CytoSorbents Corporation — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Unaudited consolidated results; comparisons are with the corresponding 2022 periods.
Business context
CytoSorbents develops and sells blood-purification devices, led by CytoSorb, marketed in more than 75 countries. Its strategy is to grow core CytoSorb sales, pursue U.S. FDA marketing approval for DrugSorb-ATR, and reduce cash burn. CytoSorb is not approved for general commercial sale in the United States; its COVID-19 use there remains subject to an FDA Emergency Use Authorization.
Key financial metrics
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Total revenue | $9.42 million | $8.50 million | $18.87 million | $17.19 million |
| Product sales | $8.07 million | $7.33 million | $15.98 million | $15.26 million |
| Grant income | $1.35 million | $1.16 million | $2.89 million | $1.93 million |
| Gross margin dollars | $6.02 million | $4.94 million | $11.47 million | $11.36 million |
| Operating loss | $(6.56) million | $(8.36) million | $(14.45) million | $(16.15) million |
| Net loss | $(6.15) million | $(10.88) million | $(13.48) million | $(19.85) million |
| Basic and diluted loss per share | $(0.14) | $(0.25) | $(0.31) | $(0.46) |
Management reported product gross margin of 74% in Q2 2023 versus 67% in Q2 2022, and 71% for the first half of 2023 versus 74% for the first half of 2022. Net loss benefited from improved foreign-currency results: a $0.42 million gain in Q2 2023 versus a $2.52 million loss in Q2 2022, and a $1.08 million gain for the first half versus a $3.74 million loss.
Cash and liquidity at June 30: Cash and cash equivalents were $13.15 million, down from $22.14 million at December 31, 2022; restricted cash was $1.69 million and is collateral, not available for operations. Current assets were $23.64 million and current liabilities $10.35 million. First-half operating cash use was $10.04 million; investing cash use was $0.54 million; financing provided $1.62 million. Cash, cash equivalents and restricted cash decreased by $8.99 million to $14.84 million.
Debt and leases: Long-term debt was $5.02 million, including an accrued final fee; the $5.00 million principal is due by December 2025. No further draws under the bank facility are available. The interest-only period runs through December 2023 and may extend to June 2024 if specified tests are met. Lease liabilities totaled $13.09 million, including $12.98 million long-term.
Material changes versus the prior comparable period
- Q2 total revenue increased 11%; product sales rose 10% and grant income 16%. For the first half, total revenue rose 10%, with product sales up 5% and grant income up 49%.
- Q2 operating loss narrowed by approximately $1.80 million, primarily alongside lower research and development and selling, general and administrative expenses. First-half operating loss narrowed by approximately $1.70 million.
- First-half product cost of revenue rose, and product gross margin fell three percentage points year over year, which management attributed primarily to start-up costs at the Princeton manufacturing facility. Q2 product margin improved as prior-year relocation inefficiencies did not recur.
- Legal, financial and consulting expense increased, including approximately $306,000 of expected litigation settlement costs. First-half selling, general and administrative expense declined by approximately $1.41 million.
- The company sold 428,270 shares through its at-the-market program in the first half, generating approximately $1.48 million net. It reported a further approximately $0.63 million of net proceeds from sales in July.
Outlook, commentary, risks and unusual items
- Going concern and funding: Management states that cash and cash equivalents, together with restricted cash, are not expected to fund operations beyond the next twelve months from issuance of the statements; the filing says this raises substantial doubt about the company’s ability to continue as a going concern. Management expects to raise additional capital and believes available cash can fund operations through 2023. The company also reports approximately $22.8 million remained available under its ATM facility at June 30.
- Operating priorities: Management cites cost controls intended to materially reduce planned 2023 cash burn, while continuing investment in the pivotal STAR-T trial. It says hospital access and in-person customer activity have improved, but hospital staffing shortages, constrained budgets and reduced procedures remain market headwinds.
- Clinical and regulatory: STAR-T completed enrollment in July 2023; data cleaning and analysis are next. STAR-D enrollment was paused in November 2022 for business reasons and is planned to resume after STAR-T completion. Trial outcomes and regulatory approvals remain uncertain.
- Commercial initiatives: The Fresenius marketing collaboration was expected to launch in the second half of 2023; the filing says Fresenius had not yet commenced qualifying marketing activities by June 30. The company also described a soft launch of Nikkiso’s stand-alone hemoperfusion pump in selected European markets.
- Risks and contingencies: The business has a $267.48 million accumulated deficit and expects continuing losses. Results depend on product adoption, regulatory approvals, reimbursement, manufacturing costs and access to additional capital. Two distributors accounted for approximately 36% of receivables at quarter-end. Inflation has raised labor, raw-material and energy costs, and management cautions that this may pressure future product margins.
- Unusual items: The company accrued $280,000 for an expected litigation settlement. Approximately $84,000 remained accrued for a German payroll-tax and social-cost examination. A 3% perpetual royalty applies to CytoSorb gross revenue, with separate licensing fees on certain products.
- Post-period equity awards: Numerous July 2023 employee, executive and director awards were contingent on stockholder approval to increase the equity plan’s share reserve; absent approval, the filing says those awards are subject to cash settlement.
Important facts for investors to verify
- Cash runway assumptions, expected financing needs, ATM availability and actual cash burn after June 30.
- STAR-T data timing and results, STAR-D restart timing, and the status of FDA and other regulatory submissions.
- Whether CytoSorb sales growth and product margins persist as the Princeton facility scales and inflationary costs continue.
- Execution and commercial contribution of the Fresenius and Nikkiso initiatives, including related royalties or costs.
- Potential dilution from ATM sales, outstanding options and contingent equity awards, and any stockholder vote on the equity plan.
- Final settlement terms for the litigation matter and any changes to the German tax-related accrual.