CytoSorbents Corporation — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. CytoSorbents develops and sells blood-purification products, led by CytoSorb, and conducts grant-funded research. CytoSorb is marketed in more than 70 countries; it is not FDA-approved for commercial sale in the United States. The FDA’s COVID-19 Emergency Use Authorization is limited to specified circumstances.
Financial performance and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $8.50 million | $12.02 million | $17.19 million | $22.62 million |
| Product sales | $7.33 million | $11.37 million | $15.26 million | $21.51 million |
| Grant income | $1.16 million | $0.66 million | $1.93 million | $1.11 million |
| Gross profit | $4.94 million | $9.31 million | $11.36 million | $17.16 million |
| Operating loss | $(8.36) million | $(4.92) million | $(16.15) million | $(7.78) million |
| Net loss | $(10.88) million | $(4.68) million | $(19.85) million | $(8.85) million |
| Net loss per share | $(0.25) | $(0.11) | $(0.46) | $(0.20) |
- Q2 total gross margin was about 58%; first-half total gross margin was about 66%. Management reported product gross margins of 67% and 74%, respectively, versus 82% and 79% in the comparable periods.
- First-half operating cash outflow was $16.16 million, investing cash outflow was $5.53 million, and financing cash outflow was $0.04 million. Cash, cash equivalents and restricted cash declined by $21.97 million from year-end to $31.85 million.
- At June 30, cash and cash equivalents were $30.16 million, with another $1.69 million restricted. Current assets were $41.65 million and current liabilities were $10.55 million. The company reported $23.65 million total liabilities, including $13.51 million in lease liabilities.
- No term-loan balance is reported. The company had access to up to $15 million of undrawn term loans and $25 million under its ATM facility; it reported no sales under the ATM agreement.
Material changes and management commentary
- Product sales declined 36% in Q2 and 29% in the first half year over year. Management attributed the decrease principally to weaker German demand amid COVID-related hospital restrictions and reduced COVID-19 treatment demand, as well as unfavorable euro exchange rates. The weaker euro reduced first-half product sales by an estimated $1.4 million.
- Grant income rose 77% in Q2 and 73% in the first half, partly because research and development staff were focused on grant and R&D work in 2022.
- Q2 product margin was pressured by production relocation inefficiencies at the new Princeton facility and a higher share of lower-margin distributor sales. Management said the relocation was expected to be completed by year-end and expected margins to recover as efficiencies improve.
- Research and development expense rose 41% in the first half, primarily due to increased STAR-T and STAR-D trial activity. Selling, general and administrative expense was broadly flat year over year for the first half, with higher personnel, marketing, travel and occupancy costs offset by lower royalty and stock-compensation expense.
- First-half foreign-currency transaction loss was $3.74 million, versus $1.07 million in 2021. A $0.43 million patent impairment charge was recorded during the first half.
Outlook, risks and contingencies
- Management stated that available cash was expected to fund operations beyond 12 months from issuance of the financial statements, with undrawn debt and ATM capacity as additional potential liquidity. It also described Q2 cash burn of about $12.9 million, including $4.8 million of nonrecurring facility-related spending; excluding specified factors, management estimated Q2 burn at about $6.5 million.
- In April 2022, the company began tighter cost controls that management expected to reduce planned cash burn by a further $2 million per quarter, and said it was pursuing additional operating-cost reductions. Management also expected to release about $1 million from inventory by year-end.
- Clinical timelines remain uncertain. STAR-T and STAR-D enrollment was affected by COVID-related staffing constraints at study sites; management expected enrollment completion in 2023. Other studies also faced delays, including Hep-On-Fire, which had not begun enrollment.
- Risks include continued weakness in product demand, hospital access and staffing constraints, euro-dollar movements, clinical-trial execution, and manufacturing-transition costs. The company reported a $598,000 accrual for a German payroll-tax and social-cost audit that was ongoing.
- On August 1, 2022, after quarter-end, the company entered a three-year global marketing agreement with Fresenius, excluding the United States. It provides for an initial royalty of 0.9% of eligible CytoSorb net sales, subject to adjustment.
- The company reported no current legal proceedings and no off-balance-sheet arrangements. Management concluded disclosure controls were effective and that the going-concern risk was substantially mitigated.
Important facts for investors to verify
- Whether product sales, particularly in Germany, recover as hospital access improves and whether reported currency effects persist.
- Whether manufacturing relocation is completed on schedule and product gross margins recover as management expects.
- Actual cash burn and the effect of cost controls, inventory reduction, ATM use or any debt draw on the company’s cash runway and dilution.
- STAR-T and STAR-D enrollment progress, regulatory milestones, and any changes to other clinical-study timelines.
- The outcome of the German payroll-tax audit and the final terms and financial impact of the Fresenius agreement.