CytoSorbents Corporation — Q3 2018 Form 10-Q
Reporting period: Three and nine months ended September 30, 2018; comparative periods ended September 30, 2017. The company develops and commercializes blood-purification medical devices. Its CytoSorb product was marketed in 53 countries under its European CE mark, but was not approved for sale in the United States. In May 2018, the company received a CE-mark label extension for bilirubin and myoglobin removal.
Financial performance
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Total revenue | $5.74 million | $3.82 million | $16.42 million | $10.50 million |
| Product sales | $5.10 million | $3.45 million | $14.78 million | $9.09 million |
| Gross profit | $3.69 million | $2.31 million | $11.02 million | $6.25 million |
| Operating expenses | $6.40 million | $4.46 million | $21.02 million | $12.29 million |
| Operating loss | $(2.71) million | $(2.15) million | $(10.00) million | $(6.04) million |
| Net loss | $(3.00) million | $(2.05) million | $(11.81) million | $(5.31) million |
| Net loss per share | $(0.10) | $(0.07) | $(0.39) | $(0.21) |
- Management reported product gross margin of 72% for Q3 versus 69% a year earlier, and 73% for the nine months versus 67%, attributing improvement to manufacturing efficiencies and, in the year-to-date comparison, a favorable euro effect.
- Research and development expense rose to $1.94 million in Q3 and $5.30 million year to date, principally reflecting clinical studies and trials. Selling, general and administrative expense reached $4.04 million and $14.43 million, respectively, reflecting hiring, sales-related costs, royalties, and stock compensation.
- Cash used in operating activities was $8.13 million for the nine months, compared with $6.05 million in 2017. Investing activities used $1.20 million; financing provided $16.99 million, including $13.92 million of net equity proceeds.
Balance sheet and liquidity
- At September 30, 2018, cash and cash equivalents were $24.91 million, current assets $29.95 million, current liabilities $4.26 million, and total assets $34.25 million.
- Total debt was $10.0 million principal, reported net of debt costs and accrued final fee at $9.92 million. The loan rate was 8.91% at quarter-end. A further $5 million tranche was available, subject to conditions, through March 31, 2019.
- Cash increased from $17.32 million at December 31, 2017. The company sold approximately 1.50 million shares under its at-the-market program during the nine months, raising $13.92 million net; it reported additional net proceeds of approximately $209,000 through October 31, 2018.
Material changes, outlook, and risks
- Total revenue rose 50% in Q3 and 56% year to date. Product sales increased 48% and 63%, respectively, driven by direct sales to new and existing customers and distributor sales. Germany remained a significant market; management attributed approximately $906,000 of year-to-date product-sales growth to the stronger euro.
- Losses widened year over year. Nine-month net loss more than doubled, reflecting higher operating expenses and a foreign-currency transaction loss of $544,000, versus a $1.22 million gain in 2017. Nine-month interest expense increased to $1.26 million, including a $637,000 Bridge Bank success fee settled with stock.
- Management said existing liquidity and available financing were expected to fund operations into the second half of 2020, while also noting that additional capital may be needed for clinical trials and commercialization. No specific revenue, earnings, or profitability guidance was provided.
- The filing states that losses are expected to continue for the foreseeable future and that profitability is uncertain. It cites substantial doubt about the company’s ability to continue as a going concern; the statements contain no adjustments for the outcome of that uncertainty.
- Key execution risks include clinical-trial enrollment, regulatory approvals—particularly U.S. approval—reimbursement and market adoption, manufacturing scale-up, dependence on Germany and foreign exchange, and the need for future financing. The REFRESH 2-AKI pivotal U.S. trial was expected to take at least two years; the filing reported 20 patients enrolled as of November 6, 2018. The German-funded REMOVE trial’s continued funding depended on an interim analysis.
- The company reported no current legal proceedings, no off-balance-sheet arrangements, and effective disclosure controls at quarter-end.
Important facts for investors to verify
- Whether revenue growth and improved product margins persist, particularly given Germany’s importance and currency exposure.
- Actual cash burn, financing needs, and whether the stated liquidity runway remains achievable; review conditions on the additional bank tranche and potential dilution from equity issuance.
- REFRESH 2-AKI enrollment and timeline, REMOVE interim-analysis outcome and funding, and progress on other clinical and regulatory programs.
- Whether clinical evidence, reimbursement, and broader adoption support sustained commercial growth and a path toward profitability despite continuing losses and the disclosed going-concern doubt.