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Item 2. Management’s Discussion and Analysis

2020-11-04 compared with 2020-08-04 · 154 added, 390 removed, 114 unchanged (83% of the section changed)

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We are a leader in critical care immunotherapy, investigating and commercializing our CytoSorb blood purification technology to reduce deadly uncontrolled inflammation in hospitalized patients around the world, with the goal of preventing or treating multiple organ failure in life-threatening illnesses and cardiac surgery.

Organ failure is the cause of nearly half of all deaths in the intensive care unit ("ICU"), with little to improve clinical outcome.

CytoSorb, our flagship product, is approved in the European Union ("EU") as a safe and effective extracorporeal cytokine filter and is designed to reduce the "cytokine storm"

that could otherwise cause massive inflammation, organ failure and death in common critical illnesses such as sepsis, burn injury, trauma, lung injury, and pancreatitis.

Organ failure is the cause of nearly half of all deaths in the intensive care unit (“ICU”), with little to improve clinical outcome.

CytoSorb, our flagship product, is approved in the European Union (“EU”) as a safe and effective extracorporeal cytokine filter and is designed to reduce the “cytokine storm” that could otherwise cause massive inflammation, organ failure and death in common critical illnesses such as sepsis, burn injury, trauma, lung injury, and pancreatitis.

These are conditions where the mortality is extremely high, yet no effective treatments exist.

In May 2018, we received a label expansion for CytoSorb covering use of the device for the removal of bilirubin and myoglobin in the treatment of liver disease and trauma, respectively, and in January 2020, we received a further label expansion for CytoSorb covering the use of the device for the removal of the anti-platelet agent, ticagrelor, in patients undergoing cardiothoracic surgery requiring cardiopulmonary bypass.

In May 2020, we received a label expansion for CytoSorb for the removal of rivaroxaban during cardiothoracic surgery requiring cardiopulmonary bypass.

In April 2020, the United States Food and Drug Administration (the "FDA") granted Breakthrough Designation to CytoSorb for the removal of ticagrelor in a cardiopulmonary bypass circuit during emergent and urgent cardiothoracic surgery.

CytoSorb is used during and after cardiac surgery to remove inflammatory mediators, such as cytokines, activated complement and free hemoglobin that can lead to post-operative complications, such as acute kidney injury, lung injury, shock, and stroke.

In May 2018, we received a label expansion for CytoSorb covering use of the device for the removal of bilirubin and myoglobin in the treatment of liver disease and trauma, respectively.

In January 2020, we received a further label expansion for CytoSorb covering the use of the device for the removal of the anti-platelet agent, ticagrelor, in patients undergoing surgery requiring cardiopulmonary bypass.

We believe the current addressable market in the United States for ticagrelor removal in cardiac surgery is approximately $250 million, assuming FDA approval for CytoSorb in this application and a price per CytoSorb device of $5,000.

In the event that CytoSorb also obtains FDA approval to remove novel oral anticoagulants (“NOACs”) such as rivaroxaban and apixaban, we believe the total addressable market in the United States for ticagrelor and NOAC removal during cardiac surgery could potentially increase to approximately $500 million.

In the event that CytoSorb obtains FDA approval to be used prophylactically to remove ticagrelor and NOACs in all patients undergoing surgery, we believe it would potentially expand the total addressable market in the United States to approximately $1.5 billion.

CytoSorb is used during and after cardiac surgery to remove inflammatory mediators, such as cytokines, activated compliment and free hemoglobin that can lead to post-operative complications, such as acute kidney injury, lung injury, shock, and stroke.

We believe CytoSorb has the potential to be used in many other inflammatory conditions, including the treatment of autoimmune disease flares, cytokine release syndrome in cancer immunotherapy, and other applications in cancer, such as cancer cachexia.

CytoSorb has been used globally in more than 110,000 human treatments to date in critical illnesses and in cardiac surgery.

CytoSorb has received CE-Mark label expansions for the removal of bilirubin (liver disease), myoglobin (trauma) and both ticagrelor and rivaroxaban during cardiothoracic surgery.

CytoSorb has also received FDA Emergency Use Authorization in the United States for use in critically-ill COVID-19 patients with imminent or confirmed respiratory failure, in defined circumstances.

We expect that the Emergency Use Authorization for CytoSorb will remain effective through to spring 2021.

CytoSorb has been used globally in more than 2,800 human treatments to date in COVID-19 patients.

CytoSorb has also been granted FDA Breakthrough Designation for the removal of ticagrelor in a cardiopulmonary bypass circuit during emergent and urgent cardiothoracic surgery.

Our purification technologies are based on biocompatible, highly porous polymer beads that can actively remove toxic substances from blood and other bodily fluids by pore capture and surface adsorption.

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and internationally.

We have numerous product candidates under development based upon this unique blood purification technology, including HemoDefend, ContrastSorb, DrugSorb, and others.

In March 2011, CytoSorb was “CE Marked” in the EU as an extracorporeal cytokine filter indicated for use in clinical situations where cytokines are elevated, allowing for commercial marketing.

In October 2020, we announced the E.U.

approval of the ECOS-300CY™ adsorption cartridge for use with ex vivo organ perfusion systems to remove cytokines and other inflammatory mediators in the organ perfusate, with the goal of improving solid organ support or rehabilitation.

We have numerous other product candidates under development based upon this unique blood purification technology, including CytoSorb XL, HemoDefend-RBC, HemoDefend-BGA, ContrastSorb, DrugSorb, and others.

In March 2011, CytoSorb was “CE Marked” in the E.U as an extracorporeal cytokine filter indicated for use in clinical situations where cytokines are elevated, allowing for commercial marketing.

The CE Mark demonstrates that a conformity assessment has been carried out and the product complies with the Medical Devices Directive.

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By potentially preventing or treating organ failure, CytoSorb may improve clinical outcome, including survival, while reducing the need for costly ICU treatment, thereby potentially saving significant healthcare costs.

Our CE Mark enables CytoSorb to be sold throughout the European Union and member states of the European Economic Area.

In addition, many countries outside the EU accept the CE Mark for medical devices, but may also require registration with or without additional clinical studies.

The broad indication for which CytoSorb is CE Marked allows it to be used “on-label” in diseases where cytokines are elevated including, but not limited to, critical illnesses such as those mentioned above, autoimmune disease flares, cancer cachexia, and many other conditions where cytokine-induced inflammation plays a detrimental role.

As part of the CE Mark approval process, we completed our randomized, controlled, European Sepsis Trial amongst 14 trial sites in Germany in 2011, with enrollment of 100 patients with sepsis and respiratory failure.

The trial established that CytoSorb was sufficiently safe in this critically-ill population, and that it was able to broadly reduce key cytokines in the blood of these patients.

In this first study, CytoSorb was used intermittently, 6 hours a day.

CytoSorb is currently used to treat patients continuously, which is deemed to be more effective.

We plan to conduct larger, prospective studies in septic patients in the future to confirm the European Sepsis Trial findings.

In addition to CE Marking, we also achieved ISO 13485:2003 Full Quality Systems certification, an internationally recognized quality standard designed to ensure that medical device manufacturers have the necessary comprehensive management systems in place to safely design, develop, manufacture and distribute medical devices in the EU.

We manufacture CytoSorb at our manufacturing facilities in New Jersey for commercial sales abroad and for additional clinical studies, the expansion of which we officially completed in June 2018.

Upon expanding our facility we quadrupled our manufacturing capacity and completed an audit upgrade from an ISO 13485:2003 certification to an ISO 13485:2016 certification.

In late June 2012, following the establishment of our European subsidiary, CytoSorbents Europe GmbH, a wholly-owned operating subsidiary of CytoSorbents Corporation, we began the commercial launch of CytoSorb in Germany with the hiring of Dr.

Christian Steiner as Vice President of Sales and Marketing and three additional sales representatives who joined us and completed their sales training during the third quarter of 2012.

The fourth quarter of 2012 represented the first quarter of direct sales with the full sales team in place.

During this period, we expanded our direct sales efforts to include both Austria and Switzerland.

Fiscal year 2013 represented the first full year of CytoSorb commercialization.

We focused our direct sales efforts in Germany, Austria and Switzerland with four sales representatives.

The focus of the team was to encourage acceptance and usage by key opinion leaders (“KOLs”) throughout these countries.

We believe our relationships with KOLs are essential to drive adoption and recurrent usage of CytoSorb, facilitate purchases by hospital administration, arrange reimbursement, and generate data for papers and presentations.

As of the end of 2019, we had hundreds of KOLs in our commercialized territories worldwide in critical care, cardiac surgery, and blood purification, who were either using CytoSorb or supporting its use in clinical practice or clinical trials.

In March 2016, we established CytoSorbents Switzerland GmbH, a wholly-owned subsidiary of CytoSorbents Europe GmbH, to conduct marketing and direct sales in Switzerland.

This subsidiary began operations during the second quarter of 2016.

In 2017, we further expanded our direct sales efforts into Belgium and Luxembourg.

In May 2018, the approved uses of CytoSorb in the EU were expanded to include the removal of bilirubin in liver disease, and the removal of myoglobin in trauma.

On March 5, 2019, we announced the expansion of direct sales of CytoSorb for all applications to Poland and the Netherlands, and critical care applications to Sweden, Denmark and Norway.

As part of this effort we established CytoSorbents Poland Sp.

z.o.o., a wholly-owned subsidiary of CytoSorbents Europe GmbH.

In the third quarter of 2019, we established CytoSorbents UK Limited, a wholly-owned subsidiary of CytoSorbents Medical, Inc., to manage our clinical trial activities in the United Kingdom.

In August 2019, we announced that CytoSorb had received renewal of its European Union CE Mark through May 2024 and ISO 13485:2016 Full Quality Assurance System certification of its manufacturing facility through September 2022.

In addition, we now have more than 60 investigator-initiated studies and additional Company sponsored trials that are currently planned, enrolling or completed in Europe and elsewhere outside of the United States.

We believe that these trials, which are conducted and supported by what we believe to be well-known university hospitals and KOLs, are the equivalent of Phase 3 and Phase 4 clinical studies.

We believe they will provide invaluable information regarding the success of the device in the treatment of sepsis, cardio-pulmonary bypass surgery, trauma, and many other indications, and if successful, may be integral in helping to drive additional usage and adoption of CytoSorb.

In January 2020, we received CE-Mark label expansion approving the use of CytoSorb to remove the anti-platelet agent, ticagrelor, in cardiac patients during surgery requiring cardiopulmonary bypass.

In April 2020, we announced that the FDA has granted Emergency Use Authorization ("EUA") of CytoSorb for use in patients with COVID-19 infection.

Under the EUA, we can make CytoSorb available, through commercial sales, to all hospitals in the United States for use in patients, 18 years of age or older, with confirmed COVID-19 infection who are admitted to the ICU with confirmed or imminent respiratory failure who have early acute lung injury or acute respiratory distress syndrome (“ARDS”), severe disease, or life-threatening illness resulting in respiratory failure, septic shock, and/or multiple organ dysfunction or failure, as described in FDA's authorization.

Under the EUA, we plan to ramp up the availability of CytoSorb in a controlled manner, to clinical centers that will work with us to generate data and leverage our knowledge of how to use the device most effectively.

The CytoSorb device has been authorized by FDA under an EUA.

It has neither been cleared nor approved for the indication to treat patients with COVID-19 infection.

The EUA will be effective until a declaration is made that the circumstances justifying the EUA have terminated or until revoked by the FDA.

In April 2020, we announced that the FDA has granted Breakthrough Designation to CytoSorb for the removal of ticagrelor in a cardiopulmonary bypass circuit during emergent and urgent cardiothoracic surgery.

The Breakthrough Devices Program provides for more effective treatment of life-threatening or irreversibly debilitating disease or conditions, in this case the need to reverse the effects of ticagrelor in emergent or urgent cardiac surgery that can otherwise cause a high risk of serious or life-threatening bleeding.

Through Breakthrough Designation, FDA will work with CytoSorbents to expedite the development, assessment, and regulatory review of CytoSorb for the removal of ticagrelor, while maintaining statutory standards of regulatory approval (e.g., 510(k), de novo 510(k) or premarket approval (PMA)) consistent with the FDA’s mission to protect and promote public health.

In May 2020, we received CE-Mark label expansion approving the use of CytoSorb for the removal of rivaroxaban, a widely-used Factor Xa inhibitor and novel oral anticoagulant, during cardiothoracic surgery requiring cardiopulmonary bypass.

With this announcement, and the E.U.

approval earlier this year to remove ticagrelor, for the same indication, CytoSorb is providing cardiac surgeons and perfusionists an easy-to-use and rapid new treatment option to help reduce the risk of serious and potentially fatal perioperative bleeding complications caused by these two drugs, in separate categories of blood thinners.

As of August 1, 2020, our European commercialization team included 84 people.

Overall, we have established either direct sales or distribution (via distributors or strategic partners) of CytoSorb in 65 countries worldwide.

Registration of CytoSorb is typically required in each of these countries prior to active commercialization.

With CE Mark approval, this can be typically achieved within several months in EU countries.

Outside of the EU, the process is more variable and can take several months to more than a year due to different requirements for documentation and clinical data.

Variability in the timing of registration affects the initiation of active commercialization in these countries, which affects the timing of expected CytoSorb sales.

We actively support all of our distributors and strategic partners in the product registration process.

We cannot generally predict the timing of these registrations, and there can be no guarantee that we will ultimately achieve registration in countries where we have established distribution.

For example, in August 2014 we announced exclusive distribution of CytoSorb in Taiwan with Hemoscien Corporation.

However, in March 2015, due to the complexity we encountered with Taiwanese product registration, we elected to terminate our agreement with Hemoscien.

Outside of the EU, CytoSorb has distribution in Turkey, India, Sri Lanka, Australia, New Zealand, Russia, Serbia, Norway, Vietnam, Malaysia, Hong Kong, Chile, Panama, Costa Rica, Colombia, Brazil, Mexico, Argentina, Perú, Guatemala, Ecuador, Bolivia, the Dominican Republic, El Salvador, Iceland, Israel, UAE, Iran, Saudi Arabia and other Middle Eastern countries, and South Korea.

We cannot guarantee that we will generate meaningful sales in the countries where we have established registration, due to other factors such as market adoption and reimbursement.

For example, in December 2019, we discontinued our distributor relationship with Dr.

Reddy’s in South Africa.

We continuously evaluate other potential distributor and strategic partner networks in other countries that accept CE Mark approval.

In February 2020, we announced an agreement with China Medical System Holdings Limited (“CMS”), a well-established, innovation-driven specialty pharma with a focus on sales and marketing in China and Asia, to bring CytoSorb to mainland China to treat critically-ill patients with COVID-19 coronavirus infection.

Under the terms of the agreement, CytoSorbents and CMS partnered together to earn regulatory clearance to import CytoSorb into China under the “fast-track” review process established by the National Medical Products Administration of the People’s Republic of China (NMPA) to respond to the COVID-19 pandemic.

CytoSorbents donated the initial CytoSorb devices and provided product, training, and support to CMS to introduce CytoSorb initially into four hospitals in the Wuhan, China area.

The therapy was evaluated in 17 severe COVID-19 coronavirus patients with a systemic inflammatory response who were treated with either continuous renal replacement therapy (“CRRT”) or extracorporeal membrane oxygenation (“ECMO”).

During the initial term of the agreement, CytoSorbents and CMS will explore the possibility for future commercial collaboration in China.

The use of CytoSorb for the treatment of patients with severe COVID-19 coronavirus infection is considered exploratory in nature, and is currently not yet approved for commercial purposes in mainland China.

We have been working to expand the number and scope of our strategic partnerships.

In September 2013, we entered into a distribution agreement with Biocon Ltd.

(“Biocon”), India’s largest biopharmaceuticals company, under which Biocon was granted exclusive commercialization rights to the CytoSorb therapy in India and select emerging markets, initially focused on sepsis.

Biocon committed to annual minimum purchases to maintain exclusivity.

In October 2014, the Biocon partnership was expanded to include all critical care applications and cardiac surgery.

In addition, Biocon committed to higher annual minimum purchases of CytoSorb to maintain distribution exclusivity and committed to conduct and publish results from multiple investigator-initiated studies and patient case studies.

Under the terms of the expanded partnership, the term of the distribution agreement was extended to December 2022.

Biocon recently announced that CytoSorb has now received approval from the Drugs Controller General of India to treat COVID-19 patients in certain instances.

In December 2014, we entered into a multi-country strategic partnership with Fresenius Medical Care AG & Co KGaA (together with its affiliates, as appropriate, “Fresenius”) to commercialize the CytoSorb therapy.

Under the agreement reflecting the terms of the partnership, Fresenius was granted exclusive rights to distribute CytoSorb for critical care applications in France, Poland, Sweden, Denmark, Norway, and Finland.

The partnership allows Fresenius to offer an innovative and easy way to use blood purification therapy for removing cytokines in patients that are treated in the ICU.

To promote the success of CytoSorb, Fresenius agreed to also engage in the ongoing clinical development of the product.

This includes the support and publication of a number of small case series and patient case reports as well as the potential for future larger, clinical collaborations.

In May 2016, Fresenius launched the product in the six countries for which it was granted exclusive distribution rights.

In January 2017, the Fresenius partnership was expanded pursuant to a revised three-year agreement.

The terms of the revised agreement extended Fresenius’ exclusive distributorship of CytoSorb for all critical care applications in their existing territories through 2019 and include guaranteed minimum quarterly orders and payments, evaluable every one and a half years.

At the same time, we entered into a comprehensive co-marketing agreement with Fresenius.

Under the terms of the co-marketing agreement, CytoSorbents and Fresenius agreed to jointly market CytoSorb to Fresenius’ critical care customer base in all countries where CytoSorb is being actively commercialized.

CytoSorb continues to be sold by our direct sales force or through our international network of distributors and partners, while Fresenius sells all ancillary products to their customers.

Fresenius further provides written endorsements of CytoSorb for use with their multiFiltrate and multiFiltratePRO acute care dialysis machines that can be used by us and our distribution partners to promote CytoSorb worldwide.

Training and preparation for this co-marketing program began in five initial countries in 2017 and is continuing, with implementation of the co-marketing program in additional countries planned for the future.

In December 2018, the Fresenius agreement signed in December 2014 was amended, to grant Fresenius exclusive distribution rights for the Czech Republic and Finland and all critical care medicine and ICU applications on dialysis or ECMO machines for France.

In addition, in 2019, Poland, Sweden, Denmark, and Norway were transitioned into the co-marketing program.

Finally, the guaranteed minimum quarterly purchases and payments requirements were removed for 2019.

In addition, also in December 2018, we entered into agreements to expand the partnership with Fresenius into South Korea and Mexico.

Under the terms of these agreements, Fresenius has exclusive rights to distribute CytoSorb for acute care and other hospital applications in Korea and Mexico.

In March 2020, we announced that CytoSorb has been approved to be marketed and sold in Mexico the Federal Committee for Protection from Sanitary Risks or Comisión Federal para la Protección contra Riesgos Sanitarios, the country's health authority.

With this approval, commercial promotional activities and sales of CytoSorb may now officially commence in Mexico.

Commercial sales of CytoSorb are expected to commence in South Korea after securing market registration clearance from the country’s health authorities.

These multi-year agreements include an initial stocking order and are subject to annual minimum purchases of CytoSorb to maintain exclusivity.

These agreements, which commenced on January 1, 2019, have an initial term of three years and will automatically renew for an additional two years unless terminated by either party.

In 2015, we entered into a distribution agreement with Aferetica s.r.l., a distributor based in Bologna, Italy that specializes in the sale of certain medical products and devices, specifically extracorporeal therapies, in the critical care, cardiac surgery and liver disease markets (“Aferetica”).

Under the terms of the agreement, we granted Aferetica the exclusive right to distribute CytoSorb in Italy, San Marino and the Vatican for application in CRRT (Continuous Renal Replacement Therapies), dialysis and hemoperfusion machine run treatments, as described in the agreement.

In connection with the grant of distribution rights, Aferetica agreed to certain minimum purchase and inventory requirements.

Aferetica further agreed not to market or sell products competitive with CytoSorb in Italy, San Marino and the Vatican.

The agreement expired by its terms on December 31, 2019.

In January 2020, the agreement was amended extending the term to December 2023 and will automatically renew for an additional two years unless terminated by either party.

In addition, in September 2017, we announced a partnership with Aferetica to provide dedicated, branded sorbent cartridges for use with Aferetica’s proprietary PerLife™ ex-vivo organ perfusion system, with the goal of rehabilitating or preserving the function solid organs destined for eventual transplant.

In July 2018, Aferetica and CytoSorbents debuted the PerLife™ system for organ preservation at the 27 th International Congress of the Transplantation Society.

In July 2020, Aferetica received CE Mark registration of the system.

In September 2016, we entered into a multi-country strategic partnership with Terumo Cardiovascular Group (“Terumo”) to commercialize CytoSorb for cardiac surgery applications.

Under the terms of the agreement, Terumo has exclusive rights to distribute the CytoSorb cardiopulmonary bypass (“CPB”) procedure pack for intra-operative use during cardiac surgery in France, Sweden, Denmark, Norway, Finland and Iceland.

Terumo launched the product in these six countries in December 2016.

We continuously evaluate other potential distributor and strategic partner networks in other countries where we are approved to market the device.

Concurrent with our commercialization plans, we intend to conduct or support additional clinical studies in sepsis, cardiac surgery, and other critical care diseases to generate additional clinical data to expand the scope of clinical experience for marketing purposes, to increase the number of treated patients, and to support potential future publications.

In 2014, we completed a single arm, dose ranging trial in Germany amongst several clinical trial sites to evaluate the safety and efficacy of CytoSorb when used 24 hours per day for seven days, each day with a new device, and are conducting final statistical analysis of the data.

Patients were stratified for age, cytokine levels, and co-morbid illnesses in this matched pairs analysis.

In addition to the dosing study, we plan to use data generated and published in the more than 50 investigator-initiated studies and additional Company sponsored trials that are currently planned, enrolling or completed in Europe and elsewhere.

We believe that these trials, which are conducted and supported by what we believe to be well-known university hospitals and KOLs, are the equivalent of Phase 3 and Phase 4 clinical studies.

They will provide invaluable information regarding the success of the device in the treatment of sepsis, cardio-pulmonary bypass surgery, trauma, and many other indications, and if successful, may be integral in helping to drive additional usage and adoption of CytoSorb.

In addition to sepsis and other critical care applications, cardiac surgery is an important application for CytoSorb.

There are approximately one million cardiac surgery procedures performed annually in the U.S.

and EU combined including, for example, coronary artery bypass graft surgery, valve replacement surgery, heart and lung transplant, congenital heart defect repair, aortic reconstruction, and left ventricular assist device (“LVAD”) implantation.

Cardiac surgery can result in inflammation and the production of high levels of inflammatory cytokines, an activation of complement, and hemolysis, leading to the release of toxic plasma free hemoglobin.

These can lead to post-operative complications such as respiratory failure, circulatory failure, and acute kidney injury.

CytoSorb has a unique competitive advantage as a cytokine and free hemoglobin removal technology that can be used during the operative procedure and can be easily installed in a bypass circuit in a heart-lung machine without the need for an additional pump.

Direct cytokine and hemoglobin removal with CytoSorb enables it to replace the existing market for leukoreduction filters in cardiac surgery that attempt to indirectly reduce cytokines by capturing cytokine-producing leukocytes – an inefficient and suboptimal approach.

In February 2015, the FDA approved our Investigational Device Exemption (“IDE”) application to commence a planned U.S.

cardiac surgery feasibility study called REFRESH I (REduction of FREe Hemoglobin) amongst 20 patients and three U.S.

clinical sites.

The FDA subsequently approved an amendment to the protocol, expanding the study to a 40-patient randomized controlled study (20 treatment, 20 control) in eight clinical centers.

REFRESH I represented the first part of a larger clinical trial strategy intended to support the approval of CytoSorb in the U.S.

for intra-operative use during cardiac surgery.

The REFRESH I study was designed to evaluate the safety and feasibility of CytoSorb when used intra-operatively with a heart-lung machine to reduce plasma free hemoglobin (pfHb) and cytokines in patients undergoing complex cardiac surgery.

The study was not powered to measure effect on clinical outcomes.

The length, complexity and invasiveness of these procedures cause hemolysis and inflammation, leading to high levels of plasma free hemoglobin, cytokines, activated complement, and other substances.

These inflammatory mediators are correlated with the incidence of serious post-operative complications such as kidney injury, renal failure and other organ dysfunction.

The goal of CytoSorb is to actively remove these inflammatory and toxic substances as they are being generated during the surgery and reduce complications.

Enrollment was completed with 46 patients.

A total of 38 patients were evaluable for pfHb and completed all aspects of the study.

The primary safety and efficacy endpoints of the study were the assessment of serious device related adverse events and the change in plasma free hemoglobin levels, respectively.

On October 5, 2016, we announced positive top-line safety data.

In addition, following a detailed review of all reported adverse events in a total of 46 enrolled patients, the independent Data Safety Monitoring Board (“DSMB”) found no serious device related adverse events with the CytoSorb device, achieving the primary safety endpoint of the study.

In addition, the therapy was well-tolerated and technically feasible, implementing easily into the cardiopulmonary bypass circuit without the need for an additional external blood pump.

The REFRESH I study represented the first randomized controlled study demonstrating the safety of intra-operative CytoSorb use in patients undergoing high risk cardiac operations.

Investigators of the REFRESH I study submitted an abstract with data, including free hemoglobin data, from the REFRESH I study which was selected for a podium presentation at the American Association of Thoracic Surgery conference on May 1, 2017.

On May 5, 2017, we announced additional REFRESH I data, including data from the study on the reduction of pfHb and activated complement, and in May 2019, the manuscript of the REFRESH I study was electronically published in the journal, Seminars in Thoracic and Cardiovascular Surgery.

In December 2017, the FDA approved our IDE application for our REFRESH 2-AKI study, permitting us to conduct this pivotal study designed to provide the key safety and efficacy data needed to support United States regulatory approval for CytoSorb in cardiac surgery, which we plan to pursue via the PMA pathway.

The REFRESH 2-AKI study is a randomized, controlled, multi-center, clinical study designed to evaluate intraoperative CytoSorb use as a therapy to reduce the incidence and severity of AKI, as measured by Kidney Disease Improving Global Outcomes (KDIGO) criteria, following complex cardiac surgery.

Postoperative AKI following cardiac surgery is common and is associated with 1-5 year mortality, and is a risk factor for developing chronic kidney disease requiring hemodialysis in the future.

The study will enroll up to 400 patients at increased risk of cardiovascular surgery-associated AKI, undergoing elective, non-emergent open-heart surgery for either valve replacement, or aortic reconstruction with hypothermic cardiac arrest.

In April 2018, we announced the first patient enrollment into the pivotal U.S.

REFRESH 2-AKI study.

Based on the recommendations of key clinical advisors, a protocol amendment was submitted to the FDA on July 19, 2018 to improve operational aspects of the patient screening process and expand the inclusion criteria.

It was the preference of clinical trial sites to defer enrollment until the amendment was approved by the FDA, announced in September 2018.

On November 25, 2019 the Company announced a pause in enrollment for the REFRESH 2-AKI study.

The study’s Data Monitoring Committee (the “DMC”) recommended this pause following a blinded, interim, milestone review of clinical study data.

The DMC requested that additional clinical data and data analysis, not pre-specified in the current version of the protocol, be provided by the Company.

In addition, the Company appointed NAMSA as the new contract research organization (“CRO”) for the study to improve the monitoring of patient safety endpoints.

As of November 25, 2019, the study had enrolled 153 patients at 25 initiated sites.

Since then, the Company and its new CRO have completed a comprehensive program to re-monitor existing data, collect new data, and analyze the safety data from the 153 patients included in the trial to date.

These data were reviewed by the DMC resulting in a favorable opinion on safety, dated July 24, 2020, and the recommendation to resume the trial with only minor modifications.

Based on multiple reports, we believe that clinical trial activity in the U.S.

and in many countries abroad, with the exception of studies related to COVID-19, has slowed significantly due to the COVID-19 pandemic.

Because of this, we currently do not have good visibility on when the REFRESH 2-AKI trial will resume, if at all.

As an example, assuming a timely restart of the study in mid-year 2020 at the majority of our REFRESH 2-AKI trial sites, we believe we can reach a pre-specified interim analysis at 200 patients enrolled, where the DMC will evaluate the trial for safety and futility, by Q4 2020-Q1 2021.

Assuming steady enrollment at our trial sites, we may be able to complete enrollment of the targeted 400 patients in the REFRESH 2-AKI study by the end of 2021.

However, there can be no assurance the study will be restarted or will enroll patients in a timely manner.

This may trigger business and/or clinical decisions on the trial based on factors such as the cost, timing, probability of success of the study, and other factors.

Because of this, there can be no assurances that trial will continue or have a positive outcome.

However, if the study is successful, we plan to submit a PMA application to the FDA in 2022 for U.S.

regulatory approval.

The German government, via the German Federal Ministry of Education and Research, is funding a 250 patient, multi-center randomized, controlled study (“REMOVE”) using CytoSorb during valve replacement open heart surgery in patients with infective endocarditis.

The study enrolled its first patient in January 2018.

An interim analysis of the first 50 patients has been completed.

On February 4, 2019, Prof.

Frank Brunkhorst, Director of the Center for Clinical Studies at Jena University Hospital, who is providing management and oversight to the REMOVE study, and Prof.

Torsten Doenst, Director of the Clinic for Cardiac and Thoracic Surgery at the University of Jena, provided the following joint statement, “The Scientific Advisory Board (SAB) of the Center of Sepsis Control and Care (CSCC) and the Data Safety Monitoring Board (DSMB) of the REMOVE study recommended continuation of the study, based upon results of a pre-specified interim analysis that analyzed cytokine and vasoactive mediator levels as an indicator of the mechanistic mode of action of the device in 28 CytoSorb-treated patients and 22 control patients.

There were no device-associated adverse events in the CytoSorb group.” As of March 31, 2020, the study has completed enrollment with 288 patients enrolled.

The current plan for analysis of the study data and issuance of topline data is expected for Q3 2020, with a full analysis of data expected to be reported in the second half of 2020.

In September 2019, we announced that Hannover Medical School in Germany will begin the first clinical study, called CYTORELEASE, evaluating the use of CytoSorb in treating cytokine release syndrome (CRS) and inflammation of the brain called CAR-related Encephalopathy Syndrome (“CRES”), following CAR-T cell immunotherapy.

The CYTORELEASE trial, entitled “Effectivity of Extracorporeal Cytokine Adsorption (CytoSorb) as Additive Treatment of CAR-T Cell Associated Cytokine Release Syndrome (“CRS”) and Encephalopathy Syndrome (“CRES”),” is a randomized, controlled pilot study in 34 cancer patients who have received CAR-T cell immunotherapy and who have developed either severe CRS or CRES for a duration less than 6 hours.

Patients will receive either standard of care therapy versus standard of care therapy plus CytoSorb hemoadsorption.

The primary endpoint of the study is a plasma reduction of the pro-inflammatory cytokine interleukin-6 (IL-6).

Secondary and exploratory endpoints will examine other potential clinical benefits such as improvements in CRES, shock, and other organ injury.

The trial has been approved by the Hannover Medical School ethics committee and has been screening patients for enrollment.

In September 2019, a new publication entitled, "Hemoadsorption with CytoSorb showed a decreased observed versus expected 28-day all-cause mortality in ICU patients with septic shock:

a propensity-score-weighted retrospective study,"

in the journal Critical Care.

In this study, clinical researchers at Maasstad Hospital and at Erasmus University Medical Center in Rotterdam, Netherlands conducted a retrospective evaluation of 116 patients with septic shock, who required vasopressors to increase their blood pressure, and renal replacement therapy (RRT) due to kidney failure.

Of these, 49 patients received standard of care therapy, and 67 were treated with standard of care plus CytoSorb.

Both groups were compared by stabilized Inverse Probability of Treatment Weights (sIPTW) to overcome baseline differences in the type of sepsis, age, comorbidities, surgery vs no surgery, Sequential Organ Failure Assessment (SOFA) score, use of the vasopressor noradrenaline, and lactate levels.

Patients treated with standard of care and CytoSorb had a statistically significant reduction in 28-day all-cause mortality compared to standard of care alone (53% vs 72% control, p<0.04), based on the sIPTW analysis.

In addition, observed 28-day all-cause mortality in the CytoSorb treatment group was significantly lower than the predicted mortality (48% observed vs 75% predicted, p<0.001), based on SOFA score.

In October 2019, CytoSorbents initiated TISORB (Ticagrelor CytoSorb Hemoadsorption), a Company-sponsored, multicenter study in the United Kingdom to prospectively evaluate the removal of ticagrelor during cardiopulmonary bypass in patients on ticagrelor undergoing emergent cardiothoracic surgery.

Ticagrelor (Brilinta®, Astra Zeneca) is a potent platelet inhibitor and antithrombotic therapy and recognized as a standard of care to reduce the risk of heart attacks and strokes in patients with acute coronary syndromes.

Unfortunately, given the absence of an approved treatment to reverse the antithrombotic effects of ticagrelor, treated patients who require urgent or emergent cardiothoracic surgery may either proceed at high risk for severe perioperative bleeding (as high as 65% higher risk due to ticagrelor) or stay waiting for days in the hospital until the ticagrelor antithrombotic effect washes out.

Neither option is optimal since patients proceeding to surgery are at great risk for serious or even fatal bleeding and patients waiting for washout are at risk of a thrombotic complications such as a stroke or heart attack, while delaying surgery and increasing hospitalization costs.

The benefits of CytoSorb in this setting are both clinical and economic.

In the publication in 2019 by Hassan et al, outcomes of 55 patients requiring emergent cardiac surgery while on ticagrelor or rivaroxaban therapy were evaluated according to the use of CytoSorb.

Antithrombotic (either ticagrelor or rivaroxaban) removal with CytoSorb was associated with significant reductions in operation time (-23%), red cell transfusions (-59%), platelet transfusions (-67%), need for re-operations to control bleeding (-100%) and shorter length of ICU stay (-41%).

Importantly, these significant clinical benefits are expected to also result in substantial economic benefits.

This was demonstrated in the publication by Javanbakht et al.

in 2019, that projected an average cost savings of £3,982 per patient (approximately $5,000 USD per patient), including the cost of the CytoSorb adsorber.

The primary endpoint of the TISORB study is the change in platelet reactivity and ticagrelor blood concentration before and after cardiopulmonary bypass for patients undergoing CytoSorb hemoadsorption removal of ticagrelor from their blood.

A protocol amendment was submitted to expand the population of eligible patients to now include patients requiring urgent cardiac surgery.

These changes were approved by the UK Medicines and Healthcare products Regulatory Agency (MHRA) at the end of February 2020.

We intend to enroll thirty patients who received ticagrelor within 48 hours of undergoing emergent or urgent cardiothoracic surgery on cardiopulmonary bypass.

As of May 1, 2020, we have initiated eight sites and one patient has been enrolled.

However, due the COVID-19 pandemic, the trial has paused and not enrolled additional patients, and we cannot predict when the trial will resume.

In January 2020, CytoSorb received European Union CE Mark label expansion to include the removal of ticagrelor during cardiopulmonary bypass in patients undergoing cardiothoracic surgery.

In May 2020, CytoSorb also received European Union CE Mark label expansion to include rivaroxaban removal for the same indication.

We have recently announced the plans to launch the Safe and Timely Antithrombotic Removal (STAR) Registry to capture real world use of CytoSorb for this indication.

With the caveat of a potential second wave of COVID-19 this fall in mind, our intent is to launch the registry before the end of 2020.

The registry will initially launch in Europe with the intent of expanding to the United States and rest of the territories where CytoSorb is available in the future.

The market focus for CytoSorb is the prevention or treatment of organ failure in life-threatening conditions, including commonly seen illnesses in the ICU such as infection and sepsis, trauma, burn injury, liver failure, pancreatitis, lung injury, ARDS, and others.

Severe sepsis and septic shock, a potentially life-threatening systemic inflammatory response to a serious infection, accounts for approximately 10% to 20% of all ICU admissions and is one of the largest target markets for CytoSorb.

The market focus for CytoSorb is the prevention or treatment of organ failure in life-threatening conditions, including commonly seen illnesses in the ICU such as infection and sepsis, trauma, burn injury, acute respiratory distress syndrome (“ARDS”), and others.

Severe sepsis and septic shock, a potentially life-threatening systemic inflammatory response to a serious infection, accounts for approximately 10% to 20% of all ICU admissions, and is responsible for an estimated one in every five deaths worldwide.

Sepsis is one of the largest target markets for CytoSorb.

Sepsis is a major unmet medical need with no approved products in the U.S.

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When used with standard of care therapy, that includes antibiotics, the goal of CytoSorb in sepsis is to reduce excessive levels of cytokines and other inflammatory toxins, to help reduce the SIRS response and either prevent or treat organ failure.

In addition to the sepsis indication, we intend to conduct or support additional clinical studies in sepsis, cardiac surgery, and other critical care diseases where CytoSorb could be used, such as ARDS, trauma, severe burn injury, acute pancreatitis, and in other acute conditions that may benefit by the reduction of cytokines in the bloodstream.

In addition to the sepsis indication, we intend to conduct or support additional clinical studies in sepsis, cardiac surgery, and other critical care diseases where CytoSorb could be used, such as ARDS, liver disease, trauma, severe burn injury, acute pancreatitis, and in other acute conditions that may benefit by the reduction of cytokines in the bloodstream.

Some examples include the prevention of post-operative complications of cardiac surgery (cardiopulmonary bypass surgery) and damage to organs donated for transplant prior to organ harvest.

We intend to generate additional clinical data to expand the scope of clinical experience for marketing purposes, to increase the number of treated patients, and to support potential future publications.

Our proprietary hemocompatible porous polymer bead technology forms the basis of a broad technology portfolio.

Some of our products include:

Some of our products and product candidates include:

• CytoSorb — an extracorporeal hemoperfusion cartridge approved in the EU for cytokine removal, with the goal of reducing SIRS and sepsis and preventing or treating organ failure.

● CytoSorb XL – an intended next generation successor to CytoSorb currently in advanced pre-clinical testing designed to reduce a broad range of cytokines and inflammatory mediators, including lipopolysaccharide (LPS) endotoxin, from blood.

• ECOS-300CY — an adsorption cartridge for use with ex vivo organ perfusion systems to remove cytokines and other inflammatory mediators in the organ perfusate, with the goal of improving solid organ support or rehabilitation.

• CytoSorb XL — an intended next generation successor to CytoSorb currently in advanced pre-clinical testing designed to reduce a broad range of cytokines and inflammatory mediators, including lipopolysaccharide endotoxin, from blood.

• VetResQ — a broad spectrum blood purification adsorber designed to help treat deadly inflammation and toxic injury in animals with critical illnesses such as septic shock, toxic shock syndrome, severe systemic inflammation, toxin-mediated diseases, pancreatitis, trauma, liver failure, and drug intoxication.

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• HemoDefend-RBC — a development-stage blood purification technology designed to remove non-infectious contaminants in blood transfusion products, with the goal of reducing transfusion reactions and improving the quality and safety of blood.

With the support of NHLBI, we plan to initiate a U.S.

pivotal trial designed to support U.S.

FDA approval, expected to begin by the end of 2020.

● HemoDefend-BGA – a development-stage adsorber designed to enable “ universal plasma ” , or plasma that can be administered to anyone regardless of blood type, and to improve the safety of whole blood transfusions, by the rapid and efficient removal of anti-A and anti-B antibodies from these two blood products.

• HemoDefend-BGA — a development-stage purification technology that can remove anti-A and anti-B antibodies from plasma and whole blood, to enable “ universal plasma, ” and safer whole blood transfusions, respectively.

• K + ontrol — a development-stage blood purification technology designed to reduce excessive levels of potassium in the blood that can be fatal in severe hyperkalemia.

● ContrastSorb – a development-stage extracorporeal hemoperfusion cartridge designed to remove IV contrast from the blood of high risk patients undergoing CT imaging with contrast, or interventional radiology procedures such as cardiac catheterization.

• ContrastSorb — a development-stage extracorporeal hemoperfusion cartridge designed to remove IV contrast from the blood of high risk patients undergoing radiological imaging with contrast, or interventional cardiology procedures such as cardiac catheterization and angioplasty.

The goal of ContrastSorb is to prevent contrast-induced nephropathy.

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The goal of BetaSorb is to improve the efficacy of dialysis or hemofiltration.

Clinical Studies Update

For a complete discussion regarding our clinical study history, please refer to the section entitled Clinical Studies included in Item 1 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the SEC on March 5, 2020.

The following discusses the status of our clinical studies subsequent to the filing of the Company’s Annual Report on Form 10-K:

On November 25, 2019, the Company announced a voluntary pause in enrollment for the REFRESH 2-AKI study at the recommendation of the study’s Data Monitoring Committee (the “DMC”).

On July 24, 2020, the DMC recommended the resumption of the trial with only minor modifications based on their review of requested study data.

The Company is currently undertaking multiple activities in preparation to resume the study, though in general, COVID-19 restrictions and hospital policies have halted or slowed clinical trial activity in non-COVID-19 studies throughout the industry.

We currently do not have strong visibility into the timing for resolution of these issues and cannot predict when the REFRESH 2-AKI trial will be resumed.

The German government-sponsored and investigator-initiated REMOVE endocarditis study completed its enrollment with a total of 289 patients in early-2020.

Based on recent feedback from the study’s principal investigators, the COVID-19 pandemic has caused delays in data monitoring and data analysis, but they expect to have topline data by year-end 2020, with a full analysis of data expected to be reported in the first half of 2021 unless delayed further by the ongoing COVID-19 pandemic.

Also due to the COVID-19 pandemic, our TISORB (Ticagrelor CytoSorb Hemoadsorption) trial in the United Kingdom was paused.

Two of the eight study centers re-opened recently and resumed screening for patients for the TISORB trial.

However, the recent surge in COVID-19 cases in the United Kingdom and Europe may cause or introduce additional delays.

Due to the uncertainty of the COVID-19 pandemic, the Company cannot reliably predict at this time when the TISORB study will be able to resume with all study centers.

CytoSorb received European Union CE Mark label expansion for the removal of ticagrelor and rivaroxaban during cardiopulmonary bypass in patients undergoing cardiothoracic surgery in January 2020 and May 2020, respectively.

Although the severity and duration of the COVID-19 pandemic is uncertain, we currently plan to launch the STAR (Safe and Timely Removal of Antithrombotics) registry in Europe in early 2021, followed by the United States and other jurisdictions where or when CytoSorb is available.

COVID-19 Business Update

A significant problem relating to the COVID-19 pandemic is that an increasing number of COVID-19 patients are developing life-threatening complications, such as ARDS, shock (i.e.

A significant problem relating to the COVID-19 pandemic is that many COVID-19 patients develop life-threatening complications such as ARDS, shock (i.e.

a potentially fatal drop in blood pressure), kidney failure, acute cardiac injury and secondary bacterial infections.

The underlying cause for these complications is often a cytokine storm that results in a massive, systemic inflammatory response, leading to the damage of vital organs such as the lungs, heart, and kidneys, and ultimately multiple organ failure and death in many cases.

CytoSorb, has been used in more than 100,000 treatments as an approved treatment of cytokine storm in the European Union and is distributed in 65 countries around the world, where it has helped physicians control severe inflammation while helping to reverse shock and improve respiratory and other organ function.

CytoSorb has been used in more than 110,000 treatments as an approved treatment of cytokine storm in the European Union and is distributed in 66 countries around the world, where it has helped physicians control severe inflammation while helping to reverse shock and improve lung and other organ function.

The use of CytoSorb in patients infected with COVID-19 in Italy, China, Germany and France began in March 2020.

CytoSorb has now been used in approximately 2,800 COVID-19 patients to help treat cytokine storm and the related life-threatening complications in more than 30 countries.

Based upon initial data and preliminary reports from physicians treating these complications, CytoSorb use has generally been associated with a marked reduction in cytokine storm and inflammation, improved lung function, weaning from mechanical ventilation, and a reversal of shock.

Based upon initial data and reports from physicians treating these complications, CytoSorb use has generally been associated with a marked reduction in cytokine storm and inflammation, improved lung function, weaning from mechanical ventilation, decannulation from extracorporeal membrane oxygenation (ECMO), and a reversal of shock.

CytoSorb has been specifically recommended in the Italy Brescia Renal COVID Task Force Guidelines to treat patients with severe COVID-19 infection and Stage 3 renal failure on continuous renal replacement therapy.

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CytoSorb has also received approval to treat patients with COVID-19 from the Israel Ministry of Health (AMAR).

In addition, CytoSorb is directly or indirectly recommended and/or approved in China (Handbook of COVID-19 Prevention and Treatment), Columbia (Expert consensus – Colombian Journal of Nephrology), Great Britain (Medtech Innovation Briefing published by NICE) and Germany (Treatment of severe COVID-19 courses in ICU medicine).

The use of CytoSorb has not been approved in the U.S.

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Under the EUA, CytoSorbents can make CytoSorb available, through commercial sales, to all hospitals in the U.S.

for use in patients, 18 years of age or older, with confirmed COVID-19 infection who are admitted to the intensive care unit with confirmed or imminent respiratory failure who have early acute lung injury or ARDS, severe disease, or life-threatening illness resulting in respiratory failure, septic shock, and/or multiple organ dysfunction or failure.

Before and after the announcement of the EUA, we had been contacted by many U.S.

hospitals concerning the potential use of CytoSorb for patients infected with COVID-19.

for use in patients, 18 years of age or older, with confirmed COVID-19 infection who are admitted to the intensive care unit with confirmed or imminent respiratory failure and who have early acute lung injury or ARDS, severe disease, or life-threatening illness resulting in respiratory failure, septic shock, and/or multiple organ dysfunction or failure.

The CytoSorb device has been authorized by FDA under an EUA.

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The EUA will be effective until a declaration is made that the circumstances justifying the EUA have terminated or until revoked by the FDA.

To meet the growing demand for CytoSorb worldwide, our manufacturing facility is currently running 24 hours a day, seven days a week and is contemplating adding additional teams per shift to reach full capacity.

Government Grants

The CTC (CytoSorb Therapy in COVID-19) Registry has been launched and is actively enrolling patients with the intent of systematically capturing usage patterns and outcomes associated with the use of CytoSorb under the EUA at U.S.

institutions.

The CTC Registry may be expanded to outside-U.S.

territories based on the evolution of the pandemic in an effort to better characterize best practice patterns and clinical outcomes.

To meet the growing demand for CytoSorb worldwide, our manufacturing team continues to make any adjustments required to the production schedule to meet the increased sales demand.

Government Research Grants:

We have been successful in obtaining technology development contracts from governmental agencies such as the National Institutes of Health and the U.S.

Department of Defense, including the Defense Advanced Research Projects Agency (“DARPA”), the Defense Health Agency, the U.S.

Special Operations Command (“USSOCOM”), the U.S.

Air Force, Air Force Material Command (“USAF/AFMC”), and others.

In August 2012, we were awarded a $3.8 million, five-year contract by DARPA for our “Dialysis-Like Therapeutics” (“DLT”) program to treat sepsis.

DARPA has been instrumental in funding many of the major technological and medical advances since its inception in 1958, including development of the Internet, development of GPS, and robotic surgery.

The DLT program in sepsis sought to develop a therapeutic blood purification device that was capable of identifying the cause of sepsis (e.g., cytokines, toxins, pathogens, activated cells) and remove these substances in an intelligent, automated, and efficient manner.

Our contract was for advanced technology development of our hemocompatible porous polymer technologies to remove cytokines and a number of pathogen and biowarfare toxins from blood.

We have completed our work under the contract with DARPA and SSC Pacific under Contract No.

N66001-12-C-4199, which provided for maximum funding of approximately $3,825,000.

We received approximately $3,825,000 in funding under this contract and no funding remains.

Our performance under this contract has been completed.

In September 2012, we were awarded a Phase II SBIR contract by the U.S.

Army Medical Research and Material Command to evaluate our technology for the treatment of trauma and burn injury in large animal models.

In 2013, we finalized the Phase II SBIR contract which provided for a maximum funding of approximately $803,000 with the granting agency.

This work is supported by the U.S.

Army Medical Research and Material Command under an amendment to Contract W81XWH-12-C-0038.

In June 2016, this contract was further amended to increase the maximum funding by $443,000 to approximately $1,246,000.

We received approximately $1,246,000 in funding under this contract and no funding remains.

Our performance under this contract has been completed.

In September 2013, the National Heart Lung and Blood Institute (“NHLBI”) awarded us a Phase I Small Business Innovation Research (“SBIR”) contract, (number HHSN-268201-300044C), valued at $203,351, to further advance our HemoDefend blood purification technology for pRBC transfusions.

The University of Dartmouth collaborated with us as a subcontractor on the project, entitled “Elimination of blood contaminants from pRBCs using HemoDefend hemocompatible porous polymer beads.” The overall goal of this program was to reduce the risk of potential side effects of blood transfusions, and help to extend the useful life of pRBCs.

Our performance under this contract has been completed.

In October 2015, we were awarded a Phase II SBIR contract by the NHLBI and USSOCOM to help advance our HemoDefend blood purification technology towards commercialization for the purification of pRBC transfusions.

The contract, entitled “pRBCs Contaminant Removal with Porous Polymer Beads”, (contract number HHSN-268201-600006C), provided for maximum funding of approximately $1,524,000 over a two-year period.

We received approximately $1,524,000 under this contract and no funding remains.

Our performance under this contract has been completed.

In March 2016, we were awarded a Phase I SBIR contract for a development program entitled “Mycotoxin Adsorption with Hemocompatible Porous Polymer Beads.” The purpose of this contract was to develop effective blood purification countermeasures for weaponized mycotoxins that can be easily disseminated in water, food and air.

This work was funded by the U.S.

Joint Program Executive Office for Chemical and Biological Defense, or JPEO-CBD, under contract number W911QY-16-P-0048 and provided for maximum funding of $150,000.

We received approximately $150,000 and no funding remains under this contract.

Our performance under this contract has been completed.

In June 2016, we were awarded a Phase I Small Business Technology Transfer (“STTR”) contract for its development program entitled “Use of Highly Porous Polymer Beads to Remove Anti-A and Anti-B antibodies from Plasma for Transfusion”.

The purpose of this contract was to develop our HemoDefend blood purification technology to potentially enable universal plasma.

This work was funded by the USAMRAA under contract W81XWH-16-C-0025 and provided for maximum funding of $150,000.

We received approximately $150,000 and no funding remains under this contract.

Our performance under this contract has been completed.

In July 2016, we were awarded a Phase I SBIR contract for its development program entitled “Investigation of a sorbent-based potassium adsorber for the treatment of hyperkalemia induced by traumatic injury and acute kidney injury in austere conditions”.

The objective of this Phase I project was to develop two novel and distinct treatment options for life-threatening hyperkalemia.

This work was funded by the U.S.

Army Medical Research Acquisition Activity (“USAMRAA”) under contract W81XWH-16-C-0080 and provided for maximum funding of approximately $150,000.

We received approximately $150,000 and no funding remains under this contract.

Our performance under this contract has been completed.

In January 2017, we were awarded a Phase II SBIR contract to continue development of CytoSorb for fungal mycotoxin blood purification.

This program focused on demonstrating the ability of CytoSorb to adsorb mycotoxins in vivo and improve survival in animals.

This contract, W911QY-17-C-0007, provided for maximum funding of $999,996 over two years.

This program was funded by the Joint Program Executive Office - Chemical and Biological Defense (“CBD”) SBIR program.

We received approximately $999,996 in funding under this contract and no further funding remains under this contract.

Our performance under this contract has been completed.

In May 2017, we were awarded a Phase II STTR contract entitled “Use of Highly Porous Polymer Beads to Remove Anti-A and Anti-B Antibiotics from Plasma Transfusion”.

The purpose of this contract is to continue development of our HemoDefend blood purification technology to potentially enable universal plasma.

We collaborate with researchers at Penn State University on this project.

This contract provides for maximum funding of $999,070 over two years.

This work is being funded by the USAMRAA under contract number W81XWH-17-C-0053.

We received approximately $999,070 and no further funding remains under this contract.

Our performance under this contract has been completed.

In May 2017, the Company was awarded a Congressionally Directed Medical Research Program (“CDMRP”) Phase I contract to improve delayed evacuation and prolonged field care for severe burn injury via novel hemoadsorptive and hydration therapies.

This work is being funded by the USAMRAA under contract number W81WH-17-2-0013.

This contract provides for maximum funding of $719,000 over four years.

As of June 30, 2020, we received approximately $640,000 and have approximately $79,000 remaining under this contract.

In September 2017, the Company was awarded a Phase II SBIR contract for its development program entitled “Investigation of a sorbent-based potassium adsorber for the treatment of hyperkalemia induced by traumatic injury and acute kidney injury”.

The purpose of this contract is to continue development of two novel and distinct treatment options for life-threatening hyperkalemia.

This work is being funded by the USAMRAA under contract W81XWH-17-C-0142 and provides for maximum funding of approximately $999,871.

As of June 30, 2020, we received approximately $999,871 and no further funding remains under this contract.

Our performance under this contract has been completed.

In August 2018, the Company was awarded a Phase IIB Bridge SBIR contract by the NHLBI to facilitate and accelerate the commercialization of our HemoDefend blood purification technology for the purification of pRBC transfusions.

The contract, entitled “pRBCs Contaminant Removal with Hemocompatible Porous Polymer Beads” (award number 2R44HL141928-03), provides for maximum funding of approximately $2,971,000 over a three-year period.

As of June 30, 2020 we received approximately $1,475,000 in funding under this contract and have approximately $1,496,000 remaining under this contract.

Under the terms of this contract, we must make a matching contribution equal to the funds awarded thereunder.

In September 2019, the Company was awarded a Rapid Innovation Fund contract by the USAF/AFMC to develop a simple, easy-to-use renal support system to treat severe hyperkalemia.

The contract, entitled “K+ontrol Renal Support System for Reduction of Hyperkalemia” (award number FA8650-19-C-6065), provides for maximum funding of approximately $2,960,000 over a two-year period.

As of June 30, 2020 we received approximately $486,000 in funding and have approximately $2,474,000 remaining under this contract.

In June 2020, the Company was awarded a Defense Health Agency Small Business Technology Transfer (STTR) Phase III contract, to advance its HemoDefend-BGA plasma and whole blood adsorber to human clinical trials.

Department of Defense, including the Defense Advanced Research Projects Agency (“DARPA”), the U.S.

Special Operations Command (“USSOCOM”), and others.

For a complete discussion of the various research grants we have obtained, please refer to the section entitled Government Research Grants included in Item 1 of our Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the SEC on March 5, 2020.

The following discusses research grants obtained subsequent to the filing of our Annual Report on Form 10-K:

In June 2020, we were awarded a Defense Health Agency Small Business Technology Transfer (STTR) Phase III contract, to advance its HemoDefend-BGA plasma and whole blood adsorber to human clinical trials.

The program, entitled “Development of a Highly Efficient Adsorber to Remove Anti-A and Anti-B Antibodies from Blood and Plasma for Transfusion,” is being funded by the U.S.

Army Medical Research and Development Command (USAMRDC) office of the Congressionally Directed Medical Research Programs (CDMRP) (award number W81XWH20C0050) provides for maximum funding of approximately $2,897,000 over a two-year period.

As of June 30, 2020 we received no funding and have approximately $2,897,000 remaining under this contract.

In July 2020, the Company received notification that it received a U.S.

Army Medical Research Acquisition Activity Award (the “USAMRAAA”) for its HemoDefend™ platform, a development-stage technology designed to be a practical, low cost, and effective way to safeguard the quality and safety of the blood supply.

The USAMRAAA award, for up to approximately $4,421,000, was granted to the Company in order to develop a highly efficient adsorber to remove anti-A and Anti-B antibodies from blood and plasma for transfusion.

As of September 30, 2020 we have recognized revenue amounting to $35,478 and have approximately $2,861,714 remaining under this contract.

On July 21, 2020, we were notified that we received a U.S.

Army Medical Research Acquisition Activity Award (the “USAMRAAA”) for our HemoDefend-BGA™ platform, a development-stage technology designed to be a practical, low cost, and effective way to produce universal plasma and to reduce the risk of whole blood transfusions.

The USAMRAAA award, for up to $4,421,487, was granted to us in order to develop a highly efficient adsorber to remove anti-A and Anti-B antibodies from whole blood and plasma for transfusion.

This Award is supported by the U.S.

Department of Defense Peer Reviewed Medical Research Program (PRMRP)/Congressionally Directed Medical Research Program (CDMRP) under Contract No.

Department of Defense Peer Reviewed Medical Research Program

(PRMRP)/Congressionally Directed Medical Research Program (CDMRP) under Contract No.

W81XWH2010712.

Comparison for the three months ended June 30, 2020 and 2019:

Revenue from product sales was approximately $9,520,000 in the three months ended June 30, 2020, as compared to approximately $5,850,000 in the three months ended June 30, 2019, an increase of approximately $3,670,000, or 63%.

We have not yet begun work under this contract as of September 30, 2020.

On October 9, 2020, we announced that we received a U.S.

Army Medical Research Acquisition Activity (USAMRAA), award of a two-year SBIR Sequential Phase II contract (contract No.

W81XWH-20-C-0087) valued at $1,098,588 to optimize development of the HemoDefend-BGA™ adsorber.

The HemoDefend-BGA adsorber can rapidly remove greater than 99% of anti-A and anti-B antibodies from plasma to create a “universal plasma” that could be administered to anyone, irrespective of blood type, while maintaining critical coagulation activity.

Comparison for the three months ended September 30, 2020 and 2019:

Revenue from product sales was approximately $10,246,000 in the three months ended September 30, 2020, as compared to approximately $5,728,000 in the three months ended September 30, 2019, an increase of approximately $4,518,000, or 79%.

This increase was driven by an increase in direct sales of approximately $2,063,000 resulting from sales to both new customers and repeat orders from existing customers and an increase in distributor sales of approximately $2,455,000.

Sales to hospitals in the United States under the EUA granted by the FDA amounted to approximately $667,000 for the three months ended June 30, 2020.

Though difficult to quantitate, we estimate that approximately $2.4 to $2.6 million of total product sales in the second quarter of 2020 was due to the demand for CytoSorb to treat COVID-19 patients.

In addition, sales were negatively impacted by approximately $156,000 as a result of the decrease in the average exchange rate of the Euro to the U.S.

For the three months ended June 30, 2020, the average exchange rate of the Euro to the U.S.

dollar was $1.10 as compared to an average exchange rate of $1.12 for the three months ended June 30, 2019.

Grant income was approximately $275,000 for the three months ended June 30, 2020 as compared to approximately $382,000 for the three months ended June 30, 2019, a decrease of approximately $107,000 or 28%.

This decrease was a result of delays in grant related

work caused by the COVID-19 pandemic as our research and development employees have either been deployed to work-from-home status or reassigned to assist in activities related to increasing the production of CytoSorb.

Total revenues were approximately $9,795,000 for the three months ended June 30, 2020, as compared to total revenues of approximately $6,233,000 for the three months ended June 30, 2019, an increase of approximately $3,562,000, or 57%.

Sales to hospitals in the United States under the EUA granted by the FDA amounted to approximately $262,000 for the three months ended September 30, 2020.

Though difficult to quantitate, we estimate that approximately $2.7 million of total product sales in the third quarter of 2020 was due to the demand for CytoSorb to treat COVID-19 patients.

In addition, as a result of the increase in the average exchange rate of the Euro to the U.S.

dollar, sales were positively impacted by approximately $428,000.

For the three months ended September 30, 2020, the average exchange rate of the Euro to the U.S.

dollar was $1.17 as compared to an average exchange rate of $1.11 for the three months ended September 30, 2019.

Grant income was approximately $301,000 for the three months ended September 30, 2020 as compared to approximately $367,000 for the three months ended September 30, 2019, a decrease of approximately $66,000 or 18%.

This decrease was a result of delays in grant related work caused by the COVID-19 pandemic as our research and development employees were either deployed to work-from-home status or reassigned to assist in activities related to increasing the production of CytoSorb.

Total revenues were approximately $10,547,000 for the three months ended September 30, 2020, as compared to total revenues of approximately $6,095,000 for the three months ended September 30, 2019, an increase of approximately $4,452,000, or 73%.

Cost of Revenues:

For the three months ended June 30, 2020 and 2019, cost of revenue was approximately $3,250,000 and $1,834,000, respectively, an increase of approximately $1,416,000.

Product cost of revenues increased approximately $1,490,000 during the three months ended June 30, 2020 as compared to the three months ended June 30, 2019 primarily as a result of increased sales.

Product gross margins were approximately 70% for the three months ended June 30, 2020 and approximately 76% for the three months ended June 30, 2019.

The decrease in gross margin was due to an increase in percent contribution of lower margin distributor sales and certain costs associated with the rapid ramp-up of production during the three months ended June 30, 2020.

For the three months ended September 30, 2020 and 2019, cost of revenue was approximately $2,890,000 and $1,696,000, respectively, an increase of approximately $1,194,000.

Product cost of revenues increased approximately $1,279,000 during the three months ended September 30, 2020 as compared to the three months ended September 30, 2019 primarily as a result of increased sales.

Product gross margins were approximately 74% for the three months ended September 30, 2020 and approximately 77% for the three months ended September 30, 2019.

The decrease in gross margin in 2020 was due to an increase in percent contribution of lower margin distributor sales as well as additional costs primarily related to COVID-19 incentive payment to employees as a result of the continued rapid ramp-up of production during the three months ended September 30, 2020.

Research and Development Expenses :

For the three months ended June 30, 2020, research and development expenses were approximately $2,406,000 as compared to research and development expenses of approximately $2,930,000 for the three months ended June 30, 2019.

The decrease of approximately $524,000 was due to a decrease in our clinical trial costs of approximately $602,000, which is due primarily to the pause in our Company-sponsored clinical trials as a result of hospital restrictions due to the COVID-19 pandemic and a decrease in non-grant related research and development costs of approximately $40,000.

These decreases were offset by a decrease in direct labor and other costs being deployed toward grant-funded activities of approximately $74,000, which had the effect of increasing the amount of our non-reimbursable research and development costs, and an increase in non-clinical research and development salary related costs of approximately $44,000.

For the three months ended September 30, 2020, research and development expenses were approximately $1,753,000 as compared to research and development expenses of approximately $3,185,000 for the three months ended September 30, 2019.

The decrease of approximately $1,432,000 was due to a decrease in our clinical trial costs of approximately $1,045,000 which is due primarily to the pause in our Company-sponsored clinical trials as a result of hospital restrictions due to the COVID-19 pandemic, a decrease in non-clinical research and development salary related costs of approximately $337,000, a decrease in new product development costs of approximately $49,000 and a decrease in non-grant related research and development costs of approximately $86,000.

These decreases were offset by a decrease in direct labor and other costs being deployed toward grant-funded activities of approximately $85,000, which had the effect of increasing the amount of our non-reimbursable research and development costs.

Legal, Financial and Other Consulting Expenses:

Legal, financial and other consulting expenses were approximately $846,000 for the three months ended June 30, 2020, as compared to approximately $592,000 for the three months ended June 30, 2019.

The increase of approximately $254,000 was due to an increase in employment agency fees of approximately $71,000 related to the hiring of senior level personnel, an increase in legal fees of approximately $177,000 related certain corporate initiatives and an increase in accounting fees of approximately $25,000.

These increases were offset by a decrease in consulting fees of approximately $19,000.

Legal, financial and other consulting expenses were approximately $580,000 for the three months ended September 30, 2020, as compared to approximately $733,000 for the three months ended September 30, 2019.

The decrease of approximately $153,000 was due to a decrease in employment agency fees of approximately $34,000 and a decrease in legal fees of approximately $193,000.

These increases were offset by an increase in consulting fees of approximately $35,000 and an increase in accounting fees of approximately $39,000.

Selling, General and Administrative Expenses:

Selling, general and administrative expenses were approximately $6,591,000 for the three months ended June 30, 2020, as compared to approximately $4,507,000 for the three months ending June 30, 2019, an increase of $2,084,000.

This increase is related to an increase in salaries, commissions and related costs of approximately $1,872,000, an increase in royalty expenses of approximately $281,000 due to the increase in product sales, and an increase in non-cash restricted stock expense of approximately $79,000 related to restricted stock units granted to the Company’s executive officers, an increase in non-cash stock compensation expense of approximately $901,000.

These increases were offset by a decrease in travel and entertainment expenses of approximately $78,000, a decrease in sales and marketing expenses, which include advertising and conference attendance of approximately $483,000 and a decrease in office supplies and other general and administrative costs of approximately $488,000.

Selling, general and administrative expenses were approximately $7,282,000 for the three months ended September 30, 2020, as compared to approximately $6,108,000 for the three months ending September 30, 2019, an increase of $1,174,000.

This increase is related to an increase in salaries, commissions and other employee-related costs of approximately $1,345,000, an increase in royalty expenses of approximately $646,000 due to the increase in product sales, and an increase in non-cash stock compensation expense of approximately $286,000.

These increases were offset by a decrease in travel and entertainment expenses of approximately $127,000, a decrease in sales and marketing expenses, which include advertising and conference attendance of approximately $546,000, a decrease in non-cash restricted stock expense of approximately $307,000 related to restricted stock units granted to the Company’s executive officers and a decrease in other general and administrative costs of approximately $123,000.

Interest Expense, net:

For the three months ended June 30, 2020, interest expense was approximately $274,000, as compared to interest expense of approximately $215,000 for the three months ended June 30, 2019.

This increase in interest expense of approximately $59,000 was primarily a result of the additional interest incurred related to the drawdown of the $5,000,000 Term B Loan with Bridge Bank on July 31, 2019.

For the three months ended September 30, 2020, net interest expense was approximately $261,000, as compared to net interest expense of approximately $302,000 for the three months ended September 30, 2019.

This decrease in net interest expense of approximately $41,000 was primarily a result of the interest income earned on our increased cash balances as a result of equity raised during 2020.

Gain (Loss) on Foreign Currency Transactions:

For the three months ended June 30, 2020, the gain on foreign currency transactions was approximately $705,000 as compared to a gain of approximately $297,000 for the three months ended June 30, 2019.

For the three months ended September 30, 2020, the gain on foreign currency transactions was approximately $1,380,000 as compared to a loss of approximately $956,000 for the three months ended September 30, 2019.

The 2020 gain was directly related to the increase in the spot exchange rate of the Euro to the U.S.

dollar at June 30, 2020 as compared to March 31, 2020.

dollar at September 30, 2020 as compared to June 30, 2020.

The spot exchange rate of the Euro to the U.S.

dollar was $1.12 per Euro at June 30, 2020, as compared to $1.10 per Euro at March 31, 2020.

The 2019 gain was directly related to the increase in the spot exchange rate of the Euro at June 30, 2019 as compared to March 31, 2019.

dollar was $1.17 per Euro at September 30, 2020, as compared to $1.12 per Euro at June 30, 2020.

The 2019 loss was directly related to the decrease in the spot exchange rate of the Euro at September 30, 2019 as compared to June 30, 2019.

The spot exchange rate of the Euro to the U.S.

dollar was $1.14 per Euro at June 30, 2019, as compared to $1.12 per Euro at March 31, 2019.

Comparison for the six months ended June 30, 2020 and 2019:

Revenue from product sales was approximately $17,676,000 in the six months ended June 30, 2020, as compared to approximately $10,427,000 in the six months ended June 30, 2019, an increase of approximately $7,249,000, or 70%.

dollar was $1.09 per Euro at September 30, 2019, as compared to $1.14 per Euro at June 30, 2019.

Comparison for the nine months ended September 30, 2020 and 2019:

Revenue from product sales was approximately $27,922,000 in the nine months ended September 30, 2020, as compared to approximately $16,155,000 in the nine months ended September 30, 2019, an increase of approximately $11,767,000, or 73%.

This increase was driven by an increase in direct sales of approximately $6,204,000 resulting from sales to both new customers and repeat orders from existing customers and an increase in distributor sales of approximately $5,563,000.

Sales to hospitals in the United States under the EUA granted by the FDA amounted to approximately $667,000 for the six months ended June 30, 2020.

Though difficult to quantitate, we estimate that approximately $3.9 to $4.3 million of total product sales in the six months ended June 30, 2020 was due to the demand for CytoSorb to treat COVID-19 patients.

In addition, sales were negatively impacted by approximately $393,000 as a result of the decrease in the average exchange rate of the Euro to the U.S.

For the six months ended June 30, 2020, the average exchange rate of the Euro to the U.S.

dollar was $1.10 as compared to an average exchange rate of $1.13 for the six months ended June 30, 2019.

Grant income was approximately $826,000 for the six months ended June 30, 2020 as compared to approximately $997,000 for the six months ended June 30, 2019, a decrease of approximately $171,000 or 17%.

This decrease was a result of delays in grant related work caused by the COVID-19 pandemic as our research and development employees have either been deployed to work-from-home status or reassigned to assist in activities related to increasing production of CytoSorb.

Total revenues were approximately $18,502,000 for the six months ended June 30, 2020, as compared to total revenues of approximately $11,424,000 for the six months ended June 30, 2019, an increase of approximately $7,078,000, or 62%.

Sales to hospitals in the United States under the EUA granted by the FDA amounted to approximately $928,000 for the nine months ended September 30, 2020.

Though difficult to quantitate, we estimate that approximately $6.9 million of total product sales in the nine months ended September 30, 2020 was due to the demand for CytoSorb to treat COVID-19 patients.

The change in the Euro to us, doller exchange rate did not have a significant impact on sales for the nine months ended September 30, 2020 ascompared to nine months ended September 30,2019.

Grant income was approximately $1,127,000 for the nine months ended September 30, 2020 as compared to approximately $1,364,000 for the nine months ended September 30, 2019, a decrease of approximately $237,000 or 17%.

Total revenues were approximately $29,049,000 for the nine months ended September 30, 2020, as compared to total revenues of approximately $17,519,000 for the nine months ended September 30, 2019, an increase of approximately $11,530,000, or 66%.

Cost of Revenues:

For the six months ended June 30, 2020 and 2019, cost of revenue was approximately $5,635,000 and $3,573,000, respectively, an increase of approximately $2,062,000, primarily due to increased sales.

Product gross margins were approximately 72% for the six months ended June 30, 2020 and approximately 75% for the six months ended June 30, 2019.

For the nine months ended September 30, 2020 and 2019, cost of revenue was approximately $8,525,000 and $5,269,000, respectively, an increase of approximately $3,256,000, primarily as a result of increased sales.

Product gross margins were approximately 73% for the nine months ended September 30, 2020 and approximately 76% for the nine months ended September 30, 2019.

The decrease in gross margin was due to an increase in percent contribution of lower margin distributor sales as well as certain costs associated with the rapid ramp-up of production during the nine months ended September 30, 2020.

Research and Development Expenses :

For the six months ended June 30, 2020, research and development expenses were approximately $4,371,000 as compared to research and development expenses of approximately $5,348,000 for the six months ended June 30, 2019.

The decrease of approximately $977,000 was due to a decrease in our clinical trial costs of approximately $1,361,000, which was due primarily to the pause in our Company-sponsored clinical trials as a result of hospital restrictions due to the COVID-19 pandemic and a decrease in non-grant related research and development costs of approximately $31,000.

These decreases were offset by a decrease in direct labor and other costs being deployed toward grant-funded activities of approximately $213,000, which had the effect of increasing the amount of our non-reimbursable research and development costs, an increase in new product development costs of approximately $87,000, and an increase in non-clinical research and development salary related costs of approximately $115,000.

For the nine months ended September 30, 2020, research and development expenses were approximately $6,125,000 as compared to research and development expenses of approximately $8,533,000 for the nine months ended September 30, 2019.

The decrease of approximately $2,408,000 was due to a decrease in our clinical trial costs of approximately $2,067,000, which was due primarily to the pause in our Company-sponsored clinical trials as a result of hospital restrictions due to the COVID-19 pandemic, a decrease in non-clinical research and development salary related costs of approximately $563,000 and a decrease in non-grant related research and development costs of approximately $112,000.

These decreases were offset by a decrease in direct labor and other costs being deployed toward grant-funded activities of approximately $296,000, which had the effect of increasing the amount of our non-reimbursable research and development costs, and an increase in new product development costs of approximately $38,000.

Legal, Financial and Other Consulting Expenses:

Legal, financial and other consulting expenses were approximately $1,365,000 for the six months ended June 30, 2020, as compared to approximately $1,154,000 for the six months ending June 30, 2019.

The increase of approximately $211,000 was due to an increase in

employment agency fees of approximately $102,000 related to the hiring of senior level personnel, an increase in legal fees of approximately $80,000 related certain corporate initiatives and an increase in accounting fees of approximately $57,000.

These increases were offset by a decrease in consulting fees of approximately $28,000.

Legal, financial and other consulting expenses were approximately $1,945,000 for the nine months ended September 30, 2020, as compared to approximately $1,887,000 for the nine months ending September 30, 2019.

The increase of approximately $58,000 was due to an increase in employment agency fees of approximately $68,000 related to the hiring of senior level personnel, and increase in accounting and auditing fees of approximately $96,000 and an increase in consulting fees of approximately $7,000.

These increases were offset by a decrease in legal fees of approximately $113,000.

Selling, General and Administrative Expenses:

Selling, general and administrative expenses were approximately $12,908,000 for the six months ended June 30, 2020, as compared to $9,265,000 for the six months ended June 30, 2019, an increase of $3,643,000.

This increase is related to an increase in salaries, commissions and related costs of approximately $2,373,000, an increase in royalty expenses of approximately $569,000 due to the increase in product sales, and an increase in non-cash restricted stock expense of approximately $295,000 related to restricted stock units granted to the Company’s executive officers, an increase in non-cash stock compensation expense of approximately $1,403,000.

These increases were offset by a decrease in travel and entertainment expenses of approximately $238,000, a decrease in sales and marketing expenses, which include advertising and conference attendance of approximately $437,000 and a decrease in office supplies and other general and administrative costs of approximately $322,000.

Selling, general and administrative expenses were approximately $20,190,000 for the nine months ended September 30, 2020, as compared to $15,372,000 for the nine months ended September 30, 2019, an increase of $4,818,000.

This increase is related to an increase in salaries, commissions and other employee-related costs of approximately $3,351,000, an increase in royalty expenses of approximately $934,000 due to the increase in product sales, an increase in non-cash stock compensation expense of approximately $1,677,000 and an increase in other general and administrative expenses of approximately $204,000.

These increases were offset by a decrease in travel and entertainment expenses of approximately $365,000, a decrease in sales and marketing expenses, which include advertising and conference attendance of approximately $983,000.

Interest Expense, net:

For the six months ended June 30, 2020, interest expense was approximately $579,000, as compared to interest expense of approximately $420,000 for the six months ended June 30, 2019.

For the nine months ended September 30, 2020, interest expense was approximately $840,000, as compared to interest expense of approximately $722,000 for the nine months ended September 30, 2019.

This increase in interest expense of approximately $118,000 was primarily a result of the additional interest incurred related to the draw down of the $5,000,000 Term B Loan with Bridge Bank on July 31, 2019.

Gain (Loss) on Foreign Currency Transactions:

For the nine months ended September 30, 2020, the gain on foreign currency transactions was approximately $1,417,000 as compared to a loss of approximately $1,052,000 for the three months ended September 30, 2019.

The 2020 gain was directly related to the increase in the spot exchange rate of the Euro to the U.S.

dollar at September 30, 2020 as compared to December 31, 2019.

The spot exchange rate of the Euro to the U.S.

dollar was $1.17 per Euro at September 30, 2020, as compared to $1.12 per Euro at December 31, 2019.

The 2019 loss was directly related to the decrease in the spot exchange rate of the Euro at September 30, 2019 as compared to December 31, 2018.

The spot exchange rate of the Euro to the U.S.

dollar was $1.09 per Euro at September 30, 2019, as compared to $1.15 per Euro at December 31, 2018.

History of Operating Losses :

We have experienced substantial operating losses since inception.

As of June 30, 2020, we had an accumulated deficit of approximately $195,109,000, which included losses of approximately $6,320,000 and $8,431,000 for the six-month periods ended June 30, 2020 and 2019, respectively.

As of September 30, 2020, we had an accumulated deficit of approximately $195,949,000, which included losses of approximately $7,159,000 and $15,316,000 for the nine-month periods ended September 30, 2020 and 2019, 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.

1 unchanged sentence

Since inception, our operations have been primarily financed through the issuance of debt and equity securities.

At June 30, 2020, we had current assets of approximately $41,948,000 including cash on hand of approximately $35,114,000 and current liabilities of approximately $15,664,000.

On July 24, 2020, the Company closed the sale of approximately 6,052,631 shares of its Common Stock and received gross proceeds of approximately $57.5 million and, after deducting the underwriting discounts and commissions and expenses related to the offering, received total net proceeds of approximately $54,000,000.

At September 30, 2020, we had current assets of approximately $96,803,000 including cash on hand of approximately $87,978,000 and current liabilities of approximately $17,356,000.

In early July 2020, the Company received approximately $2,414,000 in proceeds related to the sale of shares pursuant to the Open Market Sale Agreement with Jefferies LLC and B.

5 unchanged sentences

COVID-19 Impact on Financial Results

First half 2020 product revenues were positively impacted by underlying strength in our critical care and cardiac surgery business, and the use of CytoSorb to treat critically-ill COVID-19 patients in the ICU.

Though difficult to quantitate, we estimate that approximately $2.4 million to $2.6 million of our second quarter 2020 revenues and $3.9 million to $4.3 million of our year-to-date revenues were related to COVID-19.

Given the order patterns we are currently experiencing, we expect that the COVID-19 pandemic will continue to have a positive impact on product revenues in the third quarter of 2020.

This may change with containment of the pandemic.

Product revenues in 2020 were positively impacted by underlying strength in our critical care and cardiac surgery business, and the use of CytoSorb to treat critically-ill COVID-19 patients in the ICU.

Though difficult to quantitate, we estimate that approximately $2.7

million of our third quarter 2020 revenues and $6.9 million of our year-to-date revenues at September 30, 2020 were directly or indirectly related to COVID-19.

Given the order patterns we are currently experiencing, we expect that the COVID-19 pandemic will continue to have a positive impact on product revenues in the fourth quarter of 2020 and potentially into the first quarter of 2021.

These expectations may change depending on the severity of the illness associated with COVID-19, or containment of the pandemic.

In addition, as a result of the EUA granted by the FDA on April 11, 2020, we began shipping CytoSorb to hospitals in the United States.

Sales to hospitals in the United States under the EUA amounted to approximately $667,000 for the three months ended June 30, 2020.

Sales to hospitals in the United States under the EUA amounted to approximately $262,000 and $928,000 for the three and nine months ended September 30, 2020, respectively.

We are continuing to receive inquiries and orders for CytoSorb.

However, at this time, we cannot predict the overall impact this will have on our product sales during the remainder of 2020.

As the impact of the COVID-19 pandemic eases, we may experience a decrease in revenue in the second half of 2020 as compared to the first half of 2020 as the impact of this catalyst for revenue growth is reduced.

Grant revenues have been negatively impacted by the COVID-19 pandemic.

Our research and development employees have either been deployed to work-from-home status or reassigned to assist production activities to increase production of CytoSorb.

This may reduce grant revenue until such time as the pandemic is over;

however, this is not expected to have a material impact on our financial results because of the low gross margins associated with grant activities.

However, at this time, we cannot predict the overall impact U.S.

sales will have on our overall product sales during the remainder of 2020.

The COVID-19 pandemic has generally been a positive driver for CytoSorb sales and it has highlighted the use of CytoSorb to treat cytokine storm and hyperinflammation.

This has been a catalyst for CytoSorb orders from existing customers, but also from new hospitals in countries where CytoSorb was not previously sold.

We believe this increased usage during the COVID-19 pandemic, as well as increased awareness of CytoSorb resulting from the increased sales, could help drive further CytoSorb sales in the future.

However, during the past several quarters, the COVID-19 pandemic also caused disruptions to our normal sales processes, which decreased access of our sales force to hospitals, decreased effectiveness of virtual medical conferences, limited our ability to market new indications, such as ticagrelor and rivaroxaban removal, reduced the number of surgeries and other non-COVID-19 hospitalized patients and slowed our ability to generate clinical data to support our sales and marketing efforts.

With the pandemic in flux, we cannot predict what the near-term impact of COVID-19 will have on overall ongoing product sales.

Grant revenues have been negatively impacted by the COVID-19 pandemic this year.

Our research and development employees were either deployed to work-from-home or reassigned to assist in production activities to increase production of CytoSorb.

Currently, the team is either assisting with CytoSorb production or are executing upon our grant contracts, but this may change depending on the severity of another expected surge in COVID-19 cases As a result, grant revenue may be reduced until such time as the pandemic is over;

however, this reduction is not expected to have a material impact on our financial results because of the low gross margins associated with grant activities.

There has been a worldwide slowdown in clinical trial activities as medical providers focus on COVID-19 patients and this has resulted in the temporary pause in enrollment of our TISORB study in the United Kingdom and other clinical trials in Europe.

Together with the previously disclosed pause in enrollment of our REFRESH 2 trial, this has resulted in an approximately $525,000 reduction in our second quarter and a $1,500,000 reduction in our year to date clinical trial expenses which has a corresponding reduction in our reported operating loss and quarterly cash burn.

The clinical study results of our REMOVE study sponsored by the German government have also been delayed as a result of COVID-19.

Together with the previously disclosed pause in enrollment of our REFRESH 2 trial, this has resulted in an approximately $1.8 million reduction in our third quarter and a $3.3 million reduction in our year to date clinical trial expenses which has a corresponding reduction in our reported operating loss and quarterly cash burn.

These clinical trial activities are expected to resume to normal levels as the impact of the COVID-19 pandemic eases.

There has been an approximately $400,000 reduction in our second quarter and a $650,000 reduction in our year to date 2020 selling, general, and administrative expenses due to the restrictions on travel and the cancelling of medical and investor conferences during the pandemic.

This is also a temporary situation.

There has been an approximately $419,000 reduction in our third quarter and a $2,098,000 reduction in our year-to-date 2020 selling, general, and administrative expenses due to the restrictions on travel and the cancelling of medical and investor conferences during the pandemic.

This is also a temporary situation which is not expected to continue once the pandemic is contained.

There has been no adverse impact on our ability to access capital.

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Gross proceeds from the Offering amounted to approximately $57.5 million and, after deducting the underwriting discounts and commissions and expenses related to the Offering, the Company received total net proceeds of approximately $53.8 million.

As a result of the Offering, the Company’s cash balance increased to approximately $89.0 million, which the Company expects will fund the Company’s operations well beyond the next twelve months.

As of September 30, 2020, the Company’s cash balance increased to approximately $88.0 million, which the Company expects will fund the Company’s operations well beyond the next twelve months.

As a result, the Company has determined that the going concern risk has been eliminated.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis