Good afternoon and welcome to the Cytosorbents Corp.'s First Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. Following the formal remarks, we will open the call for 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 our moderator Terri Anne Powers, Vice President of Investor Relations and Corporate Communications. Please go ahead Ms. Powers.

Thank you, Stacy. Good afternoon. Welcome to the Cytosorbents' first quarter 2022 financial and operating results conference call. Joining me today from the company are Dr. Phillip Chan, our Chief Executive Officer; Vincent Capponi, President and Chief Operating Officer; Kathleen Bloch, Chief Financial Officer; Dr. Efthymios Deliargyris, our Chief Medical Officer; Dr. Christian Steiner, Executive Vice President of Sales and Marketing and Managing Director of Cytosorbents Europe; and Christopher Cramer, our 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 to you -- 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 May 3rd, 2022 and we assume no obligation to update these projections in the future. During today's call, we will have an overview presentation covering the operating and financial highlights for the first quarter of 2022 by management. Following that presentation, we will open the line to your questions with the management team. At this time, it's now my pleasure to turn the call over to Dr. Phillip Chan. Phil?

Thank you very much Terri Anne. At the end of the first quarter, more than 170,000 cumulative CytoSorb devices were utilized to date up 30% year-over-year. The clinical US trials in antithrombotic removal continue to progress with the first patient enrolled in the STAR-D trial in April of this year. And with the START-T trial progressing towards the first enrollment milestone, its first DSMB or Data Safety Monitoring Board meeting when 40 patients are enrolled anticipated this summer. We talked previously about the US CTC registry, but now new data from 56 US critically ill patients being treated with ECMO and CytoSorb at five major ECMO centers under FDA emergencies authorization, not only it reiterates high survival of more than 70% of these patients, but early intervention appears to also help improve lung function and get patients off of ECMO. Meanwhile, we are pleased to bring on Ms. Jiny Kim to the Board of Directors. As Vice President of Smart Implants Technology and Data Solutions at Zimmer Biomet and in the process of commercializing the world's first smart knee, Jiny brings a wealth of US commercialization marketing and business development expertise to the Board. We also established our UK operating subsidiary and hired Shaun Whittemore, formerly the Country Manager for UK and Ireland for LivaNova to do the same for us. We intend to sell CytoSorb direct in the UK and Ireland part of a strategy to increase direct sales territories over time. And finally, we successfully completed our European Union Notified Body audit of our new Princeton, New Jersey manufacturing facility in April with no major findings. The facility is 95% complete and full certification is expected to come in the coming months allowing us to begin manufacturing and shipping CytoSorb to customers all over the world. From a…

Thank you, Phil. I'm happy to report we're on track with the build out of the new facility. We've outgrown the existing facility and this move provides us much needed space and flexibility. From a historical perspective, we started with just 2,000 square feet and grown the operation to more than 22,000 square feet by acquiring space in our business park as it became available. This type of growth led to limitations in material processing and the addition of personnel, as we plan for eventual US commercialization. Our new facility on the other hand provides us the flexibility to add new product lines, optimize process flow, improve logistics, and much-needed office space. We will begin the transition to the new site in May, as the lease expires in the old facility, allowing us to eliminate this duplicative rent. Start-up of the new facility has progressed nicely, despite the many delivery disruptions for construction material and supplies due to COVID and limited availability of trades to perform the construction. The manufacturing facility is approximately 95% complete. All equipment has been placed, qualified and audited by our notified body with positive results. We are very pleased with the outcome of the audit and our manufacturing, quality, product development and regulatory teams for this outstanding accomplishment. We will begin production in Q2 releasing that product for sale, once we've received the final updated site certificate. With the site qualified we can now begin the process of bringing our administrative, R&D and production personnel together into one location. We will have accomplished our goal of increasing capacity, providing the infrastructure to lower costs as the business grows, improve operational efficiencies and provide a new home for our future US sales team, as we commercialize DrugSorb-ATR. I have a couple of slides here. I'd like to show you the new facility. The first slide is actually the outside of the new facility here in Princeton, New Jersey. Wait for it to come up. Thank you. This -- again, we began to occupy this facility last year in April with our biology team first coming here. The second slide is our -- actually, our new manufacturing suite. And then the next slide is representative of a new break room that we built in this facility. And finally, the next slide and final slide is a slide of our new R&D labs, where we've moved -- begun to move over to the new facility. We look forward to the next chapter in our development. And with that, I would now like to pass over for financial highlights to Kathy Bloch.

Thank you so much, Vince, and greetings to everyone on the call. Today, I will briefly review Cytosorbents' first quarter financial results and in addition, I'll provide an update around our working capital and financial focus for 2022. Next slide please. Total revenue, which includes both product sales and grant revenue, decreased by 18% to $8.7 million in the first quarter of 2022, as compared to $10.6 million for the first quarter of 2021. Product sales for the first quarter were approximately $7.9 million, a decrease of 22% compared to product sales of $10.1 million in the first quarter of 2021. This was driven primarily by the expected drop in COVID-19 sales, which were approximately $300,000 in the first quarter of 2022, compared to $1.8 million in the first quarter of 2021. In addition, the stronger dollar relative to the euro negatively impacted sales by approximately $552,000. At constant currency, product sales in the first quarter were down 16% year-over-year. And this of course is primarily due to lower COVID-19 sales. Direct sales in Germany fell by approximately $2 million due to COVID-19 pandemic-driven market conditions, which has already been discussed by Phil. Grant revenue was $767,000, compared to $455,000 a year ago and product gross margins were 80% compared to 77% a year ago. Next slide please. This slide looks at our first quarter product sales over time and I think this slide puts into perspective the trends that we have observed in our product sales. Clearly, COVID-19 fueled sales growth surges in 2020 and 2021. We experienced lower sales in the first quarter of 2022 due to a decline in severely ill COVID-19 patients and COVID-19-related hospital restrictions, especially in Germany, our largest market. And even with these pandemic-driven market conditions in place, in the first quarter of…

Yes. Thank you, Kathy. Good afternoon to everyone from the Americas and good evening to Europe. So Phil has spoken about it already, there is continues to be a material impact of the pandemic situation on our business. But importantly, as seen in the chart presented by Kathy, the business has significantly grown compared to the pre-pandemic period. I'd like to build on that and provide some additional information regarding the current status of the business. And this gives us confidence in the future growth opportunity once the pandemic fades We see already my first slide. And in this chart, you can see the development of the number of active customers in our direct territories. This number of active customers has increased by 20% to 25% within the first quarter of the pandemic and have stabilized on that level since then. And although the number of purchased adsorbers per customer has fluctuated because of the pandemic we have observed that customer loyalty has significantly improved. So as we are shifting to more frequent and personal events and meetings, we are seeing increased customer excitement. We believe that post pandemic growth will start from that higher baseline. Next slide please. Higher customer satisfaction and loyalty is supported also by the fact that we have been able to consistently increase the number of customer hospitals which are collaborating with us under exclusive or preferred supply contracts. This number has more than tripled over the last year. These contracts are improving our collaboration with single hospitals and securing an opportunity for further development and growth. But more importantly, exclusive or preferred supply contracts with hospital chains or purchasing groups open up access to sell to additional accounts within these groups. And as an example – next slide please. I'd like to highlight the…

Thank you, Christian. I'd like to take a moment to talk about an exciting new growth opportunity with a stand-alone blood pump business model as Christian has just mentioned. So we constantly listen to feedback from our customers. And recently they told us that access to an extracorporeal platform, can impact their ability to provide CytoSorb therapy to their patients. In particular, we heard about a couple of key challenges that if addressed could lead to greater usage of CytoSorb. For example, today most CytoSorb treatments are delivered by a CRT after the patient has experienced some form of kidney dysfunction or failure. However, many physicians have told us that they want to start CytoSorb treatment prior to kidney failure and prior to the initiation of CRT. This as you know is consistent with our guidance to start early with CytoSorb treatment. Access to CytoSorb therapy can be challenging in certain regions where CRT is limited due to the high cost of CRT treatment, the lack of skilled nursing to deliver CRT or in cases that market clearance for CRT devices has not yet been obtained. And then last, in the future we could also benefit from a low-cost easy-to-use platform to accelerate our hospital-wide strategy outside of the ICU. Having heard this, we realize that providing customers with access to a low-cost easy-to-use extracorporeal platform has the potential to accelerate the adoption of CytoSorb and our current indications and could serve as the foundation for future new growth areas throughout the hospital. Next slide, please. So in response, we took action earlier in the year and launched a pilot program to bring a low-cost easy-to-use hemoperfusion platform directly to our customers. The company has executed an agreement with a large multinational extracorporeal machine provider to supply us with hemoperfusion machines and accessories. So today, a multi-country reseller agreement is in place. We have the ability to provide hemoperfusion machines tubing sets and field support to our customers. We also have the ability to provide various business models that can be tailored to the market situation whether it's buying, leasing or other options. While it's still in the early stages the initial results from the hemoperfusion pilot have been very promising. Machines are being placed in accounts CytoSorb is being used successfully across multiple indications and we're receiving consistently positive feedback from customers. The next steps are to continue to evaluate and refine the program and to scale the business model more broadly both within and beyond the current set of countries in the pilot. In closing, we're very excited about the new business model we've created and the opportunity it represents to unlock and accelerate growth of CytoSorb therapy. With that I'll turn it over to our Chief Medical Officer, Makis Deliargyris to provide the clinical update. Makis?

[Technical Difficulty] provide an update on the progress made in our clinical studies and we have tried to maintain the same format in the slides so you can be able to follow along the progress made since our last presentation. Next slide, please. The theme that we outlined on the shareholder letter earlier this year is the theme of execution and focus. And that's exactly how we are approaching the execution of our global clinical plan and I'm happy to report that all seven programs including three randomized clinical trials, three registries and one pilot study are now all active. Three of those programs are being executed in the United States, including our pivotal STAR-T and STAR-D programs designed to support FDA marketing approval and the COVID-19 CTC registry under the Emergency Use Authorization granted to us by the FDA in 2020. We have four programs that we're executing in Europe. Our long-awaited and kind of flagship program in critical care, which is a randomized clinical study called PROCYSS targeting patients with refractory septic shock. We have our pilot study in acute liver failure named HepOnFire and we have our two international registries STAR and COSMOS and you'll hear a little bit more about them in a little bit. However, it's important to note that the STAR FDA programs remain our top priority. And as you heard before from both Phil and Kathy, we're allocating maximum resources to drive their execution. As we are executing our trials around the world, we continue to see that institutions struggle with post pandemic effects, primarily relating to staff shortages and fatigue. However, we are very encouraged that, we also see that these same institutions are very excited about participating in our trials. We also have data readouts coming this year that we'll be…

Thank you Makis. As shareholders ourselves we understand that the macro environment and the stock price has created great uncertainty amongst investors. However, we firmly believe we are in an innovative and a solidly financed company that can weather the current turbulence with a robust strategic and tactical plan that positions us well for both near-term and long-term success once the pandemic abates. We believe the world has never needed our world class technology more and that we are on the cusp of significant value creation with a planned return to sales growth of CytoSorb and the goal of opening the U.S. market with DrugSorb-ATR. Although we know it's been challenging for you, we thank you for your support. Operator, that ends our formal remarks. If you would please open the call for the question-and-answer session.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Your first question comes from Frank Pinal with Jefferies. Please go ahead.

Hi, guys. Thank you for taking the question. Hope everyone is doing well. Just a few for me. I guess to start can you touch on hospital access trends, I guess specifically in Germany maybe more broadly in the EU towards the tail end of the quarter and into early 2Q here? What you expect -- how you expect those to evolve for the balance of the year? And I have two more follow-ups after that if you will.

Sure. Thanks Frank. Let me turn it over to Christian to address that question. Christian?

Yes, sure and thank you for the question. Yeah, it appears to be still a very challenging environment for the sales forces. Hospitals in general are more accessible but because of the staff shortage and also a decreased number of the doctors, it's still very difficult to speak with the right people and to promote -- to drive people the therapy. But this is only one part of the situation, because of the pandemic we have the situation that still a lot of ICU beds are locked for those patients. And just imagine when there is in rooms where there are two or three beds there's one COVID patients then the other two have to be blocked because that's in isolation. So this leads to a very big shortage of ICU beds, which again triggers the situation that elective surgeries for example are postponed because ICU beds have to be available for surgical procedures. So in general I think there's an improvement of the situation but it's going slowly. We have -- our sales forces have more face-to-face meetings as I have mentioned. We have more local events, but also the regional and the national events are starting to pick up. And yeah there is an improvement visible, but not to the extent as we had it before the pandemic.

Great. Thank you for that. And congrats on the preferred supply agreement with Asklepios. Maybe touch on the significance of that agreement to the company. Maybe -- and if you have from a quantitative or maybe even a qualitative standpoint, maybe size up the impact of that agreement. And are there any pricing and volume I guess details there that you think are relevant here for investors to understand?

Christian, do you want to take that?

Yeah, I can continue here. Yeah. As I have said so we are very pleased that we have made such progress with the exclusive or preferred supplier agreements. And as I have mentioned before these agreements with single hospitals, of course, protecting the accounts and increasing the collaboration to an official level, so that we can have the training the staff and so on. That's all in a more official way compared to without the contracts. And then, of course, as normal with high volumes or higher volumes and increased usage also there's benefits to the customer in terms of price, although we are trying to keep the price as high as possible. As you know the reimbursement systems are based on actual prices and too much discounting is decreasing even reimbursement. So this is true for the single hospital agreements. But more importantly, I think the agreements with hospital chains or purchasing networks because these kind of agreements have a similar effect as I showed for the hospital. But additionally, it's opening up the access to more accounts in this network. And I think this is a big opportunity for us because we -- in these kind of, networks or hospital chains are always standardizations and we can tap into this and develop more standardized use of CytoSorb in those accounts.

Great. Thank you so much. Just one last question if you will here and I'll jump back in queue. If you could just remind us on the expected final readout dates for the STAR-T STAR-D trial at this point? I guess given sort of a few items I guess a you posted an interim analysis. I'm wondering if that data is going to be presented and if you're sort of expecting that toward the end of the year or early next year? And then on the 30 trials, I guess, which is more specific to the time on 30 sites -- expanding to 30 sites that's more specific to the timing do you foresee any sort of impact, or does expanding to the 30 sites is that sort of net neutral on timing? Thanks everyone appreciate it.

Thanks Frank. Makis would you like to take that?

Sure. Thank you. Those are great questions. So, the expanding the number of sites was primarily driven by multiple sites that wanted to participate in the trial. And we felt that the initial number of 20 was really limiting the opportunity to engage with some of the top institutions in the country. Now, having said that, having more sites usually is a positive, it's tailwind towards enrollment. So, we don't necessarily believe that changes the timetable dramatically, but if it does, it's probably going to be for better and for helping us enroll faster. Relating with the timing of completion, as we have previously communicated, we are executing these trials towards these milestones and that's why we are communicating their progress accordingly. So, as we are in the beginning of these studies STAR-T has been enrolling out for a few months, but STAR-D literally had the first patient just a few days ago. It's very hard to exactly project down the road. So, we're looking for some visibility towards the first milestone. And for the study that's ahead, which is STAR-T, that's why we kind of put the timeline for that. Once we get closer to that milestone or once we were able to meet it, then I think it would be much easier to provide visibility about the following milestone, which is the interim analysis that you alluded to. So, as of now it's hard to give you a timetable for the second milestone as we're putting all our effort and all our focus to getting to the first one first. And I don't know was there another part of the question that I didn't answer, or does that cover you?

That covers my question. Thank you again.

Yes.

Your next question comes from Justin Walsh with B. Riley Securities. Please go ahead.

Hi, thanks for taking the question. Just one for me today. Maybe can you expand on the rationale behind establishing the new therapeutic area divisions? And how you anticipate that this could help improve or streamline operations?

Yes, I think that as Christian mentioned what we when we first started commercializing CytoSorb, we were really focused on critical care and we learned fairly rapidly that there was a market pull for cardiac surgery and other applications. And we had built the sales force from the beginning really focused on critical care and there are both pros and cons of that approach, particularly when you begin bringing other verticals into the mix like cardiac surgery. There you need a specialized a role deck of contacts and their specialized knowledge that a ICU-focused sales force for example doesn't have. So, what we've done is that we've revamped our sales approach and now brought into play this multiple area vertical approach where we have dedicated market experts and also on the side of commercialization, but also subject matter experts on the side of the clinical side to be able to -- in a very focused way to develop these markets the way they should be again in a very optimized process. So, we think that this is going to have tremendous benefits for us going forward. Christian has already talked to you about just some of the initial fruits of our labor for this approach, but we think that this is a strategy that will play well over the three major verticals which is critical care, cardiac surgery, and liver and kidney and we hope to share our successes with you in the future.

Great. Thanks for taking question.

Sure.

Next question comes from Zach Weiner with Jefferies. Please go ahead.

Hey thanks for taking the follow-up from us. Just a few on the model here. I understand kind of a tough environment with FX headwinds and various other things. Can you just give us some color on where we should expect product gross margins going forward? You've seen they've hovered around that 80% mark. Is that kind of where it will stay, or should we see some margin expansion there?

Kathy?

Yeah. So I think in the near-term, we will not be experiencing margin expansion as we bring up the new facility. But as the new facility comes up to scale and that should be towards the end of the year, we should be operational there. More into 2023, we should start to then again see improvements in our operating margin. And they can be pretty dramatic as we move forward, because the scale-up is essentially four to five times, the size batches that we've been working with previously. So that labor and overhead gets spread over many – the same amount of labor and overhead will be spread over many more devices.

All right. That's helpful. And then I understand the commentary that more controlled spending in the current environment. Can you just give a little bit of color how we should be thinking about the middle of the P&L over the next several quarters? Is 1Q 2021 the right way to think about sort of OpEx going forward or some other way to think about it? Just a little color there would be helpful. Thanks.

Yeah. I think that we're still working through all of the details, but I think I would guide you that these decreases that we're seeing, which will be fully effective by the end of this quarter. So I think we'll see – they'll fall into primarily the buckets of SG&A and then capital expenditures.

Yeah. That's helpful. Thanks so much, everyone.

Thanks.

Next question comes from Danielle Antalffy with SVB Securities. Please go ahead.

Hi. This is Priya on for Danielle. Thanks for squeezing me in here. So just one question for me. As you guys are – have noted the tightening of spending. And as it relates to sales force development what are your expectations given that you do also anticipate increased in-person selling and you're also on the cusp of the US approval? So I guess, what are expectations as it relates to sales force development over the near to medium term? Thanks.

I think that there's some key hires that we still need to make, but I think in general the sales teams and sales forces are fully baked at this point. We obviously want to manage risk and want to make sure that, the sales develop the way that we anticipate before we add additional costs. But I think that, there will be some incremental spend there. We expect to have some savings through attrition. But in general that bucket is not expected to increase that much.

Got it. Thank you.

Sure.

Next question comes from Josh Jennings with Cowen and Company. Please go ahead.

This is Brian here for Josh. Thanks for taking my questions. Can I circle back to the --

Hey.

Hey, Phil, how are you doing? Can I circle back to the interim analysis for STAR-T? So just setting the timing estimate relating to when you could conduct the interim analysis aside, can you just clarify whether you intend to publicly announce those results, or are those just going to be seen by the DSMB alone?

Great. Thanks for the question. So the interim analysis is built with the intent of looking the un-blinded data by the DSMB based on pre-specified boundaries for efficacy which means that based on the really significant clinical benefits that we've observed in publications that are coming out of Europe. We have our own estimations in the trials that tend to be fairly conservative but there is a chance that the device will perform well beyond and above those estimates. And in that regard the DSMB will have the ability to look at that data earlier than the completion of the trial at about 80 patients in two-thirds of the enrollment. And then if that efficacy is there based on pre-specified boundaries that are already part of the interim analysis plan, the DSMB can then come back and recommend potentially stopping the trial early for efficacy. That's the intent of the interim analysis. So the discretion is with the DSMB, because they will be the only ones having access to the data. Once the DSMB made this recommendation, obviously we as a sponsor will consider it. And at that time we will obviously disclose the decision made on the trial.

Okay. So could be released if stopped early for efficacy success. And can you remind us whether the endpoints are being read for non-inferiority versus standard of care or superiority?

No this is a superiority trial.

Okay. Thank you. And then just on the FDA submission itself have you gotten clarity from the FDA on the filing type whether it's a de novo 510(k) or PMA? And then whether you'll file the two data sets together or separately? Thanks for taking all these questions.

So I'm going to ask my colleague Mr. Vincent Capponi to also point here. But the data sets will be provided to the FDA based on the timing of completion of the trial. So we don't have a pre-specified plan of either giving them together or giving them internationally to fashion. As you know both of these studies represent separate IDEs investigational device exception protocols approved by the FDA and both of them are also – have received individual breakthrough designations, so we intend to proceed with the submission once the first trial is finished irrespective of how close the second trial is or not. Relating to the regulatory pathway, let me pass it over to Vince so he can answer that part of the question

Sure. Thanks, Makis. Regarding the regulatory pathway, basically the FDA will not opine on that until they've seen the entire data set, primarily this being driven by safety to determine what the appropriate pathway is. So at this point until Makis concludes the trial and we provide the data package and of course, we'll make our presentation on what we believe the pathway is but that is always in negotiation with the FDA. But that's really kind of the way it works.

Great. Thank you.

Thank you. There are no further questions. I would like to turn the floor over to Dr. Chan for closing remarks.

Well, thank you very much and thank you all for joining us on today's earnings conference call. We appreciate your participation. If you have any other questions, please feel free to reach out to Terri Anne Powers at tpowers@cytosorbents.com and we'll try to reply to your questions as soon as we can. Thank you all.

This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.