CytoSorbents Corporation — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; balance-sheet figures are as of March 31, 2019 unless otherwise noted. Amounts are U.S. dollars. The filing describes CytoSorbents as a medical-device company developing and commercializing blood-purification technology. Its CytoSorb product was CE marked in the EU and marketed in 55 countries; it was not approved for sale in the United States.
Financial performance and position
| Metric | Q1 2019 | Q1 2018 / comparison |
|---|---|---|
| Total revenue | $5.192 million | $4.925 million; up 5% |
| Product sales | $4.577 million | $4.433 million; up 3% |
| Grant income | $615,000 | $491,000; up 25% |
| Gross margin | $3.453 million; about 66% of total revenue | $3.357 million; product gross margin was about 74% in both periods |
| Operating expenses | $7.738 million | $6.458 million |
| Operating loss | $4.285 million | $3.101 million |
| Net loss | $4.884 million; $0.15 per share | $2.982 million; $0.10 per share |
| Cash used in operations | $4.238 million | $2.204 million |
| Cash and cash equivalents | $19.647 million | $22.369 million at December 31, 2018 |
- Q1 revenue growth reflected higher direct sales, partly offset by lower distributor sales. Management attributed approximately $363,000 of negative sales impact to the weaker euro.
- Research and development expense rose $694,000, primarily from higher clinical-trial costs, including REFRESH 2-AKI. Selling, general and administrative expense rose $441,000; legal, financial and consulting costs rose $146,000.
- Foreign-currency transactions produced a $393,000 loss, compared with a $358,000 gain in Q1 2018. Interest expense, net, was $205,000, down from $239,000.
- Investing activities used $474,000. Financing provided $2.005 million, mainly from warrant and stock-option exercises. Cash declined $2.721 million during the quarter.
- Current assets were $24.828 million and current liabilities $6.711 million, a current ratio of approximately 3.7. Total liabilities were $15.980 million. Long-term debt had $10 million principal outstanding, including $1.667 million classified as current; the stated interest rate was 9.16% at quarter-end.
- Stockholders’ equity was $15.015 million; accumulated deficit was $174.408 million. Shares outstanding increased from 31.774 million at December 31, 2018 to 32.243 million at March 31, 2019.
Material changes and developments
- Direct product sales increased approximately $624,000 year over year, while distributor sales decreased approximately $480,000. Germany remained the primary product-sales market.
- The company began direct-sales operations in Poland in Q1 and announced expansion of direct sales into the Netherlands and specified Nordic markets.
- In March 2019, the company declined the available $5 million second tranche under its bank facility. Principal repayments on the funded loan were scheduled to begin November 1, 2019.
- The company adopted lease-accounting guidance effective January 1, 2019, recognizing a $1.359 million right-of-use asset and corresponding lease liability at March 31.
Outlook, management commentary and risks
- Management said existing cash was expected to fund operations into 2020, while also stating that additional capital would be needed in the future, including to support clinical trials. The filing expects continuing losses for the foreseeable future and does not provide a revenue or earnings forecast.
- The filing states that the 2018 auditor’s report expressed substantial doubt about the company’s ability to continue as a going concern. Management’s cash-runway expectation does not eliminate the need for future financing; no assurance is given that financing will be available on acceptable terms.
- REFRESH 2-AKI, a U.S. pivotal cardiac-surgery trial, had enrolled 79 patients as of May 7, 2019; management anticipated enrollment completion by 2020 and, if successful, a PMA submission in 2021. These are forward-looking expectations and may be delayed. The German REMOVE study had enrolled 180 patients as of May 3, 2019; its safety boards recommended continuation after an interim analysis.
- Management identified commercialization, regulatory approval, clinical-trial execution, reimbursement, manufacturing scale-up, foreign-exchange movements and access to capital as material uncertainties. Product sales concentration in Germany and distributor dependence also expose results to market and partner risks.
- The employment agreements for the CEO, COO and CFO expired December 31, 2018; the company said it was negotiating new agreements while operations continued under the expired terms.
- The company reported no current legal proceedings and no off-balance-sheet arrangements. Disclosure controls were assessed as effective; no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Whether sales growth, particularly direct sales, can offset distributor declines and euro-related effects, and whether the company can sustain product margins.
- Cash use, financing needs and the runway implied by operating cash burn; the filing’s stated runway into 2020 and its going-concern disclosure should be considered together.
- REFRESH 2-AKI enrollment progress, timing and outcomes, as well as the REMOVE study’s results and any regulatory implications.
- Loan repayment schedule, interest cost and compliance with bank covenants; the $5 million undrawn tranche was declined.
- Progress on U.S. regulatory authorization, reimbursement, commercial adoption and the company’s ability to fund planned clinical and development programs without material dilution.