What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-05-04 compared with 2020-11-04 · 118 added, 137 removed, 131 unchanged (66% of the section changed)

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This Quarterly report on Form 10-Q includes “forward-looking statements” within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements include, but are not limited to, statements about our plans, objectives, representations and contentions and are not historical facts and typically are identified by use of terms such as “may,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue” and similar words, although some forward-looking statements are expressed differently.

These forward-looking statements include, but are not limited to, statements about our plans, objectives, representations and contentions and our expectations of the effects of the COVID-19 pandemic and are not historical facts and typically are identified by use of terms such as “may,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue” and similar words, although some forward-looking statements are expressed differently.

You should be aware that the forward-looking statements included herein represent management’s current judgment and expectations, but our actual results, events and performance could differ materially from those in the forward-looking statements.

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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 January 2020, we received a further label expansion for CytoSorb to remove the anti-platelet agent, ticagrelor, during urgent and emergent cardiothoracic surgery on cardiopulmonary bypass.

In May 2020, we received another label expansion for CytoSorb to remove rivaroxaban, a Factor Xa inhibitor, for the same indication.

We believe the current addressable market in the United States for ticagrelor removal in cardiac surgery is approximately $250 million based on our current pricing model, assuming FDA approval, that could expand to $500 million should ticagrelor gain market share as the only reversible mainstream anti-platelet agent.

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 $2.0 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.

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.

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.

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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.

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

CytoSorb has been used globally in more than 5,750 human treatments to date in COVID-19 patients.

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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.

We have numerous other product candidates under development based upon this unique blood purification technology, including CytoSorb XL, K + ontrol, 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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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 and regulatory submissions.

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

Our proprietary polymer technologies form the basis of a broad technology portfolio.

Some of our products and product candidates include:

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• 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 radiological imaging with contrast, or interventional cardiology procedures such as cardiac catheterization and angioplasty.

• 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 radiology procedures such as cardiac catheterization and angioplasty.

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

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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.

The Company has now resumed the study at multiple trial centers, with others planned to start, notwithstanding potential COVID-19 related delays.

The German government-sponsored and investigator-initiated REMOVE endocarditis study completed its enrollment with a total of 289 patients in early-2020, but the COVID-19 pandemic has caused delays in data monitoring and data analysis.

Topline data are expected to be reported in the first half of 2021 with full data presentation thereafter.

The COVID-19 pandemic has also severely impacted our TISORB (Ticagrelor CytoSorb Hemoadsorption) trial execution in the United Kingdom.

The COVID-19 pandemic has severely hampered execution of non-COVID-19-related clinical research in the UK, including TISORB.

As a result, TISORB only enrolled five patients over the past eighteen months, a time period well beyond that originally intended to complete the study.

Accordingly, the decision has been made to stop the TISORB study and focus our clinical resources on the execution of the U.S.

randomized clinical trial on ticagrelor removal (STAR-T).

In December 2020, the Company initiated CYTATION (CytoSorb Ticagrelor Hemoadsorption), a Company-sponsored multicenter study in Germany to prospectively evaluate the removal of ticagrelor during cardiopulmonary bypass in patients on ticagrelor undergoing emergent cardiothoracic surgery.

The first patients have successfully been recruited, but due to the continuing impact of COVID-19 pandemic, the execution of the CYTATION study has been delayed.

In March 2021, we announced the filing of an Investigational Device Exemption (IDE) application to conduct the clinical study, “ S afe and T imely A ntithrombotic R emoval – T icagrelor (STAR-T),” in the United States to support an initial FDA regulatory approval.

This was done under the previously announced FDA Breakthrough Designation granted for the removal of ticagrelor in a cardiopulmonary bypass circuit during urgent and emergent cardiac surgery.

The FDA granted conditional approval of this IDE in April 2021.

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.

Although the severity and duration of the COVID-19 pandemic is uncertain, we are in the process of launching the STAR ( S afe and T imely A ntithrombotic R emoval) Registry in Europe during 2021 to capture real world clinical outcomes in this latest approved indication.

Pending resolution of the continued impact of the COVID-19 pandemic , we plan to initiate the randomized PROCYSS trial in Germany in 2021, evaluating the ability of CytoSorb to restore hemodynamic stability in patients with refractory septic shock.

We also plan to initiate the Hep-On-Fire single arm trial, evaluating CytoSorb in patients suffering from acute alcoholic hepatitis, in Germany later this year.

COVID-19 Business Update

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.

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.

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

In January 2021, Health Canada granted Medical Device Authorization for the importation, sale, and emergency use of CytoSorb in hospitalized COVID-19 patients.

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

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On April 13, 2020, we announced that the FDA, in a different program than the EAP, granted Emergency Use Authorization (EUA) of CytoSorb for use in U.S.

patients infected with COVID-19.

COVID-19 patients.

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

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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.

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.

The CTC (CytoSorb Therapy in COVID-19) Registry has been launched and is 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:

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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, 2020, as filed with the SEC on March 9, 2021.

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 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.

W81XWH2010712.

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%.

There following additional research grant has been awarded subsequent to the filing of our Annual Report on Form 10-K:

On April 19, 2021, the Company received notification that it received a U.S.

Army Medical Research Acquisition Activity Award (the “USAMRAAA”) entitled "Investigation of a potassium adsorber for the treatment of hyperkalemia induced by traumatic injury and acute kidney injury in austere medicine."

The USAMRAAA Phase II Sequential Award, for up to $1,499,987, was granted to the Company to continue development of two novel and distinct treatment options for life-threatening hyperkalemia.

This Award is being funded by the USAMRAAA under Contract No.

W81XWH21C0045.

Comparison for the three months ended March 31, 2021 and 2020:

Revenue from product sales was approximately $10,143,000 in the three months ended March 31, 2021, as compared to approximately $8,156,000 in the three months ended March 31, 2020, an increase of approximately $1,987,000, or 24%.

This increase was driven by an increase in direct sales of approximately $608,000 resulting from sales to both new customers and repeat orders from existing customers and an increase in distributor sales of approximately $1,379,000.

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.

Sales to hospitals in the United States under the EUA granted by the FDA amounted to approximately $304,000 for the three months ended March 31, 2021.

Though difficult to quantitate, we estimate that approximately $1.8 million of total product sales in the first quarter of 2021 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%.

dollar, 2021 product sales were positively impacted by approximately $790,000.

For the three months ended March 31, 2021, the average exchange rate of the Euro to the U.S.

dollar was $1.21 as compared to an average exchange rate of $1.10 for the three months ended March 31, 2020.

Grant income was approximately $455,000 for the three months ended March 31, 2021 as compared to approximately $551,000 for the three months ended March 31, 2020, a decrease of approximately $96,000 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 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 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 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 $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 $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 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 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 September 30, 2020 as compared to June 30, 2020.

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 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 $1.09 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 $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%.

Total revenues were approximately $10,599,000 for the three months ended March 31, 2021, as compared to total revenues of approximately $8,707,000 for the three months ended March 31, 2020, an increase of approximately $1,892,000, or 22%.

Cost of Revenues:

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.

For the three months ended March 30, 2021 and 2020, cost of revenue was approximately $2,751,000 and $2,385,000, respectively, an increase of approximately $366,000.

Product cost of revenues increased approximately $354,000 during the three months ended March 31, 2021 as compared to the three months ended March 31, 2020 primarily as a result of increased sales.

Product gross margins were approximately 77% for the three months ended March 31, 2021 and approximately 76% for the three months ended March 31, 2020.

The increase in the gross margin percentage in 2021 was due manufacturing efficiencies achieved during the three months ended March 31, 2021 and the receipt of approximately $388,000 related to the Employee Retention Tax Credit under the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”).

These increases were offset by the impact of costs related to prior years tariffs as a result of an audit by the German Customs Authorities.

Excluding the non-recurring negative impact of the 2018, 2019 and 2020 tariff adjustments of approximately $732,000 and the offsetting non-recurring positive impact of the Employee Retention Tax Credit which were recorded in the first quarter of 2021, product gross margins were approximately 81% for the three months ended March 31, 2021.

Please see Note 6 to the financial statements for details related to this matter.

Research and Development Expenses :

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.

For the three months ended March 31, 2021, research and development expenses were approximately $2,282,000 as compared to research and development expenses of approximately $1,965,000 for the three months ended March 31, 2021, an increase of approximately $317,000.

This increase was due to an increase in salaries related to our clinical trial activities of approximately $333,000 due to the hiring of additional personnel dedicated to the design of protocol and the anticipated start of a clinical trial in the United States for the removal of ticagrelor in emergent and urgent cardiac surgery patients and an increase in non-grant related research and development costs of approximately $65,000.

These increases were offset by a decrease in new product development costs of approximately $81,000.

Legal, Financial and Other Consulting Expenses:

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.

Legal, financial and other consulting expenses were approximately $708,000 for the three months ended March 31, 2021, as compared to approximately $519,000 for the three months ended March 31, 2020.

The increase of approximately $189,000 was due to an increase in hiring fees of approximately $151,000 due to the hiring of certain senior level personnel and an increase in consulting fees of approximately $111,000 primarily related to certain financial advisory fees and information systems consulting.

These increases were offset by decreases in legal fees of approximately $60,000 and accounting fees of approximately $13,000.

Selling, General and Administrative Expenses:

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.

Selling, general and administrative expenses were approximately $7,710,000 for the three months ended March 31, 2021, as compared to approximately $6,317,000 for the three months ending March 31, 2020, an increase of $1,393,000.

This increase is related to an increase in salaries, commissions and other employee-related costs of approximately $1,551,000, an increase in royalty expenses of approximately $156,000 due to the increase in product sales, an increase in commercial insurance of approximately $75,000 and an increase other general and administrative expenses of approximately $50,000.

These increases were offset by reductions in sales and marketing costs, which include advertising and conference attendance of approximately $151,000 and travel and entertainment costs of approximately $190,000 due primarily to travel restrictions related to the COVID-19 pandemic and a decrease in non-cash stock option and restricted stock expense of approximately $98,000.

Interest Expense, net:

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.

For the three months ended March 31, 2021, net interest expense was approximately $10,000, as compared to net interest expense of approximately $306,000 for the three months ended March 31, 2020.

This decrease in net interest expense of approximately $296,000 was the result of the payoff of our outstanding term loans with Bridge Bank in December of 2020.

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.

For the three months ended March 31, 2021, the loss on foreign currency transactions was approximately $1,306,000 as compared to a loss of approximately $668,000 for the three months ended March 31, 2020.

The 2021 loss was directly related to the decrease in the spot exchange rate of the Euro to the U.S.

dollar at March 31, 2021 as compared to December 31, 2020.

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.

dollar was $1.17 per Euro at March 31, 2021, as compared to $1.22 per Euro at December 31, 2020.

The 2020 loss was directly related to the decrease in the spot exchange rate of the Euro at March 31, 2020 as compared to December 31, 2019.

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.

dollar was $1.10 per Euro at March 31, 2020, as compared to $1.12 per Euro at December 31, 2019.

History of Operating Losses

We have experienced substantial operating losses since inception.

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.

As of March 31, 2021, we had an accumulated deficit of approximately $200,794,000, which included losses of approximately $4,168,000 and $3,453,000 for the three month periods ended March 31, 2021 and 2020, 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.

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

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.

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 $53.8 million.

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.

Riley FBR, Inc.

On July 31, 2019, the Company executed an Amendment to its Loan Agreement with Bridge Bank and, simultaneous with this Amendment, received $5 million in proceeds from an additional term loan.

In addition, the Amendment extended the interest-only period of the loan through October 2020.

Monthly principal payments of approximately $833,000 commence in November 2020.

At March 31, 2021, we had current assets of approximately $79,635,000 including cash on hand of approximately $68,468,000 and current liabilities of approximately $9,759,000.

During the period from January 1, 2020 through July 15, 2020, we raised approximately $26,427,000 by utilizing our ATM facility with co-agents Jefferies LLC and B.

In addition, we received net proceeds of approximately $53,800,000 from our underwritten public offering that closed on July 24, 2020.

Also, we expect to receive approximately $1,127,000 in cash from the approved sale of our net operating losses and research and development credits from the State of New Jersey in the second quarter of 2021.

We believe that we have sufficient cash to fund our operations well into the future.

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Product revenues in 2021 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.

Though difficult to quantitate, we estimate that approximately $1.8 million of our first quarter 2021 revenues were directly or indirectly related to COVID-19.

Given the order patterns we are currently experiencing, we expect the COVID-19 pandemic will continue to have a positive impact on product revenues in the second quarter of 2021.

However, COVID-19 revenues are expected to decline over the rest of 2021, as increasing vaccinations globally result in fewer new cases, hospitalizations, and deaths from COVID-19.

These expectations may change depending on whether there is a resurgence of COVID-19, or a 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 $262,000 and $928,000 for the three and nine months ended September 30, 2020, respectively.

Sales to hospitals in the United States under the EUA amounted to approximately $304,000 for the three months ended March 31, 2021.

We are continuing to receive inquiries and orders for CytoSorb.

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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.

Grant revenues have been negatively impacted by the COVID-19 pandemic during 2020 and 2021.

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.

Currently, the team is executing upon our grant contracts, but this may change depending on the severity of 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 resulted in the temporary pause in enrollment of our TISORB study in the United Kingdom, CYTATION study in Germany and other clinical trials in Europe.

Because of ongoing delays with the U.K.

TISORB single arm trial and slow enrollment, we have decided to stop the study, in favor of dedicating those resources to the pending start of the U.S.

STAR-T randomized controlled trial.

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 $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.

based REFRESH 2 trial has also been paused as a result of COVID-19.

These clinical trial activities and related expenses are expected to increase substantially as the impact of the COVID-19 pandemic eases.

In addition, certain of our first quarter 2021 selling, general, and administrative expenses, such as travel and conference expenses, are lower than pre-COVID-19 levels due to the continuing 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.

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Subject to contractual lock-ups, we have the ability to access capital through our ATM facility and through the equity markets, if needed.

There has also been no adverse impact on our ability to comply with the covenants associated with our debt facility with Bridge Bank.

We do not expect that this will change materially in the near future.

Contractual Obligations

In May 2020, the Company entered into a Nineteenth Amendment to Lease with the landlord which became effective May 1, 2020.

This amendment expands the Company’s space to 20,821 square feet and extends the term of the lease to May 31, 2021.

The Company’s base rent is approximately $34,000 per month.

In March 2021, the Company entered into a lease agreement for a new operating facility which contains office, laboratory, manufacturing and warehouse space.

The commencement date of the lease is April 1, 2021.

The Initial Early Term begins on the commencement date (April 1, 2021) and lasts to June 1, 2021.

The Early Term commences on June 1, 2021 and lasts until the date of issuance of the certificate of occupancy for the manufacturing space (expected to be September 30, 2021).

The lease also contains two five-year renewal options.

Commencing on the date of the receipt of the certificate of occupancy (September 30, 2021), the remaining lease term will last for 15.5 years.

The lease requires monthly rental payments of $25,208 for the Initial Early Term, $88,254 for the Early Term and initial monthly payments of approximately $111,171 in the first year of the remaining term.

Following the first year of the remaining term, the annual base rent will increase by approximately 2.75% annually over the remaining term.

The lease also contains six months of rent abatement.

In addition to the base rent, payments of operating expenses and real estate taxes will be required.

These payments are to be based on actual amounts incurred during 2021, multiplied by the Company’s share of the total building space (92.3%).

The landlord will also provide an allowance of approximately $1,455,000 related to certain building improvements as outlined in the lease.

In April 2021, the Company was required to provide the landlord with a letter of credit in the amount of approximately $1,334,000 as security.

In April 2021, the Company entered into a Twentieth Amendment to Lease with the landlord which will become effective May 31, 2021.

This amendment extends the term of the lease for the Company’s existing facility to May 31, 2022.

The Company’s base rent will be approximately $35,000 per month.

In addition, the Company is obligated to pay monthly operating expenses of approximately $30,000 per month.

The amendment also includes a one-year renewal option.

The base rent for the renewal term will increase by the greater of five percent or the increase in the Consumer Price Index.

Under the terms of this amendment, the Company will vacate a portion of the space as of May 31, 2022.

The Company will continue to lease the remaining space until December 31, 2022, at which time the Company will vacate the remaining space and the lease will terminate.

The Company’s base rent for the remaining space will be approximately $20,000 per month.

Monthly operating expenses will be approximately $11,000 per month.

In addition, the Company agreed to increase its security deposit by approximately $54,000 to a total of $150,000.

At the end of the lease term, the entire security deposit will be paid to the landlord for the purpose of making any needed repairs to the vacated premises, and the Company will have no further obligation to pay for repairs to the vacated premises.

In September 2016, the Company’s wholly-owned subsidiary, CytoSorbents Europe GmbH, entered into a five-year lease agreement with Klimik GmbH for 760 square meters of office and warehouse space.

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The leases also provide the Company with an option to extend the terms for an additional five-year period through August 31, 2026.

In January 2021, CytoSorbents Europe GmbH entered into a lease for 1,068 square meters of additional warehouse space.

The lease commences on April 1, 2021, requires monthly payments of base rent of $7,784 and other costs of approximately $239 and has a term of five years.

The lease also has an option to extend the lease term for an additional five-year period through March 31, 2031.

Off-balance Sheet Arrangements

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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 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.

As of March 31, 2021, the Company’s cash balance increased to approximately $68.5 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 substantially mitigated.

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