CytoSorbents Corporation — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparative period is Q1 2022. The company develops and sells blood-purification devices, led by CytoSorb, marketed in more than 75 countries. CytoSorb is not approved for general commercial sale in the United States; its U.S. COVID-19 use is under an FDA Emergency Use Authorization. DrugSorb-ATR remains investigational in the U.S.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 | Change / context |
|---|---|---|---|
| Total revenue | $9.45 million | $8.69 million | Up 9%, primarily from higher grant income |
| Product sales | $7.91 million | $7.92 million | Essentially flat; euro exchange rates reduced 2023 sales by about $349,000 |
| Grant income | $1.54 million | $0.77 million | Up 101%; company directed R&D employees to grant-funded work |
| Gross margin | $5.46 million; 57.7% of revenue | $6.41 million; 73.8% | Lower, reflecting higher costs; product gross margin fell to about 68% from 80% |
| Operating expenses | $13.35 million | $14.20 million | Down about 6% |
| Operating loss | $(7.89) million | $(7.79) million | Loss widened slightly |
| Net loss / loss per share | $(7.33) million / $(0.17) | $(8.97) million / $(0.21) | Improved mainly because foreign-currency results swung to a $0.66 million gain from a $1.21 million loss |
| Operating cash flow | $(3.11) million | $(8.12) million | Cash use declined, helped by inventory reduction and other working-capital movements |
| Cash, equivalents and restricted cash | $20.74 million | $23.83 million at Dec. 31, 2022 | Includes $1.69 million restricted cash; cash and equivalents alone were $19.05 million |
At March 31, current assets were $28.16 million and current liabilities were $10.44 million. Long-term debt was $5.01 million, including accrued fees; operating lease liabilities totaled $13.17 million. Stockholders’ equity was $28.96 million, down from $35.37 million at year-end. The company raised about $698,000 net through sales of 197,665 shares under its at-the-market program.
Material changes and management commentary
- Product sales were broadly unchanged: direct sales declined about 4%, while distributor sales rose about 7%. There were no U.S. EUA sales in Q1 2023, compared with about $155,000 in Q1 2022; COVID-related demand also declined.
- Higher manufacturing costs reduced margins. Management attributed increased product costs and lower product gross margin to start-up activity at the new manufacturing facility; about $850,000 of R&D expense also related to pre-production work there.
- R&D expense was nearly flat at $4.21 million. Lower clinical-trial costs, including the STAR-D pause, were offset by manufacturing-readiness costs. SG&A declined about $698,000, principally from lower salaries, commissions and related costs.
- Management says tighter cost controls are expected to materially reduce planned 2023 cash burn, while continuing investment in the U.S. STAR-T pivotal trial. It expects available cash to fund operations beyond 12 months from the financial-statement issuance date and considers going-concern risk substantially mitigated. In April 2023, the company received approximately $1 million from the approved sale of New Jersey tax attributes.
- Management reported $9.9 million of revenue remaining to be earned on open grant contracts. It cited inflation-related increases in labor, raw materials and energy costs, while noting mitigation of supply-chain issues through larger inventory orders.
Outlook, risks and notable items
- Clinical and regulatory: STAR-T reached 80 patients enrolled in April 2023; management expected full enrollment in summer 2023. STAR-D enrollment was paused for business reasons and was expected to resume after STAR-T is completed. Timing and outcomes remain uncertain. CytoSorb’s U.S. COVID-19 EUA is limited and is not FDA marketing approval.
- Financing: The Bridge Bank loan has $5 million principal outstanding. The interest-only period runs through December 2023, subject to possible extension if specified tests are met; principal repayment is scheduled to begin in 2024 or 2025 depending on those tests, with final maturity in December 2025. No further draws were available after March 24, 2023. The company reported approximately $24.3 million remaining under its ATM facility.
- Business risks: The company has a substantial accumulated deficit ($261.3 million) and recurring operating losses. It identifies hospital staffing and procedure volumes, foreign-exchange movements, inflation, market adoption, clinical-trial execution and regulatory approvals as relevant uncertainties. A significant portion of product revenue is generated in Germany.
- Other items: The German payroll-tax examination left approximately $83,000 accrued at quarter-end. The company reported no current legal proceedings and no off-balance-sheet arrangements. CFO Kathleen Bloch retired effective March 31, 2023, and continued as consultant and interim CFO.
Important facts for investors to verify
- Whether core CytoSorb product sales can grow, given flat Q1 sales and the absence of COVID-related U.S. sales.
- Whether manufacturing start-up costs abate and product gross margin improves from 68%.
- Actual cash burn, the effect of cost controls, and the extent to which cash plus tax-attribute proceeds and ATM access support operations.
- STAR-T enrollment and results, and the timeline and funding required to resume STAR-D.
- Compliance with Bridge Bank’s reserve and other tests, which affect the loan’s repayment schedule.
- The continued effect of currency movements, inflation, and customer or geographic concentration on results.