CytoSorbents Corporation — Q3 2019 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2019; comparisons are to the corresponding 2018 periods. The company commercializes CytoSorb blood-purification devices internationally and develops additional medical-device products. CytoSorb is CE-marked in Europe but was not approved for sale in the United States.
Financial results and liquidity
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Total revenue | $6.10 million | $5.74 million | $17.52 million | $16.42 million |
| Product sales | $5.73 million | $5.10 million | $16.16 million | $14.78 million |
| Gross margin dollars | $4.40 million | $3.69 million | $12.25 million | $11.02 million |
| Operating loss | $(5.63) million | $(2.71) million | $(13.54) million | $(10.00) million |
| Net loss | $(6.89) million | $(3.00) million | $(15.32) million | $(11.81) million |
| Loss per share, basic and diluted | $(0.21) | $(0.10) | $(0.48) | $(0.39) |
- Product sales increased 12% in Q3 and 9% in the nine-month period. Growth reflected higher direct sales, partly offset by lower distributor sales and the adverse effect of a weaker euro. Germany was the largest product market.
- Product gross margin improved to 77% in Q3 from 72%, and to 76% for nine months from 73%. Total revenue includes grant income, which declined 43% in Q3 and 17% year to date.
- Expenses rose materially: nine-month R&D increased to $8.53 million from $5.30 million, largely due to clinical-trial costs; SG&A increased to $15.37 million from $14.43 million. Q3 SG&A rose to $6.11 million from $4.04 million.
- Q3 included a $956,000 foreign-currency transaction loss, versus $109,000 a year earlier. The nine-month loss was $1.05 million, versus $544,000.
- Cash and cash equivalents were $15.98 million at September 30, down from $22.37 million at December 31, 2018. Operating cash use was $12.63 million for nine months; investing cash use was $1.12 million and financing provided $7.40 million. Current assets were $22.35 million and current liabilities $9.30 million.
- Total debt principal was $15.0 million, bearing interest at 8.66% at quarter-end. The loan is secured, matures April 1, 2022, and carries a 2.5% final fee. Current maturities were $3.13 million. The company drew the additional $5 million Term B loan in July.
- Stockholders’ equity declined to $6.73 million from $16.93 million at year-end; accumulated deficit was $184.84 million. Shares outstanding were 32,422,263 at September 30.
Material developments, outlook, and risks
- Management stated that available cash should fund operations into 2020 and that it believes it has adequate cash for more than the next 12 months, but expects to need additional financing for operations and clinical trials. The statements also identify substantial doubt about the company’s ability to continue as a going concern, consistent with the prior-year auditor’s report. No profitability guidance or quantified revenue outlook is provided.
- The July loan amendment extended the interest-only period through April 2020, with a further conditional extension. The note describes a possible extension through November 2020, while MD&A says through October 2020. Principal amortization is conditional on the revenue covenant; the filing lists $3.13 million of 2020 maturities.
- REFRESH 2-AKI, a pivotal U.S. cardiac-surgery trial, had enrolled 144 patients as of October 31, 2019. Management anticipated completing enrollment by the end of 2020, subject to delays, and planned a PMA submission in 2021 if successful. The REMOVE study had enrolled 250 patients by October 31. A new pilot study of CytoSorb for CAR-T-related complications was ready to begin enrollment; the TISORB study of ticagrelor removal began in October.
- CytoSorb’s EU CE Mark was renewed under the current directive through May 2024. The company must prepare for the more stringent EU Medical Devices Regulation and cannot assure future regulatory approvals, trial success, market adoption, or adequate reimbursement. CytoSorb remains unapproved in the U.S.
- Management cited ongoing expected losses from R&D, clinical studies, commercialization, and sales infrastructure. Other notable risks include reliance on Germany and euro-denominated sales, foreign-exchange exposure, dependence on distributors and partners, financing needs, patent protection and royalties, and manufacturing scale-up.
- A September 2019 publication reported lower 28-day mortality in a retrospective, propensity-weighted septic-shock analysis of patients treated with CytoSorb plus standard care. This was observational evidence, not a company pivotal-trial result.
- The company reported no current legal proceedings and no off-balance-sheet arrangements. It stated disclosure controls were effective and reported no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Cash runway assumptions, future financing needs, and the basis for management’s liquidity statement given operating cash use and the going-concern disclosure.
- The loan’s revenue-covenant compliance, exact interest-only extension date, 2020 principal schedule, and ability to meet repayment obligations.
- Direct versus distributor sales trends, Germany concentration, product margins, and the continuing impact of euro movements on sales and reported results.
- REFRESH 2-AKI enrollment pace, trial costs and milestones, and the evidence and regulatory requirements needed for a U.S. PMA.
- Progress and costs for EU MDR compliance, reimbursement, and the company’s ability to fund its expanding commercial and clinical programs without substantial dilution.