CytoSorbents Corporation — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; filed May 4, 2021. CytoSorbents develops and sells blood-purification devices, led by CytoSorb, marketed in 67 countries. The device has EU approvals for several uses and U.S. Emergency Use Authorization (EUA) for specified critically ill COVID-19 patients; it is not FDA-approved for that indication.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total revenue | $10.60 million | $8.71 million | +22% |
| CytoSorb product sales | $10.14 million | $8.16 million | +24% |
| Grant income | $0.46 million | $0.55 million | -17% |
| Gross profit / reported gross margin | $7.85 million / 74.0% | $6.32 million / 72.6% | Margin +1.4 percentage points |
| Operating loss | $2.85 million | $2.48 million | Loss increased |
| Net loss | $4.17 million | $3.45 million | Loss increased |
| Basic and diluted loss per share | $0.10 | $0.10 | Unchanged |
| Operating cash flow | $(2.34) million | $(3.21) million | Cash use decreased |
Reported expenses included $1.31 million of foreign-currency transaction losses, versus $0.67 million a year earlier. Net interest expense fell to $0.01 million from $0.31 million after repayment of the prior term loans in December 2020. Cash and equivalents were $68.47 million at quarter-end, down $2.95 million from year-end 2020. Current assets were $79.63 million and current liabilities $9.76 million; total liabilities were $10.22 million, including $0.92 million of lease liabilities. No term loan was outstanding at March 31, 2021; a $15 million bank term-loan commitment was available to draw under specified terms and within its draw period.
Management said cash should fund operations well beyond the next twelve months and that going-concern risk was substantially mitigated. The company reported an accumulated deficit of $200.79 million. Q1 weighted-average shares rose to 43.24 million from 33.98 million; no ATM sales occurred in Q1 2021.
Material changes and unusual items
- Product sales increased $1.99 million, including approximately $0.61 million from direct sales and $1.38 million from distributors. The stronger euro contributed an estimated $0.79 million to product sales.
- Management estimated approximately $1.8 million of Q1 product sales were related to COVID-19 demand. U.S. sales under the EUA were approximately $0.30 million.
- Reported product gross margin was approximately 77%, versus 76% a year earlier. Excluding the non-recurring tariff accrual and Employee Retention Tax Credit, management estimated Q1 product gross margin at approximately 81%.
- The company recorded an approximately $821,000 expense and liability for German customs duties after authorities indicated CytoSorb imports should use a tariff code carrying a 1.7% rate. Approximately $732,000 relates to 2018–2020 and $89,000 to Q1 2021; the customs audit was ongoing.
- The company recorded approximately $388,000 related to the Employee Retention Tax Credit. These two unusual items partly offset in reported margin.
- Research and development expense rose to $2.28 million, while selling, general and administrative expense rose to $7.71 million. The company attributed expense changes to clinical-trial staffing and other personnel costs, royalties, hiring and consulting; COVID-related travel and conference restrictions reduced some costs.
Outlook, commentary and risks
- Management expected COVID-related demand to support Q2 2021 product revenue, but anticipated it could decline later in 2021 as vaccination reduces cases. The company said it could not predict U.S. EUA sales for the remainder of the year or the near-term overall sales impact of the pandemic.
- COVID-19 disrupted grant work and clinical studies. CytoSorbents stopped the slow-enrolling U.K. TISORB study and redirected resources to the U.S. STAR-T trial. The FDA conditionally approved the STAR-T IDE in April 2021. REMOVE data analysis and enrollment or execution of other trials also faced delays.
- The company planned to launch a European STAR registry and expected to initiate the PROCYSS and Hep-On-Fire studies in 2021, subject to pandemic-related conditions. These are plans, not assured outcomes.
- COVID-related sales create potential revenue-replacement risk if demand falls. Other disclosed risks include clinical-trial delays, regulatory uncertainty, manufacturing or supply disruptions, foreign-exchange exposure and reliance on international markets. A distributor represented 11% of Q1 revenue and 21% of receivables at quarter-end. Germany generated $5.90 million of Q1 product sales.
- A new U.S. operating facility lease commenced April 1, 2021, with an estimated $11.6 million right-of-use asset and lease liability; it has a 15.5-year remaining term after the initial period. The company also entered a five-year German warehouse lease. These post-quarter commitments increase future fixed costs.
- On April 19, 2021, the company received notice of a U.S. Army award of up to $1.50 million for hyperkalemia technology development. It also reported subsequent equity awards, including performance-based options, which may result in future dilution if vested.
- The company stated it had no current legal proceedings and no off-balance-sheet arrangements. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting.
Investor verification priorities
- Track product sales excluding estimated COVID-related demand and currency effects, and assess whether growth is sustained as pandemic demand changes.
- Confirm the German customs audit’s final outcome, amount and timing of payments, and any further tariff exposure.
- Reconcile reported product margins with the tariff accrual and tax-credit benefit; assess the repeatability of underlying manufacturing margins.
- Monitor cash burn, the timing of the expected $1.13 million New Jersey tax-credit sale proceeds, and any use or terms of the available $15 million loan commitment.
- Verify clinical-trial enrollment, regulatory milestones and data readouts, particularly STAR-T, REMOVE, REFRESH 2 and CYTATION.
- Assess the financial impact of the new facility and warehouse leases, including the approximately $1.33 million letter of credit and future rent obligations.
- Review the status of the EUA and other regulatory permissions; the EUA is limited and does not constitute FDA approval.