expect to be completed in the next few months, as previously disclosed, the DSMB recommendation after the safety evaluation The first 40 patients was to continue to study as planned without modification. Now let's switch to the 2nd key milestone for 2023, which is a return to sales growth. Sequential growth We witnessed sequential growth in the Q1 of 2023 in terms of product sales compared to the Q4 of 2022 An 8% quarterly core product sales growth year over year, which we believe is an encouraging sign. We are seeing strong customer engagement, excellent feedback on our most recent Clinical and scientific data and a trend of improvement in our hospital markets in core countries, although healthcare worker staffing continues to remain an issue. In Germany, for example, which is accounts for roughly 40% to 50% of our total product revenue, The number of ICUs reporting normal operating conditions is now higher than those under full restrictions, which has fallen by about 25%.

Speaker 2

Meanwhile, COVID-nineteen admissions to the ICU have dropped significantly, raising the prospect that ICU beds reserved for COVID-nineteen patients will be released, adding to ICU capacity. This is expected to translate into the ability to admit more non COVID patients to the ICU And to do more surgical operations where patients need to recover in the ICU such as cardiac surgery, these are all drivers of our business. And among many of our growth initiatives, we have also increased the number of accounts in German Private Hospital Networks by 50% in 2022 compared to 2021 based on our preferred supplier agreement. Finally, in the Q1 of 2023 demand for CytoSorb was brisk, working down our finished goods inventory. We are currently now ramping production out of the new manufacturing facility, which is in full mode production with the goal of meeting demand and replenishing inventory.

Speaker 2

With that, I'd like to turn it now over to Kathy to discuss our financials and our 3rd key objectives. Kathy?

Speaker 4

Thank you, Phil, and greetings to everyone on the call today. Today, I will review Q1 2023 financial results, And additionally, I'll comment on our cash runway and cash burn. Total revenues, which include product sales and grant revenue for the Q1 of 2023 were $9,400,000 as compared to total revenue of $8,700,000 in the Q1 of 20 22. Product sales for the Q1 of 'twenty three were $7,900,000 approximately the same As the prior Q1 prior year Q1 product sales, there were no COVID-nineteen product sales in the Q1 of 2023 as compared to approximately 300,000 of COVID-nineteen product sales in the Q1 of 2022. Foreign exchange rate changes negatively impacted Q1 2023 sales by approximately $349,000 We note that on a constant currency basis, q1 2023 core non COVID-nineteen product sales were $8,300,000 which is an increase of 6 were 68% compared to 80% for the Q1 of 2022.

Speaker 4

The decline in product gross margins was due to the start up of our new manufacturing facility. 1st quarter grant revenues were $1,500,000 compared to approximately $767,000 in the same quarter of the prior year. Next slide please. This slide shows our trailing 12 months product sales, broken down by COVID related and non COVID related core product sales. And as you can see, over the past 12 months, COVID-nineteen sales have been de minimis.

Speaker 4

Core sales have declined over the immediately Prior 12 month period due to difficult market conditions such as a shortage of healthcare workers, fewer hospital beds and less surgical procedures and other factors that we've previously discussed in prior earnings calls. Gross margins declined in Q1 2023 due to start up activities associated with our new manufacturing facility. We do note that we believe this is Temporary situation impacting Q1 2023 and we fully expect our gross margins to return to 75% to 80% We're even better over the remainder of 2023 as we scale up production to meet growing sales demand. Next slide, please. This next chart depicts our quarter over quarter product sales, also broken down into COVID-nineteen related and core non COVID-nineteen related product sales.

Speaker 4

And what I think is worth noting about this chart is that the last two quarters is due to improvements in the marketplace, including our sales team's ability to now better access healthcare workers in the hospitals and a return to face to face discussions with physicians in the market. As a result, we are cautiously optimistic that with continuing market improvements, We expect to see further increases in product sales in the coming quarters of 2023. Next slide, please. And I'd like to wrap up today's remarks with some comments about our cash and cash runway. As of March 31, 2023, we had approximately $20,700,000 in cash.

Speaker 4

This includes $1,700,000 of restricted cash. This also includes the $5,000,000 of loan proceeds received from our debt facility in December 2022. Cash on hand provides a runway of more than 1 year of operating cash flow. As Phil talked about earlier, The 3rd key objective is to reduce cash burn and tightly control expenditures, and I'd like to spend a little time on that. Cash burn in the Q1 of 2023 was approximately $3,100,000 compared to a cash burn of $9,100,000 in the Q1 of 2022.

Speaker 4

And some of the ways that we've been able to reduce our cash burn include last year we had a 10% reduction in worldwide staffing And we implemented a company wide wage and hiring freeze, excluding certain essential hires. We have de minimis capital expenditure needs in among other items. And most importantly, we developed a very strict 2023 budget, Prioritizing spend in key programs and pipeline products. Now the cash burn may increase very And as we move forward in 2023, our spending is fully aligned with our strategic priorities, in particular, our STAR The clinical trial designed to obtain U. S.

Speaker 4

FDA marketing approval. That concludes my remarks for today. At this time, I would like to turn the call back to Phil. Phil?

Speaker 2

Great, Kathy. Thank you. We believe CytoSorbents 2023 is a rapidly evolving story making progress on the key objectives we have covered today. We have a strong management team to lead, a fantastic employee base to drive and a solid cash balance to fund the timely execution of these initiatives. We also have an excellent high margin razorblade business model With a 10 year history of successful commercialization with more than 200,000 CytoSorb treatments delivered cumulatively across 75 countries worldwide, driving major trends in healthcare.

Speaker 2

Finally, we believe the story will look very different too with our eyes on the prize on executing these 3 key milestones that are expected to drive our current and future success. Last but not least, I would finally I would like to take a brief moment to thank 2 key people We've helped to lead this compass for many years and have been integral to the successes that we have achieved to date. The first is Al Krausz, CEO of said assortments for 5 years prior to my tenure and Chairman of the Board for the past 15 years. The second is our very own Kathy Block, who has served as our Chief Financial Officer for the past 10 years and now serves as our Interim CFO. I've already highlighted some of Al and Kathy's many accomplishments and shared my thoughts on each of them in press releases announcing their individual retirements.

Speaker 2

I just wanted to thank each of them on behalf of the Board of Directors, the management team, the entire company, both here in the United States and abroad, and all of our shareholders For all of their many contributions and years of dedication and hard work to the success of the company, we've enjoyed every minute of working with the both of you and wish you a wonderfully happy and healthy retirement. Operator, that concludes our current prepared remarks. Please open the call up to the Q and A session.

Operator

Our first question comes from Tom Kehr with Zacks Investment. Please go ahead.

Speaker 3

Hi, everyone. A couple of quick questions. Can you explain On the German hospital situation where the COVID beds are converted to ICU beds, does that happen quickly over time or is that something we won't See to the end of the year, how does that progress?

Speaker 2

Well, currently there's a mandate That requires hospitals to allocate beds to potential COVID-nineteen patients. And That means that they also have to reserve nursing care to be able to manage those beds. So staffing becomes a major issue And when hospitals are required to have these COVID reserved beds. And so with the COVID pandemic winding down and what we've seen is that the number of IC admissions related to COVID has dropped dramatically, Not just in Germany and but all throughout Europe and in fact here in the United States as well. And so we think that bodes well to The mandate being lifted, we don't know exactly when that will happen, but I think there's been discussion that This is probably something that will happen later this year.

Speaker 3

Okay. And then Is that the certain percent that just automatically goes away under that mandate? For certain number

Speaker 2

of beds, have it? In many cases, it's been 10% of available ICU beds have been reserved for COVID.

Speaker 3

Okay, got it. All right. Well, that's encouraging. A couple of line items on the grant income throughout the rest of the year, is that something we can Back in the same range, maybe in the $1,000,000 to $1,500,000 per quarter?

Speaker 4

Yes, Tom, I think you can expect that. We are all of our R and D people are devoted to our grants. We have a really large backlog in excess of $10,000,000 right now. So I think that will continue through 2023 and into 2024.

Speaker 3

Okay, good. And then on the R and D spending line, I thought that was going to

Speaker 5

go down a little bit, but

Speaker 3

is the $4,200,000 a good

Speaker 2

Kathy, you're on mute. Kathy?

Operator

I'm afraid, Jesse lost her Connection.

Speaker 2

Okay. Well, we'll follow-up with you Thanks

Operator

Tom. Next question comes from Chen Lee with H. C. With Wainwright. Please go ahead.

Speaker 6

Good afternoon, guys, and thanks for taking my questions. My first question is on the STAR T Study. It's great to see that the enrollment is going well. With the results that we can expect later this year, what could you give some more details on what kind of top line results you can expect in terms of metrics and such? And would there be any longer term follow-up that will come later?

Speaker 2

Thanks, Sean. Mikus, would you like to take that one?

Speaker 5

Yes. Thanks for the question. So just as a quick reminder, the design of STAR T Includes a follow-up of 30 days. That's one of the benefits to us saying that we are targeting Top line results by the end of this year, because the follow-up is so short that will allow us then to move on to the next stage, which is Obviously, cleaning and monitoring all the data, locking the database and executing the statistical testing and the overall analysis. So the follow-up is short Therefore, the top line results will represent the final results.

Speaker 5

There's no long term follow-up associated with the design of the study. The study itself is powered to look at clinical bleeding of endpoints that measure The amount of blood loss and potential bleeding complications that happen around the time of the index operation that these patients are having. So when we report when we talk about top line results, we will be communicating the primary endpoint of the study, which is reduction in clinical bleeding.

Speaker 6

Great. Thanks for the clarification. My second question is on the Finance side, with the inflationary pressures that we've seen so far over the last year as well as the I was just wondering, have you done any price increases on CytoSorb in the last year? And how easy is it to raise the price to counter some of these headwinds if you need to with regards to your reimbursements?

Speaker 2

Thanks, Sean. Christian, would you like to take that one?

Speaker 5

Yes, sure. Yes, good evening, everyone, and good afternoon to you. Yes, indeed, we have, of course, thought about price increases, and we have initiated This already in last year. So obviously, it takes a while that the price increase is Pushed through in all the different markets and but we are in a good way, and I think we can see the effect already in the next quarters.

Operator

At this time, I would like to turn the call back to management for any additional or closing remarks.

Speaker 2

Just a further clarification, Tom, the numbers for the emergency reserve COVID beds is actually Of the current bed, so there's roughly about 20,000 Beds either occupied or free currently and about 8,000 emergency reserve beds, right. So it's roughly about 3rd of the available beds. I apologize for that error. But in any case, thank you everyone for joining the call today. If you don't have any other you very much.

Operator

Thank you. That concludes our conference for today. I'd like to thank everyone for their participation.

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Cytosorbents Q1 2023
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