Cytosorbents Corporation (CTSO) Q3 2015 Earnings Report, Transcript and Summary

Good day, everyone, and welcome to the CytoSorbents Third Quarter 2015 Financial Results Conference Call. [Operator Instructions] Today’s call is being recorded. And at this time, I’d like to turn the conference over to our moderator, Lee Roth. Please go ahead.

Thank year, Sharon, and good morning everyone. Welcome to the CytoSorbents third quarter 2015 operating and financial results conference call. Joining me today from the company management are Dr. Phillip Chan, Chief Executive Officer and President; Kathleen Bloch, Chief Financial Officer; Vincent Capponi, Chief Operating Officer; Chris Cramer, VP of Business Development and Dr. Christian Steiner, VP of Sales and Marketing from Germany. Before I turn the call over to Dr. Chan, I’d like to remind listeners that during this call, management’s prepared remarks may contain forward-looking statements which are subject to risks and uncertainties. Management may make additional forward-looking statements in response to your questions today. Therefore, the company claims protection under Safe Harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Detailed discussions of the risks and uncertainties are included in the company’s filings with the SEC. Our actual results may differ from those discusses. Any projections as to the company’s future performance represented by management include estimates as of today, Friday, November 13, 2015 and we assume no obligation to update these projections in the future as market conditions change. During today’s call, we’ll have an overview presentation covering the financial and operating highlights of third quarter by Dr. Chan and Ms. Bloch. Following that presentation, we’ll open the line to your questions during the live Q&A session with the rest of the management team. At this time, it’s my pleasure to turn the call over to Dr. Phillip Chan. Dr. Chan, go ahead, please.

Thank you very much, Lee, and thank you everyone for joining the call today. Welcome. The management team is pleased to be here today. Following the presentation, we’ll have a live Q&A session and then an official transcript of today’s call will be available within the next week on our Web site at www.cytosorbents.com. For those of you who would like to learn more about our flagship product, CytoSorb, I would encourage you to visit www.cytosorb.com where we have a lot of new and current information. CytoSorbents is a leader in critical care immunotherapy. We are leading the prevention or treatment of life-threatening inflammation in the ICU and cardiac surgery using our CytoSorb blood purification technology. Severe inflammation is deadly in the ICU. Millions of people every year are admitted to the intensive care units and hospitals worldwide each year with deadly inflammatory conditions such as sepsis and life-threatening infection, acute respiratory syndrome and lung injury or burn injury, trauma, pancreatitis, influenza even cancer immunotherapy and other inflammatory diseases. I these conditions massive information driven by an activation of the immune response and a development of a cytokine storm causes cell death and organ failure and nearly half of all deaths in the ICU are due to organ failure where there are no effective therapies. But because of the lack of effective therapies approximately one in every three patient dies and the cost can be staggering, the lack of active therapies leads to patients lingering days to weeks at a time in the Intensive Care Unit at a cost of $2,000 to $3,000 a day in the ICU on average and it is not surprising that we spend nearly 1% of our gross domestic product that is all of the good and services of the United States of America on critical care medicine every single year. We also know that severe inflammation is dangerous in open heart surgery. Of the many of us on the phone, know someone of -- some of the 1 million open heart surgery patients in the U.S. and EU every single year for things like coronary artery bypass graft surgery, often called CABG or valve replacement or repair surgery, heart or lung transplantation, congenital defect repair, aortic reconstruction and many other different types of surgeries. In complex cardiac surgeries, patients are on the heart and lung machine and the operating table for a very long time, which can cause destruction of blood cells and can trigger a cytokine storm and severe inflammation and this inflammation than leads to organ dysfunction and failure particularly lung and kidney failure and before now there were no effective ways to prevent this from happening. And that is really where we come in, CytoSorb removes the fuel to the fire of inflammation and we target a 20 plus billion dollar opportunity in critical care in cardiac surgery. We are approved in the European Union as the only specifically approved extracorporeal cytokine filter. We’re clinically proven to remove key cytokines in the blood of critically ill patient. We are approved for use in any situation where cytokines are elevated that means we can be used on label for many -- for all of the diseases that we’ve talked about and we can remove many other inflammatory mediators such as free hemoglobin, bacterial toxins and activated complement for example. The therapy is safe and we’ll tolerated in 8,000 plus human treatments mainly in critically ill patients, there have been no serious device related adverse events including more than 1,000 cardiac surgeries. Now the goal of our therapy is to try to prevent or treat organ failure, rather than using the strategy today where clinicians and intensifies in the intensive care unit lack effective therapies to help control deadly inflammation and prevent organ injury from happening, only to let them spiral down, watch them -- many of them spiral down into this black hole of organ failure and to support them at the very bottom with life support machines like mechanical ventilation and dialysis, our strategy is different. Our goal is to preemptively strike against this deadly inflammation, prevent it from causing this masses sequelae of damaged to the body there by helping hopefully improved patient outcomes and survival, while decreasing the massive cost of ICU and patient care and because of that we believe that we are well suited to potentially revolutionizing critical care medicine with this revolutionary product. Now when we talk about evolution of the CytoSorb market, I think that this graph maybe helpful to some to understand exactly what it is that we’re trying to do. We divided the market for CytoSorb into three major categories, A, B and C. Where we’re focused today is predominantly in categories A and categories B. Category A is where patients has advanced disease. These patients are often well into their clinical course, they are very difficult and expensive to treat and they have a very high risk of death. This is where our CytoSorb technology has the most compelling risk-to-reward ratio at any phase either early or late. The second category where we are working in and where we believe our sweet spot is, is in Category B, where patients are very sick, they are in the intensive care unit with organs dysfunction. Many of these however will get better, but at huge costs. And we know that at least one in three patients in many of these diseases will get worse and die. CytoSorb in this case is used early and aggressively to help change the course of the illness and in doing so again hopefully change the course of their illness, improving their outcomes and reducing costs. You can see that as we move down this pyramid of categories, it the total addressable markets get larger and larger and our goal today is to drive standard of care in categories A and B. Category C is what I call the blue sky applications of CytoSorb. It really is quite remarkable how many different application CytoSorb has been used for even today. I don’t think that we have even imagined all of the potential uses of CytoSorb in the future. And in Category C, this is really when patients are sick, but they can get better on their own, they may have chronic illnesses, they may have -- they maybe sort of sick, but need a little help to get better and this is really where CytoSorb would be used in a way that would be driven by cost savings, risk benefit analysis as well as the potential for prophylactic use and chronic use. This is really the market of the general population as a whole and rather than the ICU market alone. But we assure that we are putting a tremendous amount of effort into developing categories A & B and with clinical data we hope to be able to drive to become standard of care in these markets. So with that let me turn it over to Kathy to go over the financial highlights for the quarter. Kathy.

Thank you, Phil and good morning everyone. For today’s call I will be providing an update regarding CytoSorb in its third quarter 2015 financial results including product sales as well as an update around our working capital and tax runway. Turning to our financial results, for the third quarter of 2015 our CytoSorb product sales were approximately $1.071 million, which is the highest quarterly product sales in our company’s history, this represents of 4% increase over third quarter 2014 product sales of approximately $1.032 million, a decrease in the exchange rate of the euro had a negative effect on our reported results, which we will cover in more detail in a little bit. Grant and other income was $272,000 for the third quarter of 2015, as we achieved certain billable milestones related to our cytokine activities during the quarter. And finally we note that we were able to achieve gross profit margin on product sales of approximately 63% in the third quarter of 2015. Next, our nine months revenue results. CytoSorb product sales for the nine months ended September 30, 2015, were approximately $2.5 million, which is a 13% increase over the first nine months of 2014 product sales of approximately $2.3 million. As with the third quarter, product sales for the nine months were negatively impacted by the declining exchange rate for the euro, our gross profit margins of product sales were approximately 62% for the nine months ended September 30, 2015 and next we look at our chart of product sales by quarter. The white-blue bar that is the bottom portion of the bar on this chart represents our actual reported sales. Note look our record Q3 2015 sales of $1.1 million which is an increase of approximately $300,000 or 39% over sales in the third quarter of 2014. In the first nine months of 2015, the average exchange rate of the euro was $1.12 as compared to the first nine months of 2014 when the euro exchange rate averaged $1.35. If the majority of our product sales are in euros, this decline resulted in a significant reduction in our reported sales, when compared to the same period of 2014. To demonstrate this impact, we added the dark blue portion to the top of 2015 quarterly bars. This adjusts the sales for the first, second and third quarters of 2015 as if the euro to dollar exchange rate was unchanged from the same period in 2014. So were it not for the decrease in the exchange rate of the euro product sales for the third quarter of 2015 would have been approximately a $150,000 higher than our actual reported sales, which is 14% of total product sales. In other words, if we eliminate the impact of the drop of the exchange rate of the euro relative to the dollar in the third quarter, product sales for Q3 2015 would be approximately $1.221 million, likewise adjusted for the change in the euro, our product sales for the first nine months of 2015 would have been approximately $3 million which is an increase in product sales over the first nine months of 2014 of approximately $694,000, 31% increase as compared to the 13% increase which we actually recorded. And then the next chart shows our trailing 12 months product revenue and I’ve included the same adjustment to eliminate the impact of the decline in the euro and again that represented by this dark blue bar at the area at the top of the bar, so with the adjustment for the euro decline our trailing 12-month product sales that the third quarter of 2015 is approximately $3.8 million compared to approximately $2.6 million for the previous year and that's an increase of $1.2 million or 46%. And I want to make the few comments regarding our product sales expectations, first of all, we continue to see repeat orders from both distributors and direct customer and we are seeing steady quarter-over-quarter improvement in direct sales, both as a result of adding new customers and also from repeat orders from existing customers. We added two new sales people to our team in the third quarter of 2015 and we also plan to add two more direct sales people towards the end of the year, which should further fuel direct sales. Also with regard to distributor initial orders in a first nine months of 2015, we have not seen the benefit of the initial product rollout in France, Poland, Sweden, Norway, Denmark and Finland by [indiscernible] Australia and New Zealand through our distributors in those countries. So these territory products rollout are expected to also have a positive impact on our future quarters. And finally some notes on our working capital position and our cash runway. As of September 30, 2015 we had approximately $9.3 million in cash and short term investments. Our gross cash burn in the third quarter of 2015 was approximately $2.4 million this was partially offset by the receipt of approximately $568,000 in cash from the exercise of options and warrants. Our working capital excluding the warrant liability which is a non-cash item was approximately $10.3 million at the end of September 2015. Turning to our capital structure, as of September 30, 2015 on a fully diluted basis, we have approximately $29 million common shares outstanding. On November 4, 2015, we entered into a control equity offering sales agreement with [indiscernible] through which the company may offer to sell from time-to-time through Tanner’s [ph] shares of the company’s common stock not to exceed and aggregate amount of $25 million. This will provide the company with a very cost effective and flexible means of raising capital if needed. With pricing at the market without a discount and without warrants resulting in significantly less dilution and better stock performance during the program, compared with [indiscernible] traditional financing arrangement. So far in 2015, 84 healthcare companies have filed 91 at the market programs or approximately $3.4 billion in aggregate value. The Tanner [ph] controlled equity offering was one of the first aftermarket programs available to public companies and Tanner [ph] has been a leader in executing these aftermarket offerings. Tanner [ph] is also a trading power house with research distributed to over 7,000 institutional clients. So this equity offering will give the company another powerful tool to help raise capital when needed to fund the clinical trials which are aimed at making Cytosorbents standard of care. And now I’d like to turn the call back to Phil. Phil?

Thank you very much Kathy. Now on few operating highlights. As we discussed in the press release today, the first thing is that we submitted for Expedited Access Pathway of designation. The FDA has established the Expedited Access Pathway or EAP program that is intended to facilitate the approval of medical devices that treat life-threatening conditions and have no approved alternative treatments. So we have submitted our EAP application to request EAP designation and it is the equivalent of breakthrough designation for drugs and biologics but for medical devices. Given that the application is under review, it would not be appropriate for us to discuss at this time, but we will have an update in the future at the appropriate time. In terms of our cardiac surgery partner, I’m pleased to announce that the valuation by our cardiac surgery partner in France, one of the top four cardiac surgery companies in the world is now successfully completed. We are currently in discussions with the cardiac surgery partners and we’ll have an update at the appropriate time as well. In the meantime Cytosorbents has been used and more than an estimated 1,000 intra-operative cardiac surgery cases to date in Europe. As a summary some of the recent clinical activity in cardiac surgery at a Second International CytoSorb Users Meeting, preliminary results were presented from three safety and inflammatory mediator biomarker studies using CytoSorb intra-operatively in a heart-lung machine and low-risk cardiac surgery patients. The first study we’ve done at the University of Hamburg at Eppendorf, 20 patients randomize control pilot study which is now complete. The second one was a 37 patient randomize control pilot study at the Medical University of Vienna, which is also now complete. And at the University of Cologne interim data from 142 of 300 patients comparing autumn surgery, autumn surgery without CytoSorb and 60 patients who had autumn surgery with CytoSorb were compared. And the general high level preliminary results from these studies were that the therapy was well tolerated and safe without device related issues, it included no removal of heparin and no bleeding or coagulation issues and no device setup concerns. Also preliminary initial cytokine data that some cytokines are removed in CytoSorb treated patients compared to control. But overall inflammation in these shorter lower risk surgeries was not very high. Cytokine and other inflammatory mediator analysis is continuing, similarly the risk of adverse events and mortality were low in both treatment and control groups. But now this safety has been determine, all three clinical trial sites are interested and extending their treatment experience to complex cardiac surgery. To patients that are very similar to those that we are studying in our REFRESH trial whether the risk of inflammation and adverse events are much higher. The completed studies are in the process of being prepared for journal submission. And that leads us to a REFRESH update. So our REFRESH trial is the reduction in free hemoglobin trial, it’s a 40 patients randomize control trial safety and feasibility study in the United States using CytoSorb intra-operatively and a heart-lung machine bypass circuit on patients undergoing complex cardiac surgery such as aortic reconstruction or multiple valve replacements and other types of longer surgeries. The end points includes safety and free hemoglobin removal from blood. I’m pleased to say that we’re working with some of the leading cardiac surgery centers in the country in this trial and these includes Baylor College of Medicine, Baystate Medical Center, Columbia University, Cooper University Hospital, University of Kentucky, University of Maryland and the University of Pennsylvania as well as University of Pittsburgh Medical Center. I’m pleased to say also that the study has started with one-side currently screening to enroll patients and a total of 6 out of 8 sites will be in the similar position before the end of November. As an update for Fresenius in addition to what Kathy mentioned, we’re currently working with Fresenius in the initial marketing to critical care key opinion leaders in multiple countries in the six countries where they have exclusive distribution rights and that includes France, Poland, Denmark, Finland, Norway and Sweden. CytoSorb will not only be certified on the existing for Fresenius multiFiltrate, but as we discussed last time it will also be certified on the newly launched multiFiltratePRO. And we’re expecting a formal roll out of CytoSorb in the next several months and as Kathy noted in Q3 there was no contribution yet from Fresenius. And so we look forward to when their orders begin to impact our top-line growth. Now another thing that we disclosed during the quarter was the award of a Phase 2 SBIR contract by NHLBI and as we’ve talked about before, this is based on our highly pours very biocompatible bead platform that enables a broad and valuable pipeline and so we’ve been talking about CytoSorb exclusively during this call, but we have a number of other products under development and one of the ones that is under advance development is called HemoDefend and this is the product that is designed to try to improve the quality and safety of the blood supply. We know that blood transfusion carries risks, 85 million platelet blood cell transfusions every year with 15 million in the U.S. alone and that blood transfusion is considered relatively safe, there have been more than 65,000 transfusion reactions reported in the United States alone, the exact cause is unknown, but it relates to a lot of the non-infectious containments in blood such as free hemoglobin, cytokines, bioactive lipids, antibodies and other things. And when the transfusion reactions occurs it not only potentially puts the patient in harm’s way, potentially even leading to death in these patients, but it also causes a huge administrative burden on hospitals, a huge amount of record keeping and documentation and follow-up testing of these patients and it's very time consuming and very expensive. And the driving goal across the industry is, how can we continue to improve the safety and quality of blood supply at reasonable cost and I think one of the reasons why our technology has been very competitive in this competitive grand process is because it has a potential to be a very cost effective solution. So we call this HemoDefend and this is a small inline point of transfusion filter that fits between the bag of blood and the patient. And again contains our Hemocompatible pours polymer beads that can remove a broad range of containments from platelet blood cells. In fact, it's design to remove things less than 1 kilodalton to things greater than 150 kilodalton in size. So everything from small drug to big antibodies for example. It is a high flow low resistant filter that works by gravity and can deliver the entire unit of blood within 20 minutes without the need of a pump or any kind of special pressurizing equipment. And it is not expensive, it does not contain any leak able antibodies, ligins [ph] or any affinity agents and it is again sterilizable and has a long shelf life at room temperature there by making it an easily produced item. Now the goal of HemoDefend is to wash blood without actually incurring the time cost and expense of washing blood with a machine and it aims to improve the quality of blood by removing a broad number of thing such as potassium, free hemoglobin, antibodies, [indiscernible], inflammatory mediators as well as by bioactive lipids and on the right hand side is some data from our Phase 1 SBIR contract where we collaborated with Larry Dumont, at the University of Darmstadt -- at Darmstadt University. The Geisel medical school. And you can see here the ability of our technology to remove significant quantities of these potentially harmful containments. So we’re pleased to announce now that the NHLBI has awarded us a $1.5 million Phase 2 SBIR grant that will help advance HemoDefend towards human treatment trials and commercialization particularly in surgery and critical care where the need is greater. And unlike what we saw in a REFRESH and ABLE trials where most patients only received on average once two units of blood. We’re really talking about patients who are receiving many more units of blood. They often called them massive transfusions, up to 10 units of blood within 24 hours, because the risk of transfusion reactions is cumulative, every bag of blood that you get is an additive risk of having a transfusion reaction. So we are pleased to be underway with that program currently. So with that I’d like to change to gears and specifically at the end of our earnings -- formal earnings presentation we have some examples, patients who have been treated by our technology. Our European team has actually put together a short video from our Second International CytoSorb Users Meeting where we talked to a number of key opinion leaders who are in attendance there to get their thoughts on number of different subjects. So for those of you on the phone my apologies, there is no way to have audio play during the call. So if you could just hang on for about three to four minutes, the video will be played in its entirety and we will be ready to go back with the case report studies, for those of you on the webcast you should be able to view this without a problem. Please just remember to turn on your audio. Here we go. [Audio/Video Presentation] So we are back online. And hopefully you enjoyed that video, if you would like to share that video with someone, or if you would like to replay that this is available now on our cytosorb.com website as well as some other videos including a short brief video from our second international users meeting. Now one of the case report that I want to share with you was about a young girl, this is a case of another case of toxic shock syndrome. What was remarkable about this is that, our therapy is predominantly being used only on adult patients, typically patients between the age of 18 to 80 years of age, this was a four-year-old girl, 38 pounds who develop toxic shock syndrome after getting stunk by an insect on her right leg, which became infected and for those of you who are a little sensitive to pictures, the next several pictures maybe you may want to turn away, but please keep the audio on. So she was admitted to the medical center of the University of Debrecen in Hungary. This is a Fresenius medical center in Hungary that is affiliated with the University just several months ago. And she was diagnosed with the staph aureus infection of her leg and was positive for toxic shock syndrome toxin and treated with antibiotics and this is an actual picture of her right leg. Despite antibiotics her condition rapidly worsened and developed -- and she developed a severe systemic inflammatory response syndrome, with the onset of multiple organ failure. She required mechanical ventilation as you can see here for acute respiratory distress syndrome, one of the worse forms of lung injury, she developed a shock requiring [indiscernible] pressures and acute kidney failure as well. Her clinical picture was complicated by extensive capillary leak syndrome, a broad drop in all of her blood levels with series of hemorrhage and she also was progressing towards scalded skin syndrome, which again is akin to having a massive burn injury all over the body. And this is when they brought in CytoSorb and she was stabilized within 72 hours of CytoSorb treatment, so she was stabilized with 72 hours of CytoSorb treatment and that was accompanied by standard hemodialysis for her kidney failure and they used regional citrate anticoagulation and then continued with dialysis for five days afterwards as her kidneys began to recovery. And remarkably, she made a complete recovery after three weeks and CytoSorb was credited with helping to save for the life and helping to prevent an amputation for leg. When I discussed this with our Hungarian at distributor at the European Society of Intensive Care Medicine, she relayed the initial store to me and the data you see here was actually provided by Professor Joseph Bala [ph] who is from the University of Debrecen. And she had mentioned to me that, she had just had a chance visit with the critical care doctor there and the family had gone there to say thank you to the doctor for helping of daughter and this little girl sat on our distributor’s laps, she is woman and it was a quite remarkable experience for our distributors. So we were very pleased to have a very positive outcome and such a young child. In this case was actually presented at the Hungarian pediatric Congress. Second application is something that we really haven’t talk about before and this is really with CytoSorb and liver support. Now there are number of types of liver dialysis therapies out there some investigational and some commercialize like MARS and OPAL which are commercialize system as well as investigational system such as from Vital Therapies and this is a case of the 36 male patients with ulcerative colitis who is treated with the immuno-suppressive drugs to control its ulcerative colitis, but wound up developing pneumonia cystitis and cytomegalovirus virus opportunistic infections. And he develop this severe septic shock picture were he develop multiple organ failure, septic shock severe acute respiratory distress syndrome kidney failure requiring continues renal replacement therapy a form of hemofiltration or hemodialysis. And acute liver dysfunction with very high levels of bilirubin which itself can be very toxic and they attribute that to a viral hepatitis cause by cytomegalovirus virus. And they tried the standard liver dialysis treatment. So MARS they tried six cycle of MARS as well as OPAL which is open albumin dialysis both are very similar type therapies using albumin as a way to bind bilirubin and then as a way to dialyze that off of -- out of the patient. But none of those, as you can see from the graph below helped these very high levels of bilirubin. And with the use of CytoSorb, the levels of bilirubin went down dramatically 48% and then another 36%. And you can actually see the bilirubin being retained in our cartridge, because our beads are white and when you flush these cartridges after you treat these patients bilirubin is yellow and the entire cartridge has turned yellow, it’s quite remarkable. So this is just one of many actually treatments in liver failure patients, where the device has been used as either a substitute or as an additive process for liver support. And I think that this is could be potentially another significant market for us. Particularly since it exists today after having been develop by other companies that market MARS and OPAL and other types of treatments. Now a third case, this case with pyelonephritis, this is an infection of the kidney, this is a 56 patients who is admitted and diagnosed with urosepsis. So urinary tract infection sepsis, cause by an abstraction of his right kidney. So they went in there and they put a stent in the ureter, but the patient decompensate rapidly one into shock and had a sharp and in need of vasopressors [ph]. And remarkably, when they measured his Interleukin-6 levels this is one of the cytokine that are most closely associated with severe illness and death in sepsis, he is with a million picograms per ml. All of us on the phone here are typically less than 10 picograms per ml. And patients with even severe septic shock or typically in that 500 picograms to 10,000 picograms per ml range. Now surprise only, this is not the only patient that we’ve treated successfully with cytokine levels in this range. But where you can see here is just that temporarily with the induction of CytoSorb therapy, you can just see the dramatic log full reduction in IL6, which is concomitant with a decreasing stabilization of hemodynamic and following just a very brief treatment, brief set of treatments this patient made a very swift recovery. And last but not least, we are also helping -- we have recently been helping in a tragedy. Many of you who will follow the Global News unfortunately know of a tragedy that occurred on October 30th that a night club in Bucharest, Romania. Where a night club caught fire from pyrotechnics from an insight concern and there was a limited exit, there is a lot of smoke, fire and there was a stampede of people trying to get out and 27 people unfortunately died in that blaze with another 146 people hospitalized with serious burns, smoke inflation and trauma related injuries, 80 to 90 of the survivors were in serious or critical condition and of those -- 29 of those hospitalized were so badly burned that they cannot be immediately identified and was truly a tragedy. But many of those patients were treated with CytoSorb at local hospital and we look forward to hearing how the device was used in those patients in the near future. But of course our thoughts and prayers are with the victims and families of this terrible tragedy. But with that said that concludes our formal remarks and Lee please open it up for questions and the answers. Thank you.

[Operator Instructions] We’ll take our first question from Jonathan Aschoff of Brean Capital.

What is the average selling price and the range and the direct and distributor sale mix?

We’ve not broken that out directly, but what we have said is that our direct sales are typically above a $1,000 a cartridge. But we’ve not broken out what the ASPs are for distributor sales. On that we have gross margins of 63% as we previously mentioned.

How about that direct and distributor sales mix?

We’ve not broken that out either. Right now the reason why we haven’t done that is because of the lumpiness of distributor sales and whenever we sign a distributor there is typically some type of stocking order, then followed by purchases as they develop the market. And so because of that, trying to -- it varies quarter-to-quarter between the ratio of direct and distributor sales.

Can you give me the reorder versus new orders for 3Q?

Although we have not broken that out historically, we have been talking about that as a benchmark potentially in the future. But what we can tell you is that historically as well as in the third quarter reorders are the predominant orders that are making up bulk of our product sales.

So in that kind of begs, how many of the target docks has been reached by your direct sales force are you going to add more than I believe you said two by the end of the year, you already added two or so you said, are you going to go beyond that or stop and see how that does?

So I think when you look at other major international companies that focus on the direct sales territories that we’re focusing on, their sales force is comparably sided. So because critical care medicine is typically in major hospitals, in ICUs, you can target those ICUs relatively efficiently with a relatively small sales force, it is very different from the primary care sales force that you need -- to that many pharmaceutical companies need to develop in order to get at those private offices all over the place. So I think for now we are looking to bring on a medical science liaison who will help our sales people in the market, we’re also, as Kathy mentioned, adding two additional sales people hopefully to shop up early in 2016 and we think that should suffice for the moment.

But did you tell us how many of the target docs you guys have reached?

So we are in the majority of university and public hospitals throughout Germany today as well as in Austria we’ve been looking at for inroads in Switzerland as well. That is our direct sales territory. And I think that as a surrogate for this, when you go to these critical care conferences and we host Symposia, at our last Symposia there were more than 300 physicians in attendance in that Symposia and that was an international conference. And we see similar types of numbers when we have our German and German speaking country focused initiatives as well. So I would count those as hundreds of key opinion leaders and they continue to grow. As you know we used to use key opinion leaders as a surrogate for adoption, but they are just too numerous to count at this point and so we’ve stopped providing that number.

What was the original timeline for Fresenius to start selling, was it always one quarter, ’16?

No, I think Chris Cramer can actually give a little bit more detail on this. But I think that our goal was to try to get this launched in Q4 this year. And so it still may happen, but maybe Chris if you’d like to give a comment on that?

I’d say overall we’re in the final stages of preparing for a full market launch. So in Q3 I see lots of premarketing work was done to really focus on building support of what I’ll call local physicians champions in the six countries that are covered under the partnership and these are physicians that are highly respected, they are thought leaders in this field of critical care. So this quarter, we expect them to begin with initial use of CytoSorb, and our goal is to leverage the positive experiences from these physicians as we start to broadly introduce CytoSorb across the FMC territory. In addition of that I think what Phil had also mentioned is, there is various technical operational preparations that are expected to wrap up soon. So overall I’d say both sides are coordinating very closely, we want ensure successful rollout and we expect to go live with what I would call first full commercial efforts in the six countries starting in Q1 2016.

Okay. Well congrats on the revenue guys. Thank you very much.

Thanks very much Jonathan.

Our next question will come from R. K. Ramakanth of HC Wainwright.

My question is on the revenues, how sustainable are these -- is there any lumpiness in this number? Based on your 2015 guidance it looks like you could record about the same number in next quarter, but I just want to understand how sustainable this number is and what kind of growth you could think about in the coming year?

Yes, I’ll ask Kathy and Christian actually to comment on this as well. But I think what we are very encouraged by is the fact that this quarter was actually very broad based in terms of contributions to the different segment, so both distributors and direct sales reorders from major reference sites, new orders, et cetera. So across the board it was very strong, there was no concentration necessarily of any one customer beyond what we’ve seen historically in the past, now last year in the Q3, it was actually very strong quarter, an unusually strong quarter given the fact that we had a number of distributors come online at that time, placing initial opening orders and other things and so this year, we actually see this as much more sustainable than what we saw last year and I think which bodes well in the future. Kathy and Christian did you have any other comments?

Thank you, Phil. I just confirm what you have said, I think this quarter was a healthy quarter, very organic growth and you know the direct market, especially Germany is our model market for our business and our commercialization. And we had started there first and therefore also the development of the market is most advanced compared to the other markets. So the development of the market in Germany is very encouraging, so far example we have increased the number of ordering customers dramatically compared to last year. So more than 50% and this contributes to a more sustainable revenue stream and I think that we’re looking forward to further growth.]

Great. In terms of the ex-U.S. marketing strategies, you’ve been talking about the top four cardiac surgery company and -- so I thought by now the evaluation should be done and probably even get into the launch phase, but what -- not the early ratio, but what’s going on there, what was the timeline, now how -- when were they finally make a decision as to launching the product?

Yes Chris, is that something that you would like to comment on as well?

Yes, sure Phil. Hi R.K. How are you?

Good.

So, I would say with the cardiac partnership, so as Phil mentioned here evaluation projects completed in Q3 2015, and as part of this project we worked with one of the top surgical teams in France. CytoSorb was used intra-operatively on patients undergoing complex cardiac surgery and just notably these patients are very similar to those that will enrolled in the refresh trial, I would say that overall the clinical valuation went very well in fact as good as we could have expected and it reinforced many of the positive attributes of CytoSorb that we’re seeing in the field today. So I thought that was very good. So currently we’re in what I would call this discussions with the partner about next steps and at this point we can’t comment anymore on that, but we’ll keep everyone informed as to our progress on future goals.

Okay. Thank you and talking about the REFRESH study and the EAP designation, how does EAP designation help in terms of conducting clinical studies or review or approvals, where does it help you in terms of the development within the United States?

Sure. So I will talk more generally, and these comments are not related to our specific application. But the FDA had realized that there were a lot of medical devices that could be helping patients, who have no other option and help them. But because of the restrictions that the FDA had on safety and efficacy and the stringent requirements that they had. And it’s difficult for those potentially useful products from ever making into market. And if patients who had no other choice we’re willing to undertake the risk of using these products that there was a push that they should essentially be able to do so. But of course the FDA’s approach is of course to protect the U.S. population and to make sure that devices meet the safety and efficacy requirements. So they came up with a program that mirrors the breakthrough designation pathway for drugs and biologics. We are -- the things that achieve breakthrough designation and things that achieve EAP designation will be essentially put on a fast track for essentially early market approval. And this would require a approval of the data designation plan, which would lay out a clinical study that would be performed, that would be the basis of that early market approval. And what they have said in your guidance is that they are now looking to have the definitive efficacy and safety study which often involved 20-day all-cause mortality which is an extremely hard and points to hit. But they said that for devices that have been demonstrated to be safe, they would be willing to approve products earlier based upon lesser endpoint, less stringent endpoints potentially things like days in the intensive care unit for example. And so, but the program also though with require that the sponsor, the developer of that medical device would commit to a post market strategy where they would eventually get the data to show and to meet the stringent requirements of the FDA on efficacy and safety. So it really is along the guidance of the FDA’s risk benefit relationship of devices that are relatively low-risk for the potential benefit that they may provide and I think that would be genesis of the program. So essentially the short answer is that is sort of a fast track, it provides a collaborative working relationship between the FDA and the company, they would assign a senior person on that trial to help push through this pre-market study and to work very closely with the company [audio gap] be done. So that is a little bit about the EAP, does that answer your question R.K.?

Yes, that’s good. And the last question for me is on HemoDefend. Now that you have a $1.5 million to go in. What’s the development timeline for this and how different is the current structure is going to be compare to what has been done before?

So in Phase 1, it was predominantly development phase program, we were taking our existing technology that we had already developed really more of a first generation technology. And developed it further and optimized it, so that we had the performance that you saw on the slide that I showed you. Now this is considered actually quite good data in fact a poster on this, on our results from the Phase 1 study was actually selected as a top poster at the American Association of Blood Banking conference. And it was also the product was chosen as an innovative -- as a product worthy of being featured in the innovation NHLBI, National Heart-Lung and Blood Innovation conference that was becoming up very shortly. So the Phase 2 is really designed to take it to the next level, it is really as with all SBIR or small business innovative research programs, the goal is to push towards commercialization and that’s exactly what we plan to do. We have the polymer, it’s undergoing some additional optimization, but we worked out many, many different things as it relates to potential commercial products and is it something that we are looking to test on man [ph]. So with this Phase 1 -- Phase 2 SBIR program. So that will involve testing human blood that has been purified with the HemoDefend technology and evaluating that blood in humans.

Okay. Thank you very much.

Thank you, R.K.

And our next question will come from Andrew D’Silva of Merriman Capital. Andrew D’Silva: Thanks for taking my call. First just a few questions, first of with your internal models today as you look out into 2016, are you expecting the majority of revenues to you continue to come from internally derived initiatives as they have in the past like in Germany and surrounding areas? Or are you expecting third-party relationships such as for Fresenius and [indiscernible] and her distributor network to be the majority of your ’16 product sales this time? Also if you could just highlight any regions that you expect outperformed the norm, so us as analysts can be dig a little deeper in the landscape there?

Sure, as I mentioned in the press release, I think that we -- at the end of 2015, we’re seeing a convergence of a lot of the different things that we’ve been working on that would have a potential build in a broad based way contribute to our revenue growth in 2016. When we first started selling this product in 2012 really first year of commercialization with 2013, which predominantly is small sales force selling direct. In 2014 it was complemented by some early activity in partnering and early distributors. In ’15, it was sort of a combination of strategic partners distributors and direct sales, but with a lot of big territories for example like France, and Poland, Sweden, Norway, Denmark, Russia, Middle East and others that were developing but not yet contributing actively to our revenue. So in 2016, we see this all coming together, I think which is why we’re so optimistic about our potential growth in 2016 particularly with the kind of momentum that we’re seeing now. Kathy is there anything that you might want to add to that or?

No, I think you stated that right, so it has been a mix and the direct sales of course started to develop much earlier than the distributor sales. So we still have some lumpiness and catch up in the distributor area, but they are going to be growing as we move ahead and add new territories I believe and as we receive repeat orders from the existing distributors.

Christian, maybe if you want to tell us a comment about what your perspective was?

Yes, as I said in the call though the direct market are kind of modern markets and as Kathy said we have started that with earlier or one and a half years earlier than in the most of the distributor markets. So that means that all the instruments and projects and campaigns we are doing here and leading to accelerated goals, we will trump late into the other market as well. But this of course with some delay. On the other hand having the experiences and the learning in the direct markets we can kind of short cut in other markets. And also the going appearance on [indiscernible] and along have to increase the speed of adoption. Andrew D’Silva: So just to recap on that, so is it fair to assume into ’16 that as you grow that a greater portion of your revenues will come from third-party distribution and strategic partnerships versus internally derived initiatives?

So I think that we are seeking a balance, clearly direct sales is a very strong engine of growth right now with broad based support in our direct sales territories from key opinion leaders and where we have reimbursement and the infrastructure is set up to really increase sales more rapidly. But of course the lower margin distributor sales and partner sales are important to our business and we see that contributing as well. I think just to, maybe give you a little bit of guidance, I mean our goal is to increase our gross -- our blended gross margins between those two through a combination of product -- through a combination of customer diversification as well as reducing the cost of goods sold as well. So I think that it will be a broad based revenue growth model going forward. Andrew D’Silva: And then just a follow-up on Fresenius, I don’t know if the question was asked in this way yet, but did they actually placed their initial fulfilment or stocking order as of today or are we looking for that initial order to be met in the first quarter?

I think we expect that as they move into the markets in the formal launch, they would want to have enough stocks available to be able to do that. So whether or not that’s in Q4 or Q1 we don’t know. Andrew D’Silva: But there was no official like timing requirement for them to actually place their stoking order or initially you thought there was a time spend that they had to meet, that’s not true?

We are within this first term year of the agreement and so we believe that they will meet their requirements. Andrew D’Silva: Okay. Fantastic and the last question, can you just remind me again as far as what the differences between the REFRESH I and II are?

As to REFRESH I is really a feasibility and efficacy -- feasibility and safety study. And it is really designed to FDA comfort with this product in the United States amongst U.S. clinical trials sites again it's a relatively small study 40-patients among eight centers. Where the primary end point is safety and the primary efficacy end point is reduction in free hemoglobin. What we’ve said in the past is that the FDA -- we will meet with the FDA prior to REFRESH, the design of REFRESH II and get guidance from them on what REFRESH II will look like, it could take one of two paths, one is a potential the de novo 510k where they would accept biomarker reduction as an end point, they would clearly use our biomarker data from REFRESH I as a decision making point for that, or it would be a potential PMA trial, where they would use clinical end points as an end point and that would be a larger study than the de novo 510k biomarker end point. But the design of the trial and the selection of the patients all that is very similar, in fact if I made efficacy and reduction in adverse events as a primary end point of REFRESH I we can almost roll that into a REFRESH II and so it is very similar design, where we are using CytoSorb intra-operatively in elective cardiac surgery patients undergoing complex cardiac surgery procedures.

And our next question will come from Steve [indiscernible] of WBD [ph].

Good afternoon I’m going to dive into something that you would just talked about on FDA because -- obviously FDA is always inundated with folks that are coming and saying we’re only got third and fourth in line, but this is obviously that critical unmet need, what kind of feedback has FDA given you and can you give us some background on how things have progressed with FDA? And also clinicians are an integral part of dealing with FDA, what kind of momentum and efficacy are you seeing with that, because obviously if you are talking about the results clinicians know that they just don't have a choice in some of these cases and what do you think as far as them saying no, you are right, this we have to do something?

Sure. I think what we can point out is that currently today, we have three FDA approved IDEs, one in the treatment of acute respiratory distress syndrome, one in the area of treating trauma and rhabdomyolysis and that is the one being pursued with the U.S. Airforce and then the third IDE is approved for cardiac surgery for our REFRESH trial. So the FDA knows our technology, know it quite well, in fact as part of the DARPA program where we collaborated with likes of Harvard, [indiscernible], MIT next stage genetic Battelle labs and others, they have been very integrated, in fact in that program and through that we’ve had even additional contact with the FDA. So that being said, in terms of key opinion leaders, et cetera. We have right now three very strong advisory boards, one in the area of sepsis and critical care, which includes the likes of Dr. Joseph Berlo [ph], Dr. Eugene More, Jeff Berlo [ph] is the Chief of Critical Care Medicine and Dr. Eugene More is the head of the editor in Chief of the Journal Trauma for example, Dr. John Callen [ph], who is the Vice Chair of research at the university of Pittsburg medical center, and their critical care program, there in fact Dr. Callen [ph] has been a long standing collaborator of our over the course of the more than a decade of research, he has done all the -- most of the pre-clinical animal work on our technology and is considered one of the really true key opinion leaders in the area of using blood purification to treat life threatening illness like sepsis, as well as very well known in area kidney injury in critical illness as well. So we have a very strong group there, we have outstanding trauma advisory board, we also have an outstanding critical -- outstanding cardiac surgery advisory board as well, so we are plugged into really major pleasures in the REFRESH trial also we’re dealing with some of the really top cardiac surgeons in the country and so we feel comfortable with that level of support and we are grateful that they have such interest in our technology. That being said, we are not approved yet in the United States and there is -- we’ve looked to expand the awareness of our technology overtime as we get closer and closer to the market place.

All right, I’ll jump back in the queue. But you had mentioned [indiscernible] obviously when you are talking about every single ICU where someone is put on a ventilator, that’s a significant consequence. What are the Europeans saying in feedback back to you, because when you incubate someone and then reinsulate someone. You are now all of a sudden in a situation where it just a significant negative spiral. What kind of feedback are you’re getting there? And thanks I’ll jump back in the queue.

So when we look at the clinical benefit of the technology. Where we see the major clinical benefit is in the stabilization of hemodynamics and blood pressure. Of course blood pressure is extremely critical to being able certainly oxygenated blood to your vital organs, they don’t get a lack of oxygen and then die. And so that’s the major area, but the second area is in the area of capillary leak syndrome. In the capillary leak syndrome is -- to explain this is that your blood vessels, typically the walls of the blood vessels have an integrity that is based upon the cells lining the blood vessels that they’re stuck together very tightly. What happens is that deadly inflammation and what happens in cytokine storm is that cytokine and other inflammatory mediators can actually a cause those cell-to-cell contacts to become weekend and actually to become broken. And so imagine as an analogy a brick wall and then basically taking brick out of the wall. Right now anything from one side can get to the other side and in acute respiratory distress syndrome and lung injury that’s exactly what happen. You get this capillary leak in the lung and then you get fluid flowing from your blood vessels directly into your air sacks of your lungs, your alveoli and you’re essentially drawing the patient from the inside -- the patient is drawing from the inside out. And that capillary leak syndrome plays a major role in actually organ dysfunction all over the body. For example, when you get tissue edema in the kidneys for example. Often time, they can’t expand that much and that pressure builds up and then you reduce blood supply -- blood flow into those kidney. So these are just some ways of how this capillary leak syndrome can be some dangerous. And I think you’ve heard on the testimonial video how in many cases that we have been successful in helping improve oxygenation and improved respiratory function using our technology. So I think that there is a significant play in the treatment of acute lung injury as well as acute respiratory distress syndrome and we have a number of studies specifically focused on looking at that potential benefit.

Well again thank you for those answers and obviously looking forward to on the first KOL basically says they’re not going to take it anymore and FDA basically agrees. Thank you.

Thank you.

And Mr. [indiscernible] I can may continue with any more questions.

I’m good. Thank you.

Thank you very much. We’re showing no further questions at this time. Right now I’d like to turn the call back over to management for any closing remarks.

Well, thanks Lee. Well thank you everyone for taking the time today to get on the call in the middle of the morning and we certainly appreciate your participation and support. If you have any other questions, please feel free to reach out to Amy Vogel at avogel@cytosorbents.com and we will try to get you answers to some of your questions as needed. So in the meantime, we look forward to the next update on the next quarterly call. Thank you everyone and have a great day.

Thank you. And that does conclude our conference for today. I’d like to thank everyone for their participation and have a great day.