Good afternoon, and welcome to the CytoSorbents Second Quarter 2019 Financial and Operating Results Conference Call. At this time, all participants are in a listen-only mode. Following the formal remarks we will open the call for your questions. Please be advised that the call will be recorded at the company's request. At this time, I like to turn the call over to your moderator, Jeremy Feffer. Please go ahead.

Thank you, Jenny, and good afternoon. Welcome to CytoSorbents' second quarter 2019 financial and operating 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. Eric Mortensen, Chief Medical Officer; Dr. Christian Steiner, Senior Vice President of Sales and Marketing from Germany; and Christopher Cramer, Vice President of Business Development. Before I turn the call over to Dr. Chan, I'd like to remind listeners that during the 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. Actual results may differ from results discussed today, and therefore, we 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 today as of August6, 2019 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 operating and financial highlights for the second quarter by Dr. Chan and Ms. Bloch. Following that presentation, we will 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. Phil?

Thank you very much, Jeremy, and good afternoon, everyone. I'm pleased to report a resumption of our historical pattern of growth with 67,000 plus Cytosorbents treatments delivered up from 46,000 a year ago. Our trailing 12 month total revenue was $23.2 million including product sales, and grant income versus $19.2 million a year ago. Our second quarter 2019 product sales were $5.9 million compared to $5.3 million a year ago. Our results achieve the highest quarterly product sales in our history, driven by record direct sales and a rebound in distributor sales. The average euro to dollar exchange rate remained unchanged, second quarter 2019 product sales would have exceeded $6 million, in fact $6.2 million for the first time. We were pleased that a major distributor that did not order in the first quarter of 2019 began reordering in the second quarter of 2019 but even without these orders, product sales would still have been a quarterly record. Fresenius Medical Care was another one of our partners that did not order in the first quarter as they exchanged several of their countries in the EU with Mexico, South Korea and the Czech Republic, and during the quarter we worked closely with Fresenius Medical Care and submitted the CytoSorb registration for Mexico and South Korea and expect an update on progress by the end of the year, if not our grant registration. Meanwhile, we have jointly initiated commercialization planning and prelaunch activities including conference marketing and other key opinion leader events. We had a healthy cash balance of approximately $20 million at the end of July. Another milestone was the publishing of the U.S. REFRESH1 study. This is published in seminars in thoracic and cardiovascular surgery, a journal of the prestigious American Association for Thoracic Surgery or AATS, where our results…

Thank you, Phil, and good afternoon, everyone. For today's call, I will provide an update regarding Cytosorbents second quarter 2019 financial results including product sales progress and in addition, I’ll provide an update around our working capital and cash runway. CytoSorb product sales for the second quarter of 2019 were a record $5.9 million, which represents our best quarterly product sales ever. This is an 11.5% increase over product sales of approximately $5.2 million for the second quarter of 2018 and this brings the company's annual product sales run rate to approximately $23.4 million. This increase was driven by an increase in direct sales from both new customers and repeat orders from existing customers as well as an increase in distributor sales. The euro to dollar exchange rate declined from an average rate of $1.19 in the second quarter of 2018 to an average rate of $1.12 in the second quarter of 2019. If the euro had remained unchanged from Q2 2018 than Q2 2019 product sales would have been approximately $357,000 higher than product sales actually reported, where our product sales would have been approximately $6.2 million, an increase of 18% over second quarter 2018 product sales. Our total revenues which includes product sales and grant revenue were approximately $6.2 million for the second quarter of 2019 as compared to approximately $5.8 million for the second quarter of 2018, which is an increase of approximately 8%.And our second quarter 2019 gross profit grew to approximately $4.4 million, which is an increase of 11% or $428,000 over gross products of approximately $4 million for the second quarter of 2018. Now our gross profit margins on product sales were approximately 76% for Q2 of 2019 that’s up from 74% for the prior year and that is primarily as a result of…

Thank you very much, Kathy. In terms of guidance Cytosorbents has not historically given specific financial guidance on quarterly results until the quarter has been completed. However, we expect that the third quarter 2019 product sales will exceed third quarter 2018 product sales and we also expect that the second half of 2019 product sales will exceed the first half of 2019 product sales. Lastly, we also reiterate our guidance that we expect to achieve blended product gross margins of 80% on a quarterly basis this year. That concludes our current prepared remarks. Operator, please open the call up for the Q&A session.

[Operator Instructions] Our first question comes from the line of Josh Jennings with Cowen & Company. Please proceed with your question.

Thanks for taking the questions and congrats on the record product sales this quarter. I was hoping to start with just - I know you gave some details on distributor sales picking back up after some of the short-term disruption expansion in the first quarter. But can you talk about whether those just to be clear whether those issues are fully resolved. And then how do you see the pace of distributor sales picking up over the back half of 2019 and 2020. I realize there are some countries that are going to registered Mexico and South Korea through Fresenius if any other tailwind that are in play for the distributor sales of channel?

Well thanks Josh. In terms of the distributor sales so the issue that we face in the first quarter with that three distributors one of which was Fresenius Medical Care did not order related to inventory issues and other things. What we said in the first quarter is that we expect that those issues would resolve amongst all three distributors by the end of the year. And again into the second quarter one of those distributors began reordering again and that was a very good news. In terms of Fresenius as we talked about they still continue to have inventory in Europe that they're working down. They doing a very nice job on that and might ask Chris to comment on some of the progress there, but they will not or cannot order for Mexico and South Korea until they receive registration. But we expect again to hear more about registration if not get that registration out right before the end of the year at which point we expect that Fresenius would be ordering again. And then the third distributor, we believe and have fairly good visibility that they will be also ordering before the end of the year. But again without those three distributors we were still able to achieve record performance this quarter on certainly the resumption of ordering from one of those three are certainly was helpful.

And are you still continuing to see strong growth out of Germany and I was just wondering I know it's probably hard to track each CytoSorb procedure with or case where CytoSorb is implemented in the therapy. But is there any kind of trend in terms of where you're seeing the growth in Germany in terms of indication cardiac surgery versus sepsis versus some other indication or is it more broad-based across oXiris indications knowing that there are numerous indications for CytoSorb?

I think it's a fairly broad-based, I would say that based upon our numbers roughly a third of our uses are in cardiac surgery and roughly two-thirds are in the intensive care unit either postoperative to cardiac surgery or for critical illnesses like sepsis, trauma, burning through and other things. But let me turn it over to Christian for more commentary. Christian?

Yes and all evening from here. First stage already there is a progress major application fields. The three major application fields we are serving at the moment is cardiac surgery as in my opinion fastest drawing [indiscernible] which includes, especially also the sepsis patients and the new in future big part of our application goes into liver support therapy. We have spoken about this over the last earnings call. So cardiac surgery -- the chances to become standard therapy on the term future that is [Technical Difficulty] and then we have multiple IITs running in Europe will be finished and published over the next few quarters. [Technical Difficulty]I think the number of supporting QS and sites have constantly going and one special effect in Germany plays into this. The Helios Group which is owned by Fresenius has started to pick up after we have [Technical Difficulty] for four years. Now especially in cardiac surgery they are hoping and we have increased our footprint there over the last two quarters. And then on cardiac surgery also control cost benefit and the first two indications and this was accomplished and then of course marketed over the next couple of quarters. So this was the first overview for you Josh.

That’s great. Thanks. Thanks for that answer. Appreciate it.

Christian, sorry, your phone is breaking up quite a bit and so but I think we got the general just what was said. If there is any need for clarification I can certainly do so.

Thanks, Phil. My last question is just congratulations on adding new sites for REFRESH 2-AKI and congrats on the publication for U.S. REFRESH 1 as well. I was hoping this may seem little bit -- it was mentioned you did some of this on the -- in your prepared remarks. So maybe just kind of outline for us on REFRESH 2-AKI just the path forward here, do you expect enrollment pace to pick up or you are going to have more sites, just maybe remind us how many sites you have planned on activating in total and then any updates on your thoughts on the interim analysis when you hit 200 patients, the halfway point. Thanks again for taking the questions.

Sure, Eric why don’t you try to provide some color on that. Thank you.

Sure, Phil. Let me unpack a couple of those questions. You asked about the current kinetics of the study. You also want to have sense of what we’re planning and doing in terms of increasing number of sites. Then finally regard to the interim analysis. So my first point that we’re actually satisfied we’ve been able to maintain a very strong normal to date. We are obviously not satisfied. Our objective is that beyond just trying to meet the objectives for this year to make sure we have pro enrollment in 2020 and so we currently have 24 active sites. Our expectation is to bring on at least the additional product site to this [indiscernible] and the summertime is always a little bit slow in terms of finalizing contract, because of staff and hospitals often being on holiday, but we expect to be able to increase the rate of recruitment with the addition of [indiscernible] from the fall. The final number of sites we had is really being determined based upon our desired rate of recruitment. Our goal is to try to maintain maximum study quality by being able to make sure that were really monitoring very aggressively. These types of studies in AKI really require that you stay on top of the site because the endpoints that are required, measurement of the announcement, measurement of creatinine, follow-up on adverse event really is best done by having your own staff really fall to directly with study coordinators. So we don’t intend to add our additional 35 beyond what’s required to meet our objectives but I'm not going to give you a final number of 30 versus 35 until I actually have seen what the output is more additional incentives. With regard to your question about the interim analysis, we expect that to be I am talking to the timing I will not be able to tell you the results of that because of the need to maintain study integrity. We do have a detailed study of [indiscernible] there’s some filed FDA with the objective of being able to look both for overwhelming efficacy, futility, as well as the potential need for adjustment in patient numbers based upon the outcomes we’ve seen but we will not be reporting out any observation to the grant to AKI rate for the obvious reasons of making sure that we detain the integrity of that child. Did I answer your question?

You did absolutely. Appreciate it. Thanks.

Our next question comes from the line of Andrew D'Silva with B. Riley. Please proceed with your question.

Thanks for taking my questions, Sorry, if you highlighted any of this but I was moving between calls. But as far as the Fresenius inventory work through goes and then the other two servers I know you kind of highlighted a little bit about that in your prepared remarks and in previous answer, but should we anticipate any of those outside of the one that already ordered to come in as revenue during Q3 or would you expect that to be more of a Q4 event?

I think I had -- we expect that both will be coming in Q4 and whether or not they'll be able to come in Q3 I guess remains a question. But suffice it to say, the first distributor has worked through their inventory and has back into a traditional ordering pattern.

And then due to the just general EU exposure that you have, any sense how this quarter might turn out as far as the Q3.Obviously, summer months in Europe can swing a lot depending on just how often people are out of the office and stuff like that, is there any sort of normalize trend that you're seeing or should we expect sales just in general to be more weighted towards Q4?

So last year was really the first year we saw seasonality in the third quarter and as you say, given that the vast majority of our revenue are coming from the European Union and July and August are particular -- are particularly busy months for holidays, things slow down quite a bit. So elective surgery slows down, a lot of hospital shutdown, operating suites and last year was particularly a slow year for infections and sepsis. That being said ,this year I think it's still too early to say given that we’re just at the beginning of August, but to date we've been tracking better than we have last year and we hope that -- and again, we've given guidance that we believe the Q3 this year will be better than Q3 last year.

Good color, and just was skimming through your Q and noticed just rest of world direct sales went about 14%, 15% year-over-year, which was slower than the growth seen out of Germany. I am sorry, they were about in line with what was seen out of Germany and I was just curious could you added so many new regions during the quarter if there was any sort of movement towards the third quarter when you saw recognizing revenue in new regions or did it actually start in the second quarter?

So as we mentioned before, a lot of the new territories that we added. So there are five additional territories, which include Poland, which began sales in April of 2019 and then the Scandinavian countries of Denmark, Norway, Sweden and -- while they basically started at the beginning of January. So it takes time for them to get up and running and again, Poland is one of the biggest countries of the five and they've been making some really great progress in terms of establishing their infrastructure and establishing market awareness of the technology and working on key opinion leaders. And we expect that all those accounts actually will begin to accelerate in terms of sales less likely for Q3 more likely for Q4.

Our next question comes from the line of Jason McCarthy with Maxim Group. Please proceed with your question.

So, as I am approaching an ID for HemoDefend like to see if you could give us the FDM like the [indiscernible] if I heard correctly that trial is expected to take like you said 3 to 6 months. So does that mean that HemoDefend could make it to the U.S. market before CytoSorb. And then how much are you expecting that trial to run would it be substantially covered by the 4.7 million from the U.S. government?

Yes so exactly so HemoDefend there's a quite a bit of work that is done to try to drive approval one of those so it really is in two parts. One is, dent studies which are designed to establish the efficacy of the filter in terms of being able to remove the substances that we are looking to remove. And then there is a human post transfusion recovery and survival assay where we have healthy volunteers who basically donate their blood. We age that blood or the sites will age that blood and then that blood gets filtered through our HemoDefend filter radio-labeled packed blood cells get filtered through our filter. And then get transfused back into the same patient and basically they look for 24 hours later at the recovery of that radioactivity and expect to see roughly 75% recovery. And so that is meant to measure the survivability of those red blood cells once they are transfused back into the bloodstream and make sure that our HemoDefend filter is not doing anything untoward to that blood because it's have a decrease longevity. This is a very standard assay in the blood transfusion industry very well accepted and points across the board. So that is a very short study as you can imagine. We’re talking less than 25 patients and yes so that that part of the study is expected to happen very quickly falling ID approval. There's clearly some activities that have to happen including making sure that we have the agreement in place with the sites and the budget in place with the sites. Ethics committee approval with the sites, but once we get those done the trial itself is actually very quick. And we plan to get the requisite bench testing looking at efficacy done prior to filing our ID submissions so that is expected to be done this year. So yes to your question HemoDefend should everything go well is expected to be on the market here in the United States prior to CytoSorb.

And then just second part on the cost of the trial if you think that 4.7 million is going to cover a good bit or your big chunk of the total cost?

So we have a grant from National Heart, Lung, and Blood Institute that is a Phase IIb bridge and that is a one-to-one matching grant up. And so NHLBI will provide up to $3 million in funding towards the development as well as clinical studies leading to potential U.S. approval for all activities. Our goal is to match that obviously again one-to-one. So at the very least it's a 50% discount and off the trial and from a total cost perspective we believe that it will not exceed the amount of money a total of $6 million that are provided under this grant. So that's $3 million from NHLBI and $3 million in matching funds from Cytosorbents

Our next question comes from the line of Jason Kolbert with Dawson James. Please proceed with your question. Jason please be sure that your line is not on mute.

Can you just congratulations fantastic quarter can you just go through the timelines with the U.S. trial again in detail? Thanks.

Yes, so and I think that basically HemoDefend - I assume you're talking but the REFRESH 2 AKI trial not HemoDefend?

It was but could touch on both that would be helpful.

So in terms of the I apologize Jason your line was breaking up a little bit, but I think you said REFRESH 2 is that right?

But I’ll be interested in HemoDefend as well? Thanks.

So I think that based upon the current pace of enrollment that we’re on right now we expect to achieve 200 patient enrolled by the end of the first quarter at which point we would be doing an interim analysis. Now as Eric mentioned previously his team is working very hard to accelerate the rate of enrollment by increasing the number of active trial sites and making sure that were actively involved and visiting sites and doing all that kinds of things that we need to do to be able to accelerate enrollment. Our goal is to get somewhere on the order of one patient per site per month which we believe is very doable, but obviously you know when you're dealing with many sites it becomes very challenging. That being said provided that we can get to that 20 patients per month per site we believe that we should be able to complete enrollment by the end of 2020 at which point than we would go into data monitoring and review and database lock. And that would be followed by data analysis and statistical analysis and then PMA submission. And our goal is to try to get to that point by mid-2021 where were in a good position to sometime probably midyear to the third quarter submit the PMA filing for our PMA filing.

That's very helpful. I know Michael [indiscernible] was focusing on HemoDefend if you could just touch on those timelines for me as well? Thanks.

Yes, so HemoDefend I think our goal is to file that IDE submission by the end of this year and maybe actually let me give an opportunity to Vincent Capponi to comment Vince would you like to comment on the timeline?

Sure thanks Phil so basically we've continuing to make progress on the HemoDefend program. We’re at the stage now where we’re actually beginning to fill devices specifically for what Phil alluded to earlier which was the bench-testing which is the next step that we need to complete in order to do the IDE submission. We plan to do the IDE submission by fourth quarter sometime in fourth quarter with the expectation of being into clinic the first quarter of 2020. As Phil mentioned it's going to be about a six-month trial so by mid-2020, we expect to have completed that trial. It’s a very small number of patients that's one of the advantages of these types of products with respect to blood filtration using the clinic like packed red blood cells et cetera. It’s a very fast trial and so we expect that that we should be able to complete that by mid-2020. And so to the earlier question, we think there is a chance that we could have this in the FDA for approval and possibly approved by the end of 2020.

Our next question comes from the line of Brian Marckx with Zacks Investment Research. Please proceed with your question.

In terms of the regulatory process and timeline for Mexico and South Korea, do you have a sense of how long or how long that may taken and when you may have a regulatory approval?

Yes, Vince has been leading that effort. Vince would you comment.

Sure. So we've made all the submissions both for Korea and Mexico. We hope to hear something by the end of this year. It’s somewhat out of our control so you never know what these various regulatory bodies exactly you know, what their scheduling timelines going to be. So we we're hoping that we will hear at least based on our discussions with FMC in Korea and Mexico that if there's a chance that we could hear by the end of the year or by the end of this year and then probably more than likely by first quarter of next year. But I think there's a chance, we could get approval this year but it would more than likely be into the beginning of next year.

And how significant do you think those two territories are in terms of our revenue and then is there a reimbursement component after regulatory approval?

So maybe turn that over to Chris, who's been working very closely with FMC as well. Chris?

Sure, thanks. Hey, Brian, thanks for the question. We've been working with the senior sales leadership in both countries, have a lot of support at the highest level, that's important because when you have that they tend to prioritize your product so we see a good responsiveness happening from that team. Both of these markets are big. I don't have the exact population in front of me but they're quite large. I think we have them in the original press release that we put out. And there's a significant unmet need in both of these markets. The biggest difference between the two is that Mexico has more of a self-pay component. So to look it will set up a little bit more like our business in India, where we’re in some cases there will be a self-pay component to it, but in both cases we will look to go through and A, take advantage of existing reimbursement codes that are there today that we can use and then longer-term look to establish a dedicated code like we have in Germany and then in the interim. As you know we've been putting a lot of investment into our health economics team to give tools who are direct-- salespeople and distributors to make the economic case. So that will be something that we actively work with both of these organization -- both of these countries. I should also say that just to piggyback on to what Vince was saying, we are preparing some pre-marketing activities in both countries. We’re optimistic that something will come through around the end of the year or early next year, so we’re starting to key up some KOLs and get out to some major conferences to get that that market launch started as soon as we can. So I think both will be good markets for us.

And one on cardiac surgery REFRESH 2. Phil you talked about a potential timeline for the PMA. I assume it's just the REFRESH 2-AKI study and maybe the REFRESH 1 that will support that filing. Is there anything in addition clinical data -wise that you think that FDA's can all see.

Vince or Eric, would you like to take that.

I guess, we just commented obviously FDA is all interested in efficacy data and I can say that Vince and I are working very hard to make sure that we leverage the extensive experience that has been developed in Europe. I think that’s going to hopefully be a very strong point given the number of utilization, the number of times in using cardiac surgery, we are hopeful that will be supported but obviously that’s the review issue.

Yeah, just to piggyback on what Eric saying, I mean this is a pivotal trial. So in theory we should have all the information we need to make a registration of the device for commercialization, so you know, basically there should be adequate information to bring this device forward than I don't believe anything else will be required but again to Eric’s point you never know, but again, it's been power to show the endpoint and providing that we’re successful there as we think we will be then I don't expect that there should be any additional information required.

Our next question comes from the line of Sean Lee with H.C. Wainwright. Please proceed with your question.

Just a quick update on the REMOVE study. I know that’s been loved by the German government but with the enrollment in 90% so we can probably expect to see data as early as the end of this year or early next year. I was just wondering, is endocarditis a major indication for you guys right now in Germany and these two results obviously is positive what kind of the impact would you expect to see on your commercial efforts there?

Yes, so what's quite interesting is the pace of enrollment that they been able to enroll that trial. So they began in January 2018 with only hand of -- handful of sites and now 15 sites they are enrolling that. That trial actually very rapidly and what I think it speaks to is the growing population of people at risk for endocarditis both from the traditional path of map Flora seeding the blood stream from dental procedures in elderly people but also from the growing problem of the opiate crisis and that use of dirty needles for IV drug abuse. And certainly in the United States it’s a massive problem and we have a lot of interest to bring CytoSorb search in the United States for that particular application. But I think that endocarditis although historically has not been a big application like valve replacement right. The valve replacement is tenfold, a greater sized market than endocarditis. On the other hand, endocarditis is one of those applications where the patients are so sick oftentimes, particularly from IV drug abuse where the offending agent, the offending organism is often staphylococcus aureus, which is skin bacteria but very dangerous -- are very dangerous bacteria. You heard of Staphylococcus aureus from MRSA Methicillin-resistant Staph aureus and the adverse events rates, the complications, the hemodynamic instability, the day rates of sepsis and postoperative infection and other complications are mind-boggling and the value of CytoSorb has been seen in many, many centers around Europe, because it helps to stabilize those patients intraoperatively as well as postoperatively. And as Christian mentioned before, we believe that it is one of those indications where should we have success in a number of these studies, we could potentially become standard of care in that application.

Great. Thank you for the additional info. My last question is on the direct sales operations. Are there plans to expand that in the second half this year?

So we -- so that kind of multifaceted question. So there is direct sales in our direct territories that we currently are in, and yes, we have had an ongoing program that expanding the sales teams and sales support teams in those countries, particularly in Germany, but also in other countries where we have considerable momentum. But there are still a lot of countries that we have not -- that are not claimed by distributors or partners, and in certain of those countries, we would look to potentially go direct, as the economics of going direct are often highly favorable in terms of product gross margins, but also the fact that we are typically -- our company and our salespeople are typically the most efficient sellers of our product given that we are so closely tied to the product and that's all we sell. So, yes, so both expansion internally within our current direct territories as well as the expansion of additional territories are in the plan.

Thank you. Ladies and gentlemen at this time, I’d like [Technical Difficulty]

Well thank you everyone for your participation today, and if you do have any other questions please feel free to reach out to Jeremy Feffer at jeremy@lifesciadvisors.com, and we will reply to your questions where possible. Thank you very much, everyone, and have a good night.

Thank you. Ladies and gentlemen this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.