CytoSorbents Corporation — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. CytoSorbents develops and commercializes blood-purification devices. Its CytoSorb product is marketed in more than 70 countries and has EU approvals for several uses; U.S. COVID-19 use was under an FDA Emergency Use Authorization (EUA), not full FDA approval.
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $9.76m | $10.55m | $32.38m | $29.05m |
| Product sales | $8.90m | $10.25m | $30.41m | $27.92m |
| Gross profit | $7.30m | $7.66m | $24.46m | $20.52m |
| Operating loss | $(5.41)m | $(1.96)m | $(13.18)m | $(7.74)m |
| Net loss | $(6.41)m | $(0.84)m | $(15.25)m | $(7.16)m |
| Net loss per share | $(0.15) | $(0.02) | $(0.35) | $(0.19) |
- Product gross margin improved to 82% in Q3 and 80% for the nine-month period, compared with 74% and 73%, respectively, in 2020.
- Research and development expense increased to $4.26m in Q3 and $10.24m year to date, reflecting higher clinical-trial activity, clinical hiring and new-facility costs. SG&A also rose, to $7.78m in Q3 and $25.31m year to date.
- Foreign-exchange transaction losses were $1.01m in Q3 and $2.08m year to date, versus gains in the comparable 2020 periods. The nine-month net loss also reflects increased operating expenses despite higher revenue and improved product margins.
- Cash and cash equivalents were $61.04m at September 30, 2021, down from $71.42m at December 31, 2020. Nine-month operating cash use was $8.51m; investing cash use was $2.61m; financing provided $0.80m, primarily from option exercises.
- Current assets were $72.75m and current liabilities $11.07m. The company reported no drawn long-term bank debt at quarter-end; lease liabilities totaled $13.65m, largely reflecting its new facility lease. A previously repaid bank loan had been replaced by an undrawn $15m borrowing commitment available for 12 months from December 2020.
- Management said cash should fund operations well beyond the next 12 months and that going-concern risk was substantially mitigated. Accumulated deficit was $211.88m.
Material changes and management commentary
- Q3 product sales fell 13% year over year, mainly due to lower direct sales in Germany amid pandemic-related hospital restrictions and reduced elective surgery. Management estimated about $1.1m of Q3 product sales was COVID-related, versus $2.7m a year earlier; U.S. EUA sales were about $0.58m.
- Nine-month product sales rose 9%, with increases in direct and distributor sales. Management estimated $4.6m was COVID-related; U.S. EUA sales were about $1.24m. A stronger average euro also increased reported product sales by approximately $1.61m.
- Grant income increased 185% in Q3 to $0.86m and 75% year to date to $1.97m as grant-related work resumed. Revenue remaining to be earned on open grant contracts was $11.3m.
- The company began the pivotal U.S. STAR-T trial for ticagrelor removal, with the first patient enrolled in October 2021; it expected enrollment completion in 2022, subject to pandemic delays. FDA IDE approval for the STAR-D trial covering apixaban and rivaroxaban was also received in October, with enrollment expected to begin in Q1 2022.
- Management reported that the pandemic continued to impede hospital access, clinical-trial enrollment, research staffing and blood supplies for development work. It expected COVID-related revenue to decline as the pandemic eased and said Q4 2021 could face a similar market impact to Q3; no formal revenue or earnings guidance was provided.
Risks, contingencies and unusual items
- German customs authorities assessed approximately $641,000 for import taxes through 2020 following a dispute over device classification. The amount was accrued at September 30 and paid in October 2021. MD&A separately cites approximately $732,000 of nonrecurring prior-year tariff costs, so investors may wish to reconcile the amounts.
- The new New Jersey operating-facility lease resulted in a $13.65m right-of-use asset and lease liability at quarter-end; the stated remaining lease term is 15.5 years. The company also provided a letter of credit of approximately $1.33m as security.
- The German REMOVE randomized trial in infective endocarditis reported that CytoSorb reduced cytokines but did not improve its primary organ-dysfunction endpoint or secondary endpoints, including 30-day mortality. Investigators reported no signal of harm; further exploratory analyses were planned.
- COVID-19 may continue to disrupt sales, supply chains, staffing, clinical trials and regulatory timelines. Results are also exposed to euro-dollar movements and seasonal sales fluctuations. The company reported no current legal proceedings and no material change to previously disclosed risk factors other than updated pandemic and seasonality risks.
Key facts for investors to verify
- Whether German hospital conditions and CytoSorb sales recover, and how much revenue can be sustained as COVID-related demand declines.
- Enrollment progress, timing and clinical results for STAR-T, STAR-D, REFRESH 2-AKI and other key studies; FDA marketing approval remains uncertain.
- The practical impact of the REMOVE trial’s lack of demonstrated benefit on future clinical strategy and adoption.
- Cash consumption relative to the $61.04m cash balance, planned R&D and commercial spending, and the availability and terms of the undrawn bank commitment.
- The resolution and accounting treatment of the German customs assessment, and the company’s sensitivity to foreign-exchange movements and long-term lease commitments.