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Item 2. Management’s Discussion and Analysis

2024-05-09 compared with 2023-11-09 · 108 added, 156 removed, 184 unchanged (59% 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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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.

This discussion of our financial condition and the results of operations should be read together with the financial statements, including the notes contained elsewhere in this Quarterly Report on Form 10-Q, and the financial statements, including the notes thereto, contained in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on March 9, 2023.

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.

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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 Breakthrough Device Designation to CytoSorb for the removal of ticagrelor in a cardiopulmonary bypass circuit during emergent and urgent cardiothoracic surgery.

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 April 2020, the FDAgranted Breakthrough Device Designation to CytoSorb for the removal of ticagrelor in a cardiopulmonary bypass circuit during emergent and urgent cardiothoracic surgery.

In April 2020, we announced that the FDA has granted 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 a pivotal randomized, controlled clinical trial in the U.S.

and Canada, called the STAR-T trial, evaluating the use of DrugSorb-ATR during cardiothoracic surgery to remove ticagrelor to prevent or reduce perioperative bleeding complications in pursuit of U.S.

FDA and Health Canada marketing approval.

In July 2023, the Company announced that enrollment in the STAR-T trial completed, and in August 2023, the Company announced completion of the STAR-T trial, following the last scheduled patient follow-up.

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, and shock.

The Company has completed its pivotal randomized, controlled clinical trial in the U.S.

and Canada, called the STAR-T trial, evaluating the use of DrugSorb-ATR during cardiothoracic surgery to prevent or reduce perioperative bleeding complications in pursuit of FDA and Health Canada marketing approval.

We believe that the safety and efficacy results of the STAR-T trial will support regulatory submissions for marketing approval by the FDA and Health Canada.

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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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 COVID-19 patients to date.

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

DrugSorb-ATR was also granted a second FDA Breakthrough Device designation for 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 cardiothoracic surgery.

CytoSorb has been used globally in more than 7,650 human treatments to date in COVID-19 patients.

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

CytoSorb was also granted a second FDA Breakthrough Device designation for 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 cardiothoracic surgery.

We are focusing on three key objectives that we believe are the key to driving sustainable, long-term growth:

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• 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.

STAR-T and future 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.

prior to transplant.

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 prior to transplant.

In 2021, commercialization of PerSorb™ and Aferetica’s PerLife™ ex vivo organ perfusion system commenced in Italy.

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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 in November 2022 the first milestone was completed with the first one-third of patients enrolled, triggering the first independent Data Safety Monitoring Board (DSMB) meeting.

The DSMB recommended continuing the study as planned without any modifications.

In October 2021, the first patient was enrolled, and the STAR-T study is now actively recruiting at multiple U.S.

In November 2022, the first milestone was completed with the first one-third of patients enrolled, triggering the first Data Safety Monitoring Board (DSMB) meeting.

The DSMB recommended to continue the study as planned without any modifications.

In 2022, we also received FDA approval to expand the study to Canada and subsequently received Health Canada approval allowing inclusion of Canadian sites into the STAR-T trial in January 2023.

In April 2023, the study reached the 2 nd milestone of 67% enrollment or 80 patients triggering the second independent DSMB meeting.

The DSMB again recommended continuing the study as planned without any modifications.

The STAR-T study completed in August 2023 with final patient follow-up.

Currently the trial remains blinded, with focus on finalizing data monitoring to get to database lock, at which point data analysis will begin.

We expect to complete our initial STAR-T data analysis before year-end.

We intend to announce whether we believe the results from STAR-T can support an FDA marketing approval application thereafter.

In early 2023, the study exceeded 50% enrollment and reached the 2nd milestone of 67% enrollment in the spring of 2023, triggering another DSMB safety review, which found no safety concerns and recommended completion of the trial.

The study completed enrollment in July of 2023 triggering the final DSMB safety review following database lock in December 2023, which reported no safety concerns thereby meeting the primary safety endpoint of the study.

Based on the initial analysis of the STAR-T data, the study did not meet the primary effectiveness endpoint in the overall patient population that underwent different types of cardiac surgeries.

However, the study did demonstrate evidence of reduced bleeding complications, including serious bleeding events, in patients in the pre-specified isolated coronary artery bypass graft (“CABG”) surgery population.

Patients undergoing CABG surgery represented more than 90% of the overall study population.

The topline results of 140-patient, double-blinded, multicenter, pivotal STAR-T randomized, controlled trial were presented as a late breaking presentation at the 104th Annual Meeting of the American Association for Thoracic Surgery (AATS) held in Toronto, Canada on April 28, 2024.

The Company believes the safety and effectiveness data from STAR-T will support the parallel regulatory submission of DrugSorb-ATR to the FDA and Health Canada in Q3 2024.

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.

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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.

Study enrollment was paused in November of 2022 for business reasons and we believe that the study will resume after completion of the STAR-T trial activities.

The study has been postponed while the Company concentrates its clinical focus on STAR-T.

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 recruiting in the U.K., Germany, Austria, Sweden and Belgium and is planned to expand to additional countries.

Data outputs from the STAR Registry have already been reported at the EuroPCR 2023 conference in Paris in May 2023 and

at the European Association of Cardiothoracic Surgery conference in Vienna in October 2023.

The Registry will continue to report analyses 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.

C ytoSorb T herapy in C OVID-19 ( CTC ) Registry was launched to capture outcomes and device utilization patterns from multiple U.S.

The international Safe and Timely Antithrombotic Removal ( STAR ) Registry is designed to capture real world clinical and health economic outcomes with intraoperative antithrombotic drug removal.

The Registry is actively recruiting in the U.K., Germany, Austria, Belgium and Sweden and is planned to expand to additional countries in 2024.

Data outputs from the STAR Registry have already been reported at the EuroPCR 2023 conference in Paris in May 2023 and at the European Association of Cardiothoracic Surgery conference in Vienna in October 2023.

The Registry has been enrolling well and will be reporting again new analyses with larger number of patients at both of the aforementioned conferences in 2024.

Registry results will also be submitted for publication in major cardiovascular journals.

on a rolling basis as enrollment progresses.

In April 2020, we received FDA Emergency Use Authorization for the treatment of adult critically ill COVID-19 patients with confirmed or imminent respiratory failure.

CytoSorb Therapy in COVID-19 ( CTC ) Registry was launched to capture outcomes and device utilization patterns from multiple U.S.

participating centers.

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ECMO centers 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 registry completed enrollment with 100 patients from five centers, and the final results mirror the high survival (74%) seen in the previous analysis and were recently published in the prestigious journal Critical Care.

The German PROCYSS multicenter, randomized controlled trial evaluating the ability of CytoSorb to restore hemodynamic stability in patients with refractory septic shock is actively enrolling.

The speed of enrollment remains uncertain due to COVID-19 related institutional research staff shortages.

We are evaluating options to improve enrollment, including a study protocol amendment for potential study design optimization.

The CTC registry completed enrollment with 100 patients from five centers, and the final results mirror the high survival (74%) seen in the previous analysis, and have been published in the peer reviewed journal Critical Care.

The data further demonstrate that earlier intervention with CytoSorb and ECMO was associated with shorter need for mechanical ventilation, ECMO, and ICU stay.

These results lend support to our concept of “enhanced lung rest,” where ECMO helps the lungs rest by oxygenating blood extracorporeally and reducing the need for mechanical ventilation that can cause ventilator-induced lung injury, while CytoSorb reduces the circulating inflammatory mediators that cause continued capillary leak syndrome in the lungs.

Together, the goal of this dual-therapy strategy is to give the lungs a chance to recover and heal, a pre-requisite for weaning off of mechanical ventilation and ECMO.

The German PROCYSS multicenter, randomized controlled trial evaluating the ability of CytoSorb to restore hemodynamic stability in patients with refractory septic shock is now currently enrolling.

The speed of enrollment remains uncertain due to COVID-19 related institutional research staff shortages, however we anticipate conditions to gradually improve that together with a recently completed protocol amendment should help recruitment going forward.

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 actively recruiting in Spain, Germany and Italy with plans to expand into additional countries.

The Registry is actively enrolling in Spain, Germany and Italy with plans to expand in more countries in 2024.

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.

The first analysis of the Registry on the results in the first 100 patients enrolled was presented at the ISICEM meeting in Brussels in March 2024.

Sales and Marketing Update

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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.

Although the acute care hospital market is still suffering from staffing shortages, decreased procedural revenues, and strained budgets in the aftermath of the COVID pandemic, we are experiencing improving numbers of in-person meetings with customers at hospitals and at scientific conferences which we believe are critical to effective sales, as hospital visiting restrictions have generally been lifted, though some restrictions still remain in certain areas.

• Driving Greater Usage 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 continue to educate and train centers on how best to use our therapy, highlighting new clinical data and applications.

We believe this is a core strategy that will help to drive near-term 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 increasing numbers of cardiac surgery centers internationally who have begun to use CytoSorb to remove antithrombotic drugs during urgent cardiac surgery, for example.

The increased therapy area focus has already yielded good international sales momentum in many different areas, such as the use of CytoSorb in endocarditis and antithrombotic drug removal in cardiac surgery, in the treatment of liver disease, and in other critical care applications such as sepsis.

We believe this infrastructure will yield many more similar successes across a broad array of applications.

• Strategic Partnerships:

We have entered into a global marketing agreement with Fresenius Medical Care, the largest dialysis company in the world, where CytoSorb has become the “featured solution for cytokine, bilirubin, and myoglobin removal” on its critical care platform of machines worldwide, with the exception of the U.S.

Together, we are working to “Expand the Dimension of Blood Purification ® ” in hospitals and to promote and market our respective kidney and liver replacement therapies around the world.

• 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 Asklepios Kliniken GmbH, Helios, and the former hospitals of RHÖN-KLINIKUM AG.

We are now the preferred supplier of hemoadsorption technology to the three largest private hospital chains in Germany, including 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.

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o Liver disease:

In the treatment of acute liver disease, CytoSorb outperforms the market leading MARS® platform (Baxter) in the ex vivo removal of many liver toxins, but has the added benefit of removing cytokines and inflammatory mediators, which MARS does not do, while being much easier to use.

In real-world practice, CytoSorb has replaced MARS at many accounts.

o Lung Injury:

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.

CTC registry publication in Critical Care 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.

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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 initially partnered with a major international dialysis company, Nikkiso, to distribute a high-quality hemoperfusion machine.

The Nikkiso agreement expired in September 2023.

The Company is actively working with a new supplier to provide a stand-alone hemoperfusion pump.

We expect to launch a new, easier to use pump manufactured by a third -party supplier in mid-2024 called PuriFi.

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.

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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.

Strategic Partner Update

On November 8, 2023, Biocon Biologics (“Biocon”) announced that it entered into a definitive agreement with Eris Lifesciences (“Eris”) for the divestiture of its Dermatology and Nephrology branded formulations business units in India.

This transaction is expected to close by the end of November 2023.

In connection with this proposed transfer, the Company and Eris have entered into a temporary agreement for the distribution of CytoSorb ® products in India.

This temporary agreement has the same terms as the Company’s existing distribution agreement with Biocon except for the expiration date of the agreement, which has been updated from September 13, 2026, under the existing Biocon distribution agreement to December 31, 2025, under the temporary agreement.

Both the Company and Eris have agreed that they will use their best efforts to negotiate and finalize a new distribution agreement that will be commercially attractive to both parties.

As a result, Eris would act the Company’s exclusive distributor of CytoSorb ® products in India.

If a new distribution agreement with Eris is not executed by December 31, 2025, this temporary agreement will become null and void.

• New Products:

Over the past couple of years, there has been increasing momentum around two additional marketed products, ECOS-300CY for ex vivo organ perfusion (EVOP) in solid organ transplant under the EU CE mark, and VetResQ in the U.S.

for the treatment of companion animals.

In particular, prominent research in the field of heart, lung and liver organ transplant highlight the benefits of our technology in controlling inflammation and improving organ function during EVOP.

COVID-19 Business Update

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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 results on the first 52 patients in the peer-reviewed journal Frontiers in Medicine, demonstrating high 90-day survival (73%) The CTC Registry has completed enrollment at 100 patients and 5 U.S.

ECMO centers, confirming high 90-day survival (74%).

The final results of the CTC Registry with 100 patients, and a discussion of “enhanced lung rest” due to the combination therapy of CytoSorb with ECMO, were published recently in the journal, Critical Care.

participating centers treating critically ill COVID-19 patients according to the treatment recommendations of the FDA Emergency Use Authorization (EUA).

Preliminary 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 and published in the peer-reviewed journal Frontiers in Medicine .

The CTC Registry has completed enrollment and the final results confirming high survival (74%) were presented at the European Society of Intensive Care Medicine conference October 2022 and also have been published in the prestigious peer-reviewed journal Critical Care.

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, 2023, as filed with the SEC on March 14, 2024.

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

On May 12, 2023, the Company was granted a Phase I Small Business Innovation Research (SBIR) award from the United States Department of the Air Force (DAF) valued at $74,918 to explore new ways to treat combat injuries.

As of September 30, 2023, we have earned the $74,918 in funding and no further funding remains under this contract.

Research and Development Update

Our research and development work levels have returned back to pre-pandemic levels.

As of September 30, 2023, the revenue remaining to be earned on open grant contracts is $7.6 million.

Overall, grant funded programs, HemoDefend-BGA™ (Universal Plasma),

HemoDefend-RBC™ and K + ontrol™, have been the beneficiary of approximately $15.8 million, $4.7 million and $7.7 million in total funding, respectively, awarded to date.

We have completed a strategic review of our research and development programs based on technical feasibility, regulatory complexity and market opportunity to assess what projects have the highest chance of commercial success.

As a result of this analysis, we have concluded, the best opportunity for commercialization resides with the HemoDefend-BGA and DrugSorb-ATR products.

We are consolidating our research and development teams onto these two projects as we conclude our grant obligations with respect to HemoDefend-RBC and K + ontrol™.

As of March 31, 2024, the revenue remaining to be earned on open grant contracts is $5.0 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 $15.8 million, $4.7 million and $7.7 million in total funding, respectively, awarded to date.

Impact of Inflation and Other Issues:

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Inflationary pressures may continue to impact our product gross margins in the future.

Comparison for the three months ended September 30, 2023 and 2022:

Revenue from product sales was approximately $7,754,000 in the three months ended September 30, 2023, as compared to approximately $6,463,000 in the three months ended September 30, 2022, an increase of approximately $1,291,000, or 20%.

Direct sales increased approximately $586,000, or 16%.

Comparison for the three months ended March 31, 2024 and 2023:

Revenue from product sales was approximately $8,990,000 in the three months ended March 31, 2024, as compared to approximately $7,910,000 in the three months ended March 31, 2023, an increase of approximately $1,080,000, or 14%.

Distributor sales increased approximately $614,000, or 20%.

The increase in the average exchange rate of the Euro to the U.S.

dollar positively impacted third quarter 2023 product sales by approximately $508,000.

For the three months ended September 30, 2023, the average exchange rate of the Euro to the U.S.

dollar was $1.09 as compared to an average exchange rate of $1.01 for the three months ended September 30, 2022.

Grant income was approximately $1,057,000 for the three months ended September 30, 2023 as compared to approximately $1,649,000 for the three months ended September 30, 2022, a decrease of approximately $592,000, or 36%.

This decrease was a result of the conclusion of several grants during the three months ended September 30, 2023.

Total revenues were approximately $8,811,000 for the three months ended September 30, 2023, as compared to total revenues of approximately $8,111,000 for the three months ended September 30, 2022, an increase of approximately $700,000, or 9%.

Cost of Revenues:

For the three months ended September 30, 2023 and 2022, cost of revenue was approximately $3,204,000 and $4,494,000, respectively, a decrease of approximately $1,290,000.

Product cost of revenue was approximately $2,161,000 and $2,916,000, respectively, for the three months ended September 30, 2023 and 2022, a decrease of approximately $755,000.

The decrease is due primarily to inefficiencies associated with the relocation of our production activities to our new manufacturing facility in Princeton, New Jersey during the three months ended September 30, 2022 that did not recur in 2023.

Product gross margins were approximately 72% for the three months ended September 30, 2023 as compared to approximately 55% for the three months ended September 30, 2022.

Research and Development Expenses :

For the three months ended September 30, 2023, research and development expenses were approximately $3,749,000, as compared to research and development expenses of approximately $3,290,000 for the three months ended September 30, 2022, an increase of approximately $459,000.

This increase was due to an increase in our clinical trial activities of approximately $164,000 resulting from the costs related to our Star-T trial, approximately $147,000 in commercial readiness activities related to DrugSorb ATR and an increase in other non-grant research and development activities of approximately $148,000.

Legal, Financial and Other Consulting Expenses:

Legal, financial, and other consulting expenses were approximately $1,103,000 for the three months ended September 30, 2023, as compared to approximately $610,000 for the three months ended September 30, 2022, an increase of approximately $494,000.

This increase was due to costs related to the abandonment of certain patent applications of approximately $183,000, other increases in legal expenses of approximately $42,000, an increase in consulting costs of approximately $152,000 related to regulatory matters on DrugSorb-ATR, an increase in employment agency fees of approximately $93,000 and an increase in accounting fees of approximately $24,000.

Selling, General and Administrative Expenses:

Selling, general and administrative expenses were approximately $8,104,000 for the three months ended September 30, 2023, as compared to approximately $8,735,000 for the three months ending September 30, 2022, a decrease of $631,000.

This decrease was due to a decrease in advertising costs of approximately $683,000, a decrease in salaries, commissions and related costs of approximately $28,000, and a decrease in non-cash restricted stock expense of approximately $105,000.

These decreases were offset by an increase in non-cash stock compensation expense of approximately $81,000, an increase in travel and entertainment costs of approximately $73,000 and an increase in other general and administrative costs of approximately $31,000.

Loss on Foreign Currency Transactions:

For the three months ended September 30, 2023, the loss on foreign currency transactions was approximately $1,810,000 as compared to a loss of approximately $3,230,000 for the three months ended September 30, 2022.

The 2023 loss was directly related to the decrease in the spot exchange rate of the Euro to the U.S.

dollar at September 30, 2023 as compared to June 30, 2023.

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

dollar was $1.06 per Euro at September 30, 2023, as compared to $1.09 per Euro at June 30, 2023.

The 2022 loss was directly related to the decrease in the spot exchange rate of the Euro to the U.S.

dollar at September 30, 2022 as compared to June 30, 2022.

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

dollar was $0.98 per Euro at September 30, 2022, as compared to $1.05 per Euro at June 30, 2022.

Comparison for the nine months ended September 30, 2023 and 2022:

Revenue from product sales was approximately $23,736,000 for the nine months ended September 30, 2023, as compared to approximately $21,718,000 for the nine months ended September 30, 2022, an increase of approximately $2,019,000, or 9%.

Direct sales increased by approximately $716,000, or 6%.

Distributor sales increased by approximately $1,303,000, or 15%.

The increase in the average exchange rate of the Euro to the U.S.

dollar positively impacted product sales for the nine months ended September 30, 2023 by approximately $404,000.

For the nine months ended September 30, 2023, the average exchange rate of the Euro to the U.S.

dollar was $1.08 as compared to an average exchange rate of $1.06 for the nine months ended September 30, 2022.

Grant income was approximately $3,945,000 for the nine months ended September 30, 2023 as compared to approximately $3,580,000 for the nine months ended September 30, 2022, an increase of approximately $364,000 or 10%.

This increase is the result of the impact of new grants awarded during the nine months ended September 30, 2023.

Total revenues were approximately $27,681,000 for the nine months ended September 30, 2023, as compared to total revenues of approximately $25,298,000 for the nine months ended September 30, 2022, an increase of approximately $2,383,000, or 9%.

Direct sales increased approximately $466,000, or 10%.

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

dollar, 2024 product sales were positively impacted by approximately $98,000.

For the three months ended March 31, 2024, the average exchange rate of the Euro to the U.S.

dollar was $1.09 as compared to an average exchange rate of $1.07 for the three months ended March 31, 2023.

Grant income was approximately $797,000 for the three months ended March 31, 2024 as compared to approximately $1,539,000 for the three months ended March 31, 2023, a decrease of approximately $742,000, or 48%.

This decrease was due to the completion of several grants during 2023.

Total revenues were approximately $9,786,000 for the three months ended March 31, 2024, as compared to total revenues of approximately $9,449,000 for the three months ended March 31, 2023, an increase of approximately $337,000, or 4%.

Cost of Revenues:

For the nine months ended September 30, 2023 and 2022, cost of revenue was approximately $10,600,000 and $10,322,000, respectively, an increase of approximately $278,000.

Product cost of revenue was approximately $6,785,000 and $6,924,000, respectively, for the nine months ended September 30, 2023 and 2022, a decrease of approximately $139,000.

The decrease in product cost of revenue was due to a reduction in the cost per device manufactured as we begin to realize production efficiencies at our new manufacturing facility in Princeton, New Jersey.

Grant cost of revenue for the nine months ended September 30, 2023 was approximately $3,815,000 as compared to $3,398,000 for the nine months ended September 30, 2022, an increase of approximately $417,000.

This increase in cost

of grant revenue was due primarily to an increase in grant revenue.

Product gross margins were approximately 71% for the nine months ended September 30, 2023 and approximately 68% for the nine months ended September 30, 2022.

The increase in product gross margin is due primarily to inefficiencies associated with the relocation of our production activities to our new manufacturing facility in Princeton, New Jersey during the nine months ended September 30, 2022 that did not recur in 2023.

For the three months ended March 31, 2024 and 2023, cost of revenue was approximately $3,216,000 and $3,994,000, respectively, a decrease of approximately $778,000.

This decrease was primarily due to the decrease in cost of revenue related to the Company’s grant related activities following the completion of several grants in 2023.

Product cost of revenue was approximately $2,420,000 and $2,531,000, respectively, for the three months ended March 31, 2024 and 2023, a decrease of approximately $111,000.

This decrease is due primarily to greater efficiencies now being realized at our new manufacturing facility in Princeton, New Jersey.

Product gross margins were approximately 76% during the three months ended March 31, 2024 (which excludes the impact of a one-time, non-recurring inventory adjustment of approximately $304,000 recorded in the first quarter of 2024), as compared to 68% during the three months ended March 31, 2023.

Research and Development Expenses :

For the nine months ended September 30, 2023, research and development expenses were approximately $11,632,000 as compared to approximately $11,717,000 for the nine months ended September 30, 2022, a decrease of approximately $85,000.

This decrease was due to a decrease in costs associated with our clinical trial activities of approximately $1,270,000 related to the pause of our STAR-D trial in November 2022.

This decreases was offset by approximately $850,000 of costs incurred related to pre-production manufacturing activities required to bring the new manufacturing plant to a state of commercial readiness, approximately $268,000 of costs related to commercial readiness activities related to DrugSorb ATR and an increase of other non-grant related research and development activities of approximately $67,000.

For the three months ended March 31, 2024, research and development expenses were approximately $2,248,000 as compared to research and development expenses of approximately $4,214,000 for the three months ended March 31, 2023, a decrease of approximately $1,966,000.

This decrease was due to a decrease in clinical trial costs of approximately $911,000 related to completion of the STAR-T trial in 2023, a decrease of approximately $850,000 in start-up expenses related to the new facility that were incurred in the first quarter of 2023 that did not recur in the first quarter of 2024, a decrease in non-grant related salaries of approximately $127,000 and a decrease in other non-grant related research and development activities of approximately $78,000.

Legal, Financial and Other Consulting Expenses:

Legal, financial, and other consulting expenses were approximately $2,958,000 for the nine months ended September 30, 2023, as compared to approximately $2,089,000 for the nine months ending September 30, 2022.

The increase of approximately $869,000 was due to settlement costs of certain pending litigation matters of approximately $280,000, and increase in legal fees of approximately $205,000, an increase in employment agency fees of approximately $174,000, an increase in consulting costs of approximately $153,000 related to regulatory matters on DrugSorb-ATR, an increase in costs related to the abandonment of certain patent applications of approximately $45,000 and an increase in accounting fees of approximately $12,000.

Legal, financial and other consulting expenses were approximately $681,000 for the three months ended March 31, 2024, as compared to approximately $669,000 for the three months ended March 31, 2023, an increase of approximately $12,000.

This increase was due to

an increase in accounting and auditing fees of approximately $46,000 and an increase in legal fees of approximately $30,000.

These increases were offset by a decrease in employment agency fees of approximately $58,000 and a decrease in consulting fees of approximately $6,000.

Selling, General and Administrative Expenses:

Selling, general and administrative expenses were approximately $24,358,000 for the nine months ended September 30, 2023, as compared to $26,335,000 for the nine months ended September 30, 2022, a decrease of $1,977,000.

This decrease was due to a decrease in salaries, commissions and related costs of approximately $712,000, a decrease in advertising costs of approximately $643,000, a decrease in travel and entertainment expenses of approximately $54,000, a decrease in non-cash stock compensation expense of approximately $67,000, a decrease in commercial insurance expenses of approximately $173,000, a decrease in public relations costs of approximately $156,000, a decrease in royalty expense of approximately $78,000, a decrease in occupancy costs of approximately $83,000 and a decrease in other general and administrative expenses of approximately $11,000.

Loss on Foreign Currency Transactions:

For the nine months ended September 30, 2023, the loss on foreign currency transactions was approximately $734,000 as compared to a loss of approximately $6,967,000 for the nine months ended September 30, 2022.

Selling, general and administrative expenses were approximately $8,567,000 for the three months ended March 31, 2024, as compared to approximately $8,463,000 for the three months ending March 31, 2023, an increase of approximately $104,000.

This increase was due to an increase in travel and entertainment expenses of approximately $132,000, an increase in royalty expense of $88,000, an increase in sales and marketing costs, which include advertising and conference attendance, of approximately $80,000.

These increases were offset by decreases in non-cash stock compensation expense (which includes both stock options and restricted stock units) of approximately $156,000, and a decrease in salaries, commissions and related costs of approximately $40,000.

Gain (Loss) on Foreign Currency Transactions:

For the three months ended March 31, 2024, the loss on foreign currency transactions was approximately $1,426,000 as compared to a gain of approximately $661,000 for the three months ended March 31, 2023.

The 2024 loss was directly related to the decrease in the spot exchange rate of the Euro to the U.S.

dollar as of September 30, 2023 as compared to December 31, 2022.

dollar as of March 31, 2024 as compared to December 31, 2023.

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

dollar was $1.06 per Euro as of September 30, 2023, as compared to $1.07 per Euro at December 31, 2022.

The 2022 loss was directly related to the decrease in the spot exchange rate of the Euro to U.S.

dollar which was $0.98 as of September 30, 2022 as compared to $1.14 as of December 31, 2021.

dollar was $1.08 per Euro as of March 31, 2024, as compared to $1.11 per Euro as of December 31, 2023.

History of Operating Losses

We have experienced substantial operating losses since inception.

As of September 30, 2023, we had an accumulated deficit of approximately $276,670,000, which included losses of approximately $22,672,000 and $32,046,000 for the nine-month periods ended September 30, 2023 and 2022, respectively.

As of March 31, 2024, we had an accumulated deficit of approximately $288,863,000, which included a loss of approximately $6,358,000 for the three-month periods ended March 31, 2024.

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.

As of September 30, 2023, we had current assets of approximately $19,261,000 and current liabilities of approximately $11,972,000.

As of September 30,

2023, $25 million of our total shelf amount was allocated to our ATM facility, of which approximately $22.8 million is still available.

In April of 2023, we received approximately $1,000,000 in cash from the approved sale of our net operating losses and research and development credits from the State of New Jersey.

As of March 31, 2024, we had current assets of approximately $19,993,000 and current liabilities of approximately $13,424,000.

As of March 31, 2024, $25 million of our total shelf amount was allocated to our ATM facility, of which approximately $20.3 million is still available.

During the three months ended March 31, 2024, the Company sold 53,290 shares pursuant to the Sale Agreement, at an average selling price of $1.03 per share, generating net proceeds of approximately $53,200.

In March of 2024, we received approximately $880,000 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 trial and we have instituted tight cost controls.

At September 30, 2023, we have approximately $10.0 million in cash, including approximately $8.4 million and $1.7 million in unrestricted and restricted cash, respectively.

We believe this is sufficient to fund the Company’s operations through the first quarter of 2024.

We will need to raise additional capital to support our ongoing operations in the future, and are currently pursuing different sources, including less or non-dilutive debt financing, royalty financing, strategic or direct investments, equity financing, and/or combinations thereof.

pivotal STAR-T trial, which includes the detailed analysis of trial data and the preparation of our application for marketing approval to the FDA.

We have also instituted and continue to maintain tight control over expenditures.

As of March 31, 2024 we have approximately $10.1 million in cash, including approximately $8.6 million and $1.5 million in unrestricted and restricted cash, respectively.

We believe this is sufficient to fund the Company’s operations into the fourth quarter of 2024.

We will need to raise additional capital to support our ongoing operations in the future, and the Company is actively pursuing financing sources, including less or non-dilutive debt financing, royalty financing, strategic or direct investments, equity financing, and/or combinations thereof.

There can be no assurance that management will be successful in these endeavors.

COVID-19 Impact on Financial Results

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Because of this, the pandemic was a catalyst for CytoSorb orders from existing customers and 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.

Starting in the third quarter of 2021, the protracted COVID-19 pandemic began to have a negative impact on our business, due to pandemic-driven adverse market conditions worldwide, especially in Germany which is our largest market.

The excessive workload on healthcare workers due to COVID has led to an exodus of healthcare workers, particularly nurses, worldwide, leaving hospitals short-staffed.

We believe this awareness of CytoSorb increased overall usage during the COVID-19 pandemic and may help to drive further CytoSorb sales in the future.

However, starting in the third quarter of 2021, the protracted COVID-19 pandemic began to have a negative impact on our business, due to pandemic-driven adverse market conditions worldwide, especially in Germany which is our largest market.

The excessive workload in hospitals due to COVID has led to an exodus of healthcare workers from acute care worldwide, leaving hospitals short-staffed, particularly nursing.

This in turn has forced the reduction in ICU beds and allowable patient censuses, and reduced the scheduling of revenue generating surgical procedures, resulting in decreased revenue and economic weakness at hospitals.

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This is mainly attributed to high rates of vaccinations, natural immunity, and the availability of anti-viral drugs that are associated with reduced severity of illness, reduced need for hospitalization, and risk of death.

These factors, in turn, have decreased the numbers of COVID-19 patients treatable with CytoSorb.

Additionally, prior to 2023, COVID had slowed our ability to generate clinical data to support our sales and marketing efforts.

These factors, in turn, have decreased the numbers of patients treatable with CytoSorb.

Additionally, COVID slowed our ability to generate clinical data to support our sales and marketing efforts.

Currently, we are seeing an easing of the of the negative impacts of COVID-19.

In 2023, we have regained access to hospitals and physicians which should positively impact our product sales in the future.

The lessened impact of COVID-19 has also had a positive impact on patient enrollment of pivotal STAR-T clinical trial.

In 2024, we have generally good access to hospitals and physicians which should positively impact our product sales in the future.

The lessened impact of COVID-19 has also had a positive impact on patient enrollment of our clinical trials.

Contractual Obligations

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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.

The lease required 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.

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Going Concern

As of September 30, 2023, the Company’s cash position was approximately $10.0 million, with cash and cash equivalents of approximately $8.4 million, and approximately $1.7 million in restricted cash, which is not expected to fund the Company’s operations beyond twelve months from the issuance of these financial statements.

As of March 31, 2024, the Company’s total cash position was approximately $10.1 million, with cash and cash equivalents of approximately $8.6 million, and approximately $1.5 million in restricted cash, which is not expected to fund the Company’s operations beyond twelve months from the issuance of these financial statements.

This matter raises substantial doubt about the Company’s ability to continue as a going concern.

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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