Good day, and welcome to the CytoSorbents Corporation Third Quarter 2022 Earnings Conference Call. Today's call is being recorded at the request of the company. [Operator Instructions] At this time, I'd like to turn the conference over to Michelle Almonte. Please go ahead.

Thank you, and good afternoon. Following the formal remarks today, we will open the call for your questions. Please be advised that the call will be recorded at the company's request. 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, VP of Business Development. Before I turn the call over to Dr. Chan, I'd like to remind listeners that during the call, management's prepared remarks may contain forward-looking statements, which are subject to risks and uncertainties. Management may make additional forward-looking statements in response to your questions today. Therefore, the company claims protection under safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from results discussed today and therefore we refer you to a more detailed discussion of these risks and uncertainties in the company's filings with the SEC. Any projections as to the company's future performance represented by management include estimates today, as of November 3, 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 third 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, Michelle, and good afternoon, everyone. From an operational standpoint, we've been making good progress. As we continue to celebrate our 10th year of commercialization of CytoSorb, we've had 186,000 cumulative CytoSorb devices utilized as of the end of the third quarter, up from around 152,000 last year. Efthymios will discuss in his comments in greater detail, the STAR-T trial is enrolling well, and we expect to achieve the first milestone of 40 patients this month. This puts us on track to potentially complete the study by summer of next year. Yesterday, we announced final key data from the U.S. CTC registry on a 100 critically ill COVID-19 patients with refractory respiratory failure from five U.S. ECMO centers, where enhanced lung rest with CytoSorb and ECMO led to a 90 day survival of 74%, and where early intervention yielded better clinical outcomes. During the third quarter, we achieved ISO 13485 certification of our Princeton, New Jersey manufacturing facility. We also have some excellent news on the reimbursement front with reimbursement of CytoSorb by the Israeli Ministry of Health for cardiothoracic surgery, which will go into effect in 2023 and reimbursement from the Turkish Ministry of Health for critical care and cardiothoracic surgery applications. We recently announced two major awards for our HemoDefend-BGA product that enables universal plasma that could be given to any patient. The Department of Defense has awarded us a $2 million two year award to develop commercial-ready devices for preclinical porcine studies and a $4.3 million three year award to customize a device to enable freeze-dried universal plasma that could be used off the shelf for patients in trauma and in military service. Finally, we announced the release of new cardiac surgery data at EACTS 2022, highlighting new positive data using CytoSorb intraoperatively during cardiothoracic surgery to improve outcomes in staph aureus endocarditis, heart transplantation and antithrombotic drug removal and also received a $282,000 award from NIH to test new and existing polymers for cytokine and LPS endotoxin removal to advance new treatments for deadly gram negative sepsis. With that, I will now turn it over to Kathy Bloch to cover our financial performance for the quarter. Kathy?

Thank you very much, Phil, and hello to everyone on the call today. I will briefly review CytoSorbents's third quarter financial results. And in addition, I will provide an update around our working capital for 2022 and beyond. Next slide, please. Total revenue, including product sales and grant income was $8.1 million in the third quarter of 2022 as compared to $9.8 million in the third quarter of 2021. Product sales for the third quarter of 2022 were $6.5 million as compared to $8.9 million in product sales in the same quarter in 2021. The lower euro to dollar exchange rate negatively impacted 2022 sales by $771,000. In addition, COVID-19 CytoSorb sales were negligible in the third quarter of the current year as compared to an estimated $1.1 million in COVID-19 product sales in the prior year. Product sales continue to be negatively impacted by COVID-19 pandemic market restrictions. On a constant currency basis, however, third quarter 2022 core non-COVID sales were $7.2 million, and this represents a 7% decrease from the $7.8 million in core non-COVID sales a year ago. Our grant income was $1.6 million in the third quarter of 2022 as compared to $859,000 in the prior year. 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 to virtually 0 in the last two quarters. COVID-related sales were negligible in 2022 compared to $6.3 million in the year 2021. Next slide, please. This slide is our trailing 12 months product sales graph, and it breaks out our core versus our COVID-19 sales. COVID-19 sales were $7.1 million in the trailing 12 months ended September 30, '21, compared to $2 million in the trailing 12 month period ended September 30, 2022,…

Yes. Thank you, Kathy. Good afternoon to everyone from the United States, and good evening to Europe. As we have heard from Phil and Kathy, the macroeconomic situation for many medical device companies, but especially also for CytoSorbents with its paradigm shifting therapy approach remains challenging. I reported at the last call that we have started to catch up for all the missed communications to our customers due to visit restrictions and the lack of opportunities to see, educate and grow our CytoSorb users community, and furthermore, that the response we get currently from our customers and partners from the market is widely positive and very encouraging. First slide, please. Today, I want to give you a little more flavor, how the state of the CytoSorb users community has developed. I will show you how the enormous number of activities of our medical and commercial teams is fueling the excitement about CytoSorb. More and more key opinion leaders from different medical specialties are supporting us and the involvement in specific projects to further develop our therapy is growing. I also want to emphasize some of our growth opportunities and initiatives such as the recent agreement with Fresenius Medical Care in the therapeutic areas of critical care and liver kidney. The importance of our standalone blood pump synergy and some of our new application fields in our therapeutic areas. Next slide, please. I have mentioned during the last call that we held a CytoSorb World Users Meeting in July in Berlin to demonstrate the state-of-the-art of our therapy after 10 years of market development. Almost 300 key opinion leaders, clinicians and researchers came from all over the world to discuss advances, new data and best practice of the use of CytoSorb therapy. The preview presentations of four major new data sets…

Thank you, Christian, and good afternoon, everyone. On today's clinical update, the theme will be visibility and prioritization. The first slide is a summary slide and outlines the highlights of my presentation that will include STAR-T as our lead horse to the U.S. market that we are now prioritizing with all of our resources to ensure speedy execution. The STAR-T enrollment update showing an uptick and now with our updated guidance that we project to hit milestone #1 with 40 patients enrolled later this month. We recently received FDA approval to expand STAR-T to Canada, a country with very high rates of ticagrelor use. And with better visibility now into the enrollment rate of STAR-T, we are projecting that the trial will complete next summer. Meanwhile, STAR-D activities will temporarily pause to allow greater focus on STAR-T and to preserve cash in the short-term. STAR-D will resume or STAR-T crosses the finish line or as our financial situation improves, whichever comes first. Our international STAR registry is enrolling fast, highlighting the increasing penetration of antithrombotic removal in the real world based on a dominant clinical and economic value proposition, and I will share some more data on that topic later. The constant stream of positive data with CytoSorb in cardiac surgery and critical care is continuing. And right now, we have over 20 original presentations and publications already this year. And most recently, we presented the main results of our CTC registry at the European Society of Intensive Care Medicine with excellent outcomes with our pioneering enhanced lung strategy -- enhanced lung rest strategy combining the use of CytoSorb plus ECMO in patients with severe respiratory failure, otherwise turned ARDS. Next slide, please. Now for the STAR-T study specifically. We are very encouraged by the enrollment pace of STAR-T and…

Thank you, Efthymios. I'd like to talk to you today about a new opportunity for CytoSorbents technology in the field of transplantation. There's a high demand for more transplants throughout the world. Today, more than 165,000 people in the U.S. and Europe are on the transplant waiting list. Unfortunately, the annual supply of donors is not keeping pace with that demand. Each year, just over half the organs needed by patients on the waiting list are donated either by donation after brain death or donation after circulatory death, roughly 92,000 organs or 55% of the overall need. This organ donor shortage is expected to grow as demand for organs outweighs the supply. On top of the supply/demand imbalance, there's a low utilization rate of these donated organs due to the inherent limitations of cold storage and the resulting high rates of hyperinflammation. Static cold storage, the current standard, presents physiologically adverse conditions for the organ and often results in severe ischemia. In addition, donor organs are often irreversibly damaged due to hyperinflammation. These combined effects result in very low utilization levels. And today, only 10% to 30% of donor organs are utilized, leading to a severe demand/supply imbalance in organ transplant. A new approach called ex vivo perfusion or EVP, aims to preserve or improve organs for transplant and increase the organ donor pool. However, because EVP does not reduce hyperinflammation, it also represents a new opportunity for Cytosorbents technology to play an important role in organ transplantation by mitigating cytokine release and removing harmful inflammatory mediators. Next slide, please. We now have publications documenting the use and positive effects of Cytosorbents technology in ex vivo organ perfusion and transplantation across multiple solid organ types, including heart, lung, kidney and liver. Of note is the recent publication in Nature Communications,…

Thanks, Chris. We continue to make progress both in our new facility relocation and startup as well as our R&D programs. In Q3, we received our ISO 13485 certificate for the new facility and prepared for our first polymerization trials, and we fully expect to relocate the remaining operation to our new facility by the end of December. In addition, we received 2 grants related to the HemoDefend-BGA product supporting preclinical animal testing and scale up of the technology. Next slide, please. Q3 proved to be an excellent quarter for additional DoD funding with our HemoDefend-BGA program, with 2 new grants approved, providing nearly $6.5 million in new funding. Our HemoDefend-BGA program will facilitate the development of universal plasma, low-titer whole blood and universal freeze-dried plasma. The military has shown significant interest in universal freeze-dried plasma given the advantages of simple storage, long shelf life and ease of transport, key attributes required for military application. We believe the very attributes the military is interested in these new blood products will facilitate adoption in the civilian markets as well and provide a significant opportunity in the future. Our R&D teams remain focused on advancing these programs to support the development and monetization of these assets. Next slide, please. Our new ISO 1345 certificate in hand, we now start the large task of beginning reregistration of CytoSorb in the 60-plus countries outside the EU. The majority of the countries can be registered within 3 months of notification, but some countries may take as much as a year to do so. We have conducted a significant planning for this registration process and believe we are well prepared. However, as with any regulatory process, there can be delays, but we do not believe this will occur. Regarding polymer production scale up, we have begun…

Thank you very much, Vince. Now I'd like to summarize the key points of today's discussion. First, STAR-T is enrolling well, and we expect to achieve the first milestone of STAR-T this month and are focusing our resources on driving this trial to completion, including adding Canadian centers, which we believe will accelerate enrollment. As Mike has discussed, we have many reasons to prioritize this trial. Along these lines, we will also temporarily pause STAR-D to focus on STAR-T and save roughly $4 million in cost in 2023, but are absolutely committed to STAR-D and will resume at the appropriate time. Our markets are facing numerous challenges related to the COVID pandemic and geopolitical uncertainty in the macroeconomic factors. The third quarter sales reflects this and the traditional seasonal third quarter. Recovery will likely be gradual. But that said, we have lots of reasons to be optimistic about an eventual return to growth. First and maybe most importantly, we still have the excitement and energy amongst our users. They're eager to learn about all the new advances and discoveries that we're making and putting that knowledge to work in their own practices. Meanwhile, we are working on many initiatives to drive sales and even growth in this challenging environment. Cash preservation is paramount with the goal of adding nondiluted debt by year-end and actively controlling expenses by reducing or eliminating noncore, nonpriority items. Our new manufacturing facility is expected to be fully online by year-end, and we have high confidence in returning product gross margins to historic levels. And finally, we have many exciting new areas of expansion with positive data to help drive future growth. These include the treatment of acute respiratory distressed syndrome, liver dysfunction and failure, antithrombotic drug removal, organ transplant, ex vivo organ perfusion and many others. That concludes our prepared remarks. Operator, if you would, please open up the call to the Q&A session?

[Operator Instructions] And we'll take our first question from Zach Weiner with Jefferies.

I just want to start on Germany. Can you talk about performance in the region and sales rep access as the quarter progressed? And any color you can provide on how things are trending in the early parts of the fourth quarter?

Thanks, Zach. Christian, would you like to comment on that?

Yes, sure, Phil. Zach, thank you for the question. The situation I think is generally unchanged from the last call in terms of ICU bed availability. So in general, the big hospitals have a reduction of ICU bed capacity by about 25% to 35%, which is mainly based on the lack of personnel. So because of the pandemic, lots of doctors and health care professionals have quit their duties. And so it's very difficult for the hospitals to keep the capacity they had pre-pandemic. This, of course, has impact on different other things. This has impact on patients they can accept from other hospitals. And this has also impact on the surgery procedures the hospitals can perform. And all these -- obviously, all these processes are feeding our patient funnel if we want to say so. So that's why the number of patients is still limited at the moment, and we hope that especially the surgical programs are revamping and revamping and going up in the next few weeks and months. So in general, the situation from the customer access has improved. We have still not the 100% number of visits as we had it in average before the pandemic. This is mainly because of certain regulations that you can enter hospitals only with fixed appointments. Obviously, we have those. But in the past, we also used cold calls very much to go to different customers and potential customers. This option is limited at the moment. And this obviously also is impacting the acquisition of new customers. Yes. This is, I think, the general situation. But again, what has been said several times in this call, it's interesting that the visits we are having and the discussions are really overly positive. So the users are very much open and happy to have these discussions again, get new information about the therapy, get new data and have these discussions and analysis how to treat patients better. So the response from the customers and users is, I would say, 95% positive. And also in the past, we have discussed applications which were unfavorable or neutral. And we could show in many discussions with the users that those studies are often selecting the wrong patients or having the not up-to-date treatment regimen. And all these are obviously can lead to less optimum outcome of these therapies. So we have initiated a number of programs, for example, one is called we have talked about this right patient, right timing, right dosing. And this is focusing and addressing that the patient selection is clear, and you have the right patients, which is sick enough, but not too sick that the therapy is initiated early, and we have seen this in the CTC data again and that the number of treatments per patient has to be adequate. And this leads more and more to a new therapy regimen in many indications and will lead also to more assumption. I'm pretty sure. Is this answering your question?

Yes. No, that's helpful. One on STAR-T and the decision on STAR-D. I know you had talked about some synergies between the two trials. And can you talk about how those synergies obviously will be impacted with the pause of the STAR-D trial? And any rough time lines on when that trial will restart?

Efthymios, would you like to take that?

Sure. So thanks for the questions. The main synergies at most of our sites are executing in both trials. So in that regard, the decision to pause doesn't really impact our sites. We will continue to screen the renewal, but now be focused on 1 of the 2 trials. We think that the increased focus may also help enrollment in addition to, obviously, our own increased focus by shifting our resources through the one trial right now. The timing of resumption depends on 2 things, primarily the completion of STAR-T and for the first time today, we kind of gave it pretty -- gave a projection for that based on the increased visibility we have now. And it also evolved a little bit around our financial situation. So should that improve ahead of the STAR-T completing, there is a chance that we would initiate -- resume STAR-D earlier. But we more than likely we see these trials now playing out sequentially instead of being in parallel. So as we're crossing the line in STAR-T, we will resume STAR-D again. And we estimate that for STAR-T, as we said today, we will appear sometime next summer if we end up going all the way to the end, meaning to the 120 patients.

That's helpful. One last one, if I could sneak in. I know you guys have a lot going on, the R&D and the pipeline and things of that nature. Besides STAR-T, I guess, are there -- if you could pick 1 or 2 opportunities that you're most excited about, most near term that could drive revenue, what would those be? And could you size those opportunities?

Phil, you want to take this one -- yes. So what you heard today is that from many of the speakers from the management team that our application has a very broad range of applications that it can provide significant substantial important and meaningful clinical benefits. In that regard, we are executing 2 registries, as you know, in Europe, one called the COSMOS registry. And the other one that I referenced today, the STAR registry, which are meant to gather real-world data at all these applications. They're very broad in nature. It will allow us to be able to get high stability outcome data across a multiple of applications. I think that type of data, which would be similar to the CTC data we presented today will be very significant in informing our decision on what would be the next development target following antithrombotic removal. But as for now, the absolute laser focus is STAR-T and right behind it, STAR-D. We said it a few times today, I just want to emphasize it once again. We are not walking away from STAR-D. This is a temporary pause based on the strategic considerations and business considerations we discussed, but we are completely committed to STAR-D. So we have 2 trials to execute. And then by that time, we're hoping to have the third one in the works. But for now, I would just refer to the some more data coming out of our registry to inform our next development targets.

Next we hear from Sean Lee with H.C. Wainwright.

I just wonder, are there any additional steps you guys are taking to mitigate the effect of the inflationary environment, the pressures on the hospital budgets and also the U.S. and the EU exchange rates since these are headwinds that we're probably likely going to see for the next 6 to 12 months?

Kathy, did you want to take that?

Yes. Thanks, Sean, for the question. We've been very fortunate that we've been able to keep costs down, to some extent, by volume ordering, especially on the production side. So that's been helpful. We have seen increases in obtaining and retaining personnel, which we've been dealing with over the last 9 months or so. And then, Sean, I think you know with regard to the euro, we think that we have a natural hedge, right? Because although our sales go down when the euro goes down because of the exchange rate differences, we also have substantial expenditures in euros, and those go down as well. So we do feel that that is probably the most effective hedge that we have and other financial instruments that we've looked at are extremely expensive to implement and require projecting cash flows, which at this early stage of our company were in terms of product sales, et cetera, and the difficult market conditions that we have right now, we're not comfortable really doing that to a large extent.

My second question is on -- last month, PhaseBio declared bankruptcy and they have an agreement to sell their product bentracimab, which is for the removal of ticagrelor to another undisclosed large pharma. I was just wondering whether this has any impact on your development time lines?

Thanks very much, Sean, for the question. Maybe, Efthymios, if you'd like to take that?

Sure. Thanks. Yes, thanks for the question. I alluded to this in my prepared remarks that this is a very recent development that PhaseBio announced that they filed for bankruptcy. And that probably complicates the path forward for them and bentracimab. We don't use bentracimab as obviously a direct analog to our -- we believe the approaches are very different. We continue to strongly believe that when it comes to preventing bleeding, our drug removal approach is a better strategy than the drug reversal, which is what a lot of these agents can do. Obviously, we don't have any data to support that. We're basing it on mechanistic approaches that are very different, and we believe ours is better, and also, of course, by a real-world experience in Europe that is also so positive. So in that regard, based on the development study that they executed the [REVERSE] trial, they were targeting similar patients. And they were trying to reverse ticagrelor ahead of surgery to prevent bleed while we obviously remove the drug doing surgery to reduce bleeding. So a little different strategies, but to some extent, they could be viewed as competitive. So we think that further opens up the road for us. And that's why we mentioned the first-mover advantage potentially for us since [metuximab] was in the -- had already filed the application with the FDA. So again, without commenting too much on what the future looks like for them, we do view that also as an important dynamic in our favor moving forward.

Yes. And Sean, one of the advantages that we have is that our technology can be incorporated during cardiac surgery intraoperatively into the heart-lung machine circuit and remove drugs during the surgery. And it's not limited to one specific drug. In fact, DrugSorb-ATR can remove not just ticagrelor, but can remove the DOACs. We have data that it can remove the direct thrombin inhibitors like Pradaxa. So we believe that this will be a one-stop shop for cardiothoracic surgery applications to remove these blood thinners because it really doesn't matter what kind of blood thinner it is, provided that it's reversible. Unlike the reversal agents, the biologic reversal agents are extremely expensive, have a very limited shelf life, and it's very specific to a particular agent. We have a shelf life of three years at room temperature, and our product can be very easily integrated without any transition problems going from the surgery to the ICU. This is just one and done in surgery and it's over, and it can be implemented very rapidly into the heart and lung machine. So we think that there's a lot of advantages that we have over that. And obviously, we'll see how things play out for them. But we've always considered ourselves as a unique solution to this very vexing problem.

Our final question will come from Josh Jennings with Cowen.

This is Brian here for Josh. I have two on STAR T-related milestones, if I could. First, I wanted to ask specifically about the filing plan. So assuming you complete enrollment of STAR-T next summer, is the plan to immediately make an FDA submission based on those results alone? Or is your plan to make the regulatory filing or I guess, filing sometime after you complete STAR-D based on the two trials combined results?

Brian, we consider these two very separate events. So one will be to -- one filing will be for the removal of ticagrelor and the STAR-T trial will have all the data, hopefully, that will support that FDA marketing application. And then STAR-D, which would be for the removal of the DOACs like ELIQUIS and Xarelto would come later after we finish that trial. And hopefully, it will be used to just expand the label for DrugSorb ATR.

Okay. That makes sense. And then I wanted to ask about the DSMB reviews. So is the first review focused solely on safety? And is it the second review that provides the opportunity to either resize the trial or conclude it early? Just any details you can provide on the objectives of the 2 reviews would be really helpful? And what, if anything, you intend to communicate to investors about each of the reviews findings. So thanks again.

Efthymios, would you like to cover that one?

Sure. Thanks. Okay. First of all, apologies. I was meant to provide that clarity in my slides, but I didn't spend too much time explaining. But we have 2 prespecified, actually 3 prespecified DSMB meeting in the trial. The first one is that 33% enrollment. That's the one that's coming next that we're very close to. And this will focus on safety. So once we randomize the 40th patient in the study, then we will require the necessary time to complete the study follow-up, which is0 about 30 days during that time, clean the data, convene the meeting, have the meeting, provide us back with a recommendation and then execute the study. So continue executing the study, hopefully. But the plan for communication is that, first of all, you will hear when we hit the 40 patients. And then the next month would be when the DSMB action consumes, holds the safety review and reports back with their finding. The second one, which is prespecified again at 2/3 enrollment after 80 patients are enrolled, it's a combined safety review again, follow-ups, but also a dedicated interim analysis. In that review, the same group that DSMB will actually look at the efficacy that the trial has after 80 patients by reviewing unblinded adjudicated data. So the execution of that meaning it's going to be operationally overall complex. But the intent is that they are able to take a look because if the efficacy is already established based on prespecified statistical boundaries, then the DSMB has the option to recommend that we stop early for efficacy. And at the same time, of course, that we review safety again. So that's the second milestone. That's when we hit 80 patients. And then according to when those reports come in, from DSMB, we'll see where we'll be in the trial, we'll might be close to the finish line anyway. So we'll make that determination then. So to summarize, after 40 patients just safety, after 80 patient safety and a formal interim analysis and then the final DSMB review that will take place at whenever we complete the trial to give a formal final review of the safety. I hope that helps. Yes, that's very clear.

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

Thank you, everyone, for joining the call today. If you do have any other questions, please feel free to reach out to Michelle Almonte at malmonte@ cytosorbents.com and we'll try to reply to your questions where possible. We look forward to our next quarterly call. Thank you very much, everyone, and good night.

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