What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-13 compared with 2024-05-09 · 123 added, 68 removed, 224 unchanged (46% of the section changed)

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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 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, 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 FDA has granted EUA of CytoSorb for use in critically ill patients with COVID-19 infection and respiratory failure.

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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 that the safety and efficacy results of the STAR-T trial will support regulatory submissions expected in the third quarter of 2024 for marketing approval by the FDA and Health Canada.

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.

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• 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)

and Canadian markets by obtaining FDA and Health Canada marketing approval for DrugSorb™-ATR to reduce the perioperative bleeding risk caused by Brilinta® and in the future, potentially other blood thinning drugs, in patients undergoing cardiothoracic surgery (see Clinical Studies Update)

• Grow core CytoSorb sales to profitability, driven by numerous internal initiatives (see Sales and Marketing Update)

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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 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.

• CytoSorb — an extracorporeal hemoperfusion cartridge approved in the EU for cytokine, bilirubin, myoglobin, and antithrombotic drug removal, with the goal of reducing deadly inflammation and toxic substances that can cause serious complications such as bleeding, organ failure, and death.

• DrugSorb-ATR — an investigational extracorporeal antithrombotic removal system based on the same polymer technology as CytoSorb that was evaluated in the U.S.

and Canadian STAR-T pivotal randomized, controlled trial to reduce perioperative bleeding complications in patients undergoing cardiothoracic surgery while on the antithrombotic drug Brilinta®.

• 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.

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

In 2021, commercialization of PerSorb™ (a private label version of ECOS-300CY) 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.

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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 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.

In October 2021, the first patient was enrolled, with the STAR-T study 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 and Safety Monitoring Board (DSMB) meeting.

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

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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.

The study completed enrollment in July of 2023 triggering the final DSMB safety review following database lock in December 2023, which also 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.

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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.

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 estimated to be filed in the third quarter of 2024.

In October 2021, we also received 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 2nd 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 study has been postponed while the Company concentrates its clinical focus on STAR-T.

The STAR-D study was postponed to allow the Company to concentrate its clinical focus on STAR-T activities and associated regulatory filings.

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.

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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.

The Registry has been enrolling

well and reported an updated analysis on ticagrelor removal during CABG at the 2024 EuroPCR conference.

An additional updated analysis on DOAC removal has been accepted for presentation at the upcoming 2024 EACTS conference.

Interim analyses from the Registry were also published in May 2024 in the internationally recognized peer-review Journal of Thrombosis and Thrombolysis.

Additional results from the STAR Registry 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.

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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 speed of enrollment has been slower than anticipated, impacted by COVID-19 related institutional research staff shortages, decreased ICU bed capacity leading to fewer patients, and other factors.

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.

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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.

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 and will also be submitted to a peer reviewed journal for publication.

Sales and Marketing Update

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• 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 had a 31% increase in active customers (defined as customers who purchased the device in the last 9 months) since the start of the pandemic through June 30, 2024.

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 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 work closely with our sales teams to best serve the needs and interests of our customers.

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.

We believe this infrastructure will yield 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.

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:

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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 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.

In June 2024, the Company announced the launch and immediate availability of its PuriFi™ hemoperfusion machine in the EU, following approval and certification under the EU Medical Device Regulation (MDR).

The combination of CytoSorb with the PuriFi pump is expected to be an excellent combination treatment and a potentially game-changing new business model going forward.

• Expansion of direct sales territories:

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With the announcement of expansion of direct sales into the U.K., Ireland and France, we now sell direct in three of the E.U.’s Big 5 Economies - Germany, France and the U.K.

- and a total of 15 countries direct overall, while working with distributors or partners in the other two Big 5 Economies:

- and a total of 15 countries direct overall, while working with distributors or partners in 60 other countries, including the other two Big 5 Economies:

Italy, and Spain.

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Under the EUA, CytoSorbents was able to 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.

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

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

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

With the advent of vaccines, anti-viral therapies, and natural immunity, the numbers of critically ill COVID patients and the severity of illness has dropped dramatically.

We currently anticipate little to no COVID-19 related CytoSorb sales, though this could change depending on the circulating strains of coronavirus.

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

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

As of March 31, 2024, the revenue remaining to be earned on open grant contracts is $5.0 million.

As of June 30, 2024, the revenue remaining to be earned on open grant contracts is $3.9 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.

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The current high inflationary environment has impacted us in various ways.

Due to the current competitive labor market and rising inflation, our labor costs have risen significantly in order to attract and retain qualified employees throughout our organization.

Due to the current competitive labor market and high inflation, our labor costs have risen significantly in order to attract and retain qualified employees throughout our organization.

In addition, we have experienced raw material price increases primarily related to the oil-based chemicals used in the polymer manufacturing process as well additional requests for higher fuel surcharges from most suppliers.

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

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%.

Comparison for the three months ended June 30, 2024 and 2023:

Revenue from product sales was approximately $8,842,000 in the three months ended June 30, 2024, as compared to approximately $8,072,000 in the three months ended June 30, 2023, an increase of approximately $770,000, or 10%.

Distributor sales increased approximately $965,000, or 28%.

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%.

Direct sales decreased approximately $196,000, or 4%.

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

dollar, 2024 product sales were negatively impacted by approximately $104,000.

For the three months ended June 30, 2024, the average exchange rate of the Euro to the U.S.

dollar was $1.08 as compared to an average exchange rate of $1.09 for the three months ended June 30, 2023.

Grant income was approximately $1,053,000 for the three months ended June 30, 2024 as compared to approximately $1,348,000 for the three months ended June 30, 2023, a decrease of approximately $295,000, or 22%.

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%.

Total revenues were approximately $9,895,000 for the three months ended June 30, 2024, as compared to total revenues of approximately $9,421,000 for the three months ended June 30, 2023, an increase of approximately $474,000, or 5%.

Cost of Revenues:

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.

For the three months ended June 30, 2024 and 2023, cost of revenue was approximately $3,392,000 and $3,402,000, respectively, a decrease of approximately $10,000.

Product cost of revenue was approximately $2,411,000 and $2,093,000, respectively, for the three months ended June 30, 2024 and 2023, an increase of approximately $318,000 due to increases in sales in 2024.

Gross margins on devices and device accessories were approximately 75% for the three months ended June 30, 2024 as compared to approximately 74% for the three months ended June 30, 2023.

This increase was due to the achievement of greater operating efficiencies in 2024, which was partially offset by an increase in the percentage of lower margin distributor sales to total sales during the three months ended June 30, 2024 as compared to the three months ended June 30, 2023.

Research and Development Expenses:

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.

For the three months ended June 30, 2024, research and development expenses were approximately $1,520,000, as compared to research and development expenses of approximately $3,669,000 for the three months ended June 30, 2023, a decrease of approximately $2,149,000.

This decrease was due to a decrease in our clinical trial activities of approximately $1,842,000 related to the completion of the STAR-T clinical trial in December 2023.

The three months ended June 30, 2023 included $70,000 of non-recurring start-up costs associated with our new facility which were not incurred in the three months ended June 30, 2024.

Cost savings measures resulted in decreased research and development salaries of approximately $170,000, and decreased consulting and other spending of approximately $67,000 in the second quarter of 2024.

Legal, Financial and Other Consulting Expenses:

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.

Legal, financial, and other consulting expenses were approximately $821,000 for the three months ended June 30, 2024, as compared to approximately $1,185,000 for the three months ended June 30, 2023, a decrease of approximately $364,000.

This decrease was due to a decrease in legal fees of approximately $314,000 due to the settlement of a legal matter in 2023, a decrease in employment agency fees of approximately $121,000 and a decrease in accounting fees of approximately $43,000.

These decreases were offset by an increase in consulting fees of approximately $114,000.

Selling, General and Administrative Expenses:

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.

Selling, general and administrative expenses were approximately $7,581,000 for the three months ended June 30, 2024, as compared to approximately $7,724,000 for the three months ending June 30, 2023, a decrease of approximately $143,000.

This decrease was due to a decrease in salaries, commissions, and related costs of approximately $543,000, a decrease in selling and distribution costs of approximately $468,000, a decrease in fees, licenses and permits of approximately $50,000, a decrease in commercial insurance of approximately $32,000, and a decrease in travel and entertainment expenses of approximately $20,000.

These decreases were offset by increased non-cash stock compensation expense of approximately $623,000, a reduction in grant spending reduced the overhead absorption benefit to selling, general and administrative expense by approximately $136,000, an increase in network maintenance costs of approximately $81,000, an increase in transfer agent fees of approximately $49,000, an increase in royalty expense of approximately $46,000, and an increase in other general and administrative expenses of approximately $65,000.

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.

For the three months ended June 30, 2024, the loss on foreign currency transactions was approximately $544,000 as compared to a gain of approximately $415,000 for the three months ended June 30, 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 March 31, 2024 as compared to December 31, 2023.

dollar at June 30, 2024 as compared to March 31, 2024.

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

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

dollar was $1.07 per Euro at June 30, 2024, as compared to $1.08 per Euro at March 31, 2024.

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

dollar at June 30, 2023 as compared to March 31, 2023.

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

dollar was $1.09 per Euro at June 30, 2023, as compared to $1.08 per Euro at March 31, 2023.

Comparison for the six months ended June 30, 2023 and 2022:

Revenue from product sales was approximately $17,831,000 for the six months ended June 30, 2024, as compared to approximately $15,982,000 for the six months ended June 30, 2023, an increase of approximately $1,849,000, or 12%.

Distributor sales increased by approximately $1,579,000, or 24%.

Overall direct sales increased by approximately $270,000, or 3%.

The change in the exchange rate of the Euro to U.S.

dollar did not have a significant impact on product sales during the six months ended June 30, 2024.

Grant income was approximately $1,850,000 for the six months ended June 30, 2024 as compared to approximately $2,888,000 for the six months ended June 30, 2023, a decrease of approximately $1,038,000 or 36%.

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

Total revenues were approximately $19,681,000 for the six months ended June 30, 2024, as compared to total revenues of approximately $18,870,000 for the six months ended June 30, 2023, an increase of approximately $811,000, or 4%.

Cost of Revenues:

For the six months ended June 30, 2024 and 2023, cost of revenue was approximately $6,607,000 and $7,396,000, respectively, a decrease of approximately $789,000, primarily due to a reduction in the cost of revenue related to the Company’s grant related activities.

Product cost of revenue was approximately $4,759,000 and $4,624,000, respectively, for the six months ended June 30, 2024 and 2023, an increase of approximately $135,000.

Gross margins on devices and device accessories were approximately 74% for the six months ended June 30, 2024 compared to approximately 71% for the six months ended June 30, 2023.

The increase in product gross margin is due primarily to greater efficiencies now being realized at our new manufacturing facility in Princeton, New Jersey.

Research and Development Expenses:

For the six months ended June 30, 2024, research and development expenses were approximately $3,768,000 as compared to research and development expenses of approximately $7,883,000 for the six months ended June 30, 2023, a decrease of approximately $4,115,000.

This decrease was due to a decrease in costs associated with our clinical trial activities of approximately $2,753,000 related to the completion of the STAR-T clinical trial in December 2023.

The six months ending June 30, 2023 included $919,000 of non-recurring start-up costs associated with our new facility which were not incurred in the six months ending June 30, 2024.

Cost savings measures resulted in decreased research and development salaries of approximately $297,000, and decreased other spending of approximately $146,000 in 2024.

Legal, Financial and Other Consulting Expenses:

Legal, financial, and other consulting expenses were approximately $1,501,000 for the six months ended June 30, 2024, as compared to approximately $1,854,000 for the six months ended June 30, 2023.

The decrease of approximately $353,000 was due to a decrease in legal fees of approximately $285,000 and a decrease in employment agency fees of approximately $178,000.

These decreases were offset by an increase in consulting fees of approximately $108,000 and an increase in accounting and auditing fees of approximately $2,000.

Selling, General and Administrative Expenses:

Selling, general and administrative expenses were approximately $16,148,000 for the six months ended June 30, 2024, as compared to $16,187,000 for the six months ended June 30, 2023, a decrease of approximately $39,000.

This decrease was due to a decrease in salaries, commissions and related costs of approximately $721,000, a decrease in advertising costs of approximately $192,000, a decrease in non-recurring facility start-up costs of approximately $176,000, a decrease in occupancy costs of approximately $140,000 and a decrease in other general and administrative expenses of $17,000.

These decreases were offset by an increase in non-cash stock compensation expense of approximately $467,000, a reduction in grant spending reduced the overhead absorption benefit to selling, general and administrative expense by approximately $350,000, an increase in royalty expense of approximately $134,000, an increase in travel and entertainment expenses of approximately $112,000, an increase in network maintenance costs of approximately $95,000 and an increase in transfer agent fees of approximately $49,000.

Gain (Loss) on Foreign Currency Transactions:

For the six months ended June 30, 2024, the loss on foreign currency transactions was approximately $1,970,000 as compared to a gain of approximately $1,076,000 for the six months ended June 30, 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 June 30, 2024 as compared to December 31, 2023.

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

dollar was $1.07 per Euro as of June 30, 2024, as compared to $1.11 per Euro at December 31, 2023.

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

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

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

dollar was $1.09 per Euro as of June 30, 2023, as compared to $1.07 per Euro at December 31, 2022.

History of Operating Losses:

We have experienced substantial operating losses since inception.

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.

As of June 30, 2024, we had an accumulated deficit of approximately $293,006,000, which included losses of approximately $10,501,000 and $13,479,000 for the six-month periods ended June 30, 2024 and 2023, respectively.

Historically, losses have resulted principally from costs incurred in the research and development of our polymer technology, clinical studies, and general and administrative expenses.

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

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.

As of June 30, 2024, we had current assets of approximately $21,955,000 and current liabilities of approximately $10,336,000.

As of June 30, 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 six months ended June 30, 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 June of 2024, we closed on a $20 million term-loan facility with Avenue Capital Group which provided an initial tranche of $15 million at the closing of which $10 million was immediately available at closing and $5 million constitutes restricted cash subject to release to the Company prior to March 31, 2025, provided certain conditions are met.

Another tranche of $5 million may be disbursed at the Company’s request between July 1, 2025 and December 31, 2025, provided that the Company receives FDA marketing approval of its DrugSorb-ATR application.

Concurrently with the closing of the first tranche, the Company paid off our existing debt with Bridge Bank.

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

We are also managing our resources proactively, continuing to invest in key areas such as our planned regulatory submission of DrugSorb-ATR to U.S.

FDA and Health Canada.

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.

As of June 30, 2024 we have approximately $14.9 million in cash, including approximately $8.4 million and $6.5 million in unrestricted and restricted cash, respectively.

With our cost cutting efforts, we believe this is sufficient to fund the Company’s operations into the second quarter of 2025.

The Company continues to pursue additional milestones related to its recently announced Avenue debt facility that would increase its unrestricted cash position by up to $10 million.

If these milestones are not achieved, we will need to raise additional capital to support our ongoing operations in the future.

Meanwhile the Company continues to evaluate other traditional and alternative sources of capital, including additional 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.

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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.

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

Contractual Obligations

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Commencing on September 30, 2021, the remaining lease term will last for 15.5 years.

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.

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.

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Going Concern

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.

As of June 30, 2024, the Company’s cash, cash equivalents and restricted cash balances were approximately $14.9 million, including approximately $8.4 million in cash and cash equivalents and approximately $6.5 million in restricted cash, the unrestricted portion of which is not expected to fund the Company’s operations beyond the next twelve months from the issuance of these consolidated financial statements.

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

As a result, the accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.

The Company will need to raise additional capital to support our ongoing operations in the future.

The Company continues to pursue additional milestones related to its recently announced Avenue debt facility that would increase its unrestricted cash position by up to $10 million.

If these milestones are not achieved, we will need to raise additional capital to support our ongoing operations in the future.

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

Critical Accounting Policies and Estimates

3 unchanged sentences

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