CytoSorbents Corporation — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Financial statements are unaudited. CytoSorbents develops and commercializes blood-purification products, led by CytoSorb, sold in more than 70 countries; product sales are predominantly outside the United States. The filing was signed November 3, 2022.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Total revenue | $8.11 million | $9.76 million | $25.30 million | $32.38 million |
| Product sales | $6.46 million | $8.90 million | $21.72 million | $30.41 million |
| Grant income | $1.65 million | $0.86 million | $3.58 million | $1.97 million |
| Gross profit | $3.62 million | $7.30 million | $14.98 million | $24.46 million |
| Operating loss | $(9.02) million | $(5.41) million | $(25.17) million | $(13.18) million |
| Net loss | $(12.20) million | $(6.41) million | $(32.05) million | $(15.25) million |
| Net loss per share | $(0.28) | $(0.15) | $(0.74) | $(0.35) |
- Margins: Product gross margin was 55% in Q3 versus 82% a year earlier; excluding the $599,000 inventory write-off, management estimated Q3 product gross margin at 64%. Nine-month product gross margin was 68%, or 71% excluding that write-off, compared with 80% in 2021.
- Cash flow: Cash used in operating activities was $22.89 million for the first nine months, versus $8.51 million in 2021. Investing activities used $6.25 million, primarily for property and equipment. Cash, cash equivalents and restricted cash fell $29.59 million to $24.24 million, including $1.69 million of restricted cash.
- Balance sheet at September 30: Cash and cash equivalents were $22.55 million; current assets $32.38 million; current liabilities $10.12 million; total liabilities $23.13 million; and stockholders’ equity $39.14 million. The company reported $13.39 million of lease liabilities. It disclosed no funded term-loan balance and said up to $15 million of borrowing remained available.
- Management also reported $25 million available under its ATM facility, with no sales under the agreement. It stated cash was expected to fund operations beyond 12 months, with available debt and ATM financing providing additional liquidity; management considered going-concern risk substantially mitigated.
Changes versus prior comparable periods
- Q3 revenue declined 17% year over year; product sales fell 27%. Nine-month revenue declined 22%, with product sales down 29%. Grant income increased 92% in Q3 and 81% for the nine months, partly reflecting greater staff allocation to grant-funded work.
- Management attributed weaker product sales to pandemic-related hospital staffing shortages, reduced ICU capacity and elective procedures, hospital budgets and access restrictions, lower COVID-19 treatment demand, and the weaker euro. Currency translation reduced nine-month product sales by an estimated $2.25 million.
- Operating and net losses widened. Nine-month foreign-currency transaction losses increased to $6.97 million from $2.08 million, principally due to euro depreciation. Q3 foreign-currency transaction loss was $3.23 million.
- Costs included a $599,000 work-in-process inventory write-off after refrigeration equipment failed at the new manufacturing facility. Production relocation inefficiencies and a scheduled four-week production hiatus also weighed on margins. Management said the insurance claim was under review; no reimbursement had been recorded.
Outlook, developments and risks
- No numerical revenue or earnings guidance was provided. Management aims to grow core CytoSorb sales, reduce cash burn through cost controls, complete the manufacturing transition, and obtain U.S. FDA marketing approval for DrugSorb-ATR. It expected product margins to recover as production transitioned to the new facility and efficiencies improved; this remains an expectation, not a guarantee.
- Management reported a 10% reduction in international headcount, shifted R&D resources toward funded grants, and cited $13.2 million of revenue remaining to be earned on open grant contracts. Some cost savings were expected to appear in the 2023 budget.
- The STAR-T U.S. trial was prioritized, with management targeting 40 enrolled patients in November 2022, 80 in spring 2023, and potential completion of enrollment by summer 2023. Enrollment timing remained uncertain. STAR-D enrollment was paused to focus resources on STAR-T; management estimated this would save about $4 million in 2023.
- The new Princeton facility received ISO 13485 certification. Management said remaining build-out costs were about $400,000 and the facility, once complete, could support approximately $400 million in annual product sales capacity.
- New commercial arrangements included an expanded Fresenius marketing agreement outside the United States, a preferred-supplier agreement with German hospital group Asklepios, and an expanded Nikkiso pump-distribution arrangement. The Fresenius agreement includes an initial royalty of 0.9% of relevant CytoSorb net sales outside the United States.
- Key risks include continued sales weakness and hospital constraints, foreign-exchange exposure, inflation and rising labor/material/energy costs, execution and production-transition risks, clinical-trial enrollment and regulatory uncertainty, and ongoing cash burn. CytoSorb is not FDA-cleared or approved for commercial U.S. use; its COVID-19 use is under an EUA that may be revoked or terminated.
- The company accrued approximately $598,000 for German payroll taxes and social costs under an ongoing audit. It reported no current legal proceedings. CFO Kathleen Bloch notified the company of her planned retirement effective March 31, 2023; a replacement search had begun.
Investor verification priorities
- Track quarterly product sales, especially Germany and other direct markets, and separate underlying demand from foreign-exchange effects and grant revenue.
- Check whether product gross margins recover after the manufacturing transfer, and whether the refrigeration-loss insurance claim is approved and reimbursed.
- Monitor operating cash use, cash runway, actual headcount savings, and any future ATM sales or borrowing from the available credit facility.
- Verify STAR-T enrollment and milestones, any resumption of STAR-D, and progress toward FDA marketing authorization.
- Assess whether new partner agreements and the expanded manufacturing capacity translate into recurring commercial sales.