Good afternoon and welcome to the CytoSorbents' 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 would like to turn the call over to your moderator, Jeremy Feffer. Please go ahead Mr. Feffer.

Thank you, Omar and good afternoon. Welcome to CytoSorbents' 2019 financial and operating results conference 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, Senior Vice President of Sales and Marketing from Germany; and Chris 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 March 5, 2020 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 2019 by Dr. Chan and Ms. Bloch. Following their 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. In 2019, we made good progress. We delivered 80,000 plus CytoSorb cumulative treatments up from 56,000 a year ago. 2019 total Revenue was $24.9 million, including product sales and grant income versus $22.5 million a year ago. Product sales growth decelerated in the fourth quarter of 2019 by 20%, driven by 30% increase in direct sales. And we achieved our guidance of blended product gross margins of 80% in the fourth quarter of 2019. An important milestone was the renewal of our CytoSorb CE Mark to May 2024, and our ISO 1345-2016 manufacturing certification to September 2022. We also expanded our organization throughout the year in 2019 by 50% to approximately 155 employees with a strong focus on commercialization. We also extended CytoSorb distribution to a total of 58 countries, including 10 countries where we sell direct with our own sales force. And we are now well capitalizing with cash to fund operations and clinical studies through the second half of 2021. Dominating the headlines is the COVID-19 pandemic. Allow me to summarize our progress. First CytoSorb is in many of the countries where COVID-19 cases are surging, including Italy, Iran, Germany, France, Spain, Hong Kong and others. And through our new partnership with China Medical System Holding Limited, a publicly traded specialty pharma company based out of China, with more than $800 million in sales annually. We donated initial CytoSorb devices that were made rapidly available to select hospitals in Wuhan on China. We have learned now that multiple patients at multiple hospitals are being actively treated with CytoSorb. Now the data are not yet available on clinical outcomes. They are expected to be made available in the near future. As part of this process, physicians from Peking Union Medical…

Thank you, Phil, and good afternoon, everyone. For today's call, I'll provide an update regarding CytoSorbents fourth quarter and full year 2019 now audited financial results. And in addition, I'll provide an update around our working capital and cash runway. CytoSorb product sales for the fourth quarter of 2019 were approximately $6.6 million, which represents a 21% increase over product sales of approximately $5.4 million for the fourth quarter of 2018. This is a new company record for quarterly product sales. This increase in sales was driven by an increase in direct sales from both new customers and repeat orders from existing customers. The decline in the average euro to dollar exchange rate had a negative impact of $161,000 on fourth quarter 2019 sales. Our total revenues, which include product sales, and grant revenue, were approximately $7.4 million in the fourth quarter of 2019 compared to approximately $6.1 million for the fourth quarter of 2018, an increase of approximately 22%. Our fourth quarter gross profit grew approximately $5.3 million, which is an increase of 33% or roughly $1.3 million over gross profit of approximately $4 million for the fourth quarter of 2018. And as Phil mentioned, our gross profit margins on product sales were 80% for the fourth quarter of 2019. This is a very important milestone for the company, and this is as compared to 75% for the fourth quarter of 2018. Primarily this is due to production efficiencies that were achieved by the company. Turning to our annual results for 2019, product sales were approximately $22.8 million, a 12% increase over product sales of approximately $20.3 million for 2018. This increase was primarily driven by an increase in direct sales of approximately $3.2 million and we saw this particularly in Germany. Distributor sales sell by approximately $681,000, as…

Thank you very much, Kathy. And 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 first quarter 2020 product sales will exceed first quarter 2019 product sales driven by strength in our direct sales force as well as international sales. That concludes our current prepared remarks. I would like to now open it up for a live Q&A session. Moderator?

Thank you. [Operator instructions] We will take our first question today from Andrew D'Silva from B. Riley FBR Company. Please proceed with your question.

Hey, thank you very much for taking my question and sorry if you did touch on this, I did have to hop between a couple calls. I have just a couple of quick ones. First off, as it relates to Fresenius and New Mexico and South Korea, can you talk about, you wouldn't need to be finalized? And what the cadence looks like, in orders with the remaining EU inventory, and then potential reorders. Is there a sense of what timing could look like they're just curious on how meaningful we should expect that to be?

Yes, I think that Fresenius has done a nice job in Europe in working down their inventory, and we expect them to actually be in a position to potentially order this quarter. They continue to have France, Finland and the Czech Republic and have been doing well in those countries. In terms of Mexico and South Korea, what we've stated in the past is that Mexico should be coming online soon followed by South Korea. The current COVID-19 outbreak in South Korea may be a facilitator to driving earlier registration in South Korea. But that remains to be seen. But hopefully, you should be hearing about Mexico sometime soon.

Thank you, you are the first company during this earnings season that I had that actually said that would accelerate something for them in an adoption standpoint. And then, as far as the label expansion with Brilinta, I'm just curious obviously, it's been capturing market share from Plavix. But still, Plavix will have a dominant market share. Is there a potential utilization for CytoSorb with other platelets or does the ability to not permanently bind make Plavix a non-starter?

Yeah, it's a very good question. So interestingly, Plavix and so the three antiplatelet agents today that are common are clopidogrel or Plavix, ticagrelor or Brilinta, and Prasugrel also called Effient. It turns out that clopidogrel and Prasugrel are irreversible inhibitors of platelet function and covalently bind to the P2Y12 receptor and technically are not reversible. Ticagrelor technically is the only reversible P2Y12 platelet inhibitor. However, because of the lack of any approved reversal agents, they have never been able to capitalize on that reversibility claim. As you can imagine, that's a very important feature because in patients who require emergency surgery or have a sudden GI bleed or are involved in a motor vehicle accident and are bleeding, who would be very helpful to be able to reverse ticagrelor. But I think that's what CytoSorb brings to the table. CytoSorb actually now can reverse the effects of ticagrelor when used to remove it during emergency cardiac surgery when placed into a cardiopulmonary bypass fight circuit during open heart surgery. And this was again demonstrated in an observational study that was published last year from St. Georg Asklepios Hospital in Hamburg, Germany. What we believe is that this has the potential to change the current prescribing patterns for these antiplatelet agents. Today, in patients who, in the United States and elsewhere who present to the hospital with acute coronary syndrome, they are typically loaded up on an antiplatelet agent. And today, Plavix or Prasugrel is typically prescribed much more frequently than the other two, because it's very inexpensive. Even though it does not work as well, and is shown to be inferior in multiple studies. But it is used because it's inexpensive. Ticagrelor has been - is typically in terms of patients with myocardial infarction is currently about a third…

No, perfect sense. Great color there. I could ask 1,000 questions. So I'll just ask one more so let me. As far as given you are looking at the macro landscape, you got a Portola Pharma and they have their antidote for rivaroxaban I think, the generic name for - and then, there’s been progress being made with PhaseBio [ph] and Brilinta. How do you think about the drugs being utilized as a reversal agent versus a device? And when we start thinking about the co-marketing potential with drugs and pharma companies, is that something we should expect as a potential driver down the road?

So first of all, CytoSorb has been demonstrated to be able to remove not just ticagrelor, which is one of the P2Y12 platelet inhibitors, but has also been demonstrated to be able to remove both rivaroxaban and an apixaban. For rivaroxaban and Xarelto that has currently about $6 billion in worldwide sales. And then also apixaban which is also called eliquis, which has about 10 billion in worldwide sales. Apixaban and rivaroxaban are in the class of antibiotics called factor 10A inhibitors. So currently the only factor 10A inhibitor reversal agent on the market is Portola's Andexxa and we are - based upon the data that they presented, the reasons why our therapy would be a better reversal agent for cardiac surgery patients given that the reversal agent only is effective during the time of infusion. It also has a blackbox warning of being pro thrombotic, which is negative in patients undergoing cardiac surgery and also is a very expensive drug. In terms of PhaseBio, this is a product that is technically a reversal agent for ticagrelor. It is currently in a Phase 2b study right now, with goal of getting to a Phase 3 study soon, meaning this quarter or next quarter. But again, it's a biologic that is that - well, I think, at the end of the day, be not very cost competitive with our product, given that it is a biologic and that it will expire on the shelf, and will have to be repurchase at high cost by the hospital. And so we'll see how the dynamics work out. But for cardiac surgery, we believe that our product which is easily installed into the cardiopulmonary bypass machine, and has a relatively reasonable and cost effective cost, as we've demonstrated in a study that came out last year, showing that even taking into consideration the cost of the device that use of the device per patient would save hospitals a projected $5,000. We believe that CytoSorb would actually be a very easy therapy to be able to use for this application in cardiac surgery patients. And so we'll see how that turns out. So that being said, we currently have expanded the label for CytoSorbs to include now ticagrelor removal during cardiopulmonary bypass and cardiac surgery. This is now applicable to all the countries where CytoSorb is currently being distributed, so all 58 countries. And we are also working to expand that to other antithrombotic agents as well. We are also working on using this as a springboard for potential U.S. regulatory path. And again, as I mentioned in my comments, we’ll have more detail on that hopefully soon.

Yeah, I’ll get last part of that question, which is related to partnering with Pharma. AstraZeneca for example, at least while PhaseBio is still in clinical trial, actually, they have some sort of a connection together there from a partnership standpoint. But in the interim, I mean, they have a small window left to be able to recapitalize before generics start coming into the market. Just from where I'm standing, make a lot of sense for them to work with you to help with their adoption.

Well, I think that the goal of a lot of pharmaceutical manufacturers is to maximize the revenue opportunity further for their drugs, particularly ones that are very key to their pipeline. And so the ability to dominate a market or the potential to dominate a market should be very attractive and to be able to eliminate competitors from that market. So that's all I can say at this time.

Okay, great. Thank you very much. Best of luck going forward.

Thank you. Thanks, Andy.

Our next question is from Josh Jennings with Cowen. Please proceed with your question.

Hi, this is Eric on for Josh, thanks for taking the question. Just looking at CytoSorb's use in China. Do you intend to report the outcomes associated with COVID-19 treatment in China on a case-by-case basis? We're just trying to think of how many cases can be reported when it's announced?

I think that the goal here is to create a sufficient number of patients to be able to make some type of assessment of the efficacy of therapy in those patients. I think what we've seen is that multiple patients are being treated at multiple hospitals. And so I think that, that's very helpful in terms of achieving that goal. There is a very strong interest in anything to do with coronavirus as a publication, given how it's now spreading to all corners of this of this globe. And China having the most experience with this, it's scientists there are researchers there are very motivated to get those studies published. So our hope is that whatever comes of this evaluation, that those data are made available in a very timely fashion.

Thank you. And then what's the earliest you think we could see a U.S. trial for ticagrelor removal. Is it possible for you to outline generally what you think that can look like in terms of the number of patients and points or just anything with timelines for that study? That'd be great. Thank you.

In terms of timeline, we will have, again, a better sense of regulatory path in the first half of this year, we believe. If you look at some of the other reversal agents that are in clinical studies, there's been a precedent set for certain endpoints involving, for example, reversal of platelet inhibition or a reversal of, of the specific effects of the drug. So we'll see what that looks like. But once we have some better clarity on the path, we will definitely let you know.

Great, thank you for the questions.

Our next question is from Sean Lee with H.C. Wainwright. Please proceed with your question.

Hi, guys, congratulations on a great quarter. And thanks for taking my questions. My first question is on the COVID-19 uses. You mentioned that you've partnered in China to use CytoSorb and you've also submitted documents to the joint task force in the US. But are you working with any of the other governments perhaps in Europe on this?

We are working to get treatment experience with hospitals in these various countries where we already have relationships. So, it is not necessary. We're already approved as you're aware in the European Union and other countries where these cases are surging, and with the exception of South Korea, where we're pending registration. But that being said, there there's not a need necessarily to work with the government per se. The goal is to work with intensivists to basically drive treatment experience data.

I see thanks for the clarification on that. And secondly, for the gross margins, you hit a high of 80%. And this year - last year, so I was wondering whether we can see further improvements this year. And where do you see it can get to in the next two to three years?

Let me turn that over to Vince. Vince, could you comment on that, please?

Sure. Thanks, Phil. Hi, Sean. Regarding the gross margins, we still have upside on the gross margins is we increased by and then crease or product mix obviously plays a role in that, but we also have a number of cost downs that we're working on to continue to improve the efficiency. So we still see upside but really Sean it will be somewhat dependent upon what the volumes are in production as opposed to what the product mix. So it would be difficult at this point to exactly project where we would be two or three years from now, but it should be definitely north of where we are. If we maintain this volume and increase this volume from where we are today.

That's great to hear. My last questions on HemoDefend. You mentioned that the manufacturing issue has been resolved and you expect to file for IND - sorry IDE close to the end of this year. I was wondering what's the pivotal study is expected to look like? And would that be conducted under a partner contract or would that be independently funded?

Yes. So the HemoDefend pivotal study is a relatively straightforward trial. Approximately 25 healthy volunteers receiving blood that's been treated by our HemoDefend blood filter, and it really is a cell longevity as they making sure that our device is not doing anything untoward to the packed red blood cells that would reduce their longevity in circulation. So it's a very straightforward study that is commonly done for other products all the time. And so in terms of funding, we have been awarded a grant from National Heart, Lung, and Blood Institute, a division of NIH, that has funded this program to the tune of approximately $5 million, part of which was funded by also the special ops command or SOCOM, U.S. SOCOM. But that being said, the current phase that we're in is a 50-50 split on expenses. And we believe that the study - the additional testing that needs to be done as well as the study itself will be subsidized by 50% by this grant, by National Heart, Lung and Blood Institute.

Great. That's all I have. Thanks again for taking my questions.

Thanks, Sean.

[Operator Instructions] Our next question is from Jeb Terry [ph], Evergreen Asset Management. Please proceed with your question.

Good afternoon, Phil. Hello, Phil, can you hear me?

Yes, I can.

Okay, great. Three questions, one on the China guidelines, is there some other way for a Chinese hospital to comply with these guidelines other than use CytoSorb?

Blood purification is common as we've disclosed in our 10-K. There are a couple of companies trying to do what we do. And again, not wanting to get into too much detail, we believe that, we have the superior technology that has the most clinical data in any type of clinical applications related to complications of coronavirus, or complications of sepsis or complications of a wide variety of factors in critical care. For that reason, we believe that we are the leading therapy, blood purification therapy in critical care today.

So presumably then those guidelines actually can't be - there's no right way to put this. There's no compliance, if you will, those guidelines as it stands in China?

No, they're not mandatory guidelines. These are guidelines that are [indiscernible] data and also mechanism of action and other factors.

Right. But I guess then sounds like there isn't someone else who's already doing what you do there. This is kind of prospective China would like you to see to this. So okay. Then the second thing is relative to your building of inventory. Can you refresh my memory, on what's your capacity is? So if things really took off in China and elsewhere, what would be your ability to meet that demand?

Vince, would you like to take that question?

Sure. Jeff, so we've always stated our capacity to be enough to support an $80 million business, we never coming out specifically with units. Again, we have the second part of the plant, we just started up recently that we've talked about previously, the second part of the upgrade if you will. And so that capacity is now online. So we have a fair amount of capacity that we could utilize today to be able to address needs in China and rest of world for that matter, but it would be up to an $80 billion business, roughly based on current price.

Well, I look forward to you being challenged on that capacity.

Yet, it's a good problem to have, I agree.

That will be great profit. And so with respect to the fact that you are quite active in European hospitals, Italy, for example. And Italy's having these issues. Are their patients - our hospitals in Italy now utilizing, are they familiar with your product. Are they in fact treating patients at this point?

So we know that many hospitals throughout Italy use our product for every day critical illness, such as sepsis and other things. We have not heard any feedback yet about whether or not hospitals are using the product yet. But what we find is that for particularly new applications, there's often a delay before we hear what has been going on. So we actively are working with our distributor, Aferetica to try to get that information. But again I think that when information comes out if there are successful treatments using our therapy, it is something that we would certainly like to get out.

And one last thing about, Mike, you said you've been in discussions with in the U.S. with the task force for treating coronavirus. Can you give us a sense of what that sounds with that like, what, what timeline or process might be or what? What's entailed to that?

What we've said is that we've had preliminary discussions with BARDA on this application and we have submitted our materials as have many other companies that are trying to develop either therapies or diagnostics for this space. I think that we are very unique in, in our approach particularly in the United States. And one of the few companies that are actually have a product that is being used for those applications, unlike many companies that have a theoretical application. So although to be clear, we have not - aside from the patients that we know about - and so, I think that we are actively working on a strategy to get into the Japanese market as you know, one of our partners is Terumo Cardiovascular which is a Japanese conglomerate. In terms of Israel, we are already registered in Israel and are available in Israel through our distributor, Gad Medical. And if they so desire to use our product it is currently available there.

Okay, thank you. I really appreciate the refresher. Because I mean, those are critical details right now. And I do think you will see the rates in Japan just jump higher when they begin testing people. So thank you.

Thanks, Jason.

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

Well, thank you everyone for participating in today's call. If you have any additional questions, please reach out to Jeremy Feffer at Jeremy J-E-R-E-M-Y @lifesci advisors.com and we will try to reply to your questions where possible. Thank you very much everyone. Have a good night.