CytoSorbents Corporation — Q3 2015 Form 10-Q
Reporting period: Quarter ended September 30, 2015; financial comparisons cover the three and nine months ended September 30, 2015 versus 2014. The company commercializes its CE-marked CytoSorb blood-purification device and develops additional blood-purification products. CytoSorb was marketed in 31 countries.
Key financial results
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Total revenue | $1.344 million | $1.162 million | $3.031 million | $3.249 million |
| Gross profit | $0.705 million | $0.686 million | $1.622 million | $1.445 million |
| Operating loss | $2.150 million | $1.484 million | $6.641 million | $3.990 million |
| Net loss | $2.847 million | $1.498 million | $6.130 million | $4.327 million |
| Net loss per common share | $0.11 | $0.22 | $0.25 | $0.69 |
Product sales increased 4% in Q3 to $1.071 million and 13% year to date to $2.548 million. Total revenue rose 16% in Q3, partly reflecting higher grant income, but fell 7% for the nine-month period as grant income declined. Nine-month product gross margin was approximately 62%, versus 63% in 2014; Q3 product gross margin was approximately 63% in both periods. The filing does not provide a clear consolidated gross-margin percentage.
Year-to-date operating expenses increased to $8.263 million from $5.434 million. Research and development rose to $2.619 million, and selling, general and administrative expense rose to $4.842 million. The company reported an accumulated deficit of $130.524 million.
Cash, liquidity and capital
- At September 30, cash and cash equivalents were $7.386 million and short-term investments were $1.943 million; combined, $9.329 million.
- Current assets were $11.591 million and current liabilities were $3.447 million. The balance sheet lists a $2.164 million warrant liability; it reports no conventional borrowings outstanding in the presented liabilities.
- Cash used in operating activities was $6.822 million for the first nine months, compared with $4.189 million in 2014. Financing provided $11.044 million, principally from the January 2015 stock offering, warrant exercises and option exercises. Cash increased by $3.780 million to $7.386 million.
- The January offering raised approximately $9.409 million net. Common shares outstanding were 25,177,005 at September 30 and 25,365,673 as of November 10, 2015.
Changes, outlook and material items
- Year-to-date net loss widened despite higher product sales. Management attributed the revenue decline primarily to lower grant income; R&D and SG&A increases reflected clinical activity, staffing, sales and marketing, and corporate and compliance costs.
- Management said existing resources were expected to fund operations for more than 12 months, but additional capital might be needed, particularly for pivotal U.S. and/or German trials and commercialization. The filing also reiterates substantial doubt about the company’s ability to continue as a going concern, citing recurring losses and dependence on future financing and successful development and commercialization.
- Management reported approximately $410,000 of adverse year-to-date sales impact from the weaker euro, and a $316,000 foreign-currency transaction loss. A $818,000 year-to-date gain from remeasurement of the warrant liability partially offset other expenses; this is a fair-value accounting item, not operating revenue.
- After quarter-end, the company received a Phase II NIH/NHLBI SBIR contract for HemoDefend, with maximum funding of $1.522 million over two years. On November 4, it entered an at-the-market sales agreement allowing up to $25 million of common-stock sales; proceeds, if raised, were intended for R&D, clinical studies, capacity expansion, sales and marketing, and working capital.
- Key execution and business risks include regulatory approval and clinical-trial outcomes, market adoption and reimbursement, manufacturing scale-up, foreign-exchange exposure, reliance on distributors and key personnel, future financing and potential shareholder dilution. The company reported no current legal proceedings and no off-balance-sheet arrangements.
Important facts for investors to verify
- Cash runway assumptions and whether additional capital will be required for pivotal trials; distinguish management’s funding estimate from the filing’s stated going-concern substantial doubt.
- Progress, enrollment, timing and costs for REFRESH I and planned sepsis studies, plus regulatory requirements for U.S. marketing.
- Whether CytoSorb sales growth and distributor minimum purchases are sustained, and how euro movements affect reported sales and margins.
- Terms and actual use of any ATM sales, including shares issued, proceeds, commissions and dilution.
- The noncash warrant-liability revaluation and the impact of outstanding options and warrants on future earnings and share count.