Cytosorbents Corporation (CTSO) Q1 2022 Earnings Report, Transcript and Summary

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 sales perspective, total revenue which includes product sales and grant income was $8.7 million for Q1 of this year versus $10.6 million a year ago. Product sales were $7.9 million in the first quarter of 2022 of which $7.6 million was core non-COVID product sales and $0.3 million was COVID-related versus $10.1 million in product sales last year, of which $8.3 million was core and $1.8 million was COVID-related. Product gross margins remained healthy at 80%, 300 basis points higher than last year. First quarter 2022 core sales were stable. This is very important. It was on par with the third quarter and fourth quarter of last year in terms of core sales. And on a constant currency basis that reflects roughly a 7% to 8% reduction in the euro-to-dollar exchange rate. The adjusted core sales for this -- for the first quarter of 2022 would have been $8.2 million comparable to $8.3 million in the quarter a year ago. We had lower COVID-19-related revenue of only $0.3 million in the first quarter of 2022 compared to $1.8 million a year ago, which mainly accounts for the difference in product sales that you see. Lower COVID-19-related sales reflects the decreased need for CytoSorb due to the lower severity of COVID-19 illness related to rates of vaccination and natural immunity. In the first quarter of 2022, as outlined by the light blue vertical box that you see here overlaying these graphs, Germany experienced the highest COVID rates in the country since the pandemic began worsened by a new BA.2 variant surge following our last earnings call that has delayed the recovery in Germany as well as our sales. First quarter 2022 Germany sales were $3.8 million versus $5.9 million a year ago, primarily affected by COVID-related issues at hospitals. And in the early part of the second quarter -- the current quarter, we are seeing similar sales trends that we saw in Q1. Fortunately, cases are rapidly declining to just now breaking below 100,000 new cases a day. And as you can see from the map of Germany on the top left, the whole of Germany remains a hotspot, but is getting better. Vaccination rates at 77% of the population and natural immunity with one in three people in the country having been infected with COVID-19 are high in the country and mortality remains low, which we believe portends an end to the pandemic very soon we believe this year where COVID morphs into a less severe perennial disease like seasonal influenza. Meanwhile, the picture is similar around the world with decreases in new COVID cases in general, but certainly with certain hotspots like Europe. Again, there are reasons to be optimistic about and enter the pandemic this year. 67% of the world population has now had at least one vaccine dose and 61% are fully vaccinated. Major European countries have had high rates of vaccination in general greater than 70%, as you can see on the right-hand graph -- table and natural immunity from infection, as you can see from the far right-hand corner of that table -- far right-hand column of that table. Mortality rates have dropped significantly in modern countries approximating that seen with seasonal influenza. And importantly, treatment of COVID-19 illness is better understood now with new drugs strategies and vaccines. And in fact, in many hospitals, COVID is an incidental finding in patients who are in the hospital for completely different reasons. But because of the trends we've been seeing since our last earnings call and guidance in particular the surge in new BA.2 COVID cases in Germany late in Q1 that we believe has delayed the recovery in German hospitals and our German business, we are revising our guidance as follows. We expect COV19 cases and hospitalizations worldwide to continue to decline and expect to reach a more normalized operating environment as the year progresses. Because of this, we expect continued and progressive improvement in our underlying core non-COVID-19 business and expect growth in 2022 of core product sales on a constant currency basis. However, due to our limited visibility, we are removing specific growth targets with plans to revisit this later in the year when we have greater visibility. This expectation assumes: one, a gradual recovery of normalized hospital activity and sales access in Germany and other key countries; two, no major economic slowdowns or major surges in COVID-19 infections caused by new COVID-19 variants; three, little to no contribution to sales from Russia and neighboring countries that might be impacted by the war. And in 2021, sales from these geographies represented less than 4% of total product sales. We also expect no -- these expectations assume no escalation of the Russia-Ukraine war to other countries and we expect limited COVID-19 related product sales in 2022 due to high rates of vaccination and natural immunity that have reduced the severity of COVID-19 illness and need for hospitalization and ICU care and with it the use of CytoSorb in these patients. That said, we are not just waiting for conditions to improve. First of all, we are well-capitalized with $44.7 million in cash to weather this turbulence and uncertainty. And we'll continue investing selectively on priority programs, while taking proactive measures to significantly reduce our cash burn to end 2022 with more than $30 million in cash with the flexibility to add debt if needed. Meanwhile, we are laser focused on the following key objectives: first, open the US market by obtaining FDA marketing approval for DrugSorb-ATR to remove blood thinning drugs during cardiothoracic surgery through the START-T and STAR-D trials. Second is to restore growth of course CytoSorb sales. Three is to transition CytoSorb production to our new manufacturing facility in headquarters in Princeton, New Jersey this year. And four, to forge and expand new and existing strategic partnerships to maximize this synergy between our technology and those of our partners while creating new global opportunities for growth. During this presentation, I've asked each person on the management team to provide additional color on these four goals. Meanwhile, we are working to restore sales growth and are pushing forward on a number of key initiatives to drive improved results as the pandemic abates as well as future longer-term growth. First of all, we have a strong customer base to resume sales growth from. Christian will provide some color on this. Second, we have now established three distinct therapy divisions within our commercial operations including critical care, cardiovascular and liver and kidney and other applications to develop these markets internationally under the leadership of dedicated medical and commercial subject matter experts who will work closely with our sales teams to best serve the needs and interest of our customers. Christian will discuss some of these early successes of this initiative in his comments. Third, we have a growing strategy of exclusive hospital chain partnerships. We're now the preferred supplier of hemoperfusion technology to the three largest private hospital chains in Germany, including as announced yesterday Asklepios Kliniken GmbH. And finally, we have many new applications that we believe will drive usage of CytoSorb across a broad range of different applications. Some of the ones that we wanted to highlight and that we talk about in our press release, so I won't spend too much time on them, but it's the reversal of shock, which has been found recently to afflict about 10% of ICU patients -- in those patients with septic shock and an additional 8% of patients admitted to the ICU who developed shock at some point during their hospital stay with a very high mortality of 38%. And this is something that CytoSorb has been used for around the world to reverse and we believe that this will be a major application -- continue to be a major application for us going forward. Second application is in the treatment of acute liver disease, where CytoSorb was found to outperform the market-leading MARS platform, which is manufactured by Baxter, in the in vitro removal of many liver toxins that has had the added benefit of removing cytokines and inflammatory mediators, while being much easier to use. And in fact in real-world usage CytoSorb has replaced MARS at many accounts. With one in 11 people worldwide who have chronic liver disease that may deteriorate and require hospitalization and blood purification, through our liver kidney division we aim to drive CytoSorb as a therapy of choice in these patients. And the final one that I want to highlight is, in lung injury. As I mentioned before, our US CTC registry highlights, the high survival critically ill COVID-19 patients with acute respiratory distress syndrome treated with CytoSorb and ECMO under FDA emergency use authorization. We believe that these data demonstrate a therapeutic strategy of enhanced lung rest, using the combined therapies that can be extrapolated to the treatment of ARDS in non-COVID patients, what we believe, is a very large market. And then we have also examples of longer-term growth initiatives. First of all, Chris, our Vice President of Business Development, will talk more about our stand-alone blood pump business model strategy for driving usage of CytoSorb outside of standard dialysis machines that are found in the hospitals today. Second, Christian will talk more about expansion of direct sales territories, as we've discussed with the expansion into the UK. And finally, Makis, will talk about our investment in many important clinical studies and give an update on these key studies in multiple clinical areas. Together we believe we have a very robust strategy to drive this company to success and we'll have some more comments in just a moment. So with that I'd like to turn it over to Vince to provide a brief update on the manufacturing facility expansion. Vince?

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 2022, we think it is important to note, that compared to pre-pandemic levels, first quarter 2022 sales levels are still 73% higher than 2019 levels. That's a compound annual growth rate of more than 20%. Next slide please. Looking at our quarterly sales trends over time broken down by core and COVID-19 sales, we can see that COVID-19 sales have declined with only $300,000 in COVID-19 sales in the first quarter of 2022. Core non-COVID-19 product sales were $7.6 million in the first quarter, compared to $8.3 million in the first prior year. At constant currency, core COVID-19 product sales were $8.2 million, which is roughly comparable to those in the first quarter of 2021. Next slide please. Turning to our trailing 12-month product sales, we can see the impact of declining COVID-19 sales in the last trailing 12-month period. Also depicted on this chart, our gross margins that's the green line and they have continued to improve over the years, with a gross margin of 80% in the first quarter of 2022. Next slide please. Regarding our working capital, we ended the quarter with a healthy balance sheet with over $43 million in unrestricted cash. I'll provide additional color on our expectations with regard to cash for the remainder of 2022 in a moment. And our cap table indicates that we now have approximately 49.6 million shares outstanding on a fully diluted basis. Next slide please. Finally, I want to provide a few words on the actions that the company is taking to conserve cash until market conditions improve. We have already started to implement cost-cutting measures, which are designed to reduce planned, quarterly cash spend by approximately $2 million per quarter for the remainder of 2022. These actions include a company-wide hiring freeze, excluding essential hires that will be needed, postponement of the planned build out of the office space and reductions in non-grant R&D spending, among others. Our spend is laser focused and fully aligned with our strategic priorities, those being key clinical trials in particular our and STAR-T and STAR-D trials to support US FDA marketing approval, sales in marketing and the build-out of our new manufacturing facility. We expect to fund our operating needs and CapEx with cash on hand and we expect to end the year with as Bill said, approximately $30 million in cash. We also have financial flexibility if needed with $15 million with available in debt financing from Bridge Bank. That concludes my remarks for today. And at this time, it's my pleasure to turn the call over to our Executive Vice President of Sales and Marketing, Dr. Christian Steiner to provide summary of sales and marketing update. Christian, go ahead.

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 latest preferred supply agreement that we have signed. Our newest official partner and you have seen the press release, Asklepios Group, one of the biggest hospital chains in Germany. Asklepios is operating more than 170 hospitals in 14 out of the 16 federal states of Germany. And out of those 170 hospitals, 70 are acute care clinics. With this last agreement, we have now exclusive or preferred supply agreements with the three biggest hospital networks in Germany. These three groups alone include almost 300 acute care hospitals all actual or potential customers for CytoSorb. And as you know probably as well with Asklepios Group, we already collaborate with the St. Georg Asklepios Hospital in Hamburg. They have pioneered the clinical application of our technology for the removal of antithrombotic agents. In the case of increased bleeding risk during cardiac surgery, we talk about a drug of DrugSorb-ATR. Next slide, please. So Phil has explained already a little bit and have discussed that we have established three distinct therapy divisions within our commercial operations; critical care, cardiovascular and liver, kidney. As an example, we have successfully built the team supporting the cardiovascular therapeutic area which is now led on the commercial side by an experienced marketing professional, who joined us from a leading cardiovascular medical device company. But on the medical side, it is led by a renowned cardiac surgeon coming directly from the University of Athens Germany. And while the medical team is laying the ground with extending and strengthening the KOL network and coordinating the scientific and medical development, the commercial team is translating this into improved tactics. This includes for example roadshows dedicated to heart tenders to increase the adoption rate for different cardiovascular applications. As you can see on this slide here in the upper right corner, that 98% of the 83 cardiac surgery centers in Germany are our customers. Almost 70% of these sites are using CytoSorb for patients with infective endocarditis to remove excessive levels of cytokines. And more than 60% that's the right bar of the sites are already using technology – our technology to remove antithrombotic agents during open heart surgery. On the lower chart, you can see that on an international basis the number of cardiac surgery centers using the technology for antithrombotic drug removal has grown from two to three sites at the time of CE approval in Q1 2020 to more than 150 sites today. I think that illustrates that this is a very well-accepted indication, since we achieved that during the time of all these restrictions. Next slide, please. The pandemic has restricted our ability to effectively work with our customers as usual. However, this has motivated us even more to focus on our key growth initiatives, which I want to summarize on this slide for you. We are very confident that we will bring our increased active customer base and I have shown you, to a new level of CytoSorb usage once patient volumes return to normal. Our new supplier partnerships have opened access to a high number of potential new customers. And of course, we will continue to work on additional partnerships. The new therapeutic area teams with experts from the selected fields are already accelerating the approach to the targets with the communities and of course we'll continue to do so. And on the sales structure side, increased efforts to expand directed territories will allow us to directly control the business education and training and of course overall customer relationships. Certainly, this will also lead to increased gross margins. But last or last but not least, we are also pursuing new market opportunities by expanding the platform base that can be used for tens of applications. I would like to turn over to Chris Cramer, our VP of Business Development, who will provide more details of this initiative which has initiated as a new way to increase access to in expectation of CytoSorb. In other words we will bring more razors to the market to consume more razor blades. Chris?

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 presenting at international conferences. Phil already discussed some of the CTC data that have been presented already back in April on the International Symposium of Intensive Care and Emergency Medicine, and just later this week, at the euro also in London, where data on 56 patients demonstrate high survival, improved lung function, and potentially a reduced need for ECMO support on patients treated with CytoSorb. What is important to note is that the CTC has now completed enrollment has 100 patients in the data set and will be – have submitted that data for an international conference later this fall and also to be submitted for publication in a peer-reviewed journal. We also have data new data in the antithrombotic removal space for the first time ever we have submitted to the European Society of Cardiology, which happens to be the largest cardiovascular conference in the world data that show drug removal in vivo in patients undergoing cardiac surgery, drug levels reduced by our device. Next slide, please. Now, let's turn our focus on our top priority FDA program, the STAR-T and the STAR-D trial. As you've probably seen from our recent press release, now both studies are active and enrolling patients in the US. We continue to see very, very high levels of enthusiasm from US centers desiring to participate in these trials. And as such we approached the FDA and expanded the studies to 30 sites – expanded both studies to now include 30 sites. When it comes to STAR-T, the majority of those sites are already activated and enrolling in the trial. What's important is that, most of them over three quarters have also expressed an intent to participate in STAR-D demonstrating the broad unmet need viewed by these institutions of people antithrombotics that is not limited to just one agent, but expands beyond Xarelto [ph] and also to the more frequently prescribed DOAC class. As stated previously, we are dedicating maximum resources to ensure momentum in the studies and timely execution. We have initiated a nationwide STAR site road show where we're visiting in personal sites addressing any opening issues discussing with the principal investigators and the research team and we believe that's an important initiative to further drive the momentum that is building in the studies. We will be hosting a STAR investigator event at the upcoming American Association of Thoracic Surgery in Boston approximately two weeks from today. When it comes to our projections, we're happy to reiterate our previous guidance that we project STAR-T to hit the first milestone this summer. As you note, on the table below these studies have identical pre-specified milestone. The first one is triggered by enrollment of the first 40 patients and that will then trigger the DSMB safety review. The STAR-D trial just started enrolling so it's a little too early to project. But we believe that these two trials will continue to progress in a similar pace six months apart. And as you can see in the table following the first milestone the second important milestone of the study will be triggered after two-thirds of the patients are enrolled and that will include a second DSMB safety review, but also the interim analysis. And finally, the third milestone relates to the full completion with enrollment of 120 patients in each study. Next slide please. As we continue to execute these programs, we also continue to believe that the antithrombotic removal application represents a very large commercial opportunity. We base that on the following assertions. First of all, we continue to see very high levels of interest for this application, across the board in hospitals around the world. First of all, in the United States for participation in our STAR trials, but importantly as you heard from Christian previously we're seeing it in real-world practice with increasing adoption of this antithrombotic removal application of our technology as the standard of care in heart centers around the world. Importantly, the body of evidence supporting the clinical benefits of this application continues to grow and consistently demonstrates superior results and safety. We have a new publication from Germany that has now shown that bleeding -- significant bleeding reductions can also be observed when this device is used for antithrombotic removal and aortic dissection surgery, extending the previous data from coronary artery bypass grafting, or CABG surgeries. There was also a recent review article from Canada that addressed the large unmet needs and highlighted the removal of antithrombotic drugs during surgery as a novel solution that could solve this problem since currently there are no available solutions to the surgeons. We also believe that the DrugSorb-ATR will be supported by a very robust value proposition and that in turn will support premium pricing. Two highlights to mention. Recently the Stanford Byers Center for Biodesign published an article titled The Need for Accelerated Medicare Coverage of Innovative Technologies Impact on Patient Access and the Innovation Ecosystem. That was published in the journal Health Management Policy and Innovation. And what's important about this article, this article was based on a very extensive survey performed across innovators, investors and policymakers suggesting the need to support therapies that can be transformational breakthrough therapies that can also provide both clinical benefits and economic benefits to society. And the reason that I'm mentioning this trial is because they highlighted DrugSorb-ATR as the prime example of how a breakthrough device can have impact on society positive impact on society and on health economics. As we're executing on trials with the intent of opening the U.S. market, we're also working on building internally the value proposition for DrugSorb-ATR working with recognized health economists to model the economic impact of introducing our device into heart centers as the potential cost savings that will support this value proposition. And finally, as you just heard from Chris this recent initiative, the hospital-wide strategy is a very exciting opportunity that will definitely apply to this application and we believe that antithrombotic removal can extend beyond cardiac surgery and now to be offered to patients in other areas of the hospital including the emergency room, other non-cardiac operating rooms, but also the cath lab and interventional suites. Next slide please. This is a similar table that you have seen previously that summarizes the current status of the remaining non-FDA clinical programs. We talked about the CTC registry already. The highlight here is that there will be additional data readouts in 2022 on top of the ones presented already in April at ISICEM at EuroELSO this week. We'll have additional data readouts from the full 100-patient cohort later this year. The process randomized clinical trial in septic shock is now actively enrolling in more than half of the targeted sites for the study. We believe that will help enrollment and we are sticking with our previous guidance that the interim analysis will be executed in 2023 that again will be triggered after half of the patients are enrolled in the trial. The HepOnFire study is now actively recruiting and we're hoping that we will have the first patient recruited soon and you will -- you can watch out for a press release to be issued once that happens. This is a pilot study that's targeting inclusion of 30 patients. And as such, we do also believe that we'll be able to complete the study in 2023. And finally, our two international registries. The STAR Registry is a little bit ahead. It's actively enrolling in three countries, while the COSMOS Registry just received ethics approval and we're in the process of activating the initial sites. We believe that the data readouts for both of these registries will start as early as 2023 and probably with the STAR registry coming out of the gates ahead of the COSMOS, but not with a large span between them. Next slide. So to summarize institutions around the world are gradually recovering from COVID. And although, they're still facing headwinds primarily relating to staffing shortages, they are very enthusiastic about participating in our study. And we're very encouraged every time we interact with them. Our expert clinical team is laser-focused on STAR-T and STAR-D execution that clearly represent our top priority programs and have maximum resources allocated to them. We are observing momentum that is building behind these studies. And as such, we can reiterate our target of hitting the first milestone of 40 patients enrolled that will in turn trigger the first DSMB safety review this summer. And as stated previously, we believe STAR-D is coming behind STAR-T with approximately six-month window. PROCYSS, our top priority in eagerly awaited randomized clinical study in refractory septic shock is now actively enrolling at the majority of its sites in Germany. As we stated -- as I stated previously, multiple data readouts to look for in 2022, highlighted by the full 100-patient cohort from the CDC registry, but also more data on antithrombotic removal. And then finally our two international registries we believe are going to turn out to be incredibly important programs that will be a real-world evidence generation platforms and we'll be reporting high fidelity data both in cardiac surgery and critical care and we expect those data readouts to begin as early as 2023. And with that, thank you for your attention and let me turn it over now to Phil for some concluding remarks.

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.