CytoSorbents Corporation — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; unaudited consolidated results, compared with Q1 2019. CytoSorb is the company’s principal commercial product, sold outside the United States during the quarter. The company develops and commercializes blood-purification medical devices.
Financial performance and liquidity
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Total revenue | $8.71 million | $5.19 million |
| Product sales | $8.16 million | $4.58 million |
| Gross margin (reported dollars) | $6.32 million | $3.45 million |
| Operating loss | $2.48 million | $4.29 million |
| Net loss | $3.45 million | $4.88 million |
| Net loss per share, basic and diluted | $0.10 | $0.15 |
| Cash used in operating activities | $3.21 million | $4.24 million |
- Management reported product gross margins of approximately 76% versus 74% in Q1 2019, citing production efficiencies. Total revenue less cost of revenue was approximately 72.6% of revenue in Q1 2020; this includes grant income.
- At March 31, 2020, cash and cash equivalents were $26.39 million, current assets $37.53 million, and current liabilities $11.46 million. Working capital was approximately $26.06 million.
- Debt principal was $15.0 million; the balance-sheet carrying amount was approximately $15.09 million before deducting current maturities and debt issuance costs. The reported current portion was $4.17 million and long-term debt, net, was $10.92 million. The loan bears interest at prime plus 3.66% (6.91% at quarter-end); principal payments were scheduled to begin November 2020, with maturity in April 2022.
- Cash increased by $14.16 million during the quarter, principally reflecting equity financing. The company sold 3.42 million shares under its at-the-market facility, reporting approximately $19.54 million in net proceeds; some proceeds were in transit at quarter-end. Share count rose from 32.62 million at year-end to 36.13 million at March 31.
Changes versus the prior comparable period
- Total revenue increased 68%; product sales increased 78%. Management attributed growth to direct sales and distributor sales, including repeat orders. Germany generated $4.91 million of Q1 2020 product sales, making it a significant market.
- Management estimated $1.5–$1.7 million of Q1 product sales were associated with COVID-19 demand. A $237,000 adverse foreign-exchange effect partially offset sales growth.
- Operating loss narrowed by approximately $1.81 million. Research and development expense declined by $454,000, principally due to lower clinical-trial costs following the REFRESH 2-AKI pause. Selling, general and administrative expense increased $1.56 million, including higher salaries, royalties and stock-based compensation.
- Net loss narrowed by approximately $1.43 million, despite higher interest expense and foreign-currency transaction losses. The foreign-currency loss was $668,000 versus $393,000 in Q1 2019.
Outlook, risks and notable items
- Management expected cash to fund operations into 2021, but said additional capital would be required to support future operations and clinical trials. The filing reiterates substantial doubt about the company’s ability to continue as a going concern, citing recurring losses and an accumulated deficit of $192.24 million. The 2019 auditor’s report also expressed substantial doubt.
- Management expected COVID-19 demand to benefit Q2 2020 product revenue, but said the full-year impact was uncertain and revenue could decrease in the second half as the pandemic-related catalyst waned. The company reported a $2.7 million sales backlog at March 31 and said its New Jersey manufacturing facility was operating around the clock.
- In April 2020, after quarter-end, the FDA granted CytoSorb an Emergency Use Authorization for specified critically ill COVID-19 patients. The filing emphasizes that the device was neither cleared nor approved for that COVID-19 indication. FDA Breakthrough Device designation for ticagrelor removal was also announced in April; designation does not itself constitute marketing approval.
- The REFRESH 2-AKI cardiac-surgery trial had paused enrollment after a data monitoring review; COVID-19 further disrupted clinical-trial activity, including TISORB. Management said timing and resumption were uncertain. The company described a possible REFRESH 2-AKI timeline conditional on a timely restart, not firm guidance.
- The company received approximately $1.41 million in PPP loan proceeds in April and repaid the loan on April 29 after reassessing its financial position. It also reported approximately $1.09 million of proceeds from selling New Jersey net operating loss carryforwards in April.
- Key risks include continued losses and future financing needs, possible shareholder dilution from further equity sales, COVID-19 effects on manufacturing, grants and clinical trials, product adoption and reimbursement, regulatory approvals, foreign-exchange exposure, and dependence on Germany and other international markets. The filing reports no current legal proceedings.
Important facts for investors to verify
- Whether COVID-19-related demand, the reported backlog and production capacity convert into delivered sales and repeat demand, and how sales develop after the pandemic-related surge.
- Current cash runway, future cash use and financing plans, including debt repayment requirements and the extent of any further at-the-market equity issuance and dilution.
- Whether and when REFRESH 2-AKI and other paused trials resume, and the outcome of required monitoring, regulatory and clinical reviews.
- The scope, duration and commercial effect of the COVID-19 EUA; it is temporary authorization for a defined use, not FDA clearance or approval.
- Progress toward reimbursement and regulatory approvals, and the effect of foreign exchange and Germany’s contribution to sales.