Good afternoon, and welcome to Cytosorbents' First Quarter 2024 Financial and Operating Results Conference Call. [Operator Instructions] Following the formal remarks, we will open the call for your questions. Please be advised that the call will be recorded at the company's request. At this time, I'd like to turn the call over to our moderator, Eric Ribner. Please go ahead, Mr. Ribner.

Thank you, and good afternoon. Welcome to Cytosorbents' First Quarter 2024 Financial and Operating Results Conference Call. Joining me from the company are: Dr. Phillip Chan, Chief Executive Officer; Vincent Capponi, President and Chief Operating Officer; Kathleen Bloch, Chief Financial Officer; Dr. Makis Deliargyris, Chief Medical Officer; Dr. Christian Steiner, Executive Vice President of Sales and Marketing; Christopher Cramer, Senior 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 the 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 May 9, 2024, 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 first quarter of 2024 by Dr. Chan and Ms. Bloch. Following that presentation, we will open the line to your questions during the live Q&A session with the rest of the management team. And now it is my pleasure to turn the call over to Dr. Phillip Chan.

Thank you very much, Eric, and good afternoon, everyone. We are pleased to announce the achievement of $9 million in product sales in the first quarter of 2024, which is a 14% increase from $7.9 million a year ago and a 22% increase sequentially from $7.3 million in the fourth quarter of 2023. Another major accomplishment for the quarter was the expansion of our product gross margins to 76%, up 800 basis points from 68% in Q1 of 2023, excluding a onetime nonrecurring inventory adjustment recorded in the first quarter of this year. This is squarely within our previous guidance of achieving 75% to 80% product gross margins during this year and highlights the scalability and efficiency of our state-of-the-art manufacturing facility and processes. As you will hear from Makis later, our STAR-T data was presented for the first time by principal investigator, Dr. Michael Mack, at the 104th Annual Meeting of the American Association for Thoracic Surgery or AATS in Toronto, Canada, one of the most prestigious cardiothoracic surgery conferences in the world. We also hosted a virtual KOL an Analyst Investor Day earlier this week featuring a review of the STAR-T pivotal trial results and real-world experience with blood thinner removal in Europe with a replay available by clicking this link here. Based on our current status, we believe we are on track to submit marketing applications in parallel for the investigational DrugSorb-ATR system to FDA as a de novo application and Health Canada in the third quarter of this year. We have now cumulatively delivered more than 237,000 devices and expect to reach 0.25 million devices this year. Later this quarter, we also expect to take delivery of and launch our PuriFi hemoperfusion pump in select international countries. We already have strong interest from customers in many countries where dialysis is not well established and where an easy-to-use machine like PuriFi enables the treatment of patients with CytoSorb. In more established countries like Germany, the availability and simplicity of PuriFi is expected to spur early usage of CytoSorb in the disease process and may enable more types of treatment such as the treatment of chronic liver disease. We are seeing strong customer responses to the new positive data being published on CytoSorb in a wealth of applications such as acute liver disease, the first proof-of-concept randomized trial in heart transplant, the first use cases in hemorrhagic shock, septic shock and fluid balance, improved survival in burn patients with sepsis in kidney injury, and a review article summarizing the benefit of CytoSorb in the treatment of acute respiratory distress syndrome, just to highlight a few. One of the reasons we believe there's so much more room to grow is because CytoSorb addresses the core problem of severe uncontrolled inflammation in these life-threatening conditions that can otherwise lead to organ failure and death. At this time, I'd like to turn the call over to Kathy to cover financial highlights. Kathy?

Thank you, Phil, and hello to everyone on the call today. I will be discussing our first quarter financial results, including revenue and gross margins, and I will also be providing an update on our working capital and cash runway. Next slide, please. CytoSorb product sales were approximately $9 million in the first quarter of 2024 compared to $7.9 million in the first quarter of 2023, an increase of approximately $1.1 million or 14%. Our first quarter 2024 grant revenue was approximately $797,000 as compared to $1.5 million in the first quarter of 2023, and this decrease was due to the conclusion of several grants which we completed in 2023. Our total first quarter 2024 revenue, which includes both product sales and grant revenue, was approximately $9.8 million as compared to $9.4 million in 2023. And product gross margin was 76% in 2024, an 800 basis point increase compared to product gross margin of 68% in 2023. We do note that first quarter 2024 product gross margin calculations exclude the impact of a onetime inventory adjustment recorded during the quarter. Next slide, please. The blue bars of this chart represent our annual product sales for the trailing 12-month period ended March 31 for each year, 2018 to 2024. We know that 2021 and 2022 product sales were favorably impacted because CytoSorb was used extensively to treat COVID-19 patients. And of course, this usage ceased following the containment of the pandemic in the years ending March 31, 2023 and 2024. If we take a look at the orange trend arrow, which tracks along core non-COVID-19 revenue, we can see that post-COVID-19 12-month period ending March 31, 2023 and 2024 continued to show positive growth in our core non-COVID-19 -- COVID-19 product sales. The post-COVID market has been challenging for reasons we've…

Thank you, Kathy. Next slide, please. And good afternoon to everyone on the call today. In the next few minutes, I will review the current state of our clinical and regulatory activities for the upcoming submissions to regulators in U.S. and Canada that will hopefully provide you the necessary visibility into our efforts to make DrugSorb-ATR available to North American health care providers. First, I would like to remind everyone that DrugSorb-ATR is a breakthrough device. In fact, the FDA has granted 2 separate breakthrough designations for DrugSorb-ATR. First, for the removal of ticagrelor in patients undergoing urgent or emergent surgery. And the second one for the removal of the 2 market-leading anticoagulants, apixaban or Eliquis and rivaroxaban or Xarelto, for the same intended applications. We believe that having breakthrough status is an important component of the DrugSorb-ATR regulatory strategy, and let me explain why. First, the breakthrough program is specifically designed to provide timely access of novel devices addressing large unmet medical needs by speeding up both the development and the review phases of the process. The required criteria for a breakthrough device designation are listed on this slide. The first criteria is that the device provides for more effective treatment or diagnosis of life-threatening or irreversibly debilitating human disease or conditions. For the second criteria, the device must meet at least one of the following considerations: that it represents a breakthrough technology, that there are no approved or cleared alternatives, that it offers significant advantages over existing approved or cleared alternatives, and that the device availability is in the best interest of patients. Since 2015, the FDA has granted breakthrough device designation status to 192 cardiovascular and 83 GI and urology devices or diagnostics. This is relevant because the intended target population for DrugSorb-ATR are cardiovascular patients, and…

Thank you, Makis. We see tremendous opportunity fueled by important demographic trends such as the aging baby boomer generation who are prone to critical illness, expanding global use of blood thinners by millions of people all over the world for stroke and heart attack prophylaxis, and the chronic liver disease epidemic in 20% of the world population due to alcoholism, hepatitis and fatty liver. We are at the forefront in helping to fill the substantial treatment gaps that exist across a spectrum of critical conditions such as sepsis, shock, liver failure, acute respiratory distress syndrome, infective endocarditis, serious bleeding due to blood thinners and organ transplant because of our ability to help control deadly inflammation and remove dangerous toxins in drugs that are often at the heart of life-threatening conditions. And in the future, with products and advanced development like HemoDefend-BGA for universal plasma, our contribution could be even greater. We are excited by our near-term progress with sales, product gross margins, potential catalysts like PuriFi, our strategic partnerships like Fresenius, our goal to obtain debt financing, new clinical data and importantly, the greatly increased visibility that we all now have on DrugSorb-ATR. By continually pushing boundaries and driving innovation, we are committed to expanding the dimension of blood purification setting the stage for lasting transformation within the industry. And with that, this concludes our prepared remarks. So operator, please open the call up for the Q&A session.

[Operator Instructions] Questions now come in from the line of Yuan Zhi with B. Riley Securities.

I have a couple of questions here. I'm curious about the decision to pursue this de novo applications versus premarket approval? What has changed since the last discussion?

Yes. Thanks, Yuan. Maybe let me turn that over to Makis to discuss. Makis?

Yes. Thank you for the question. The simple answer is the availability of the STAR-T data that we believe are very informative when deciding what the appropriate regulatory pathway is and as reviewed on the slides that we just looked at, the de novo pathway is specifically designed for devices of low to moderate risk, which, again, the STAR-T data provides a lot of visibility around that component as well, in addition, obviously, to the efficacy results. So that was the main determined in addition to, of course, input from both our internal regulatory resources and, of course, external regulatory experts.

Got it. And then another follow-up here is for the targeted submission in 3Q. I'm curious, have you guys talked to FDA for this presubmission? And what's your confidence to have the submission on time as you are preparing the data package and the meeting minutes after the FDA meeting?

So we are -- as you know, the trial completed last year in 2023. So we have used the last few months, obviously, in doing a lot of the necessary work requiring on closing, cleaning and analyzing the data that culminated in the presentation, obviously, a double ATS. So there's been a lot of work along the way to get ready for these submissions. And we're now entering the final phase, which is preparing the documents now that the regulatory pathway is more clear to have the exact necessary materials from the submission. Our FDA interactions have always been -- starting with the breakthrough designation applications have always been very collaborative and very productive. So we anticipate and hope that they continue that way now that we have also the STAR-T data available that will be the centerpiece of the submission.

Maybe another clarification question here is, before you submit this de novo application, is FDA requiring a presubmission meeting to make sure everything is in line with their expectation?

It is our understanding based on the discussions with our regulatory experts that the presubmission meeting is not required by the FDA.

Your next question now comes in from the line of Sean Lee with H.C. Wainwright.

I just have 2. My first is on the good product sales we saw this quarter. So could you just highlight what exactly was the push and pulls that helped you achieve the $9 million?

Yes, Christian, would you like to answer that?

Thank you for the question. Yes, we had a very positive development in the first quarter in sales. And as discussed at the last earnings meeting. There is a very positive development, especially in the direct sales in Europe. And in many of the distributor countries, we still see the market challenges in the Central European countries like Germany, Austria, Switzerland, but they have stabilized and we think the market stabilizes so that we can develop from here. But the major push, as I said, come from the direct sales in Europe and the distributor countries. Is that sufficient?

Yes. I do expect this to sort of quick follow-up, and do you expect this growth to continue for the rest of the year?

So I think that the stabilization and the big markets in Central Europe will continue. Of course, the underlying market situation versus post-pandemic situation is not clearing overnight, but there's a lot of very strong initiatives from our side where we address new customer groups, and expand to different indications. So I think that we can create growth out of this. And the growth we have seen in the direct sales countries in Europe and also distributor countries I very much expect to continue to develop nicely.

I see. My last question is on the PuriFi system. So with the launch imminent, I was just wondering what -- how is the commercial structure for that setup? And what sort of impact can we expect in this year or in the next several quarters?

I think that the PuriFi pump is really a means to an end, right? As I mentioned in my comments, is meant to help to build an infrastructure of blood purification in distributor territories where they don't have an existing strong infrastructure in dialysis or dialysis technicians for that matter. This is a pump that we're actually using for the vet market in the United States, and we've got lots of feedback that it's a very easy-to-use pump that requires very little in the way of maintenance. So we're very excited about this because what it's intended to do is to drive more sales of CytoSorb obviously, in places that have plenty of critically-ill patients, but does not have that infrastructure. The other thing that it's intended to do, as I mentioned, is to really drive earlier usage and more frequent usage of our technologies because what we have found is that when you treat people early and you try to catch this deadly inflammation more rapidly before it has time to cause destruction to vital organs, outcomes are typically much more reliable and much better. And so again, we think that having this PuriFi pump out there will be able to really -- is actually a major key driver of growth hopefully going forward. We haven't made our expectations public on what we expect that pump to be to do. But again, the goal here is an enabling technology to sell more CytoSorb devices, it's very similar to the printer or printer cartridge model.

Your last question now comes in from the line of Tom Kerr with Zacks Investment Research.

A quick question on the DrugSorb submission. I understand that will be submitted roughly at the same time to FDA and Health Canada, but are the approvals independent? Or they done in conjunction? Or put another way, is the Health Canada approval timeline also 6 months to a year?

Vince, maybe you would like to try to answer that.

Sure. So -- this is Vincent Capponi. So the approvals are independent. They're not dependent. The Canada -- Health Canada is not dependent upon the U.S. approval. We'll use the same data but we will structure the submissions slightly different as required by Health Canada than what U.S. FDA requires. So they can be done in parallel and independently.

So it's possible you could start in Canada in 6 months and U.S. in a year, and they were to be just different timeframes in that region?

Yes, that's correct. I mean, Health Canada has timelines as well. I mean they follow closely to the U.S., but they are generally faster than the U.S., but it is possible that it could be introduced in the U.S. or could be introduced, excuse me, in Canada sooner than the U.S.

Great. And one more on that topic. I think you had said in the past, the addressable market is about $325 million for both countries. Is that still a good number? Can you break that down between U.S. and Canada?

Yes, that is still a good number. I think that although, as you heard from Makis that our focus will be on the isolated CABG population. Recall that isolated CABG is the most common cardiac surgery in the world, right? This is being driven by coronary artery disease and people having heart attacks, which is one of the leading diagnosis in hospitals amongst any illness. And so the major use case is not to go in for one of these more severe surgeries, right? If you think -- if a person is thinking that they're having a heart attack, most of them are really having a heart attack and will need -- if they don't qualify for a stent, they will need CABG surgery. And far fewer will be actually having a different diagnosis like a ruptured valve or a dissecting aorta. So the fact that we're going after the isolated CABG market is and we have data that we believe supports a favorable benefit to risk assessment in that population is a really positive thing for us and positive for the overall market opportunity. Now from a U.S. to Canada split, it's roughly a 10:1 split. The U.S. market is 10x larger than the Canadian market. However, what is very fascinating about the Canadian market and what you may have heard Dr. Whitlock say on the call on the KOL analyst call on Monday is that in the guidelines, the -- and the -- to again reiterate how data-driven the Canadian physicians are. So in the official guidelines for blood thinner treatment in people having a heart attack, it is recommended that they only be placed on Brilinta and not on the major competitor in the United States, which is Plavix. And we've also understood that Effient, the only…

Thanks, Phil. No, I completely agree with the remarks that you made already. Canada has a very uniform treatment paradigm that they actually have implemented on a national level, where they try to adopt best therapies, they quickly come with the national guidelines and the [ EP ] met them. And ticagrelor is a great example. And again, I urge everyone to listen to our webinar and to hear directly from Dr. Whitlock. But there's a very, very systematic approach to care in Canada. And what we're hearing is that one of the major issues is a bottleneck that is created in some of these large volume institutions. So yes, they're very enthusiastic about a solution that can potentially alleviate that congestion that patients are just sitting there, waiting are causing in their care pathways. Now in regards to the total addressable market and the number that you quoted, I mean if you want, you can take the discount similar that we saw in the breakdown of surgeries in STAR-T where 92% of patients were isolated CABG, which obviously will be the target intended population in our submissions. But on the other hand, you may want to counter that with the fact that this is the year that exclusivity ends for ticagrelor, which would mean an ongoing reduction in price, which has been one of the reasons why ticagrelor -- I'm sorry, while clopidogrel, Plavix and older generation, not as effective medication still in use in some places due to a much more favorable price with clopidogrel being generic now for a long time. So we think it's going to be fluid, but probably the upside will be greater due to the greater adoption that's happening anyway and the availability of generic ticagrelor going forward after 2024. So it's probably a solid number for you to anchor yourself on right now.

Great. One more quick financial question for me, and then I'll jump back in the queue. How do we think about grant income the rest of the year? Is that sort of the grant income sort of the steady state you received this quarter? Or we did we get back up $1 million in the rest of the year or for the quarter for the rest of the year?

Kathy, would you like to answer that?

Yes, I'd be happy to. So I think we can expect to see similar quarterly results for the rest of the year as to what we saw in the first quarter. However, I will point out that we are applying for new grants. And the reason that the grant income is lower is just because we completed 3 grants last year. So the backlog is still strong at $5 million and we are expecting to build to that backlog. So we'll see with more success on gaining some new grants, we would see that number likely come up again.

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

Well, thank you, and thank you, everyone, for joining the call today. If you do have any other questions, please feel free to reach out to Kathy at kbloch, K-B-L-O-C-H, @cytosorbents.com, and we will reply to your questions where possible. We look forward to our next quarterly call. Thank you, everyone, very much. Good night.

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