Cytosorbents Corp 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Cautionary Notes Regarding Forward Looking Statements 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 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. Factors which could cause or contribute to such differences include, but are not limited to, the risks discussed in our Annual Report on Form 10-K, as updated by any risks reported in our Quarterly Reports on Form 10-Q and in the press releases and other communications to stockholders issued by us from time to time which attempt to advise interested parties of the risks and factors which may affect our business. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, other than as required under the Federal securities laws. Overview We are a leader in the treatment of life-threatening conditions in the intensive care (“ICU”) and cardiac surgery using blood purification via our proprietary polymer adsorption technology. We have a number of products commercialized and in development based on this technology platform. Our flagship product, CytoSorb®, is already commercialized, and is being investigated to reduce deadly uncontrolled inflammation and dangerous substances in hospitalized patients around the world, with the goal of preventing or treating multiple organ failure, bleeding, and other potentially fatal complications. Organ failure is the cause of nearly half of all deaths in the ICU, with little to improve clinical outcome. CytoSorb, is approved in the European Union (“EU”) as an effective extracorporeal cytokine absorber, designed to reduce the “cytokine storm” or “cytokine release syndrome” that could otherwise cause massive inflammation, organ failure and death in common critical illnesses such as sepsis, burn injury, trauma, lung injury, cytokine release syndrome due to cancer immunotherapy, and pancreatitis. These are conditions where the mortality is extremely high, yet few to 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. In January 2020, we received CE-Mark 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. In April 2020, the United States Food and Drug Administration (the “FDA”) granted CytoSorbents’ technology Breakthrough Device Designation for the removal of ticagrelor in a cardiopulmonary bypass circuit during emergent and urgent cardiothoracic surgery. If FDA marketing approval for this indication is obtained, the device would be marketed as DrugSorb-ATR in the United States. The DrugSorb-ATR Antithrombotic Removal System is based on the same polymer technology as CytoSorb. In April 2020, we announced that the U.S. FDA has granted U.S. Emergency Use Authorization (“EUA”) of CytoSorb for use in critically ill patients with COVID-19 infection and respiratory failure. In May 2020, we received a CE-Mark label expansion for CytoSorb for the removal of rivaroxaban during cardiothoracic surgery requiring cardiopulmonary bypass. In August 2021, the Company announced that it was granted a second Breakthrough Device Designation for its DrugSorb-ATR Antithrombotic Removal System by the FDA to remove the direct oral anticoagulants, rivaroxaban and apixaban. The Company has initiated two U.S. clinical trials evaluating the use of DrugSorb-ATR during cardiothoracic surgery to remove ticagrelor, apixaban and rivaroxaban to prevent or reduce perioperative bleeding complications in pursuit of U.S. FDA marketing approval. 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. CytoSorb has been used globally in more than 170,000 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. 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 7,650 human treatments to date in COVID-19 patients. 22 Table of Contents We are focusing on four key objectives that we believe are the key to driving sustainable, long-term growth: • Open the U.S. market by obtaining FDA Marketing approval for DrugSorb™-ATR to remove blood thinning drugs during cardiothoracic surgery (see clinical studies update) • Grow core CytoSorb sales to profitability, driven by numerous internal initiatives (sales and marketing update) • Transition CytoSorb production to our new manufacturing facility and headquarters in Princeton, New Jersey this year • Forge and expand new and existing strategic partnerships to maximize the synergy between our technology and those of our partners, while creating new global opportunities for growth 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. The technology is protected by 21 issued U.S. patents and multiple international patents, with applications pending both in the U.S. and internationally. 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, DrugSorb-ATR and others. Our proprietary polymer technologies form the basis of a broad technology portfolio. 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. • DrugSorb-ATR — an investigational extracorporeal antithrombotic removal system based on the same polymer technology as CytoSorb that is being evaluated in the U.S. STAR-T and STAR-D pivotal randomized, controlled trials to reduce the level of antithrombotic drugs, ticagrelor, apixaban and rivaroxaban to reduce bleeding complications in patients undergoing cardiothoracic surgery while on these drugs. • ECOS-300CY — an adsorption cartridge approved in the E.U. for use with ex vivo organ perfusion systems to remove cytokines and other inflammatory mediators in the organ perfusate, with the goal of maintaining or improving solid organ function. In 2021, commercialization of PerSorb™ and Aferetica’s PerLife™ ex vivo organ perfusion system commenced in Italy. • 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. VetResQ is being commercialized in the United States. • 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. • 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 radiological imaging with contrast, or interventional radiology procedures such as cardiac catheterization and angioplasty. The goal of ContrastSorb is to prevent contrast-induced nephropathy. 23 Table of Contents • DrugSorb — a development-stage extracorporeal hemoperfusion cartridge designed to remove toxic chemicals from the blood (e.g., drug overdose, high dose regional chemotherapy). • BetaSorb — a development-stage extracorporeal hemoperfusion cartridge designed to remove mid-molecular weight toxins, such as b2-microglobulin, that standard high-flux dialysis cannot remove effectively. 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, 2021 as filed with the SEC on March 10, 2022. The following includes certain updates regarding these clinical studies subsequent to the filing of the Company’s Annual Report on Form 10-K: In July 2021, we received full FDA approval of an Investigational Device Exemption (IDE) application to conduct a double-blind, randomized, controlled clinical study for up to 120 patients entitled, “ S afe and T imely A ntithrombotic R emoval – T icagrelor ( STAR-T ),” in the United States to support FDA marketing approval. This was done under the previously announced FDA Breakthrough Device Designation granted for the removal of ticagrelor in a cardiopulmonary bypass circuit to reduce the likelihood of serious perioperative bleeding during urgent cardiac surgery. In October 2021, the first patient was enrolled and the STAR-T study is now actively recruiting at multiple sites. Pending continuing uncertainty from the ongoing COVID-19 pandemic, we expect the study to reach its first scheduled milestone of 33% patient enrollment that will trigger the first Data Safety Monitoring Board (DSMB) meeting during the summer of 2022 and for the overall study enrollment to be complete in the first quarter of 2023. In October 2021, we also received full FDA approval of an Investigational Device Exemption (IDE) application to conduct a double-blind, randomized, controlled clinical study for up to 120 patients entitled, “ S afe and T imely A ntithrombotic R emoval – D irect Oral Anticoagulants ( STAR-D ),” in the United States to support FDA marketing approval. This was done under the previously announced 2 nd FDA Breakthrough Device Designation granted for our DrugSorb-ATR Antithrombotic Removal System. This Breakthrough Device designation covers the removal of the Direct Oral Anticoagulants (DOACs) apixaban and rivaroxaban in a cardiopulmonary bypass circuit to reduce the likelihood of serious perioperative bleeding during urgent cardiac surgery. The first sites have been activated and are actively recruiting. The first patient was enrolled in April 2022 and pending the continuing uncertainty from the ongoing COVID-19 pandemic we expect the study to complete enrollment in 12-18 months. 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. The international S afe and T imely A ntithrombotic R emoval ( STAR ) Registry is designed to capture real world clinical and health economic outcomes with intraoperative antithrombotic drug removal. The Registry is actively enrolling patients in the U.K. and Germany and is planned to expand to additional EU countries before the end of 2022. The intent of the Registry is to report outcomes at international conferences and submit the results for publication on a rolling basis as enrollment progresses. In April 2020, we received U.S. FDA Emergency Use Authorization for the treatment of adult critically ill COVID-19 patients with confirmed or imminent respiratory failure. The C ytoSorb T herapy in C OVID-19 ( CTC ) Registry was launched to capture outcomes and device utilization patterns from multiple U.S. participating centers. Initial results on critically ill COVID-19 patients on extracorporeal membrane oxygenation (ECMO) treated with CytoSorb at participating U.S. centers showed high survival rates compared with the international benchmark Extracorporeal Life Support Organization (ELSO) Registry. The initial CTC results were presented at the International Symposium of Intensive Care Medicine conference in August 2021 in Brussels, Belgium, and published in the peer reviewed journal Frontiers in Medicine . The CTC has completed enrollment and the final results will also be submitted for publication. The German PROCYSS multicenter, randomized controlled trial evaluating the ability of CytoSorb to restore hemodynamic stability in patients with refractory septic shock is now actively enrolling at multiple sites. The speed of enrollment remains uncertain due to COVID-19, however we currently estimate that the next important milestone of the interim analysis after 50% enrollment will occur in 2023. 24 Table of Contents The German multicenter Hep-On-Fire single-arm trial evaluating CytoSorb in patients suffering from acute liver failure due to alcoholic hepatitis received Ethics Committee approval in October 2021 and is currently actively recruiting. We expect that the first patient will be enrolled in the study in the first half of 2022 and that the next important milestone of the interim analysis after 50% enrollment will occur in 2023. The international COSMOS Registry was designed to capture real world outcomes and device utilization patterns across multiple critical care indications including but not limited to sepsis, acute respiratory failure, postoperative vasoplegia, acute liver failure, and acute pancreatitis. The Registry is undergoing start-up activities and scheduled to begin enrollment in the first half of 2022 with the goal of being active in multiple countries in 2023. The intent of the Registry is to report outcomes at international conferences and submit the results for publication on a rolling basis as enrollment progresses. Sales and Marketing Update The following are the key initiatives that we have been executing upon to drive product sales growth in the future. Near-term growth drivers • Resume In-person Sales from a Strong Customer Base: Our core customer base accounts for the majority of our direct sales and grew by 20-25% at the start of the pandemic and has remained stable since. We are in close contact with all of these accounts and have confirmed that COVID-19 related issues, including its effect on staffing and numbers of ICU patients, are the primary issue for volatility in ordering. We believe a return to in-person selling will reinvigorate growth. • New Therapy Divisions: We have established three distinct therapy divisions within our commercial operations including Critical Care, Cardiovascular, and Liver/Kidney/other to develop these markets internationally with the focus of leaders with area-specific medical and commercial expertise, who will work closely with our sales teams and best serve the needs and interests of our customers. We have already seen our efforts bear fruit with now more than 150 cardiac surgery centers internationally who have begun to use CytoSorb to remove antithrombotic drugs during urgent cardiac surgery, for example. We believe this infrastructure will yield many more similar successes across a broad array of applications. • New Exclusive Private Hospital Chain Partnerships: We are now the preferred supplier of hemoadsorption technology to the three largest private hospital chains in Germany, including, as announced yesterday, Asklepios Kliniken GmbH, and the former hospitals of RHÖN-KLINIKUM AG. Many of these hospitals are already current customers and our agreements facilitate access and sales of CytoSorb to these and all other relevant institutions within these hospital networks. • Rise of Existing and New Applications: Among the many applications, we highlight: o Shock: Many studies have highlighted the ability of CytoSorb to remove inflammatory mediators and help to stabilize shock, a potentially fatal drop in blood pressure, in a wide range of patients. A recent 2019 meta-analysis, found that approximately 10% of ICU patients have septic shock at admission and 8% of patients admitted to the ICU have septic shock at some point in their hospital stay, with a high mortality of 38%. CytoSorb is being used around the world as a treatment of shock and we are conducting the PROCYSS RCT to formally evaluate CytoSorb as a treatment of this common and major unmet medical need. o Liver disease: In the treatment of acute liver disease, CytoSorb outperforms the market leading MARS® platform (Baxter) in the in vitro removal of many liver toxins, but has the added benefit of removing cytokines and inflammatory mediators, while being much easier to use. In real-world practice, CytoSorb has replaced MARS at many accounts. o Lung Injury: Our U.S. CTC registry highlights the high survival of critically ill COVID-19 patients with acute respiratory distress syndrome (ARDS) treated with CytoSorb and ECMO under FDA Emergency Use Authorization. We believe these data demonstrate a therapeutic strategy of “enhanced lung rest” using the combined therapies that can be extrapolated to the treatment of ARDS in non-COVID patients, a very large market. 25 Table of Contents Longer-term growth drivers • Stand-alone blood pump strategy: There are many applications where a simple, low-cost hemoperfusion pump is adequate to implement our CytoSorb blood purification technology, without the complexity of a large dialysis or continuous renal replacement therapy (CRRT) machine, without the need for a dialysis technician, and where patients do not need to have failed kidneys. This would greatly simplify treatment with CytoSorb in the ICU - potentially enabling its more ubiquitous and earlier use on more patients while opening the door for more new applications in the emergency room, surgery suites, and elsewhere, in what we call the “hospital-wide” application. We have initially partnered with a major international dialysis company to distribute a high-quality hemoperfusion machine in Germany, Austria, and Luxembourg and are in the midst of a soft launch, to be followed by a broader rollout in these countries later this year, and in more countries in the not-to-distant future. The machine is only as good as the therapy that is being run on it, and CytoSorb is the market leading cytokine adsorbing technology that makes this an excellent combination treatment and a potentially game-changing new business model going forward. • Expansion of direct sales territories: Although opening new countries with a direct sales force requires time, cost, and effort, it also allows us to directly lead the effort, drive results, and benefit from more profitable sales. With the announcement of expansion of direct sales into the U.K. and Ireland, we now sell direct in two of the E.U.’s Big 5 Economies - Germany and the U.K. – and a total of 15 countries direct overall, while working with distributors or partners in the other three Big 5 Economies: France, Italy, and Spain. • Investment in important clinical studies in shock, liver failure, cardiac surgery, ATR, etc: We are committed to funding Company-sponsored studies in key areas that we believe will drive international adoption and usage, with the goal of becoming a standard of care for those applications. COVID-19 Business Update COVID-19 patients develop life-threatening complications such as acute respiratory distress syndrome (ARDS), shock (i.e. a potentially fatal drop in blood pressure), kidney failure, acute cardiac injury, thromboses and emboli, and secondary bacterial infections. The underlying cause for these complications is often 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. Hypercoagulability, thought triggered by inflammation, and resulting thromboembolic events such as pulmonary emboli and thrombotic microangiopathy, play another critical role in the pathophysiology of COVID-19 infection and severity of illness. 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 to treat dangerous inflammation and related life-threatening complications in more than 7,650 COVID-19 patients in more than 30 countries as of March 31, 2022. 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. CytoSorb has also been recommended in the National Treatment Guidelines from Panama for Adult COVID-19 Patients if patients have either refractory shock or have severe or refractory respiratory failure requiring either high ventilator support or extracorporeal membrane oxygenation. CytoSorb has received approval from the Drugs Controller General of India to treat COVID-19 patients in certain instances. 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. 26 Table of Contents The use of CytoSorb has not been approved in the U.S. by the FDA. However, under certain circumstances, investigational medical devices that have not yet been FDA-approved may be made available for emergency use in the U.S. under the FDA’s Expanded Access Program (“EAP”). On April 13, 2020, we announced that the FDA, in a different program than the EAP, granted U.S. Emergency Use Authorization (EUA) of CytoSorb for use in adult critically ill COVID-19 patients. 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 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. 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. The CTC (CytoSorb Therapy in COVID-19) Registry was launched to capture outcomes and device utilization patterns from multiple U.S. participating centers. Primary results on observed ICU mortality of COVID-19 patients with acute respiratory distress syndrome (ARDS) requiring extracorporeal membrane oxygenation (ECMO) and treated with CytoSorb according to FDA EUA criteria were presented at the International Symposium of Intensive Care Medicine conference in September 2021 in Brussels, Belgium. In December 2021, we announced the publication of these results in the peer-reviewed journal Frontiers in Medicine . Government Research Grants: We have historically 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 U.S. Army, U.S. Special Operations Command (“USSOCOM”), the U.S. Air Force, Air Force Material Command (“USAF/AFMC”) and others. Currently, we have ongoing projects funded, in part, by the U.S. Army Medical Research Acquisition Activity (“USAMRAA”), the NHLBI, and the USAF/AFMC. 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, 2021, as filed with the SEC on March 10, 2022. Research and Development Update Our research and development efforts have experienced challenges due to the COVID-19 pandemic. Due primarily to the ongoing pandemic, we have encountered challenges hiring the required technical staff. Our recruiting process is ongoing, so that we can obtain the technical staff required to be able to timely execute on our various grant and non-grant related research and development projects. As of March 31, 2022, the revenue remaining to be earned on open grant contracts is $9.4 million. Overall, grant funded programs, HemoDefend-BGA™ (Universal Plasma), HemoDefend-RBC™ and K + ontrol™, continue to progress and we have been the beneficiary of approximately $9.6 million, $4.7 million and $7.0 million in total funding, respectively, awarded to date. The development of our HemoDefend-RBC™ filter, which is designed to remove potassium and non-infectious contaminants in transfused packed red blood cells, has also been impacted by the COVID-19 pandemic. The development of this filter requires the use blood procured from commercial blood banks to perform the validation testing necessary to support an IDE submission. Currently, due primarily to the COVID-19 pandemic, the national blood supply is experiencing blood shortages and will not supply blood for research purposes. As a result, we have experienced disruptions in our blood supply and cannot predict when deliveries will stabilize. We are continuing to seek alternative supplies of blood to support the required validation testing. This may delay an IDE submission. 27 Table of Contents Comparison for the three months ended March 31, 2022 and 2021: Revenues: Revenue from product sales was approximately $7,924,000 in the three months ended March 31, 2022, as compared to approximately $10,143,000 in the three months ended March 31, 2021, a decrease of approximately $2,219,000, or 22%. This decrease was driven by a decrease in direct sales of approximately $1,971,000 resulting primarily from lower sales in Germany due to COVID-19 pandemic-driven market conditions. Due to a surge in COVID-19 cases in the first quarter of 2022, many hospitals throughout Germany either maintained or reinstituted restrictions such as visitation rights to non-essential visitors. However, unlike prior waves in Germany, the rates of severe COVID-19 illness requiring ICU care, and death have been comparatively very low. This is being partly attributed to high rates of vaccinations that are associated with reduced severity of illness, reduced need for hospitalization, and risk of death. These factors led to a decrease in both COVID-19 and core non-COVID-19 CytoSorb sales in Germany. Sales to hospitals in the United States under the EUA granted by the FDA amounted to approximately $155,000 for the three months ended March 31, 2022 as compared to approximately $304,000 in the first quarter of 2021. Though difficult to quantify, we estimate that approximately $300,000 of total product sales in the first quarter of 2022 was due to the demand for CytoSorb to treat COVID-19 patients as compared to approximately $1,800,000 in the first quarter of 2021. In addition, as a result of the decrease in the average exchange rate of the Euro to the U.S. dollar, 2022 product sales were negatively impacted by approximately $552,000. For the three months ended March 31, 2022, the average exchange rate of the Euro to the U.S. dollar was $1.12 as compared to an average exchange rate of $1.21 for the three months ended March 31, 2021. Grant income was approximately $767,000 for the three months ended March 31, 2022 as compared to approximately $455,000 for the three months ended March 31, 2021, an increase of approximately $312,000 or 68%. This increase was a result of the easing of the COVID-19 pandemic in the United States during the three months ended March 31, 2022 and a corresponding increase in grant related work. During the three months ended March 31, 2021, 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 $8,691,000 for the three months ended March 31, 2022, as compared to total revenues of approximately $10,599,000 for the three months ended March 31, 2021, a decrease of approximately $ 1,907,000, or 18%. Cost of Revenues: For the three months ended March 30, 2022 and 2021, cost of revenue was approximately $2,278,000 and $2,751,000, respectively, a decrease of approximately $474,000. Product cost of revenues decreased approximately $776,000 during the three months ended March 31, 2022 as compared to the three months ended March 31, 2021 primarily as a result of decreased sales. Product gross margins were approximately 80% for the three months ended March 31, 2022 as compared to approximately 77% for the three months ended March 31, 2021. The increase in the gross margin percentage in 2022 was due the impact of non-recurring costs related to prior years tariffs as a result of an audit by the German Customs Authorities of approximately $732,000 in the three months ended March 31, 2021 that did not recur in 2022. Research and Development Expenses : For the three months ended March 31, 2022, research and development expenses were approximately $4,243,000 as compared to research and development expenses of approximately $2,282,000 for the three months ended March 31, 2021, an increase of approximately $1,961,000. This increase was due to an increase in costs associated with our clinical trial activities of approximately $1,410,000, an increase in salaries related to our clinical trial activities of approximately $187,000 due to the hiring of clinical expertise, an increase in rent expense of approximately $65,000 related to rent expense on our new facility, an increase in other research and development labor costs of approximately $102,000 related to the hiring of additional scientific expertise and an increase in other research and development costs of approximately $197,000. 28 Table of Contents Legal, Financial and Other Consulting Expenses: Legal, financial and other consulting expenses were approximately $801,000 for the three months ended March 31, 2022, as compared to approximately $708,000 for the three months ended March 31, 2021. The increase of approximately $93,000 was due to an increase in legal fees of approximately $324,000 due to the abandonment of certain patent applications and an increase in audit fees of approximately $83,000. These increases were offset by decreases in employment agency fees of approximately $255,000 and consulting fees of approximately $59,000. Selling, General and Administrative Expenses: Selling, general and administrative expenses were approximately $9,161,000 for the three months ended March 31, 2022, as compared to approximately $7,710,000 for the three months ending March 31, 2021, an increase of $1,451,000. This increase is related to an increase in salaries, commissions and related costs of approximately $936,000, an increase in occupancy costs of approximately $373,000 related to rent on our new facility in Princeton, NJ, an increase in sales and marketing costs, which include advertising and conference attendance of approximately $286,000, an increase in travel and entertainment costs of approximately $153,000 and an increase in non-cash stock option compensation expense of approximately $120,000 and an increase in commercial insurance costs of approximately $86,000. These increases were offset by a decrease in non-cash restricted stock expense of approximately $283,000, a decrease in royalty expense of approximately $183,000 due to a decrease in sales, a decrease in public relations consulting expense of approximately $73,000 and a decrease in other general and administrative expenses of approximately $37,000. Gain (Loss) on Foreign Currency Transactions: For the three months ended March 31, 2022, the loss on foreign currency transactions was approximately $1,213,000 as compared to a loss of approximately $1,306,000 for the three months ended March 31, 2021. The 2022 loss was directly related to the decrease in the spot exchange rate of the Euro to the U.S. dollar as of March 31, 2022 as compared to December 31, 2021. The spot exchange rate of the Euro to the U.S. dollar was $1.11 per Euro as of March 31, 2022, as compared to $1.14 per Euro as of December 31, 2021. The 2021 loss was directly related to the decrease in the spot exchange rate of the Euro as of 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 as of March 31, 2021, as compared to $1.22 per Euro at December 31, 2020. History of Operating Losses We have experienced substantial operating losses since inception. As of March 31, 2022, we had an accumulated deficit of approximately $230,152,000, which included losses of approximately $8,966,000 and $4,168,000 for the three-month periods ended March 31, 2022 and 2021, respectively. Historically, losses have resulted principally from costs incurred in the research and development of our polymer technology, clinical studies, and general and administrative expenses. Liquidity and Capital Resources Since inception, our operations have been primarily financed through the issuance of debt and equity securities. As of March 31, 2022, we had current assets of approximately $55,854,000 including unrestricted cash on hand of approximately $43,023,000 and current liabilities of approximately $14,672,000. As of March 31, 2022, $25 million of our total shelf amount was allocated to our ATM facility, all of which is still available. In addition, we have $15 million of debt availability, providing financial flexibility, if needed. In April of 2022, we received approximately $740,000 in cash from the approved sale of our net operating losses and research and development credits from the State of New Jersey. We are also managing our resources proactively, continuing to invest in key areas such as our U.S. pivotal STAR-T and STAR-D trials. In April 2022, we began instituting tighter cost controls which are expected to reduce our planned cash burn by an additional $2 million per quarter. We believe that we have sufficient cash to fund the Company’s operations beyond twelve months from the issuance of these financial statements. 29 Table of Contents COVID-19 Impact on Financial Results Product revenues in the three months ended March 31, 2022 were negatively impacted by pandemic-driven adverse market conditions, especially in Germany which is our largest market. This was due to another wave in new COVID-19 cases in Germany, driven by the Omicron variant, which peaked in March. This prompted many hospitals throughout Germany to either maintain or reinstitute restrictions such as visitation rights to non-essential visitors. However, unlike prior waves in Germany, the rates of severe COVID-19 illness requiring ICU care, and death have been disproportionately very low. This is being partly attributed to high rates of vaccinations that are associated with reduced severity of illness, reduced need for hospitalization, and risk of death. Our product revenues decreased by 22% during the three months ended March 31, 2022 to approximately $7.9 million from approximately $10.1 million in the three months ended March 31, 2021. Though difficult to quantify, we estimate that approximately $300,000 of our product revenues were directly or indirectly related to COVID-19 during the three-month period ended March 31, 2022 as compared to $1.8 million during the three months ended March 31, 2021. We expect that COVID-19 revenues will continue to decline in future periods, as increasing vaccinations globally result in fewer new cases, hospitalizations, and deaths from COVID-19. As the COVID-19 pandemic wains, 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 $155,000 for the three months ended March 31, 2022. Given the significant decrease in COVID-19 cases in the U.S. at this time, we do not believe that U.S. sales under FDA EUA will have a significant impact on our overall product sales during the remainder of 2022. The COVID-19 pandemic had 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 awareness of CytoSorb increased overall usage during the COVID-19 pandemic and could help drive further CytoSorb sales in the future. However, since the beginning of the COVID-19 pandemic, we have experienced disruptions to our normal sales processes. These disruptions have been amplified more recently in Germany as a result of a wave of new COVID-19 cases. For example, we have experienced decreased access of our sales representatives to hospitals and fewer sales meetings with physicians, approximately 40% of our direct salesforce in Germany contracting COVID-19 during Q1, decreased effectiveness of virtual medical conferences, and limits on our ability to market new indications, such as ticagrelor and rivaroxaban removal. Additionally, hospitals have 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. These factors negatively impacted our critical care and cardiac surgery markets in Germany, resulting in lower-than-expected sales of CytoSorb during the quarter ended March 31, 2022. With the pandemic in flux, it is difficult to predict what the near-term impact of COVID-19 will have on overall ongoing product sales. We would expect over time to regain unrestricted access to hospitals and physicians which should positively impact our product sales in the future. The COVID-19 pandemic did not impact grant income during the first quarter of 2022 but did negatively impact first quarter 2021 results, when 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 executing upon our grant contracts. Our grant income increased by 68% during the three months ended March 31, 2022 as compared to the three months ended March 31, 2021. However, this may change depending on whether there is a resurgence of COVID-19, which may result in a reduction of grant income 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. 30 Table of Contents There has been a worldwide slowdown in clinical trial activities as medical providers focus on COVID-19 patients. This has resulted in temporary pauses and delays in a number of our company-sponsored clinical trials. In addition, because of ongoing COVID-19-related delays in the U.K., we elected to stop our TISORB single arm trial in April 2021, in favor of dedicating those resources to the U.S. STAR-T randomized controlled trial in the United States which is currently enrolling. These clinical trial activities and related expenses are expected to increase substantially as the impact of the COVID-19 pandemic continues to ease, especially in the U.S. In addition to the acute impact of the pandemic relating to the strain from high COVID-19 patient numbers, major healthcare systems throughout the world, including the United States and Germany, where we have substantial clinical trial activities, are also challenged by the long-term effects of the pandemic on the health care system and are encountering difficulty retaining and recruiting hospital personnel including personnel needed to support research activities. It is uncertain when these complex headwinds on health care delivery and clinical research activities will resolve and until then these factors may result in reduced capabilities of institutions to contribute patient recruitment into clinical trials with the potential to slow enrollment in our Company-sponsored clinical trials. In addition, certain of our selling, general, and administrative expenses, such as travel and conference expenses, continue to be 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. There has been no adverse impact on our ability to access capital as a result of the COVID-19 pandemic. We do not expect that this will change materially in the near future. Contractual Obligations In March 2021, the Company entered into a lease agreement for a new operating facility at 305 College Road East, Princeton, New Jersey, which contains office, laboratory, manufacturing and warehouse space. The commencement date of the lease was April 1, 2021. The Initial Early Term began on the commencement date (April 1, 2021) and lasted two months. The Early Term commenced on June 1, 2021 and lasted until September 30, 2021. The lease also contains two five-year renewal options. Commencing on 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 provided 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 at our existing Monmouth Junction facility which became 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 is approximately $35,000 per month. In addition, the Company is obligated to pay monthly operating expenses of approximately $30,000 per month. 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 January 2021, CytoSorbents Europe GmbH entered into a lease for 1,068 square meters of additional warehouse space. The lease commenced 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. In September 2021, the Company extended its two operating leases for its office facility in Germany. These leases require combined base rent payments amounting to approximately $12,100 per month. The initial lease term of both leases ends August 31, 2026. In addition, the Company is obligated to monthly operating expenses of approximately $3,000 per month. Both leases have a five year option to renew that would extend the lease term to August 31, 2031. 31 Table of Contents Off-balance Sheet Arrangements We have no off-balance sheet arrangements. Critical Accounting Policies and Estimates A discussion of our critical accounting policies and estimates is contained in our Annual Report on Form 10-K. Going Concern Prior to June 30, 2020, the Company’s consolidated financial statements were prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. On July 24, 2020, the Company closed an underwritten public offering of 6,052,631 shares of its common stock at a public offering price of $9.50 per share (the “Offering”). 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 March 31, 2022, the Company’s cash and cash equivalents and restricted cash were approximately $44.7 million, which the Company expects will fund the Company’s operations beyond twelve months from the issuance of these financial statements. As a result, the Company has determined that the going concern risk has been substantially mitigated. ​