Cytosorbents Corporation (CTSO) Q1 2016 Earnings Report, Transcript and Summary

Please standby. Good day everyone, and welcome to the CytoSorbents First Quarter 2016 Financial and Operating Results Conference Call. [Operator Instructions] Today's call is being recorded. At this time, I would like to turn the call over to our moderator, Lee Roth. Please go ahead.

Thanks Leanne, and good afternoon. Welcome to the CytoSorbents First Quarter 2016 operating and financial results conference call. Joining me today from the company are Dr. Phillip Chan, Chief Executive Officer and President; Vincent Capponi, Chief Operating Officer; Kathleen Bloch, Chief Financial Officer; Dr. Christian Steiner, VP of Sales and Marketing from Germany, and Chris Cramer, VP of Business Development. 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. And that management may make additional forward-looking statements in response to your questions today. Therefore, the company claims protection under the Safe Harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Our actual results may differ from the results discussed today. And therefore, we would like to refer you to a more detailed discussion of these risks and uncertainties in the company's filings with the SEC. Any projections as to the company's future performance represented by management include estimates that are current as of today, May, 9, 2016, and we assume no obligation to update these projections in the future as market conditions change. During today's call, we will have an overview presentation covering the financial and operating highlights for first quarter 2015 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 welcome everyone to the call this afternoon. We encourage all new investors to review our earnings release this afternoon and the investor presentation on our website, which provides detailed background information about the company. After relatively short presentation, we will open up to the live Q&A session and official transcript of today's call will be available within the next week on our website at www.CytoSorbents.com. CytoSorbents is leader in critical care immune therapy we are leading the prevention or treatment of life-threatening inflammation in the ICU and cardiac surgery using CytoSorbent blood purification. CytoSorbent targets $20 billion opportunity in critical care and in cardiac surgery. It is only specifically approved extra-corporal set of kind filter in the European Union and its clinically proven to remove key cytokines in the blood of critically ill patients. And as a very broad occasion for use and is approved for any situation where cytokines are elevated. It works with standard dialysis machines as well as continuous renal replacement therapy machines or CRT machines. And those heart and lungs machines that are found in hospital today and CytoSorbent is a plug and play cartridge. CytoSorbent also removes many other inflammation mediators such as free hemoglobin, bacterial toxins, bilirubin, myoglobin, activated complement and others that are driving an uncontrolled inflammatory response. CytoSorb has been safe and will tolerated in more than 12,000 human treatments and the goal of CytoSorb is to control the deadly inflammatory response and in effort to try to prevent or treat organ failure which is the leading cause of death in the intense care unit today. In doing so we hope to be able to improve patient outcomes and survival while decreasing the cost of ICU and patient care. We believe CytoSorb is very unique product that has the potential to revolutionize the treatment of many life threatening illnesses such as the intensive care such as those seen in the intensive care seen today such as sepsis a key respiratory distress syndrome burn injury, trauma, pancriatitis influenza, cytokine release syndrome and cancer therapy and complications of cardiac surgery. With that let me turn over to Kathleen Bloch to go over some of our operating and financial highlights. Kathy?

Thank you Phil. And good afternoon everyone. For today's call I will be providing an update regarding CytoSorbents first quarter 2016 financial results including product sales as well as our working capital and cash runway. Turning to reported financial results. CytoSorb product sales for the quarter ended March 31, 2016 were approximately $1.6 million which is a 127% increase over product sales of $704,000 for the quarter ended March 31, 2015. Our first quarter 2016 annualized product sale run rate rose to $6.4 million rose to $6.4 million as compared to an annualized run rate of approximately $2.8 million one year ago. Total revenues which includes product sales and grant revenue was approximately $1.8 million for the quarter ended March 31, 2016 as compared to $723,000 for the same quarter in 2015 which is an increase of approximately 150%. In the first quarter of 2016 our gross margin rose to approximately $1 million which is more than double our gross margin of $490,000 for the first quarter of 2015. We continue to experience strong gross profits margins on product sales. Gross profit margins were approximately 62% for the quarter ended March 31, 2016 as compared to gross profit margins of approximately 59% for the first quarter of 2015. Now let's take a look at our quarter-over-quarter product sales. Our first quarter 2016 product sales of $1.6 million represents our best quarterly product sales ever. This is our fourth consecutive period for which we have reported quarter over quarter product sales growth. It is also our third consecutive quarter of achieving record sales. In the past we have reported on the impact of the Euro. The Euro was relatively stable when comparing the first quarter of 2016 to the first quarter of 2015. Still for this report we have admitted the chart that adjust for the changes in the Euro. We do note that if the Euro to dollar exchange rate was unchanged from 2015 first quarter to 2016 sales would have been approximately 33,000 higher than reported sales. And next we will take a look at our trailing 12 months product sales chart. On this chart we can really see the increasing trajectory of sales which is especially evident in the most recent two quarters those being Q4 2015 and Q1 2016 and we are very pleased to be experiencing increases in both direct and distributor sales both as a result of new customers and territories but also as a result of repeat orders from our existing customers. We expect that revenues will continue to claim as direct sales continue to grow as existing distributors complete product registrations and generate repeat sales and add additional distributors and strategic partners come on-board in new regions further more as we continue to develop clinical data from our registry investigator initiated studies and FDA trial we will be able to further accelerate acceptance and adaption of CytoSorb in the marketplace. And then, finally some notes on our working capital position and our cash run way. As of March 31, 2016 we had approximately $6 million in cash and short term investments. Our burn rate which includes expenditures related to our refresh one clinical trial was approximately $1.8 million for the first quarter of 2016 which is lower than the average burn rate per quarter experienced in 2015 of approximately $2.6 million per quarter. The reduction in the quarterly burn was primarily a result of product sales growth. Our current cash will allow us to fund our operations into the fourth quarter of 2016. So as we build sales and drive your operations towards break even we are exploring all potential funding sources with the goal of doing what makes the best sense for the company and our shareholders. We have a variety of potential sources of capital available to us including the equity market death financing and potentially strategic partners. Given the current state of the equity markets right now we think death financing maybe the best way to provide working capital to fund our operations into 2017 and serve as a useful bridge to a more traditional fund raising. We currently have several competitive death proposals that we are evaluating and we will have more to report on this in the future. Turning to our capital structure as of March 31, 2016 on a fully diluted basis we have approximately $29 million common shares outstanding. And now I would like to turn the call back to Phil. Phil.

Thanks very much, Kathy. Since we just gave a fairly comprehensive update a couple of months ago I thought today we would focus more on the interest from clinical users as well as the clinical data that are being generated and published. So specifically I wanted to focus on some events that just happened recently after our last update to shareholders. So this is a picture from the third international users meeting held in Brussels , Belgium in March and as you can see from this picture this we brought together 107 people from 23 countries around the world to share their experiences with each other and how to use CytoSorb on their patients and to learn from each other. And to create a sense of community amongst the group and this group continues to get larger every year and we continue to bring new people in and so the actual community is very broad. On this next slide is the congress that happens immediately after our third international CytoSorb users meeting which is ISICEM. The International Symposium on Intensive Care Emergency Medicine also happening in Brussels. On the left hand side you can see the ISICEM news and this is professor [indiscernible] who is the organizer of what is one of the largest critical care conferences in Europe every year. This is one of our largest events you can see that we are prominently featured on the front page this daily update and what you can see here also are is our booth, this is a very large booth that is not with most of the others vendors but is actually one of the major players where most of the attendees go by to get to their various lectures and you can see some of the activity that we are able to draw from the interest in CytoSorb technology. But I think what captures the sense of the kind of interest is in this next slide sponsor research symposium now during this time we compete with all the other major vendors for attendees and this last year we were in a room called the ark room where we were standing room only and we had to upgrade our room because of the interest in our therapy to the copper room which is one of the largest auditoriums in this congress facility. And so, here you can see that we drew more than 300 people to our lectures on CytoSorb and it was a great turn out. In addition to the formal lectures we also had five post surgical selected for presentation and lower left and upper right hand corners you can just see couple of pictures on the presentations that were ongoing during the poster session and we will touch upon some of these presentations in just a moment. But also at the congress whereas one of our partners Fresenius medical care and Fresenius is medical care is the largest dialysis company in the world and are partner in the countries of France, Poland, Denmark, Norway, Finland and Sweden. And at the conference Fresenius initiated the marketing push behind CytoSorb and you can see on the right hand side the Fresenius multi dialysis machine and blew up on the left hand side is you can see CytoSorb here which is hooked into the machine and their sales people were there to answer questions for potential customers that were interested in CytoSorb therapy. They also sent approximately 18 people to our third international CytoSorb users meeting from their dedicated countries and Fresenius has also been marketing CytoSorb in countries specific conferences such as the one in Poland last month and on the right hand side you can see some of the marketing literature that they used there. Fresenius importantly has confirmed to us that the plans to begin selling in France, Poland, Denmark, Finland, Norway and Sweden later this month and we will have an update later this month as that happens. Now what I wanted to show you is this slide, we have now had more than 12,000 human treatments where CytoSorb has been used most of which has been in critically ill patients but we probably have more than 1,500 cases now at open heart surgery. But this is a graph of just a fraction of the cases that have been treated. Most of the cases that have been treated have been in day to day usage in critically ill or cardiac surgery patients and only now are the reports getting to, only now are these reports approaching publication. And so, what is interesting to know is that since the market launch in this product is late 2012, we have been gradually increasing the number of studies that have been published and in the first several years most of the studies have been case reports involving a handful of patients each and what you can see that in the first four months of 2016 alone we are easily on pace to out-pace the number of studies that were published last year on significantly number of patients. And this reflects the fact that we have migrated in terms of studies from predominantly case report studies to now more case series as well as randomized control studies. So, in addition to studies that we are sponsoring there are now more than 55 investigator initiated studies that are in various stages, 12 of which are now in the advanced stage and are enrolling patients actively. 13 already to enroll and four studies have been completed. And again, as those studies move towards publications we will tell you those studies as well. Now I wanted to give a quick update on our refresh one trial, refresh again is the reduction in free hemoglobin trial and we are currently running 40 patient each in the study evaluating the safety and efficacy of intra-operative use of CytoSorb in heart lung machine during complex cardiac surgery and elective non emergent cardiac surgery that is intended to last longer than three hours. And these include cases such as aortic reconstruction, cabbage reduce, multiple valve replacements heart lung transplant and other things and the goal is the safe reduction of plasma free hemoglobin and other inflammatory mediators that can cause post operative complications. Now we are working with major cardiac service centers including [indiscernible] college of medicine and Texas heart institutions, basic medical Columbia, cooper university hospital Kentucky, Maryland university of Pennsylvania and the university of Pittsburgh medical center. I am pleased to say that all sites are currently active in the trial and the trial is now nearly two third enrolled at 63% and we fully expect to be complete in terms of enrollment by mid 2016 with data base block and top line results available in the third quarter of 2016. If everything goes well we will have discussions with the FDA to cite upon a pivotal phase pivotal registration trail called refresh 2 that we hope to start in early 2017. Now in addition to refresh one there has been a lot of other activity on the cardiac service side particular in Europe. The first study is one that is being conducted in the university of Cologne and at the third international CytoSorb users meeting they reported an interim analysis of 165 patients enrolled at of total 300 patients targeted into a three arm randomized study evaluating the operative use of CytoSorb during open heart surgery and they reported a statically significant execution in external wound infections which is a very complex and expensive complication falling cardiac surgery. So it's very exciting. The second study that was reported at our international users meeting was the 10 patient cardiac surgery devaluation study led by professor [indiscernible] which is the cardiogram surgeon and vice dean of research at the university hospital at France. In a complex cardiac surgery patient population similar to those in the refresh one study and in that study they demonstrated improved hemodynamics stability in most of the patients but with marked hemodynamics stability in two patients undergoing valve surgery due to endocarditis. Now endocarditis is valvular competency or destruction caused by bacterial infection often caused by staphorious bacteria. And what they witness was a reduction in need for vasopressor reduction in the need to expensive extra-corporal life support in this patient sub population. That was also very exciting. And just recently a study was published from the medical university of Vienna this was the first randomized controlled study that has been published of CytoSorb it was on 37 patients randomized either have CytoSorb or not have CytoSorb into operatively during low to medium risk cardiac surgery. And what the study showed was it demonstrated safety and technical feasibility using CytoSorb with no complications noted. Interestingly with this patient population unlike refresh one and unlike other patients that are undergoing complex cardiac surgery, these patients who are categorized as low to medium risk did not have severe inflammation and their peak side of claims for example IO6 peaked at around 150 picograms per mill which is around what patient would have in the community with community acquire phenomina or other kinds of self limiting infections that can be treated as an outpatient with antibiotic. So these are typically things like cabbage coronary artery bypass graph surgery where there is not a lot of cutting into the heart and therefore not a lot of bleeding, not a lot of analysis for very short procedures versus what we are talking about in refresh one and in some of the other studies that are being done where those patients are much more complicated and are on the operating table under cardiopulmonary bypass for up to eight to ten hours at a time. So another study that was recently published was a study on post operative surge or systemic inflammatory response syndrome falling cardiac surgery. And this was yet another key series. So this was on 16 consecutive cardiac surgery patients who developed post ops surges or in prolonged cardiopulmonary bypass which shock requiring veso pressures and requiring chemo filtration which is a form of blood purification like dialysis. And what you can see from these graphs are basically the individual patients where they either receive one set of treatment, two set of treatment or three set of treatments and on the left hand side you can see that their levels of cytokines are very high so IO 6 in many of these patients were on order 500 to 8000 picograms per mL. This is on a lot base tense scale. And this compares again to those in the previous study where those patients had cytokines level of 150 picograms per mL this is in contrast to all of us on the phone who hopefully have a IO6 of only less than 10 picograms per mL. So these patients were highly inflamed after their surgery and again we are in shock requiring vasopressor and kidney failure requiring essentially hemo dialysis. And what these charts also show however is that in addition to reducing these key cytokines it also correlates this within improvement in hema dynamic stability and you will recognize hema dynamic stability as a common threat through these various slides and this is what doctors are seeing. They are able to regain control they are out of control patients and get their blood pressures up to a stable level that is sufficient to pump oxygenated blood to their vital organs. And what you can see on the right hand side is for example the blood pressure increasing and that's a good thing in these patients or simultaneously in the lower two graphs the reduction in vasopressor broadly so from base line compared to right after treatment and then 24 hours after CytoSorb treatment is done. So the key findings of the study were that the therapy was safe and well tolerated again it sort of marked decrease in cytokines during the course of CytoSorb treatment and they were able to achieve hema dynamics stabilization and reduction in vasopressor. And interestingly although the mortality here, was approximately 37% mortality in this patients most of those couldn't have been helped by CytoSorb, so the first patient who died of GI bleed related to coagulopathy, four died based on withdrawal of care due to an advanced directive. And so that is kind of like a do not recess or do not incubate order sort of a healthcare proxy that you can tell your loved ones your advance wishes when you are critically ill so these patients didn't want to be hooked up to machines and so were taken off of life support and then one patient died multi-organ failure. But in generally the therapy has been very successful at getting patients out of this post op surge which is a major problem all over the world. So switching gears a little bit is our next slide on the removal of bilirubin. Now just to give you little bit of background bilirubin is a major detoxification organ and patients with either chronic liver failure due to alcoholic psoriasis which is non-alcoholic hepatitis or viral hepatitis as well as those with the cute failure due to infection lever cancer alcohol poisoning from mushroom or from drugs like thylanol patient with shock or other causes will have high levels of un-constipated bilirubin which can be neuro toxic. And this clinically manifest itself as jaundices and on the lower left hand side you can see a person who is not that ill, but has jaundices and you can see in the white sclare of her eyes that they are yellowish tinge with this yellow bilirubin and you can see the yellowish pigmentation of her skin. Now CytoSorb is very effective in reducing bilirubin as you can see on the right hand side in this poster that was presented at ISICEM and you can see this cartridge which we normally -- and this after having the blood after having treated the patient and having the blood flushed out of it with sailing and what is left is bids that are no longer white but that are heavily pigmented with bilirubin, as the bilirubin has been absorbed into the beads so it is very effective at removing bilirubin cytokines and other potential toxins that compromise lever cannot remove. And is now being considered as an adjunct therapy along with other types of lever dialysis therapies like mores and others or even at the standalone therapy the lever failure because not only it can remove many lever toxins that the lever normally detoxifies, but it has also been capable of removing many cytokines which is and this information is often a problem in patients who have lever failure. And this is expected to be potentially large potential market for us as lever failure is estimated to be the 12 leading cause of death in the US and the fourth leading cause of death in China and in many other countries around the world where hepatitis is a major heath concern. Now switching gears again I just wanted to go over a few of the posters that were presented at the ISICEM conference. And this was a key series of eight patients two patients with severe sepsis and septic shock and CytoSorb was used with continuous renal replacement therapy which is typically for patient with kidney failure for 24 hours at a time with the median treatment time of two days and those that benefited from CytoSorb showed a very rapid and very quick improvement in hemo dynamic with a rapid reduction of vasopressor a reduction per calcitonin which is a sepsis biomarker and an improvement adrenal function. And typically, this is what we have seen in clinical practice today is that when it works it works we can see it work relatively quickly and we also it typically works on patients when you treat early. And in this patient population the mortality was 25% and the two patients had died showed positive response therapy and what we have heard is that these patients were treated on the later side and so they often suggest that the timely use of CytoSorb is very important and recommend additional studies to come from their findings. Now in another case series on septic shock surge so this is causes of massive inflammation this was a 14 patient case series where 29% had a abdominal septic 15% had phenomina, 14% had pancreatic and 7% had other causes and all these patients were very, very ill with immediate score of 37 this predicts the mortality greater than 85% in those patients with sepsis and what they found in the study was a pronounced tenfold decrease in vasopressor requirements so these are strong medicines like [indiscernible] that are designed to help boost the blood pressure in cases of shock and simultaneously they saw a reduction in blood lactate level and lactate is production of anaerobic metabolism when there is not enough oxygen tissues undergo anaerobic metabolism produce a lot of lactate and lactate levels can go very high particularly when organs are not well perused. And in this particular case series it lead to a reduction in lactate levels by approximately 50% on average and the overall survival was 36%, but when they when the therapy was started within 24 hours so again early usage of CytoSorb survival was 67%. So this was a quite dramatic increase in survival compared to what was expected and in the investigators recommended early usage less than 24 hours after admission similar to how CytoSorb is being used today. And last but not least we would encourage you to visit cytosorb.com for the case f the week so we have had excellent feedback from both physicians and investors on the many exciting cases reports represented in the CytoSorb case of the week at our cytosorb.com website and this case is highlighted on the ongoing success and conditions that continue to have as we treat earlier and more aggressively. And our goal using these reports as well as our proceedings of the international sense of users meeting publication that you can see above on the right here as well as our chief study summary booklet is to broadly keep users how and when therapy is being used most effectively so that we can improve survival rates around the world. CytoSorb today is being used to help regain control patients who either have surge or sepsis and that now concludes my formal remarks. With that Lee let me turn that over to you for questions.

Thanks Dr. Chan, Leanne we are ready to begin pulling for questions.

Thank you. [Operator Instructions] we will go ahead and take our first question from Jonathan Aschoff with Brean Capital.

Thanks. I was wondering still what seems to be taking I think maybe more time to launch and I would have originally expected would have with any exactly what has been going on there in the last few months and for Kathleen can you just give me a little more detail on the types of different types if there are actually different types of debt financing you’re looking at?

Yes so, I think in terms of -- didn't become the largest company on the world because they were careless about what they were, what they do and I think they had been extremely -- and very careful in terms of making sure all the pieces were in place before launching the product in thess territories. It is their reputation on the line, it is their sales people out there pitching CytoSorb and so I think as a large corporation they have been working to make sure that everything is in place before they go out there. So we call these last mile issues and these are things that they are just many, many looking to launch in the multi-country territory as percentage of doing. So during several during the prior months I would say in the last six months in track has been out there actively talking to the leaders prepping the market for this alternate market launch and availability in CytoSorb in six countries and so I don't think that it has been wasted time in fact that I think there have been generating a lot of pent up demand for the product and that will hopefully translate into more rapid adaption when the product is finally launched as they have told us later this month. So I think that is how we view things.

How would you actually -- before how would you contrast your sales force pitch versus what [indiscernible is planning how sufficient your time?

Well, I think we work in very closely with Fresenius to make sure that they have learned from our experience our extensive experience assigned the products in the driven market as well as the Swiss market as well. And I think that we have been working very hard to have a transfer of materials much of the marketing materials reflects a lot of the content that was provided by our team their people have undergone extensive training through multiple sessions with our sales force and our trainers and they are I think very well prepared for this market launch. And so I think that the approach and the pitch will be very similar to how we sell in Germany which is of course the home base for and I think we look forward to see what their sales people and distribution can do.

Okay and Kathy?

Hi Jonathan, so we are right on process on that which involved about 12 different lenders some of whom we have known from the past and I can't be really specific but I don't want to be at this time but I will tell you that it was very competitive process the net was caste wide in terms of what we are looking for and as we said this would be we would like this to be uncomplicated financing that's what we are working toward.

Okay. Thanks guys.

Thanks very much Jonathan.

And we will take our next question from Sean Lee with HC Wainwright.

Good afternoon Kathy and Phil. Congratulations on a great quarter and thank you for taking my questions.

Thanks Sean.

Any addition to Fresenius, do you have any update s on the other geographies such as Russia and Middle East?

We actually have been making substantial progress in those areas and although we are not prepared to talk about it today we expect to be able to talk about that in the near future.

Okay. Also on the international registration data how is that being compiled when can we expect some interim results from that analysis?

So, the international registry, is an international registry collecting treatment data from countries all over the world. I believe we have more than a 100 institutions now registered to submit data which mainly of them actively submitting data I am pleased to say that the first analysis has been one by the university of Yana which is the third party that is managing this international set of registry this is by the center or clinical studies led by professor Frank Brunkhorst and university of Yana is well known as the kind of epicenter of sepsis research and contract critical care research in Germany as well as in Europe they were the home of Germany sepsis society they started the global sepsis alliance this is one of the universities that had the only government funded sepsis institute in the country so they are very well positioned to evaluate this registry. The registry is being managed by a scientific steering committee that is independent of [indiscernible] and so they are capable of evaluating that data in the way that they see best fit we do have access to that data however so we can use it for our own purposes but they have told us that the first analysis is completed that has been on a small subset initial patients but that analysis will be moving it’s towards a report soon but the next analysis will be coming up shortly as the numbers of patients. And so the goal of this CytoSorb international CytoSorb registry again is not just a sepsis registry but is actually collecting data in cardiac surgery, liver failure, stress syndrome, pancreatitis, and many other indications and it provides a standardized way of people all over the world to submit data in a way that it can be analyzed and utilized in larger statistical analysis. And so we’re very excited about the progress that we’re making.

Thank you for the color on that. Final question for me, last week I saw that you guys established a subsidiary for Switzerland, what are your plans for the country?

We applying or planning.

What are you planning to applying or are you starting to like marketing there, what are your price for --?

Well, Switzerland has always been considered one of our direct markets and I think establishment of Swiss subsidiary is more of a virtual entity it’s not resulting in any significant cost to the company. It allows us to however, our key opinion leaders in that part of the world better helps us respond the expected demand better it our sales force in Switzerland will fall under that umbrella and it will also and there are some advantages there in terms of tax and other things that we will benefit from so as we get a larger presence in Switzerland it just makes sense for that subsidiary at this time.

Thank you for taking my questions.

Sure Sean. Thank you.

And we will take our next question from Jason Kolbert with Maxim GRP.

Hi, it's [indiscernible] for Jason. My question is can you walk me through the direct sales processing EU and how does each adoption translate into product revenue? Thank you.

So the sales process is relatively straight forward, typically we market on the ICU side to – typically initially to the head of the department via either medical ICU, the surgical ICU, the cardio thoracic ICU, the trauma ICU and basically we talk to them about better product. And the sales pitch is actually fairly straight forward because physicians today already know about the massive inflammatory response that occurs in many life threatening illnesses such as sepsis and infection per an injury trauma and many of the other diseases that we have talked about. And they have known that cytokines are mediating this massive inflammatory response and they know that there has not been any effect if therapies are removing cytokines in the past as well as any therapies that can effectively remove other inflammatory remediaters as well. Not that others haven’t tried, and we can certainly talk about the competitive landscape but CytoSorb is currently being viewed as really a leader in the field. So when we approach these key opinion leaders now in Germany most even new accounts have already heard about CytoSorb and that’s we’re having the conversation and one of the reasons why we’re so interested in talking to us and potentially starting CytoSorb at their institutions because they’ve heard positive word of mouth from their colleagues and other institution often in the major hospitals in the major cities throughout Germany. But if they’re in other countries for example sales people will typically talk to key opinion leaders, get them introduced to the technology and again the pitch typically only takes about 10-15 minutes at a time the doctors get the technology to be understand, they do a lot of extra therapy today in their ICUs for chemo dialysis and chemo filtration which are the top two leading forms of blood purification today those are done on 30% to 50% on all ICU patients because that many patients will develop kidney failure requiring hemo dialysis or some other type of extra support. So it is a very easy therapy for them to wrap their arms around so once they agree to use it they typically start off with the small order they typically will discuss with their administration their department about order the product and the product is typically then ordered by purchasing and then we get the order and we fill the order either from here or from our European BH subsidiary in Berlin Germany. And whenever they want to use the therapy again they just place another order through purchasing and that order then comes directly to us. So it's a fairly simple process. The other element in the process is reimbursement and so hospitals typically purchase directly from CytoSorb and then the hospital seeks the reimbursement on the outside as a separate measure. So we don't get bulk reimbursement process however we are helping to drive reimbursement in our direct territories and have recently hired a reimbursement specialist who will be helping us establish reimbursement and many other major territories around the world. And so that's a little bit about this sale process. Did that effectively answer your question?

Yes. Yes thank you it's in great detail. So I might have another question. Do you have any post sales strategy say after each patient treated with CytoSorb, will you be able to monitor them and use the data from for potential US trial?

Yes so that is the purpose of the CytoSorb registry as well as the interest in getting a lot of our data published by investigators who are doing investigator in the studies. So the CytoSorb registry again is good clinical practice registry that is collecting these data that we believe can be used to support our US applications but would not be used in lieu of a US lead, a US based trial. But certainly any kind of papers that are published into journals as well as reports from our registry could be used in support of our discussions with the FDA.

Okay. Great. Thank you.

Thank you very much.

And we will take our next question from Andrew D’Silva with Merriman Capital. Andrew D’Silva: Hey good afternoon everyone. Thanks for taking my calls. I just got a couple of quick questions here. first off were there any during the quarter any initial large stock motors that took place from any large first time customers that you can discuss or was it fairly stable order process as we have seen previous quarters?

Kathy would you like to take that?

Yes, I will take that one so no there were no initial stocking orders that were material to our sales. So I would characterize it as strong repeat sales. Andrew D’Silva: Alright and did the fourth quarter by chance have any large stocking order or is that the same situation as with the first quarter of this year?

That will be the same Andy. Andrew D’Silva: Okay great. And then with Biocon anything you gone on there, little while ago they were working on gathering data and increasing marketing has there been any progress you can discuss with them and then staying on that tune maybe discuss some of the differences between strategic partnership but Biocon has present any essence why maybe the ramp up with -- is expected to be quicker than with Biocon if you could?

Yes so the relationship with Biocon has been going very strong, we have met recently with their leadership and they reiterated their commitment to CytoSorb and are actually looking to establish separate division within Biocon to basically to make ensure that they have dedicated resources towards pushing CytoSorb further into the market. So currently today Biocon is pursuing the market in India as well Sri Lanka but we have been in discussions with them about expanding that relation given the great job that they have been doing. Now Biocon is an example of a large multinational corporation that has a very strong marketing sales and marketing arm similar to Fresenius and so for Biocon has been selling critical care antibiotic particularly the class antibiotics into the ICU for a long time and so they have established lot of relationships and it has been a very smooth segway to add CytoSorb to create the most what we believe is the most comprehensive approach to the treatment of sepsis with antibiotic treating the infection as well as CytoSorb treating the runway immune response. Now we anticipate that Fresenius because they owned the machines they own the infrastructure that is in these hospitals and they focus on extracorproal therapy that in fact they maybe ultimately more successful than even Biocon has been because they are able to push this therapy directly into their sales channel. Again Fresenius sales machines they sell dialysis machines across the world but they also are one of the leading sellers of blood purification disposables such as hemo dialysis and hemo filtration filters that remove during toxins and injury and kidney failure for example but again we are now providing them with the ability to remove and reduce cytokines in patients with massive inflammatory response adding a significant weapon to their repertoire of critical care therapies. And so for that reason we think that Fresenius, we are very excited about the Fresenius launch pending launch and look to see what they can do. Andrew D’Silva: Alright, just a couple more quick questions here. As far as interest goes have you seen any increased interest with existing hospitals keeping leaders since you released your most recent data from the third international CytoSorb meeting or other conferences you have had data come out of and that could be sales related inquiries, or just inquiries about the data just has there been increased traction that's noble and attributable to that data?

Yes, actually maybe Christian if you want to comment on sort of the response of keeping the leaders falling our recent conferences and other activities.

Yes certainly. Yes, actually as you have said there was number of presentations on new clinical data at the different conferences and in fact the presentation especially in Germany on septic shock patient has led to saturation that key opinion leaders really think that this is a new quality a new level of data we can present. So at the moment we are waiting for the publication, food publication, but other data who confirm or support this kind of outcome data. So the question was actually what other answers or response after this presentation so we have in fact a number of more carrier for presentation or first treatments and not to know it's still explained before the sales process chef about it and we would see the effect on the different presentation or data coming this week and months delay but we have started several years go to set this program up. And the more data and establish are presented the more we get results in the next quarter.

I guess the question was how did the data result in any increased interest or inquiries since it was positive I mean how you gotten any more inbound calls or anything of that extend that you can attribute to data coming basically I am trying to it’s the positive data that's coming out is having a beneficial aspect to what you are currently seeing in the market it doesn't have to be related. Andrew D’Silva: Okay. Good. Last question is Kathy I noticed that your R&D spend dropped sequentially and year-over-year and I was expecting maybe a slight increase going forward primarily due to the refresh study is there a reason why decline or is that just normally with respect that the increase going forward?

I think actually our grand activity, which absorbs many of our fixed R&D expenses is up over last year so that's the reason that R&D spend that you see is well, so the portion of spend in R&D that relates to revenue is included in cost of goods sold and that results in a reduction in the amount shown on R&D expense line. Andrew D’Silva: Got it. Great. Alright thank you very much for answering my questions and good luck going forward for the rest of the year.

Thanks very much Andy.

And we will take our next question from Jan Wald with Benchmark.

Thank you. Good afternoon everybody and congratulations on the quarter. You did the good one. I guess my I have two questions. My first question is this as you move more towards distributor model in Europe. What percentage of your sales do you think you are going to be distributor based and how do you what’s the take on the margins of that distributors do you think?

Yes so, currently our landed gross margin is 62% and that is blend of higher margin direct sales versus lower margin distributor as well as partnered sales and so I think as we move forward we expect that our gross margins will continue to rise as we expect to see good balance between direct sales as well as distributor partners sale, but as we are also able to reduce cost to manufacturing inefficiencies and economic scale and as we continue to expand the market worldwide with the balance of dollar base revenues as well as euro based revenues. And so, we had not broken out the exact ratio because it's really difficult to tell at this time but currently we expect in either case to be very profitable for at least, profitability to have very good gross margins increasing gross margins overtime.

Okay and next my last question is just trying to understand the US regulatory strategy little bit more it sounds like you believe you go into US sometime probably early in 2017 would you expect that trial to be clinical -- when you think you are going to be able to submit to the FDA and then in parallel will be doing something else for US submission or you are going to wait until you get surgical approval?

Well as we discussed last time I think the cardiac surgery trial we believe is a lower risk way to get approved in United States compared to a critical care path just because of the [indiscernible] patients known level and the ability to act very immediately on the reduction of the inter-mediators as they are being generated during this complex open heart surgery. So that being said it remains the focus of our US regulatory strategy in our discussions with the FDA in the past they have left the door open for potential to NOVA 510K application but that is not the fault that would be just upside for the company but that is not considered default path but that would essentially reach the approval of in the US outside the CytoSorb I think full during open heart surgery but that is one of the reasons why we look to have a conversation with the FDA later this year once refresh one and refresh one are known. Now the default pathway is the PMA path and this is a anticipated to be 300 to 400 patient randomized control registration for site serving United States that would be considered a pivotal trial designed for approval in the US and in this particular study the outcomes would be clinical outcomes and that would be more focused on the reduction in organ dysfunction following open heart surgery. And so these two paths in fact are not mutually exclusive we got approval as a tool under our DeNOVA 510K path we would still look to continue that study to demonstrate clinical outcomes in the post market period and in the adaptive trial design or we would just go straight to the pivotal trial and the PMA trial and even if we went down this default path we do not believe that it would be significantly longer than a DeNOVA 510K path because this is a very quick trial to enroll again you are only using CytoSorb during open heart surgery and then all you are doing in the post operative period is taking blood samples looking at clinical outcomes and we typically call these patients just during their time in the ICU and then a phone call or a visit to check on 30 days follow-up to see how they are doing. And so, we think that this study can be done very rapidly one center can do more than one patient a month. Clearly one more than patient a month and because of that we think that we can get that study done relatively quickly in the order of year and half to two years then hopefully by the FDA and then if everything went well we would be on the market for 2019.

And would you be looking for other labels during that time or are you when you focus the effort in US and that trial until it's completed you are able to launch the product for cardiac surgery?

We absolutely are looking at parallel path to add to the label for CytoSorb in the United States and so we are actively designing clinical studies in the areas of sepsis for example to be conducted both here and the United States as well as other studies aboard. These studies are designed to be to inform a pivotal study design that we would look to do in the United States to gain access for that particular indication but as we have been discussing in the past many, many other applications at CytoSorb at the broad spectrum filter that can do many, many different things and so we are actively evaluating other strategies to get CytoSorb approved in United States and add to that label in parallel.

Okay thank you very much.

Sure Jan, thank you.

And we will take our next question from [indiscernible].

Yes thanks. Phil can you remind us about some of the details associated with seamless contract, kind of launch here shortly are you providing them with some amount of initial inventory and at what point do you recognize? Thanks.

Sure. Thanks. So we have not made the details of the agreement with the Fresenius publicly available but what we have studied in the past that this is an exclusive strategic distribution arrangement with Fresenius where they are bound to minimum annual purchases to maintain exclusivity in the six countries and I think that those numbers should they be able to meet their annual minimum would be material overtime and I think on the last call we mentioned that they would be potentially 7 digits or more. And so I think that these are Fresenius has is a $7 billion year in revenue company this product addresses a $20 billion total addressable market in critical care medicine a billion to billion dollars and half in Germany alone so these are major markets that and if Fresenius meets our expectations this could be a very significant partner for us.

Okay. That's all I have thanks.

Thank you very much Kay.

And we will take our next question from Brian Marckx with Zacks Investment Research.

Hi guys congratulations on the quarter. Was any of the micro-toxin grant in the Q1 revenue?

Kathleen, hi Brian, Kathleen why don't you take that.

There was a very minor piece of that grant revenue related to micro-toxin.

Okay. So you talked about the colon cardiac study why don’t you talk a little bit more in detail about that and when you think that may read out in terms of the forward results and is there any sort of overlap in terms of end points or efficacy measures that you are looking at in that study as it compares to the refresh study?

Yes so the that study is a three item study looking at three groups one is patients undergoing cardiopulmonary bypass without CytoSorb, patients undergoing cardiopulmonary bypass with CytoSorb and patients undergoing off pump surgery which is typically for less complex procedures. In this particular study in our discussions with them their ethic committee wanted them because this is one of the first randomized control studies of CytoSorb in the world and the ethic committee wanted them to start off with the low risk population similar to the population that was presented in the medical university of Vienna paper where they were low to moderate risks. So these patients we do not expect them to see major changes in cytokines but I think what they have already presented is they have seen some changes in cytokine levels already the therapy has been safe well tolerated again no complications so these are again common themes that are running through these trials CytoSorb is very easy to use and again the one finding that they did report on at the users meeting was a statically significant reduction in store wound infection and that is a very important finding because of the potential problems that infection and mediastinitis may cause on these patients. It has very high mortality if it gets that far.

Okay, great. And relative to liver failure which sounds like it's kind of an new end point if you will that you have been looking at is that something you think you may pursue as more direct focus in future case studies or maybe even a formal clinical study here in Europe or potentially in the US?

Yes, I think that there are actually some ongoing studies being planned for liver failure, you want to talk a little bit about some of that you can but I think that liver failure is a very interesting market for us I think it's still really I think that we have seen a lot of people who are using the products have been seeing a lot of very exciting results using the therapy and these are anecdotal but people suggestions are reporting the abilities to bring patients [indiscernible] which is one of the major complications in patients with liver disease as well as removing bilirubin and other inflammatory in the patient population so we it is becoming an increasing area of focus for us I will not say that we are pursuing that actively. Certainly they are investigating in studies that are being planned in this area but if the market wants this and if the data continue to come back very positive of course it will be an area that we would look to get more randomized data on in a company sponsored study.

Great. Thank you.

Sure.

And at this time I would like to turn it back to management for any additional or closing remarks.

Great. Well, thank you everyone for taking the time today to get on this call and we really appreciate your participation. If you do have any other questions please feel free to reach out to Amy Vogel at avogel@cytosorbents.com and we will try to answers to your question where possible. In the meantime, we hopefully have an opportunity to meet many of you at our annual meeting on June 7, 2016 in New York City and look forward to the next update on the next quarterly call. Thank you everyone very much. Good night.

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