CytoSorbents Corporation — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020; filed November 4, 2020. CytoSorbents develops and sells blood-purification devices, led by CytoSorb, for critical-care and cardiac-surgery applications. The product was marketed in 66 countries; U.S. COVID-19 sales were permitted under an FDA Emergency Use Authorization (EUA), not full FDA approval.
Financial results
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Total revenue | $10.55 million | $6.10 million | $29.05 million | $17.52 million |
| Product sales | $10.25 million | $5.73 million | $27.92 million | $16.16 million |
| Gross profit | $7.66 million | $4.40 million | $20.52 million | $12.25 million |
| Operating loss | $(1.96) million | $(5.63) million | $(7.74) million | $(13.54) million |
| Net loss | $(0.84) million | $(6.89) million | $(7.16) million | $(15.32) million |
| Net loss per share | $(0.02) | $(0.21) | $(0.19) | $(0.48) |
Q3 product gross margin was approximately 74%, compared with 77% a year earlier; nine-month product gross margin was approximately 73%, versus 76%. The filing attributes the decline to a higher proportion of lower-margin distributor sales and costs of rapidly increasing production. Operating expenses for Q3 were $9.62 million, including $7.28 million in selling, general and administrative costs and $1.75 million in research and development. Q3 net results included a $1.38 million foreign-currency transaction gain; the comparable 2019 quarter had a $0.96 million loss on such transactions.
Cash, debt, and liquidity
- Cash and cash equivalents were $87.98 million at September 30, 2020, up from $12.23 million at December 31, 2019. Current assets were $96.80 million and current liabilities $17.36 million.
- Nine-month operating cash use was $4.56 million, versus $12.63 million in 2019; investing cash use was $1.41 million. Financing provided $81.50 million, principally from equity issuance.
- The company raised approximately $53.8 million net in a July underwritten offering and approximately $26.5 million net through its at-the-market sales agreement during the first nine months. Shares outstanding increased to 43.18 million from 32.62 million at year-end 2019.
- Term-loan principal was $15.0 million, with $9.17 million classified as current and $5.99 million as long-term debt net of costs and accrued final fee. Monthly principal installments of approximately $833,333 began November 2020; maturity is April 1, 2022. The company reported covenant compliance.
- Management said cash should fund operations well beyond the next 12 months and that the going-concern risk had been eliminated. The filing reports no off-balance-sheet arrangements.
Changes and operating developments
- Q3 revenue rose 73% year over year; nine-month revenue rose 66%. Product sales increased through both direct and distributor channels. Management estimated COVID-19-related demand contributed approximately $2.7 million of Q3 product sales and $6.9 million year to date. U.S. hospital sales under the EUA were approximately $262,000 in Q3 and $928,000 year to date.
- Grant income declined 18% in Q3 and 17% year to date, as pandemic-related work disruptions delayed grant activity. Research and development expense fell 45% in Q3 and 28% year to date, primarily reflecting clinical-trial slowdowns and reduced activity.
- SG&A increased 19% in Q3 and 31% year to date, including higher employee-related, royalty, and stock-compensation costs. Reduced travel and conference spending partially offset the increases.
- The July equity offering and ATM activity substantially strengthened liquidity but materially increased the share count. The company also reported $2.86 million of stock-based compensation for the first nine months.
Outlook, risks, and unusual items
- Management expected pandemic-related demand to support product revenue in Q4 2020 and potentially into Q1 2021, but emphasized that the outlook was uncertain and dependent on the course of the pandemic. The filing gives no quantified earnings or revenue guidance.
- COVID-19 supported CytoSorb demand but also restricted sales access to hospitals, limited marketing of newer indications, reduced non-COVID procedures, disrupted grant work, and delayed or paused clinical trials. Management estimated trial pauses reduced clinical-trial expense by approximately $1.8 million in Q3 and $3.3 million year to date; these reductions also lowered reported losses and cash burn.
- REFRESH 2-AKI enrollment had been paused and was being prepared to resume, but timing was unclear. TISORB activity was limited by pandemic restrictions; REMOVE study analysis was delayed. Management said it could not reliably predict timing for full trial resumption.
- CytoSorb’s U.S. COVID-19 use remained limited to the EUA’s specified circumstances; the device was not FDA-cleared or approved for that indication. The EUA could terminate or be revoked. Manufacturing supply, clinical execution, regulatory reviews, and market volatility remain risks.
- Foreign-exchange movements were significant: the Q3 and year-to-date transaction gains improved reported net results, while currency translation produced a $1.05 million comprehensive-loss adjustment in Q3. A two-year Army contract worth $1.10 million for HemoDefend-BGA was announced after quarter-end; additional HemoDefend-BGA awards were also disclosed.
- The company reported no significant legal proceedings and no material change to previously disclosed risk factors other than adding pandemic-related risks. Management said disclosure controls were effective.
Important facts for investors to verify
- Whether elevated CytoSorb demand persists after the pandemic and how much revenue is attributable to COVID-19 use.
- Whether gross margins stabilize as distributor mix and production costs change, and whether operating expenses continue to rise.
- Actual cash burn, the pace of monthly debt principal payments, and liquidity relative to the company’s operating plans.
- Clinical-trial restart and data timelines, including REFRESH 2-AKI, TISORB, and REMOVE, and the resulting regulatory and commercial implications.
- Share dilution from equity financing and equity compensation, as well as the nonrecurring influence of foreign-exchange gains on reported losses.
- Regulatory status and commercial scope of the EUA and the timing and terms of future HemoDefend-BGA development contracts.