CytoSorbents Corporation — Q2 2018 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2018. The company develops and commercializes blood-purification medical devices, led by CytoSorb, which was CE-marked for sale in the EU and distributed in 53 countries. The filing is unaudited.
Financial performance
| Metric | Q2 2018 | Six months 2018 |
|---|---|---|
| Total revenue | $5.76 million | $10.68 million |
| Product sales | $5.25 million | $9.68 million |
| Gross profit | $3.97 million | $7.33 million |
| Operating loss | $4.19 million | $7.29 million |
| Net loss | $5.82 million | $8.80 million |
| Basic and diluted loss per share | $0.19 | $0.30 |
- Revenue grew 61% in Q2 and 60% for the six-month period year over year. Product sales rose 73% and 72%, respectively, driven by direct and distributor sales; grant income declined modestly.
- Product gross margin was 74% in Q2 and for the first half, versus 65% and 66% in the comparable 2017 periods. Management attributed improvement to manufacturing efficiencies, sales mix, and euro exchange rates.
- Q2 operating expenses were $8.16 million, including $1.58 million research and development and $6.12 million selling, general and administrative. First-half operating expenses totaled $14.62 million. Increased clinical-trial spending and stock-based compensation contributed to expense growth.
- Q2 net loss included a $794,000 foreign-currency transaction loss and $840,000 net interest expense. Interest expense included a $637,000 Bridge Bank success fee, settled with common stock.
- Six-month operating cash use was $5.50 million; investing cash use was $0.92 million. Financing provided $14.42 million, primarily from equity issuance. Cash increased to $25.28 million from $17.32 million at year-end 2017.
- At June 30, current assets were $30.78 million and current liabilities $3.49 million. Debt was $10.0 million principal, reported net of costs at $9.89 million; no current maturities were classified. The loan bears interest at prime plus 3.66% (8.66% at quarter-end) and matures April 2022. An additional $5 million tranche may be drawn, subject to conditions.
Material changes and financing
- CytoSorb product sales increased from $3.04 million to $5.25 million in Q2; direct sales in Germany and other countries and distributor sales contributed to growth. Germany remained the principal product market.
- Research and development expense increased sharply year over year, reflecting clinical studies and trials, personnel, and product-development costs. Selling, general and administrative expense also rose, including non-cash compensation tied to operating milestones.
- The company sold 1.45 million shares through its at-the-market sales agreement in the first half, generating approximately $13.33 million net proceeds. A further 38,700 shares generated about $458,000 net proceeds through July 31. A new shelf registration for up to $150 million was filed in July, subject to SEC effectiveness.
- The company refinanced its prior Bridge Bank borrowing in March 2018 with a $10 million Term A loan. A further $5 million Term B loan is available at the company’s request through March 31, 2019, if conditions are met.
Outlook, risks, and unusual items
- Management stated that available cash and financing support operations into the second half of 2020 and provide cash for more than the next 12 months, while also warning that additional capital may be needed, particularly to support clinical trials. The filing provides no numerical revenue or earnings guidance.
- The company expects continuing losses as it invests in research, clinical studies, manufacturing, and commercialization. It reported an accumulated deficit of $161.12 million; the filing reiterates substantial doubt about the ability to continue as a going concern, citing the history of losses and uncertainty around future financing and profitability.
- In May 2018, CytoSorb received a CE-mark label extension for bilirubin and myoglobin removal. The expanded New Jersey manufacturing facility opened in Q2 and is expected to quadruple capacity and improve future gross margins.
- The U.S. REFRESH 2-AKI pivotal cardiac-surgery trial had begun enrollment; management anticipated at least two years to complete it and noted possible delays. A protocol amendment was pending FDA review. Regulatory approval, clinical outcomes, reimbursement, market adoption, manufacturing scale-up, and access to capital remain significant risks.
- Results were affected by currency volatility: the euro-related transaction loss reversed the prior-year gain. The quarter also included the non-cash Bridge Bank success fee and higher stock-based compensation. The filing says no legal proceedings were pending and reports no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether product-sales growth and improved product gross margins persist, including the contribution from Germany, distributors, and currency movements.
- Cash burn, remaining runway, future equity dilution, and conditions for drawing the additional $5 million loan tranche.
- REFRESH 2-AKI enrollment, FDA action on the protocol amendment, trial timing, and the evidence needed for U.S. approval.
- Whether expanded manufacturing capacity delivers the expected production efficiencies and margin improvement.
- Ongoing regulatory and reimbursement status, particularly in the U.S. and markets beyond current CE-mark coverage, and progress toward sustainable profitability.