Business Overview and History CytoSorbents Corporation is a leader in the treatment of life-threatening conditions in the intensive care unit and cardiac surgery through its proprietary blood purification technologies. The company's flagship product, CytoSorb, has generated consistent high-margin sales growth, while its investigational device, DrugSorb-ATR, holds immense potential to transform the standard of care for patients undergoing cardiac surgery.
CytoSorbents was founded in 1997 as a medical technology company focused on developing and commercializing blood purification therapies to treat life-threatening conditions. The company's core technology is based on biocompatible, highly porous polymer beads that can actively remove a wide range of toxic substances from blood and other bodily fluids. These beads are encased in cartridges that can be easily integrated with standard blood pumps already used in hospitals, such as dialysis, ECMO, and heart-lung machines.
The company's flagship product, CytoSorb, was first launched in the European Union in 2011 under CE mark as the first cytokine adsorber. Over the years, CytoSorb has received additional CE mark extensions for the removal of bilirubin and myoglobin in liver disease and trauma, respectively, as well as for the removal of certain antithrombotic drugs like ticagrelor and rivaroxaban in cardiothoracic surgery procedures. CytoSorb has since been distributed in 76 countries worldwide, with more than 250,000 devices used cumulatively to date.
In its early stages, CytoSorbents faced several challenges, including technological hurdles in developing an effective and biocompatible sorbent material and navigating the regulatory approval process in Europe. This involved conducting multiple clinical studies to demonstrate the safety and efficacy of CytoSorb. Commercializing a new medical technology in Europe also presented challenges, as the company had to build a distribution network and educate clinicians on the benefits of its therapy.
Despite these obstacles, CytoSorbents achieved significant milestones. In 2014, the company received its first CE mark approval for CytoSorb, enabling it to begin commercial sales of the device in the European Union and other markets that recognize the CE mark. Since then, CytoSorbents has expanded the CytoSorb product line and grown its international distribution network to over 70 countries worldwide. The company has also undertaken numerous clinical studies to generate real-world data on the performance of CytoSorb in various critical care and cardiac surgery applications.
In the United States and Canada, CytoSorbents is developing DrugSorb-ATR, an investigational device designed to reduce the severity of perioperative bleeding in high-risk cardiac surgery patients due to blood thinning drugs. DrugSorb-ATR has received two FDA Breakthrough Device Designations, one for the removal of the blood thinner ticagrelor and another for the removal of direct oral anticoagulants like apixaban and rivaroxaban. In September 2024, the company submitted a De Novo medical device application to the FDA for DrugSorb-ATR, which was accepted for substantive review in October 2024. Additionally, in November 2024, CytoSorbents received its Medical Device Single Audit Program (MDSAP) certification and submitted its Medical Device License (MDL) application to Health Canada.
Financial Snapshot As of the company's latest 10-Q filing on November 7, 2024, CytoSorbents reported total revenue of $29.07 million for the nine months ended September 30, 2024, a 5% increase compared to the same period in the prior year. Product sales, which exclude grant income, were $26.44 million, an 11% year-over-year increase. The company's product gross margins were 63.1% for the nine-month period.
Operating expenses decreased 25% year-over-year, driven by the completion of the STAR-T clinical trial and additional cost-saving initiatives. This led to a 40% improvement in the company's operating loss compared to the same period in 2023.
For the most recent fiscal year (2023), CytoSorbents reported annual revenue of $31.08 million, annual net income of -$28.51 million, annual operating cash flow of -$21.66 million, and annual free cash flow of -$22.59 million.
In the most recent quarter (Q3 2024), the company reported revenue of $9.39 million and net income of -$2.33 million. Total revenue increased 7% compared to Q3 2023, driven by an 11% increase in product sales. This was partially offset by a 26% decrease in grant income. Product gross margins were 61% in Q3 2024, above the previously guided range of 50-60% but down from 72% in Q3 2023. This was due to a planned production slowdown to rebalance inventory and a short-term manufacturing issue that has since been resolved.
CytoSorbents generates the majority of its revenue from international markets, particularly Germany. In Q3 2024, 91.7% of product revenue came from international sales, with Germany accounting for 36.9% of total revenue.
Liquidity As of September 30, 2024, CytoSorbents had $12.2 million in cash, including $6.5 million in restricted cash. In June 2024, the company entered into a $20 million debt financing agreement with Avenue Capital Group, of which $10 million was immediately available, and an additional $5 million is subject to the achievement of certain milestones related to the company's DrugSorb-ATR regulatory submissions.
The company's debt-to-equity ratio was 0.79 as of September 30, 2024. The current ratio stood at 1.97, and the quick ratio was 1.58 as of the same date.
Revenue Streams and Sales Strategy CytoSorbents' primary revenue streams are from the sales of its CytoSorb device and related device accessories, as well as grant income from contracts with various agencies of the United States government. The company sells its CytoSorb device using both its own sales force for direct sales and through distributors and strategic partners.
The majority of CytoSorb sales are outside the United States, as the device is not yet approved for commercial sale in the U.S. However, in April 2020, the company was granted Emergency Use Authorization by the FDA for the use of CytoSorb in critically-ill COVID-19 patients with impending or confirmed respiratory failure.
Direct sales outside the U.S. are primarily to hospitals located in Germany, Switzerland, Austria, Belgium, Luxembourg, Poland, the Netherlands, Sweden, Denmark, Norway, and the United Kingdom, with these sales fulfilled from the company's warehouse facility in Berlin, Germany. Distributor and strategic partner sales make up the remaining product sales, with the company having formal written contracts with each distributor/strategic partner that typically range from 1-5 years in length.
Government Grants In addition to product sales, CytoSorbents also generates revenue from various grant contracts with agencies of the U.S. government, primarily the Department of Defense, to perform research and development activities. These grant contracts fall into categories such as fixed-price, cost-reimbursement, and performance-based, with terms ranging from 3 months to 4 years. For the nine months ended September 30, 2024, grant and other income totaled $2.63 million, a decrease of 33% compared to the same period in 2023 due to the completion of several grants during 2023.
Regulatory Milestones and Growth Opportunities The potential approval of DrugSorb-ATR in the United States and Canada represents a significant growth opportunity for CytoSorbents. The company estimates the total addressable market for this product in patients undergoing coronary artery bypass graft (CABG) surgery on the blood thinner ticagrelor (Brilinta) to currently exceed $300 million in North America. This market is expected to grow to well over $600 million once ticagrelor becomes generic, as DrugSorb-ATR would be the only reversible orally administered anti-platelet drug.
Furthermore, the company believes that potential label expansions of DrugSorb-ATR to include the removal of other blood thinners, such as direct oral anticoagulants and direct thrombin inhibitors, could expand the total addressable market to $1 billion to $2 billion.
Risks and Challenges While CytoSorbents has made significant strides in its regulatory and commercial efforts, the company faces several risks and challenges. The regulatory approval process for medical devices can be lengthy and uncertain, and any delays or setbacks in the approval of DrugSorb-ATR could impact the company's growth prospects. Additionally, the company's international expansion and the successful commercialization of its products in new markets will depend on its ability to effectively navigate different regulatory environments and establish strong distributor relationships.
Lastly, the company's financial position remains somewhat precarious, with limited cash reserves and the need to continue raising capital to fund its operations and growth initiatives. The company's ability to manage its cash flow and secure additional financing will be crucial in the coming years.
Future Outlook CytoSorbents expects to return to more normalized production levels and product gross margins in the current (Q4 2024) quarter, with the goal of returning gross margins back to the 75% to 80% range in the long-term. The company is also actively preparing to leverage its international experience for the expected North American launch of its DrugSorb ATR product, pending regulatory approvals from the FDA and Health Canada, which are expected in 2025.
Conclusion CytoSorbents Corporation has established itself as a leader in the blood purification market, with its flagship product CytoSorb generating consistent high-margin sales growth. The company's pipeline product, DrugSorb-ATR, holds immense potential to transform the standard of care for cardiac surgery patients on blood thinners, potentially addressing a multi-billion-dollar market opportunity. While the company faces regulatory and financial challenges, its innovative technology, experienced management team, and growing commercial footprint position it well for long-term success in the critical care and cardiac surgery markets.