On May 7, 2019 CytoSorbents Corporation (NASDAQ: CTSO), a critical care immunotherapy leader using its CytoSorb blood purification technology to treat deadly inflammation in critically-ill and cardiac surgery patients around the world, reported financial and operational results for the quarter ending March 31, 2019 (Press release, Cytosorbents, MAY 7, 2019, View Source [SID1234535859]).
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First Quarter 2019 Financial Results:
Total revenue for Q1 2019 was $5.2 million, including both product sales and grant income, compared to $4.9 million in Q1 2018
Product sales for Q1 2019 were $4.6 million, compared to $4.4 million for Q1 2018. Adjusted first quarter 2019 product sales would have been approximately $4.9 million, after reflecting changes in the Euro to dollar exchange rate between periods
Direct sales continue to expand and achieved new highs, reflecting 18% quarterly growth year-over-year, and 4% sequential growth compared to Q4 2018. Results do not yet materially reflect additions to the sales infrastructure, and new direct territories added in Q1 2019
Distributor sales were affected by anticipated short-term issues from three distributors. As disclosed previously, Fresenius Medical Care is transitioning to new exclusive sales territories (e.g. Mexico, South Korea, Czech Republic) while maintaining France and Finland, and did not order in Q1 2019 as it sells through non-transferable European product inventory. Meanwhile, two other distributors temporarily paused from ordering to rebalance inventory, but have strong and growing end user demand for CytoSorb. We expect these issues to resolve before or during the second half of 2019
Product gross margins for Q1 2019 and Q1 2018 were 74%
Strong cash position of $19.6 million at March 31, 2019
First Quarter 2019 Operational Highlights:
Exceeded 61,000 cumulative CytoSorb treatments delivered, an increase from 40,000 a year ago
Expanded partnership with Fresenius Medical Care to include an expansion of its exclusive distribution agreement to sell CytoSorb in Mexico, South Korea, and the Czech Republic, while maintaining France and Finland
Following a review of the first 50 patients, the independent Data Safety Monitoring Board (DSMB) and Scientific Advisory Board (SAB) recommended continuation of the German government-funded REMOVE endocarditis trial. The trial has now enrolled 180 patients, or nearly 75% of the targeted 250 patients, at 15 active sites
The REFRESH 2-AKI company-sponsored pivotal trial has increased enrollment to 79 patients at 23 clinical trial sites, and has attained approximately 20% of a targeted 400 patient enrollment
HemoDefend-RBC tooling delays have been resolved, parts have been manufactured, and clinical trial devices are being assembled. Meanwhile, an FDA investigational device exemption (IDE) submission is targeted for the second half of this year. A contract research organization (CRO) has been selected to manage the pivotal trial and has begun clinical site negotiations
Hosted the 6th International CytoSorb Users Meeting in Brussels, Belgium, in connection with the 39th International Symposium of Intensive Care and Emergency Medicine (ISICEM)
Dr. Phillip Chan, Chief Executive Officer of CytoSorbents Corporation stated, "Q2 2019 product sales are expected to return to our historical growth trajectory, and are anticipated to be the highest quarterly product sales reported in our history. In addition, we continue to forecast strong revenue growth for all of 2019, despite a slow start in Q1, based on numerous growth opportunities we see."
Dr. Chan continued, "Specifically, we anticipate CytoSorb direct sales will continue strengthening and accelerate into the second half of this year, driven by organic growth, our investments in a larger direct sales team – particularly in Germany, reimbursement, contributions from new direct territories including Poland, Netherlands, and Scandinavia, new clinical data and applications, and other catalysts."
"In addition, we believe the factors that impacted Q1 indirect sales are short-term and specific to the three distributors as described above. For example, Fresenius (FMC) is selling through its European inventory of CytoSorb in France and Finland, while it begins sales in the Czech Republic and pursues registration of CytoSorb in both Mexico and South Korea. It is expected that FMC will order new CytoSorb devices for these countries once registration is achieved. We are encouraged that each of these customers has increased their commitment to selling CytoSorb, including aggressively pursuing new indications, increasing resource allocation, and working closely with our company to drive success. Importantly, we see end-user demand increasing in their territories, based on the excellent foundation they have established. Over the next several quarters, we expect a resumption of ordering from all three groups. Of special note, we do not require these orders to achieve our guidance for Q2 2019." Dr. Chan concluded, "Lastly, we reiterate our guidance on expanding our blended product gross margins to 80% on a quarterly basis this year."
"Please join us on our earnings conference call today, details for which are below."
Conference Call Details:
Date: Tuesday, May 7, 2019
Time: 4:45 PM Eastern Time
Participant Dial-In: 877-451-6152
Conference ID: 13690052
Live Presentation Webcast: View Source
It is recommended that participants dial in approximately 10 minutes prior to the start of the call. There will also be a simultaneous live webcast of the conference call that can be accessed through the following audio feed link: View Source
An archived recording of the conference call will be available under the Investor Relations section of the Company’s website at View Source
Results of Operations
Comparison for the three months ended March 31, 2019 and 2018:
Revenues:
Revenue from product sales was approximately $4,577,000 in the three months ended March 31, 2019, as compared to approximately $4,433,000 in the three months ended March 31, 2018 an increase of approximately $144,000, or 3%. This increase was driven by an increase in direct sales of approximately $624,000 resulting from sales to both new customers and repeat orders from existing customers, offset by a decrease in distributor sales of approximately $480,000. In addition, first quarter 2019 sales were negatively impacted by $363,000 as a result of the decrease in the average exchange rate of the Euro. For the three months ended March 31, 2019, the average exchange rate of the Euro to the U.S. dollar was $1.14 as compared to an average exchange rate of $1.23 for the three months ended March 31, 2018.
Grant income was approximately $615,000 for the three months ended March 31, 2019 as compared to approximately $491,000 for the three months ended March 31, 2018, an increase of approximately $124,000 or 25%. This increase was a result of timing of certain grant revenue and income recognized from a new grant.
Total revenues were approximately $5,192,000 for the three months ended March 31, 2019, as compared to total revenues of approximately $4,925,000 for the three months ended March 31, 2018, an increase of approximately $267,000, or 5%.
Cost of Revenues:
For the three months ended March 31, 2019 and 2018, cost of revenue was approximately $1,739,000 and $1,568,000, respectively, an increase of approximately $171,000. Product cost of revenues increased approximately $52,000 during the three months ended March 31, 2019 as compared to the three months ended March 31, 2018 due to increased sales. Product gross margins were approximately 74% for each of the three months ended March 31, 2019 and 2018.
Research and Development Expenses:
For the three months ended March 31, 2019, research and development expenses were approximately $2,419,000 as compared to research and development expenses of approximately $1,725,000 for the three months ended March 31, 2018. The increase of approximately $694,000 was due to an increase in clinical trial costs of approximately $888,000, which is primarily related to our REFRESH 2-AKI trial and an increase in non-clinical research and development salary related costs of approximately $9,000. These increases were offset by an increase in direct labor and other costs being deployed toward grant-funded activities of approximately $118,000, which had the effect of decreasing the amount of our non-reimbursable research and development costs, a decrease in new product development costs of approximately $67,000 and a decrease of other non-clinical research and development costs of approximately $18,000.
Legal, Financial and Other Consulting Expense:
Legal, financial and other consulting expenses were approximately $562,000 for the three months ended March 31, 2019, as compared to approximately $416,000 for the three months ended March 31, 2018. The increase of approximately $146,000 was due to an increase in legal fees of approximately $167,000 related to patent matters and certain corporate initiatives and an increase in consulting fees of approximately $18,000. These increases were offset by a decrease in employment agency fees of approximately $36,000 and a decrease in accounting fees of approximately $3,000.
Selling, General and Administrative Expense:
Selling, general and administrative expenses were approximately $4,758,000 for the three months ended March 31, 2019, as compared to approximately $4,317,000 for the three months ending March 31, 2018. The increase of $441,000 was due to an increase in salaries, commissions and related costs of approximately $424,000, an increase in travel and entertainment and other costs of approximately $142,000, additional sales and marketing costs, which include advertising and conferences of approximately $88,000, an increase in royalty expenses of approximately $7,000 due to the increase in product sales, an increase in rent expense of approximately $11,000 related to the expansion of manufacturing and office facilities and an increase in other general and administrative cost increases of approximately $21,000. These increases were offset by a decrease in non-cash stock compensation of approximately $252,000.
Interest Expense, net:
For the three months ended March 31, 2019, interest expense was approximately $205,000, as compared to interest expense of approximately $239,000 for the three months ended March 31, 2018. This decrease in interest expense of approximately $34,000 is due to an increase in interest earned on our cash balances during the three months ended March 31, 2019.
Gain (Loss) on Foreign Currency Transactions:
For the three months ended March 31, 2019, the loss on foreign currency transactions was approximately $(393,000) as compared to a gain of approximately $358,000 for the three months ended March 31, 2018. The 2019 loss is directly related to the decrease in the exchange rate of the Euro to the U.S. dollar at March 31, 2019 as compared to December 31, 2018. The exchange rate of the Euro to the U.S. dollar was $1.12 per Euro at March 31, 2019, as compared to $1.15 per Euro at December 31, 2018. The 2018 gain is directly related to the increase in the exchange rate of the Euro at March 31, 2018 as compared to December 31, 2017. The exchange rate of the Euro to the U.S. dollar was $1.23 per Euro at March 31, 2017 as compared to $1.07 per Euro at December 31, 2017.
History of Operating Losses:
We have experienced substantial operating losses since inception. As of March 31, 2019, we had an accumulated deficit of approximately $174,408,000, which included losses of approximately $4,884,000 and $2,982,000 for the three-month periods ended March 31, 2019 and 2018, respectively. Historically, losses have resulted principally from costs incurred in the research and development of our polymer technology, clinical studies, and general and administrative expenses.
Liquidity and Capital Resources
Since inception, our operations have been primarily financed through the issuance of debt and equity securities. At March 31, 2019, we had current assets of approximately $24,828,000 including cash on hand of approximately $19,647,000, and current liabilities of approximately $6,711,000.
We believe that we have sufficient cash to fund our operations into 2020.
2019 Second Quarter Revenue Guidance
CytoSorbents has not historically given specific financial guidance on quarterly results until the quarter has been completed. However, Q2 2019 product sales are expected to return to our historical growth trajectory, and are anticipated to be the highest quarterly product sales reported in our history.
For additional information, please see the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 filed on March 7, 2019 on View Source