Good afternoon, and welcome to Cytosorbents Second Quarter 2022 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 the call will be recorded at the company's request. At this time, I'd like to turn the call over to our moderator, Amy Vogel. Please go ahead, Ms. Vogel.

Thank you, and good afternoon. Welcome to the Cytosorbents second quarter 2022 financial and operating results conference call. Joining me today from the company are Dr. Phillip Chan, Chief Executive Officer; Vincent Capponi, Chief Operating Officer and President; Kathleen Bloch, Chief Financial Officer; Dr. Efthymios Deliargyris, Chief Medical Officer; Dr. Christian Steiner, Executive Vice President of Sales and Marketing and Managing Director of Cytosorbents Europe GmbH; and Christopher Cramer, Vice President of Business Development. Before I turn the call over to Dr. Chan, I'd like to remind listeners that during the call management's prepared remarks may contain forward-looking statements which are subject to risks and uncertainties. Management may make additional forward-looking statements in response to your questions today. Therefore, the company claims protection under Safe Harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from results discussed today and therefore we refer you to a more detailed discussion of these risks and uncertainties in the company's filings with the SEC. Any projections as to the company's future performance represented by management include estimates as of today August 2, 2022 and we assume no obligation to update these projections in the future as market conditions change. During today's call, we will have an overview presentation covering the operating and financial highlights for the second quarter by management. Following that presentation, we will open the line to your questions during the live Q&A session with the rest of the management team. At this time, it's now my pleasure to turn the call over to Dr. Phillip Chan.

Thank you very much, Amy, and good afternoon, everyone. We continue to make progress in the second quarter. First, as of the end of the second quarter, more than 179,000 cumulative CytoSorb devices have been utilized, up from more than 143,000 last year. Next, we announced today, the signing of an expanded global marketing agreement with Fresenius Medical Care, where CytoSorb will become a featured blood purification therapy on Fresenius Medical Care’s critical care platforms. We also entered into a three-year preferred supplier agreement with Asklepios Group, one of the largest private hospital operators in Germany. We partnered with Nikkiso to distribute the PureAdjust hemoperfusion blood pump and supplies in a total of 14 countries, a key part of our standalone machine strategy to expand the market for our products. We also hosted the 2022 CytoSorb World Users Meeting that highlighted the broad market potential of CytoSorb as an interdisciplinary therapeutic approach for a wide range of life-threatening illnesses. And finally, we relocated and established our company headquarters in manufacturing in Princeton, New Jersey in what was a great day for employees and our company. From a financial standpoint, total revenue, which includes product sales and grant income for the second quarter of 2022 was $8.5 million versus $12 million in the second quarter a year ago. Product sales were $7.3 million, which was mainly core with negligible COVID-19 sales, compared to $11.4 million in product sales in the second quarter a year ago, of which $9.7 million was core and $1.7 million was COVID-19 related. Despite the drop in product sales, as you can see from this table, it's important to note that Q2 2022 core sales were stable with the prior three quarters on a constant currency basis. Reflecting a 12% reduction in the euro to dollar exchange…

Thank you, Phil, and hello to everyone on the call today. I will briefly review Cytosorbents second quarter results in my remarks today. And in addition, I will provide an update around our working capital and cash for the remainder of 2022. Next slide, please. Total revenue including product sales and grant income was $8.5 million in the second quarter 2022, as compared to $12 million in the second quarter of 2021. Product sales for the second quarter of 2022 were $7.3 million as compared to $11.4 million in sales in the same quarter of 2021. The lower euro to dollar exchange rate negatively impacted sales by $840,000 in the second quarter of 2022. In addition, COVID-19 sales were negligible in the second quarter of 2022, as compared to an estimated $1.7 million in COVID-19 product sales in 2021. Direct sales were $3.4 million lower in the second quarter of 2022 due to continuing COVID-19 pandemic market restrictions, and also unfavorable currency conversions as previously discussed. Our grant income was $1.2 million in the second quarter of 2022 compared to $659,000 for the prior year quarter. And our second quarter 2022 product gross margins were 67% compared to 82% for the second quarter of 2021 due to inefficiencies caused by the necessary production shutdowns, which were associated with the relocation to our new production facility. I'll speak more about that in a little bit. Next slide, please. Looking at our quarterly sales trends over time, broken down by core and COVID-19 sales. We can see that the COVID-19 sales have declined to virtually zero in the most recent quarter. And as Phil discussed earlier, our constant currency core sales for Q2 2022 were comparable to the average currency adjusted core sales in the prior three quarters. Next slide, please. Turning…

Yes. Thank you, Kathy. This is Christian Steiner calling from Berlin, Germany. Good afternoon, everyone to the United States and good evening to Europe. As we have heard from Phil and Kathy, the macroeconomic situation for the whole medical device industry and also for our company remains challenging due to the changes in the healthcare systems. These include shortage of trained personnel and different allocation of resources and funds compared to the pre-pandemic times. Furthermore, we have to catch up for all the miscommunications with our customers and potential users due to visit restrictions, lack of opportunities to educate at conferences and other events and trainings and in-services, which could not be conducted. However, the response we have received from our users, customers, partners, and the market is widely positive and very encouraging, although not yet translated into growing sales of our CytoSorb therapy. First slide, please. My first slide shows the list of our key initiatives, which I have presented to you at the last earnings call. And I want to give you an update for each of these different points. This will mainly include number one, details on the development of our customer base in our direct sales markets. And second, what the progress has been in our key therapeutic areas of critical care, cardiovascular and liver kidney. And then in number three to six, the changes in expansions to improve our sales structure and processes this new partnerships and expansion of our direct sales footprint and our recently announced standalone CytoSorb treatment and hemoperfusion platform strategy. Next slide, please. The upper chart of this slide shows that the number of active customers in the direct markets has not changed over the last few quarters. The transparent red area represents the time of the pandemic, which is still…

Thanks, Christian. We're very excited about today's announcement with Fresenius Medical Care. The world's leading provider of products and services for patients with renal diseases, which we believe takes our partnership to the next level. The new agreement leverages FMCs global marketing horsepower, while physician in – as the feature blood purification therapy on their critical care platforms. This agreement increases a commitment from both parties and ensures an ongoing and consistent level of marketing, promotional activity and messaging in support of CytoSorb by FMC to go beyond the prior co-marketing agreement in a number of important ways. That said, let me take a moment to describe in more detail what's included and how it will help to increase awareness, the accelerate adoption of CytoSorb as well as provide the foundation innovations. The new global marketing agreement encompasses a multi-collaboration designed to seize new sales opportunities and jointly develop future innovation. A key aspect of this agreement is that FMC will be responsible for executing a worldwide strategy, excluding the United States to the marketing and promotion of CytoSorb in combination with its critical care products. These events will utilize a highly visible and prominent marketing channels, including various FMC led in person, virtual, social media, and web-based marketing programs featuring CytoSorb and will highlight the cooperation with new companies, the field of critical care. For example, 13 major international congresses in all regions of the world, excluding the U.S. have been identified where FMC will execute CytoSorb focused marketing and promotional events. In addition to marketing and promoting CytoSorb on its critical care platforms. Another key aspect of these campaigns will be about making CytoSorb a featured therapy for the removal of cytokines, bilirubin and myoglobin. The process is similar to hemodialysis mastered by Fresenius Medical Care to treat…

Thank you, Chris. And congratulations on the very exciting news of the Fresenius partnership. Good afternoon, everyone. And thank you for joining our second quarter earnings call. For the next few minutes, I will provide you with updates on our clinical studies. I will also review with you a long list of recent positive data readouts that we believe will serve as catalysts to our business. On the clinical front, we continue to make progress executing our studies, and we're now shifting our focus to driving enrollment. To execute these studies, we are working with major academic institutions around the world, and we continue to observe across the board the long lasting impact of the pandemic on these sites, specifically relating to staffing shortages. Having said that, we have made strong progress in the first phase of execution by getting the majority of the sites participating in our studies up and running. Accordingly, we are now shifting our focus and resources for the second executional phase of these studies, which is enrollment. Our FDA programs, the STAR-T and the STAR-D studies remain our top priority and our clinical teams are now laser focused on driving enrollment in both of these studies. It will be more to come on these two studies on the next slide. Importantly, one of our programs, the CTC registry is now completed and we're executing the third phase centered on data readouts and publications. We have also made significant progress in generating new positive data in support of our business. These efforts are led by our global medical affairs team that are now fully integrated within the therapeutic area verticals that you already heard from Christian referenced earlier. As noted on this Slide, 13 new original publications are already out this year and we expect this…

Thank you, Makis. Q2 marked an additional progress towards consolidating our operations into the new College Road facility. On March 31, we closed our original Deer Park facility that housed our administrative, R&D and device manufacturing operation. In June we received – we achieved another milestone with the first saleable devices being produced from the new facility, though polymer is still being produced in our second location in Deer Park, we expect to decommission this plant by the end of December and relocate the remaining operation to our new facility. This will mark a significant milestone bringing the entire U.S.-based CytoSorbents team into one location. Next slide, please. During this transitional phase, we experienced a four week shutdown to relocate and commission our existing fill lines in the new facility as well as relocate our R&D labs. Our production and R&D teams came together to make this move happen in a very short period of time, helping the freight costs by utilizing our own personnel. As expected we experienced higher costs in this transitioning period – in this transitionary period due to lower production outputs and less overhead absorption. We expect our costs will be higher through the end of the year as we continue to carry rent for both the Deer Park polymer production facility and our new facility. In 2023, we expect gross margins to return to previous levels as we complete the relocation to the new facility and could begin to capture manufacturing efficiencies, driven by elimination of duplicate rent and increased product demand as a result of improving market conditions. As volume increases, we will continue to see improvements in gross margin much in the way we observed for CytoSorb at the previous scale. Next slide please. As we follow along with our clinical progress in STAR-T and STAR-D, we are making initial preparations for the potential DrugSorb-ATR launch. We have assembled a dedicated launch team focused on completing those key items in support of regulatory filings and clinical outreach initiatives. These include product branding, defining product configurations, identification of accessories and establishing product usability through our STAR clinical sites. In addition, our commercial team is actively engaged with our clinical group to identify new potential study sites. We recently attended the American Association for Thoracic Surgeons, where we actively engaged with researchers to explore their interest in participating in the STAR trials. In addition to supporting our STAR clinical site identification, these early commercial activities will establish the necessary contacts to allow rapid access to the market, once approved – once approval has been achieved. Next slide, please. In summary, as a team, we are focused on launching DrugSorb-ATR into the market in the fastest, most efficient way possible. Thank you. This now concludes my remarks and I would like to turn it back to Phil. Phil?

Thanks very much, Vince. In summary, we're navigating through this period of uncertainty with a focus on tight fiscal management on investing in our key priorities. To reiterate these are one restoration of sales growth to our U.S. clinical programs STAR-T and STAR-D and potential future FDA approvals. Three, fully opening our new manufacturing facility in Princeton, New Jersey. And four new partnerships to drive growth. Although there's always more work to do we believe the strategy will result in a stronger company poised to take CytoSorb to the next level of growth. That concludes our current prepared remarks. Operator, please open the call up for the Q&A session.

Thank you. [Operator Instructions] Our first question is from Zach Weiner with Jefferies. Please proceed with your question.

Hey, thanks for taking my questions. Just want to start with hospital trends through in Europe and particularly in Germany. I know you guys talked a bit about it on the call and then just if you could give a bit more color, the some of the potential revenue that was lost due to the strike in Germany. Thanks.

Yeah. Thanks Zach. Christian, would you like to comment on the hospital situation in Germany?

Yeah. Thank you very much, Zach for the question. As you say, there is a number of facts which play into this business in Germany. One of course is the recent strike in the hospitals and it's called North Rhine-Westphalia, that's one of the biggest states of Germany with around 20% of the population and this obviously has impacted our business significantly. So all the big hospitals, meaning university hospitals and all the hospitals with more than 1,000 hospital beds have been down just to emergency procedures and operations. And this obviously had a big impact on our business. Then secondly, of course we are kind of – or we have kind of relaxed restrictions regarding the hospital access, however now – in second quarter and also now in third quarter the problem is that many of the staff members are infected and often this leads to a restricted or reduced operation of the hospitals. So these are the main points I think regarding the business. Does that answer your question?

That does, it's very helpful. And then just one on the STAR-T, STAR-D trials. I know you have talked about in the past some overlap in terms of hospitals in those trials. Can you talk about what percentage of sites that are enrolled are overlapped or essentially are doing both STAR-T and STAR-D and some of the synergies that we should expect due to that overlap and then I guess just, how we should think about timeline of those trials? Thanks for taking the questions.

Thanks, Zach. Makis, would you like to take that?

Sure. Thanks for the question. We now, as I mentioned on the call, have the bulk of the sites in both sides activated and approximately 80%, maybe a little over 80% are participating in both trials. So that actually exceeds our initial plan of having about two-thirds of the sites overlapping. We now are over 80% overlap. And the type of synergies that we expect, a part of those synergies we already experienced in a start-up phase where we saw the execution of contracts, the execution of IND submissions moving a faster pace we started STAR-T based on the preexisting work. As we are moving now in Phase 2 driving enrollment of the studies, example of the synergies of course include that anytime we engage with these sites, we can now talk about both trials instead of having to visit separate sites and discuss individual each study. And so the second thing is that in addition to be executed in the same location, these studies are also basically identical in the study related procedures. So educating these sites and ensuring they're executing according to the protocols now applies to both trials. And then finally, the feedback we're getting from sites is once they start enrolling and they see that both the study itself, the study related the procedures are not difficult to execute. And the familiarity with the device increases. We believe that will accelerate their ability to recruit in both of these trials. And then finally, at the source of these patients, although many of them are coming through the emergency room at multiple occasions, these patients are also referred from outside hospitals. So being able to participate in both studies that increases the capture radius for these hospitals from the referring centers, based on the fact that are now can target patients on multiple agents and not just cardio or DOACs. So I hope that answers your question. That was the – relating the synergies. And then the last part, if I remember was if we can provide, give you an update about the progress in the studies. I think we already provided some comments on the state of execution we are now. We are actively now shifting from the start-up phase to helping these sites identify eligible patients and educate these sites with the intent of improving enrollment. You also heard commentary both from Christian, Phil, and myself about the lasting impact of the pandemic on the sites. And we certainly saw that during the start-up phase that these sites are still struggling to fill positions for their staff that were lost during the pandemic. So again, we are targeting the first milestone with STAR-T to becoming the next few months and then hopefully the near future with the new information coming from screening logs from STAR-D as it's beginning enrollment, we should be able to give a little more visibility to path forward for the second as well.

Very helpful. Thanks for taking the questions.

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

Hi, this is Brian here for Josh. Thanks for taking my questions. I wanted to start with just the sales expectations embedded in the guidance now. So you reference some improvements in key markets. I recognize there are a lot of variables affecting the guidance currently, but can you frame how you're thinking about the back half of the year compared to the first half 2022 sales and maybe even the sequential trends for the third and fourth quarter and how these could compare to those in a typical year?

Yes, Brian, thank you very much. As we discussed in the last call, we actually withdrew yearly guidance based on the number of variables out there that we have little control over and the slow recovery of the German markets. I think what you're hearing from us today is that we are seeing early, but encouraging improvement in our core markets has not yet translated as of the end of the second quarter into improvements in our financial results. And we're cautious about the second half particularly given that the third quarter is typically seasonal with vacations and where many people across Europe are on typically going on vacation in July and August. So Q4 typically is our strongest quarter of the year. We expect that that will be the case again this year, but we are taking a wait and see attitude, but in the meantime again, tightly controlling our financial costs and cash and conserving cash while we're actively pursuing the things that will help drive our business going forward.

Okay. Thank you. And I want to follow up with maybe a more specific question about the STAR trial timeline. So you'd previously outlined some timelines for finishing enrollment for both studies. Is it safe to assume that both trials are generally tracking within three months of these prior enrollment targets and just anything you can help with how you're seeing enrollment trends at already activated clinical sites? Thanks again for taking the questions.

Sure. Mike, did you want to comment on that?

Sure. So starting from the back end of the question, the three month window based on what we have communicated previously, yes, we think that still applies and based on our guidance today, the STAR-T will be the first trial to hit that first milestone. The enrollment pace we believe will track the number of sites activated. So we expect now moving forward to have enrollment pickup simply as a function of having the bulk of the sites activated while in previous months we were working with fewer sites open. STAR-D is still early as I mentioned. So the enthusiasm obviously is a positive sign that we're seeing from sites. And the fact that early evidence from their screening log seems that they do see these patients but we don't have enough data yet to be able to provide you with an estimated timetable for STAR-D as it comes to hitting its first milestone. Once we achieve the first milestone, which one-third of enrollment, we will obviously be tracking towards the second important one, which is the interim analysis. And we think we’ll have better visibility towards that on our next earnings call.

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

Good afternoon, guys, and thanks for taking my questions. First, I’d like to congratulate you on the new agreement with Fresenius. I was wondering if you could provide some more color on how much sales is FMC responsible for right now for you guys. And what do you expect this growth can get to with the new agreement in place?

Yes. Hi, Sean. I’ll let Chris comment on this a little bit, but today, most of our sales are either driven by us directly in our direct sales territories or by our independent distributors in other countries around the world. We have a co-marketing agreement with Fresenius that it has existed from previously, but it is not a targeted agreement that we have now where Fresenius is now actually financially incentivized to drive marketing of CytoSorb. And also, we did not have at that time this commitment to make CytoSorb a featured blood purification therapy for the removal of cytokines, myoglobin and bilirubin. So we think that the new agreement will has first of all, it’s a much bigger win-win for both companies. It represents an increase in commitment for both sides to move forward the partnership in a very constructive and positive way, and believe that because it is a global partnership where it extends everywhere with the exception of the United States, that it has the capacity given that Fresenius is the number one or number two player in critical care around the world, in terms of placement of their machines, in terms of their sales force and marketing presence that it has the potential to really drive sales of CytoSorb in the future. But again, they will be doing marketing. We will be doing the selling but we think that will be a great mix. With that maybe, I’ll turn it over to Chris to maybe for some additional color. Chris?

Yes. Thank you, Phil. I think that was a good. Yes, I think that the big drivers here, number one, you had mentioned of COVID, we really hadn’t had the same to customers and to accounts we had before. So a big part of really what we’re doing is trying to get the CytoSorb message out to users. Number two, I think really piggybacks on what Makis had mentioned is that, we’ve got new data coming out and there really isn’t a better way to kind of bring this new data to customers than having a power and megaphone that, that FMC brings to this 13 plus Congress is lined up where we’re going to have a chance for them to really kind of supplement what our sales and marketing team is doing. And I think this innovation group was the last piece that I just wanted to mention that I think could have an impact on sales. And there’s a larger component. There’s also a near-term component to that. And we’ve talked about designing really indication specific marketing campaigns, and you can think about the therapeutic areas that we play in right now in areas like sepsis and maybe liver, where we think we can really make some headway in that message out and really discussing how we penetrate more competitive accounts where it’s in the best interest for both to really access those accounts and of course, winning tenders. And I think there’s a lot of things we can do in combination with your collaboration that can help accelerate sales. So hope that answers your question.

Yes. That was very helpful. Thanks. My second question is on the STAR-T and STAR-D trials, with the two plan interim readouts DSMB reviews. Will we see any data releases at those times?

Yes. Thanks for the question. So the first milestone is a safety review. So in that regard, the DSMB will review the blinded data and unblinded data. That will provide us with a recommendation relating the status of the study continue or require potential modifications. The second analysis after 80 patients, so two-thirds through enrollment includes both second safety review, so they will repeat the similar kind of exercise that they do after 40 patients, but they would also under pre-specified criteria evaluate efficacy. So it is no longer just a safety review. Based on those results on unblinded data that DSMB will come back with a recommendation of whether to continue the study or stop the study based on the efficacy results they have already reviewed. At that point, we will communicate the DSMB recommendation. And according to what that recommendation is, for example, if the study stopped, for efficacy, that will soon there follow with the release of the data, if the study is going to be completed. So the study is ongoing, we will remain blinded to the data and we will not be releasing any data until the study completion. I hope that answers the question.

Yes. That was helpful. And my final question is on the potential commercial launch of DrugSorb in the U.S. So I see that you guys already started some preparations to that end. So I was wondering whether you’ve decided to do an independent launch and direct sales or through partners or some sort of a hybrid model.

Yes. Vince, did you want to comment on that?

Sure. Sure, Phil. I’ll do that. So we’re looking at doing a hybrid model, clearly, there are certain markets that would be best serviced by distributors where there are other areas, geographic areas where we intend to go direct and part of the outreach program that we’re going through right now, working with clinical is helping us get an understanding of who are going to be key players in what markets. We’re also doing a significant amount of market research to understand where the largest amount of Ticagrelor is being used within the country, which will also help us Sean, identify where we want to go direct.

I think that’s all I have. Thanks again for taking my questions.

Thanks, Sean.

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

Well, thank you very much, everyone for joining the call today. If you do have any other questions, please feel free to reach out to Amy Vogel at avogel@cytosorbents.com. And we’ll try to reply to your questions where possible. I look forward to our next quarterly call. Thank you very much.

Thank you. That concludes our conference for today. I’d like to thank everyone for their participation.