Cytosorbents Corp Q3 FY2022 Earnings Call

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. 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 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 zero 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, 2021, compared to $2 million in the trailing 12-month period ended September 30, 2022, a decrease of approximately $5.1 million. Additionally, the decline in the euro to dollar exchange ratio negatively impacted sales in the trailing 12 months ended September 30, 2022 by approximately $2.7 million. On a constant currency basis, core product sales for the trailing 12 months ended September 30, 2022 were approximately $32.1 million, which is an 8% decrease from core product sales of $34.8 million in the trailing 12 months period ended September 30, 2021. This year-over-year decrease in product sales is due to COVID-19 pandemic market-driven conditions, although improving continued staffing shortages, reductions in ICU bed capacity, decreased elective surgical procedures, hospital budgets, and hospital restrictions continue to limit our access to hospital personnel. Also depicted on this chart on the orange line are our third-quarter gross margins, which showed steady improvement from 2016 to 2021. Q3 2022 product gross margin includes a one-time charge of approximately $600,000 because of inventory damage due to a refrigeration equipment failure in the quarter. And by the way, we are seeking to recover this loss through an insurance claim, but the amount of the recovery has not yet been determined. Excluding this non-recurring charge, our product gross margin for Q3 was 64%, that's shown as the orange dot in the Q3 2022 bar. The decrease in gross profit was due to a devaluation of the euro compared to the U.S. dollar, inefficiencies associated with lower production due to a decrease in sales, and the process of relocating our production activities to our new facility. We do expect product gross margins to return to previous levels as we complete the relocation to the new facility by the end of this year, exit our lease at the old facility, which expires December 31, 2022, and as we begin to recapture manufacturing efficiencies driven by improving market conditions and increased product demand. Next slide, please. Our cash burn for the third quarter of 2022 was approximately $7.8 million, which is higher than expected due to reductions in gross margins, resulting from the decrease in the euro to U.S. dollar exchange rate, lower sales, and higher cost of sales because of inefficiencies associated with lower production. We ended the quarter with $24.2 million in cash, and that includes $1.7 million of restricted cash. Given the headwinds of macroeconomic and geopolitical uncertainty that are out of our direct control, including a recovery of the German markets, we expect that our business and in particular, product sales may continue to experience challenges for the remainder of 2022 and possibly into 2023. Our spend is laser-focused on and fully aligned with our strategic priorities, in particular, efforts to support U.S. FDA approval. And we remain actively engaged in making further reductions to our operating costs to reduce our future cash burn. I'll say more about that in just a minute. Our cap table here shows that we have approximately 52.1 million shares outstanding on a fully diluted basis. Now back to our cash runway. Next slide, please. As of September 30, 2022, we have $24.2 million in cash, which includes restricted cash. We intend to utilize a portion of our $15 million debt facility to further bolster our working capital. The proceeds from the loan, along with our existing cash on hand, are expected to provide funding for our operating needs into 2024. Cash conservation is, however, an important corporate priority, and we are continuing to focus on controlling our expenses. Already this year, we've reduced overall headcount, including full and part-time employees and consultants by 10%. In addition, we've shifted our R&D personnel to grant-funded programs. And those programs have an extensive $1.2 million backlog. The focus of our clinical team on STAR-T and the pause of STAR-D will cut over $4 million from our 2023 operating expenditures. And going forward, we expect to identify more opportunities for cost savings. Our spend is focused on and fully aligned with our strategic priorities, in particular, our STAR-T trial designed to support U.S. FDA approval. Our goal is through a combination of driving an increase in sales and gross margin, along with cost-cutting measures to significantly reduce our cash burn and extend our operating runway. That concludes my remarks for today. And at this time, it is my pleasure to turn the call over to our Executive Vice President of Sales and Marketing, Dr. Christian Steiner. Christian, please go ahead.

Thank you, Kathy. Good afternoon everyone in the United States and good evening to those in Europe. As Phil and Kathy mentioned, the economic environment for many medical device companies, including CytoSorbents with its innovative therapy approach, continues to be difficult. In the last call, I noted that we have begun to reconnect with our customers after the communication setbacks caused by visit restrictions, and I've received encouraging feedback from our customers and partners. I would like to provide more detail on the growth of the CytoSorb user community, emphasizing the significant efforts of our medical and commercial teams to generate excitement about CytoSorb. An increasing number of key opinion leaders across various medical fields are getting involved and contributing to specific projects aimed at advancing our therapy. Additionally, I want to highlight some of our growth opportunities, such as the recent partnership with Fresenius Medical Care in critical care and liver-kidney treatments, the synergy with our standalone blood pump, and new application areas within our therapeutic scope. In July, we hosted a CytoSorb World Users Meeting in Berlin to showcase the advancements in our therapy after a decade of market development. Nearly 300 leading clinicians and researchers attended, discussing new data and best practices. Presenting four major new datasets across various clinical conditions was a highlight of this international scientific conference. These applications included treatable areas such as infective endocarditis, heart transplantation, kidney function protection during open-heart surgery, and protection of lung transplants. These studies have either been published or are pending publication, and positive clinical findings related to CytoSorb have been shared at various international conferences. Another significant event, organized by our Italian partner Aferetica in Milan, attracted over 300 participants from around 30 countries who engaged in discussions centered around CytoSorb therapy and transplant organ perfusion, with over 80 posters showcasing new data. Larger audiences participate in major international medical congresses, which we have successfully utilized to present numerous studies, including the CDC data at the ELSO conference in Boston and at the European Society of Intensive Care Medicine Congress in Paris. Our Chief Medical Officer, Dr. Deliargyris, will provide further insights shortly. Notably, we presented a controlled randomized study on heart transplantation and a large dataset on infective endocarditis at the European Association of Cardiothoracic Surgeons Congress in Milan. A recent finding at a German conference revealed that CytoSorb treatments can lower myoglobin levels post-polytrauma, helping protect kidneys from acute failure. On the last slide, I've listed additional conferences and symposiums where our teams have promoted the therapy in the third quarter, providing our sales teams opportunities to engage with current users and potential new customers. I would like to highlight several growth initiatives we're actively pursuing. First is our global marketing agreement with Fresenius Medical Care, which has recognized the potential of CytoSorb therapy to enhance blood purification strategies. This partnership aims to elevate awareness and reach new customers through FMC's extensive network. Secondly, we are rolling out our standalone blood pump strategy, testing various offerings and trials to boost early usage of CytoSorb, potentially targeting 30% to 40% of all ICU patients. Third, our focus on critical care, cardiovascular, and liver-kidney areas allows us to address specific needs effectively. Furthermore, partnerships with large private hospital networks in Germany, such as Asklepios and Helios, are crucial for expanding our business opportunities in their facilities, which prioritize cost reductions and clinical improvements. Lastly, we are exploring additional application fields for growth, maintaining a strategic focus on emerging indications, including lung dysfunction, heart failure, kidney protection, and organ perfusion. We will share more details about these during the call. Now, I’d like to hand it over to Dr. Deliargyris, our Chief Medical Officer.

Thank you, Christian, and good afternoon, everyone. In today's clinical update, the main focus will be on visibility and prioritization. The first slide summarizes the key points of my presentation, highlighting STAR-T as our primary focus for the U.S. market, to which we are now dedicating all our resources for quick execution. The STAR-T enrollment update indicates an increase, and with our revised guidance, we anticipate reaching milestone #1 with 40 patients enrolled later this month. We have recently received FDA approval to extend STAR-T to Canada, a country with high rates of ticagrelor usage. With improved visibility into STAR-T's enrollment rate, we expect the trial will conclude by next summer. Meanwhile, activities for STAR-D will be temporarily paused to concentrate on STAR-T and conserve cash in the short term. We will resume STAR-D once STAR-T is completed or when our financial situation improves, whichever happens first. Our international STAR registry is enrolling rapidly, underlining the growing acceptance of antithrombotic removal in real-world settings, based on its strong clinical and economic value proposition, and I will provide more data on this later. We continue to receive a steady flow of positive data on CytoSorb in cardiac surgery and critical care, with over 20 presentations and publications already this year. Recently, we shared the main results of our CTC registry at the European Society of Intensive Care Medicine, showcasing outstanding outcomes from our innovative enhanced lung rest strategy that incorporates CytoSorb plus ECMO in patients suffering from severe respiratory failure, also referred to as ARDS. Next slide, please. Focusing specifically on the STAR-T study, we are optimistic about the pace of enrollment and the growing number of sites actively participating. We plan to reach 40 patients later this month, which will initiate the first scheduled DSMB meeting about two months later, allowing time for the 30-day follow-up and data cleaning. A press release will be issued once we hit the 40-patient mark, so please stay tuned. We have received FDA approval to expand the study to Canada, which we believe will positively impact enrollment for a couple of reasons. First, ticagrelor is widely used in Canada as the preferred treatment for acute coronary syndrome, leading us to expect many eligible participants. Second, Canadian sites are high-volume centers with a solid history of excellence in enrolling patients for cardiovascular surgery trials. Finally, we are fortunate to have Dr. Richard Whitlock as our principal investigator in Canada; he has a prestigious background and an established network of high-performing sites that will be included in STAR-T. All operational steps for the Canadian expansion are moving forward, including a completed submission to Health Canada. With better visibility into STAR-T, we can outline our timeline for achieving milestones as shown in the slide below. As previously mentioned, we expect to meet the first milestone later this month and project reaching 80 patients—triggering the second DSMB meeting for an interim analysis—sometime in spring next year. If the trial continues to meet its goal of enrolling 120 patients, we anticipate concluding next summer. Next slide, please. STAR-T represents our fastest route to the U.S. market. Given our current progress and important market trends, it is clear we need to expedite execution and concentrate our resources. The study is on track, and by committing our full attention and resources, we believe we can further accelerate momentum and expedite execution. The Canadian expansion is a positive development that could enhance enrollment and may also impact the timeline for Canadian approval for DrugSorbATR. Moreover, there are compelling market dynamics urging us to act quickly to take advantage of these emerging opportunities. First, ticagrelor is expected to become generic in 2024, which could eliminate the high costs currently hindering broader adoption. In simpler terms, the availability of generics is likely to boost ticagrelor usage. Second, cardiologists are increasingly viewing ticagrelor monotherapy as a superior approach to aspirin for cardiovascular protection in high-risk patients, potentially shifting its prescription from a one-year treatment to a lifelong therapy. This shift translates to longer treatment durations for more patients. We also see a first-mover advantage developing in the market. While we firmly believe that drug removal is the optimal strategy, developments in drug reversal technologies for managing bleeding could complicate our competitive landscape as attention turns towards ticagrelor reversal. Lastly, we observe strong real-world adoption for antithrombotic removal. Our international STAR registry is ahead of schedule, having already enrolled 125 patients, and we are beginning to prepare initial data submissions for international conference presentations next year. Next slide. As we intensify our focus on expediting STAR-T, we will transition from parallel to sequential execution of the two STAR studies. Consequently, we are pausing STAR-D activities to allocate all resources to STAR-T execution. It is crucial to note that there are no safety or clinical concerns driving this decision; it is purely a business move. We remain fully committed to STAR-D and will recommence activities once STAR-T is completed or when our financial situation allows, whichever occurs first. We expect this decision will have minimal impact on our active sites, as over 90% of them are also engaged with STAR-T and will now dedicate their efforts to accelerating enrollment in that trial. We plan to utilize this pause to refine the study based on what we've learned and to implement necessary adjustments for a smoother enrollment process once we resume. Ultimately, by undertaking sequential execution of the STAR trials, we expect significant near-term cost savings, which we estimate to be around $4 million in 2023. Next slide. Now, shifting gears from our U.S. FDA trials, I would like to highlight the recent exciting new data shared at major international conferences, which we believe will serve as vital catalysts for our business growth. The data on the following slides were also detailed in recent press releases that you can access online for further review. Let's start with an overview of the presentations from the European Association for Cardio-Thoracic Surgery earlier this month in Milan, Italy. This event is the largest cardiac surgery conference outside of the U.S. and serves as a major platform for exciting research findings. Firstly, a multicenter report from Germany showcased the advantages of using CytoSorb in high-risk patients undergoing cardiac surgery for staph aureus endocarditis. It is essential to note that staph aureus endocarditis is a critical type of endocarditis with much higher mortality rates than other forms. Key findings from this study revealed that the use of CytoSorb improved the postoperative recovery by reducing the need for vasopressor support and significantly lowering both sepsis-related and overall mortality rates. The impact was so significant that treating just five patients could prevent one death. Moving on, we presented findings related to antithrombotic removal, demonstrating notable clinical and economic benefits of this application. In addition to significant reductions in bleeding and fewer transfusions, the dedicated economic analysis indicated total cost savings of EUR4,200 per case, including device costs. These savings primarily resulted from reduced operative times and shorter ICU stays. Lastly, a pivotal randomized clinical trial from Hungary introduced the use of CytoSorb in heart transplantation, suggesting it led to smooth postoperative courses with fewer instances of postoperative vasoplegia. This translated to shorter mechanical ventilation periods, lower acute kidney injury rates, and a reduction of 3.5 days spent in the ICU. We believe this data reflects a solid value proposition for heart surgeons globally, a sentiment echoed during discussions with conference attendees. Next slide, please. You have already heard about the promising data from the CTC registry presented at the European Society of Intensive Care Medicine just a few days ago. I would reference a recent press release for an in-depth discussion of the results, but I want to share some key highlights with you today. The CTC registry was conducted in the U.S. under emergency use authorization for treating critically ill COVID-19 patients requiring life support with extracorporeal membrane oxygenation, or ECMO, at five significant academic centers. The clinical teams at these centers adopted an enhanced lung rest strategy combining CytoSorb and ECMO. This approach aims to relieve strain on the lungs while CytoSorb actively removes harmful cytokines and inflammatory toxins that contribute to vascular injuries and ARDS. The goal is to help the lungs rest and heal, which we believe is crucial for reversing ARDS, allowing patients to detach from mechanical support and survive. The CTC registry reported outstanding outcomes, with survival rates of 74%, which is favorable compared to the 52% survival rate for U.S. patients in the international registry. We also noted that to achieve the greatest benefits from this combined strategy, CytoSorb should be initiated as early as possible before irreversible organ damage occurs. We are very optimistic about the CTC data for multiple reasons. Firstly, it represents the largest and only multicenter data set on CytoSorb and ECMO, surpassing all other information on this application. Secondly, the remarkable results reaffirm our enhanced lung rest strategy. Thirdly, we believe this data is relevant to broader ARDS and ECMO treatment populations. Lastly, as Chris, our VP of Business Development, will elaborate on in the next part of the presentation, the same pathophysiological mechanisms support the benefits of our ECOS technology for organ preservation. Next slide. To summarize, STAR-T is accelerating, and we have a new advantage with the addition of Canada. With enhanced visibility, we expect to achieve milestone #1 this month and milestones 2 and 3 next spring and summer, respectively. Expediting execution in STAR-T is our top priority, allowing us to leverage favorable trends, both related to the study and the market. We are pausing STAR-D to concentrate on STAR-T, which will also result in significant cost savings, projected to be $4 million in 2023. Our STAR registry is progressing ahead of schedule, indicating increasing adoption of antithrombotic removal as standard treatment in real-world practice. Supporting our business remains a top priority for our therapeutic area medical teams, and we foresee greater adoption of our therapy following the positive data from various presentations and publications that have recently been released. With that, I would like to hand the call over to Chris. Chris?

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. 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, one of the leading scientific journals in the world, on the reduction of primary graft dysfunction using cytokine absorption during organ preservation and after lung transplantation. This study looked at the use of cytokine absorption with CytoSorb in a porcine ARDS model, the results of which mirror the benefits and positive results we observed in the CTC registry that Mike has talked about. In this study, the lungs from 16 donor pigs were treated with or without CytoSorb during ex vivo lung perfusion or EVLP. And post-transplantation using extracorporeal hemoperfusion. The treatment with CytoSorb significantly decreased cytokine levels during EVLP and decreased levels of immune cells post-transplantation. Histology demonstrated fewer signs of lung injury across both treatment periods and the incidence of primary graft dysfunction was significantly reduced among treated animals. Overall, cytokine absorption with CytoSorb was able to restore lung function and reduce primary graft dysfunction in lung transplantation. In the concluding remarks, the authors stated that EVLP with CytoSorb will 'Increase the availability of donor lungs and increase the tolerability of donor lungs in the recipient.' Next slide, please. We are well positioned to move on this opportunity today with ECOS-300CY. The ECOS-300CY Sorban cartridge has similar cytokine and inflammatory mediator removal capability to CytoSorb, but unlike CytoSorb was specifically EU approved in October 2020 to remove cytokines and inflammatory mediators during ex vivo organ perfusion for transplant. When used in the field of ex vivo perfusion, the goal of ECOS-300CY is to limit irreversible organ damage, restore organ function, and to be used as a bridge to transplant by mitigating cytokine release and the harmful inflammatory mediators. In the competitive EVP market, we believe ECOS-300CY could provide clinically meaningful benefits and be an important differentiator for ex vivo perfusion product offerings. As proof of concept, CytoSorb is providing the ECOS-300CY cartridge on a nonexclusive basis under private label, trade name PerSorb, to Aferetica for use with their PerLife ex vivo organ perfusion platform for kidney and liver transplant, confirmed interoperability, and is currently available in Italy. Next slide. We believe that additional partnering opportunities exist across the multibillion-dollar organ transplant ecosystem for Cytosorbents technology, both with our current partners as well as with additional new partners. For example, the ex vivo opportunity has the potential to unlock new growth opportunities and is relevant to our current partners like Fresenius Medical Care and Terumo Cardiovascular that provide products for transplant surgery as well as organ support therapies like CRT for kidney support and ECMO for heart and lung support. Like we just talked about, ECOS-300CY also has the potential to provide clinically meaningful benefits and to be an important differentiator in the highly competitive field of ex vivo perfusion systems where multiple companies are developing systems aimed at preserving or improving organs for transplant and increasing the organ donor pool. And last, it makes Cytosorbents technology relevant to a wide range of additional new partners, including pharma and biotech companies with immunosuppressant and immunomodulator therapies, organ procurement organizations like UNOS, ESOT, and others, and new players in the surgical equipment and organ support fields like J&J, Medtronic, and others. That said, we are very excited about these promising results and believe that the use of Cytosorbents technology in ex vivo perfusion will help to increase the pool of viable organs for transplant and lead to better outcomes for patients undergoing organ transplantation. Next slide, please. I'd like to switch gears now and give a brief update on our global marketing collaboration with FMC. FMC's global marketing efforts for CytoSorb are currently underway. As a reminder, as part of our agreement, FMC will market CytoSorb as a featured technology for cytokine, bilirubin, and myoglobin removal on its critical care platforms worldwide. That said, I'm pleased to report that CytoSorb can now be found on FMC's corporate website at preseniusmedicalcare.com, where it's prominently featured in the acute blood purification section. Note, this is a separate site from the FMC North America site. We are also working closely with FMC to prepare for multiple major international congresses. There will be a number of key events in various regions throughout the world in Q4, and of course, the ISICEM Congress in Brussels in March of next year, where we expect FMC to actively promote CytoSorb. Also, I'm excited about several marketing initiatives that will go live on various social media platforms in the next couple of weeks. Unfortunately, I can't say more about that right now, but I'm looking forward to it. Overall, there's a lot of good stuff going on to increase the awareness and the impact of our CytoSorb marketing efforts and to bring the CytoSorb methods to a much broader audience. That said, I look forward to having more updates to talk about on future calls. With that, I'd like to conclude my remarks and hand it over to our President and Chief Operating Officer, Vince Capponi. Vince?

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 operations 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 scaling 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 13485 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 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 the process of running our polymer trials, having completed our initial validation work. We believe, based on early testing, we are on track to begin producing from the new plant by the end of November and shutdown of the existing facility by the end of December. Improving operational efficiency and lowering product costs are key objectives. But during the month of September, we experienced an equipment failure resulting in the loss of product. We have an insurance claim, which is currently under review, and we believe we will be able to recover a portion of the loss. We have resolved the problem, but our Q3 product costs were adversely affected and impacted our product gross margins. With the upcoming shutdown of the old facility, we expect to use our labor to help with the move; even so, we believe our Q4 costs will be similar to Q2. Looking forward to 2023, consolidation of all operations into our new facility, expected recovery of core business, and resulting increase in unit demand will facilitate recovery of our gross margins back to previous levels of 80%. And with increasing volumes, we expect we can exceed a gross margin of 80% as we go forward. Next slide, please. Inflation remains a concern of all businesses these days, and we are no exception. Our polymer product is manufactured using oil-derived raw materials, and we've experienced a number of raw material price increases. In addition, we've also experienced transportation cost increases due to increasing fuel prices. We recognize these trends early in COVID-19 pandemic and took steps to minimize the impact by placing large orders of key raw materials with multiple releases and using ocean shipping where possible. Both of these strategies have helped mute the impact of price increases and have not significantly affected our cost of goods sold. In summary, as a team, we remain focused, prepared for the DrugSorb ATR launch, advancing our R&D programs, and consolidating our entire U.S. organization into our new facility. Thank you. This concludes my remarks. Now I would like to turn it back to Phil. Phil?

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 costs 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 reflect 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 non-core, non-priority 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 distress 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?

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, thanks, Phil. Thanks for the question, Zach. The situation regarding ICU bed availability remains largely the same as last time. Major hospitals have reduced their ICU bed capacity by about 25% to 35% due to a shortage of personnel. Many doctors and healthcare professionals have left their positions because of the pandemic, making it difficult for hospitals to maintain their pre-pandemic capacity. This affects various aspects, including the number of patients they can accept from other hospitals and the surgical procedures they can carry out. These factors directly influence our patient pipeline. Consequently, the number of patients is still restricted at this time. We hope to see an improvement in surgical programs in the upcoming weeks and months. Overall, while access for customers has improved, we have not yet returned to the average number of visits seen before the pandemic, primarily due to regulations that require fixed appointments to enter hospitals. Previously, we conducted many cold calls to reach different customers and prospects, but that option is currently limited, impacting our ability to acquire new customers. This is the general situation. However, it’s worth noting that the visits we are conducting and the discussions we are having are quite positive. Customers are eager to engage and receive new information about therapies and data, and the feedback is about 95% favorable. In earlier discussions, we addressed applications that were not favorable or neutral, demonstrating that many studies often involved incorrect patient selection or outdated treatment protocols, which can lead to suboptimal therapy outcomes. We have launched several initiatives, including one focused on the right patient, right timing, and right dosing to ensure clear patient selection – finding patients who are sick enough, but not too sick, so that therapy can start at the appropriate time. This aligns with findings from CTC data showing that the number of treatments per patient needs to be sufficient. We are seeing a shift toward new treatment protocols in many indications, which I believe will lead to more positive assumptions moving forward. Does this address 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 timelines on when that trial will restart?

Efthymios, would you like to take that?

Thank you for your questions. The main synergies at most of our sites are actively being executed in both trials. Therefore, the decision to pause does not significantly affect our sites. We will continue to screen the renewal but will now focus on one of the two trials. We believe this increased focus could also aid enrollment, along with our own intensified efforts by reallocating resources to the one trial at this time. The timing for resuming depends on two main factors: the completion of STAR-T and, for the first time today, we provided a projection based on the increased visibility we have gained. The timing is also influenced by our financial situation. If that improves before STAR-T is completed, there is a possibility that we could restart STAR-D earlier. However, it is more likely that these trials will proceed sequentially rather than in parallel. As we finalize STAR-T, we will then resume STAR-D. We estimate that for STAR-T, as mentioned today, we will reach a conclusion sometime next summer if we proceed all the way to the end, meaning to the 120 patients.

That's helpful. One last question, if I could add one more. I know you have a lot happening with R&D and the pipeline. Apart from STAR-T, are there one or two opportunities that you are particularly excited about in the near term that could generate revenue? Could you also provide some estimates for those opportunities?

Phil, you want to take this one. Yes. What you heard today from many speakers on the management team is that our application has a wide range of uses that can provide significant clinical benefits. In this context, we are conducting two registries in Europe, one known as the COSMOS registry and the other, the STAR registry, which are designed to collect real-world data across these applications. They are broad in scope and will enable us to obtain stable outcome data for multiple applications. I believe that this type of data, similar to the CTC data we presented today, will be crucial in determining our next development target after the removal of antithrombotics. For now, our primary focus is on STAR-T, closely followed by STAR-D. I want to stress again that we are not abandoning STAR-D. This is a temporary pause based on strategic and business considerations we've discussed, but we are fully committed to STAR-D. We have two trials to complete, and by then, we hope to have the third one progressing. For now, I would refer you to the data from our registry to guide our next development targets.

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 regarding last month when PhaseBio declared bankruptcy and reached an agreement to sell their product bentracimab, which is used for the removal of ticagrelor, to a large pharmaceutical company that has not been disclosed. I would like to know if this situation affects your development timelines.

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

Thank you for the question. I mentioned in my prepared remarks that PhaseBio recently announced their bankruptcy, which likely complicates their future with bentracimab. We do not consider bentracimab a direct comparison to our approach, as we believe the methods are quite different. We remain confident that our drug removal strategy is a superior option for preventing bleeding compared to the drug reversal method used by many agents. While we lack data to support this, we base our belief on differing mechanisms and positive real-world experiences in Europe. Their REVERSE trial targeted similar patients, focusing on reversing ticagrelor before surgery to prevent bleeding, whereas we remove the drug during surgery to minimize bleeding. Although their strategies are somewhat competitive, we see this as an opportunity for us and believe we possess a potential first-mover advantage since metuximab has already filed with the FDA. While I can't comment extensively on their future, we see this as a significant dynamic in our favor as we move forward.

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?

We see these two events as distinct from each other. One filing will focus on the removal of ticagrelor, and we expect the STAR-T trial will provide the necessary data to support that FDA marketing application. Subsequently, STAR-D, which involves the removal of DOACs like ELIQUIS and Xarelto, will occur after we complete that trial. We aim for it to help 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 two reviews would be really helpful? And what, if anything, you intend to communicate to investors about each of the review 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 meetings 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 is 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 findings. The second one, which is prespecified again at two-thirds 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 patients, safety and a formal interim analysis; and then the final DSMB review that will take place whenever we complete the trial to give a formal final review of the safety. I hope that helps.

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.