CytoSorbents Corporation — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Financial statements are unaudited. CytoSorbents develops and commercializes blood-purification devices; its flagship CytoSorb product is marketed internationally and was available in the U.S. for specified COVID-19 cases under an FDA Emergency Use Authorization (EUA), not general FDA marketing approval.
Key financial results
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $12.02m | $9.79m | $22.62m | $18.50m |
| Product sales | $11.37m | $9.52m | $21.51m | $17.68m |
| Gross margin dollars | $9.31m | $6.55m | $17.16m | $12.87m |
| Operating loss | $(4.92)m | $(3.30)m | $(7.78)m | $(5.78)m |
| Net loss | $(4.68)m | $(2.87)m | $(8.85)m | $(6.32)m |
| Net loss per share | $(0.11) | $(0.08) | $(0.20) | $(0.18) |
Q2 total gross margin was approximately 77% of revenue, versus 67% a year earlier; six-month gross margin was approximately 76%, versus 70%. Product gross margin was 82% in Q2 versus 70%, and 79% for the half versus 72% (approximately 81% excluding specified nonrecurring items).
At June 30, cash and cash equivalents were $65.61m, down from $71.42m at year-end 2020. Current assets were $77.08m and current liabilities $10.80m. Six-month operating cash use was $4.38m; investing cash use was $1.59m, including $1.22m of property and equipment purchases. The company reported no long-term debt outstanding. Lease liabilities totaled $13.26m, substantially higher following the new facility lease. Stockholders’ equity was $74.38m. Common shares outstanding were 43.34m at June 30, versus 43.22m at December 31, 2020.
Changes versus comparable periods
- Q2 revenue increased 23%; six-month revenue increased 22%. Product sales rose 19% and 22%, respectively. Management attributed growth to direct and distributor sales, new and repeat customers, and favorable euro exchange rates.
- Management estimated COVID-19-related product sales of approximately $1.7m in Q2 and $3.5m in the first half. U.S. EUA sales were approximately $0.36m and $0.67m, respectively.
- Net losses widened in both comparison periods as operating expenses grew faster than revenue. Six-month R&D expense increased to $5.98m from $4.37m; SG&A increased to $17.53m from $12.91m, including higher personnel, stock-based compensation, royalties, insurance and marketing costs.
- Q2 product cost of revenue fell year over year as 2020 production ramp-up costs did not recur. First-half product margins also reflected a $0.73m German customs-tax charge and a $0.39m Employee Retention Tax Credit benefit, both recorded in Q1.
- Net foreign-currency transaction results shifted to a $1.07m loss for the first half from a $0.04m gain a year earlier. Net interest expense fell following repayment of the prior $15m term loan in December 2020.
Outlook, risks and unusual items
- Management said $65.6m of cash was expected to fund operations well beyond the next 12 months and that going-concern risk was substantially mitigated. No formal revenue or earnings guidance was provided.
- Management expected COVID-19 to have a much lower impact on product revenue in the second half of 2021, while warning that outcomes depend on the pandemic’s course and that replacement of COVID-related sales is uncertain. Pandemic-related restrictions also disrupted hospital access, sales efforts, clinical trials and grant work.
- In July 2021, the company received full IDE approval for the U.S. pivotal STAR-T trial of ticagrelor removal; it expected enrollment to begin in Q3 2021 and the study to finish in 2022. Trial timing and regulatory approval remain uncertain. CytoSorb’s COVID-19 use in the U.S. remained under EUA and was not FDA-cleared or approved for that indication.
- A German customs audit challenged the import classification of CytoSorb devices. The company recorded approximately $0.82m of expense for prior periods and Q1 2021, plus $0.12m for Q2; the audit was ongoing and authorities required use of a code carrying a 1.7% tax.
- The new Princeton-area operating lease commenced April 1, 2021, adding approximately $11.6m of initial lease liability and carrying a 15.5-year remaining term after expected occupancy approval. Total lease liabilities were $13.26m at quarter-end.
- The company reported an undrawn $15m bank term-loan commitment available at its discretion during the 12 months after December 4, 2020, subject to the agreement’s terms. Separately, a new $150m shelf registration became effective July 27, 2021; it permits future securities offerings but does not itself provide proceeds.
- Management reported no current legal proceedings and no material changes to previously disclosed risk factors other than expanded COVID-19 risks. Foreign exchange exposure, clinical and regulatory execution, reliance on international sales, and possible loss of pandemic-related demand remain relevant risks.
Important facts for investors to verify
- Whether underlying sales growth can continue as management expects COVID-19-related demand to decline, and how much revenue is attributable to pandemic use.
- Progress, enrollment and results for STAR-T, REFRESH 2-AKI and other clinical studies, alongside the timing and requirements for FDA marketing approval.
- Resolution and final financial impact of the German customs audit, including continuing import taxes.
- Operating cash burn, cash runway, lease-related commitments and any use of the undrawn loan facility or effective shelf registration.
- Whether improving product margins and revenue growth can offset higher R&D and SG&A expenses and reduce recurring losses.