CytoSorbents Corporation — Q2 2019 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2019. The filing is unaudited. CytoSorbents develops and commercializes blood-purification medical devices. Its CytoSorb product was CE-marked in the EU and sold in 55 countries; it was not approved for sale in the United States.
Key financial metrics
| Metric | Q2 2019 | Six months 2019 |
|---|---|---|
| Total revenue | $6.23 million | $11.42 million |
| Product sales | $5.85 million | $10.43 million |
| Grant income | $0.38 million | $1.00 million |
| Gross margin dollars | $4.40 million | $7.85 million |
| Operating loss | $3.63 million | $7.92 million |
| Net loss | $3.55 million | $8.43 million |
| Basic and diluted loss per share | $0.11 | $0.26 |
Product gross margin was approximately 76% in Q2 and 75% for the six months. At June 30, cash and cash equivalents were $16.34 million; current assets were $22.21 million and current liabilities were $6.92 million. Total liabilities were $16.94 million. Cash used in operating activities was $7.43 million for the first half; cash declined by $6.03 million to $16.34 million after investing, financing and currency effects.
At June 30, debt principal was $10 million, bearing interest at 9.16% (prime plus 3.66%); the debt is secured and matures April 1, 2022. On July 31, the company drew an additional $5 million under the amended facility, bringing outstanding principal to $15 million. The amendment extended the interest-only period through April 2020, with a possible extension through October 2020 subject to covenant compliance.
Changes versus the prior comparable period
- Q2 total revenue increased 8% year over year; product sales rose 12%. Six-month total revenue increased 7% and product sales rose 8%.
- Growth reflected higher direct sales, partly offset by lower distributor sales in the first half. A weaker euro reduced reported product sales by an estimated $357,000 in Q2 and $737,000 for the first half.
- Product gross margin improved to approximately 76% in Q2 from 74%, and to 75% for the first half from 74%.
- R&D expense rose to $2.93 million in Q2 and $5.35 million for the first half, primarily due to REFRESH 2-AKI clinical-trial costs. SG&A declined year over year, mainly because prior-year stock-based compensation was higher.
- Net loss narrowed year over year, to $3.55 million in Q2 from $5.82 million and to $8.43 million for the first half from $8.80 million. The comparison benefited from lower interest expense, including the absence of a $637,000 Bridge Bank success-fee charge recorded in 2018; Q2 also included a $297,000 foreign-currency gain versus a $794,000 loss a year earlier.
Outlook, risks and notable items
- Management said cash was expected to fund operations into 2020, but anticipated needing additional capital for ongoing operations and clinical trials. The company recorded continuing losses, had an accumulated deficit of $177.96 million, and disclosed substantial doubt about its ability to continue as a going concern; management also stated it believed cash was adequate for more than the next 12 months. These statements should be considered alongside the subsequent $5 million loan draw.
- The company entered a July 2019 at-the-market sales agreement allowing up to $25 million of common stock to be sold. The agreement provides a potential funding source but could dilute shareholders. A prior Cantor sales agreement was terminated in June 2019.
- As of August 6, REFRESH 2-AKI had enrolled 109 patients. Management anticipated completing enrollment by 2020, subject to delays, and planned a PMA submission in 2021 if the trial succeeds. HemoDefend’s planned U.S. pivotal trial was expected to begin in the second half of 2019.
- Key risks include ongoing losses and financing needs; uncertain clinical outcomes, regulatory approvals and reimbursement; compliance with the EU Medical Devices Regulation applicable from May 2020; foreign-exchange exposure; and commercial concentration in Germany. The filing reported no current legal proceedings and no material change in internal control over financial reporting; management considered disclosure controls effective.
- Other notable developments included expansion of direct sales in Poland and the Netherlands and selected Nordic countries, and the July loan amendment and draw. The company reported no off-balance-sheet arrangements.
Important facts for investors to verify
- Cash runway and expected financing needs, incorporating the $5 million July draw, future cash burn and any ATM share sales.
- REFRESH 2-AKI enrollment pace, completion timing, trial results and the path to a U.S. PMA submission.
- CytoSorb sales growth by geography and channel, including Germany exposure, euro impacts and distributor performance.
- Debt covenant compliance, interest-only extension conditions, repayment schedule and total financing costs.
- Progress toward EU Medical Devices Regulation recertification and the timing and funding of other clinical programs.