Good afternoon, and welcome to Cytosorbents' First Quarter 2024 Financial and Operating Results Conference Call. 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.

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 one-time 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 Key Opinion Leader and 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 250,000 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 and 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.

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 compared to $1.5 million in the first quarter of 2023, and this decrease was due to the conclusion of several grants that we completed in 2023. Our total first quarter 2024 revenue, which includes both product sales and grant revenue, was approximately $9.8 million compared to $9.4 million in 2023. Product gross margin was 76% in 2024, an 800 basis point increase compared to product gross margin of 68% in 2023. We note that first quarter 2024 product gross margin calculations exclude the impact of a one-time 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. This usage ceased following the containment of the pandemic in the years ending March 31, 2023 and 2024. Looking at the orange trend arrow, which tracks along core non-COVID-19 revenue, we can see that the post-COVID-19 12-month period ending March 31, 2023 and 2024 continued to show positive growth in our core non-COVID-19 product sales. The post-COVID market has been challenging for reasons we've already articulated. However, we are seeing improvements in the marketplace. Our year-over-year growth for the trailing 12 months ended March 31, 2024, increased by 10% compared to the previous 12 months. Additionally, exclusive of the impact of the COVID-19 sales in 2021 and '22, our overall CAGR for the 6 years ended March 31, 2024, is a respectable 13.3%. Next slide, please. I also wanted to point out the green line, which tracks our year-over-year gross margins. This indicates a decline in 2023 due to the transition of full manufacturing operations from our old facility over to our new facility. In the first quarter of 2024, gross margins were 76%, excluding the impact of the one-time inventory adjustment, and they are on par with our margin levels prior to the move to our new facility. We believe that we will be able to show further improvement in the 2024 gross margins as we continue to scale up production and realize additional manufacturing efficiencies. Next slide, please. This next slide shows our quarter-over-quarter product sales results. We already noted that first quarter 2024 product sales increased to approximately 14% over first quarter 2023 product sales. We also want to point out here that first quarter product sales rose $1.6 million or 22% over the immediately prior quarter. Our first quarter 2024 product sales of $9 million represents the highest post-COVID-19 core product sales quarter in our history. Next slide, please. As of March 31, 2024, we have $10.1 million in cash, which includes $1.5 million of restricted cash. We believe that cash on hand is sufficient to fund the company's operations into the fourth quarter of 2024. We continue to work to strengthen our balance sheet and reduce operating expenses through tight control over working capital, particularly management of accounts receivable and inventory levels. Cash conservation is a top corporate priority. We have reduced our headcount, adjusted our budgeted spending, and taken other measures to reduce our quarterly cash burn in 2024. We have also instituted and continue to maintain tight controls over spending, and these actions are all expected to help preserve our cash runway. Additionally, the company is actively pursuing alternative sources of capital. Our immediate focus is on non-dilutive debt financing, and we are currently in active discussions with multiple debt lenders on this.

Thank you, Kathy. Next slide, please. 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 the 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. The FDA has granted two 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 two market-leading anticoagulants, apixaban (Eliquis) and rivaroxaban (Xarelto), for the same intended applications. We believe that having breakthrough status is an important component of the DrugSorb-ATR regulatory strategy. 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 criterion is that the device provides for more effective treatment or diagnosis of life-threatening or irreversibly debilitating human disease or conditions. The second criterion is that 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's 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 GI urology will be the FDA review brands for our submissions. Finally, at breakthrough designation submissions undergo priority review and must meet the FDA's rigorous standards for safety and effectiveness. As we have stated in our press release, and you just heard from our CEO, Dr. Phil Chan, the STAR-T results were recently presented at AATS and were also reviewed during our recent webinar, Key Opinion Leader and Analyst Investor Day by study principal investigator, Dr. Michael Mack. I urge you to listen to the webinar replay that you can find on the link provided to you, that has presentations by all three STAR-T principal investigators and also an overview of the increasing adoption of antithrombotic removal in European cardiac surgical practice by the STAR Registry presented by Dr. Michael Schmoeckel. Let's now review the highlights of the STAR-T results. First of all, the study matrix. There were 140 subjects randomized in the study. However, 8 of these subjects did not receive a study device, and therefore, the overall population comprises 132 subjects. Among them, 92% underwent isolated coronary artery bypass grafting, or CABG surgery while 8% underwent other types of cardiac operations. The enrollment was split approximately two-thirds of the subjects came from United States investigative sites and approximately one-third from Canadian investigative sites. The study protocol was well executed with less than 10% of study subjects experiencing a major protocol deviation. Finally, study follow-up was 100% complete with 0 patients lost to follow-up. Reviewing the safety in the overall population, the primary endpoint of the study was met as evidenced by three separate independent data safety monitoring board reviews that occurred after 40, 80 and 140 patients who were entering the trial. In each one of those reviews, the DSMB recommended continuation of the study and voiced no concerns around safety. Overall, adverse events were balanced between the device and the control arms in the trial. There were zero device-related serious adverse events reported. There were zero unanticipated device adverse events reported, and there were zero device-related adverse events that led to discontinuation of the study. Turning now to efficacy. We assessed efficacy in the trial by looking at postoperative bleeding. That was done via two composite endpoints that comprise the universal definition of perioperative bleeding events and also by the chest tube drainage collected from each of the patients in the study. In addition, we executed an exploratory assessment of major bleeding. As Luke had reported previously, the primary composite endpoint in the overall population was not met. However, in the isolated CABG population among patients who did not have any major protocol deviations in the so-called isolated CABG protocol population, we observed the following finding. The prespecified composite endpoint that included both moderate and severe bleeding events demonstrated a win ratio of 1.33. For the audience, let me remind you that any win ratio above 1 suggests a treatment effect for the investigation in the device. However, that win ratio was not significant with a p-value of 0.202. The prespecified composite endpoint that only included severe bleeding events demonstrated a win ratio of 1.59, which was significant with a p-value of 0.041. Since the UDPB definition allows for events to be declared simply by transfusions, the principal investigators of the study wanted to ensure that only clinical bleeding events were included in the analysis and therefore, performance sensitivity, blinded review of the events where they identified a number of cases that were included in the original analysis simply on the basis of transfusions, but without any evidence of clinical bleeding. The results of the sensitivity analysis are shown at the bottom of the table where now the composite endpoint that includes the moderate or severe bleeding event has a win ratio of 1.65, which is also significant with a p-value of 0.026. You will note that the composite endpoint that only includes severe events was not impacted by the sensitivity analysis since all severe events were deemed to be clinically meaningful events relating to significant bleeding. Finally, the exploratory major bleeding analysis looked at the total of major events that these subjects suffered either according to the UDPB definition or according to chest tube drainage by accounting for patients that ended up with more than 1 liter of blood in the chest tubes that are placed after surgery. What we saw was that there were three major UDPB events in the DrugSorb arm, while there were nine in the control arm. When it comes to major chest tube drainage bleeds over a liter there were none of those noted in the DrugSorb arm, and there were four additional in the control arm for a total of three events with the DrugSorb and 13 in the control arm. That translated to rates of 6% versus 22% between the two arms, which was significant with a p-value of 0.028. The number needed to treat to prevent a major bleed in the trial according to this exploratory analysis was six; in other words, for every six patients treated, one major bleeding event was averted. With STAR-T data available, we have worked closely with both internal and external regulatory experts to formulate our regulatory strategy leading up to submissions. Included on the top of the slide is a direct quote from one of our senior regulatory experts, Mr. Mark DuVal, J.D., President and CEO of DuVal & Associates, to state, 'We have been working with CytoSorbents for the development of the regulatory strategy for the DrugSorb-ATR device. Based on the data the company has shared with us and the extensive experience we have in preparation of de novo submissions, it is our opinion this device is appropriate for the de novo pathway.' More specifically, the de novo pathway is for low to moderate risk devices for which special controls, for example, the availability of clinical data, provide reasonable assurance of safety and effectiveness, but there is no other approved predicate device. The de novo pathway puts heavy emphasis on the probable benefit and risk of the device in the intended population. Importantly, based on the priority review received by breakthrough devices, a recent analysis reported a 25% faster de novo application review times. Accordingly, we will be proceeding with parallel FDA de novo and health cannabis submissions in the third quarter of this year. FDA review times for de novo applications are stated as 150 days; however, in the post-COVID era, such reviews are averaging approximately one year.

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. In the future, with products in 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.

Questions now come in from Yuan Zhi with B. Riley Securities.

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

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

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. 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 determinant, 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 the 3rd quarter. I'm curious, have you guys talked to the FDA for this presubmission? And what's your confidence in having the submission on time as you are preparing the data package and the meeting minutes after the FDA meeting?

We completed the trial last year in 2023 and have spent the last few months finalizing, cleaning, and analyzing the data, which led to our presentation at AATS. There has been extensive preparation for these submissions. We are now in the final phase of preparing the necessary documents as the regulatory pathway is clearer. Our interactions with the FDA have been collaborative and productive, and we expect that to continue with the availability of the STAR-T data, which will be central to our submission.

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

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 two. My first is on the good product sales we saw this quarter. Could you just highlight what exactly were 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. There is a very positive development, especially in the direct sales in Europe. In many of the distributor countries, we still see market challenges in Central European countries like Germany, Austria, and 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, comes 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 the post-pandemic situation is not clearing overnight, but there are 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. 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 about the PuriFi system. With its launch approaching, I was curious about the commercial structure for that setup and what kind of impact we can expect this year or in the upcoming quarters.

I believe the PuriFi pump serves a specific purpose. As I mentioned earlier, it aims to establish a blood purification infrastructure in distributor areas that lack strong dialysis support. This pump is currently used in the veterinary market in the United States, and we've received a lot of positive feedback regarding its ease of use and minimal maintenance needs. We are enthusiastic about its potential to increase CytoSorb sales, particularly in regions with a high number of critically ill patients but inadequate infrastructure. Another objective is to promote early and frequent use of our technologies, as we've discovered that treating patients sooner can lead to significantly better outcomes by preventing severe inflammation from harming vital organs. We believe the PuriFi pump will be a crucial factor in driving future growth. While we haven't disclosed specific expectations for its performance, our aim is for it to be an enabling technology that boosts sales of CytoSorb devices, similar to the relationship between a printer and its cartridges.

Your last question now comes 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 are they done in conjunction? Or put another way, is the Health Canada approval timeline also 6 months to a year?

Sure. The approvals are independent. They're not dependent on one another. Health Canada is not dependent upon U.S. approval. We'll use the same data, but we will structure the submissions slightly differently as required by Health Canada than what the 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 just different timeframes in that region?

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

Great. And one more on that topic. I think you 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. Although, as you heard from Makis, our focus will be on the isolated CABG population. Recall that isolated CABG is the most common cardiac surgery in the world, driven by coronary artery disease and people having heart attacks, which is one of the leading diagnoses in hospitals among any illness. The major use case is not to go in for one of those more severe surgeries. If a person is having a heart attack, most of them will need CABG surgery. Far fewer will have a different diagnosis like a ruptured valve or a dissecting aorta. The fact that we're going after the isolated CABG market, and we have data supporting a favorable benefit to risk assessment in that population, is positive for us and the overall market opportunity. The U.S. market is approximately 10 times larger than the Canadian market. However, the Canadian market has some very interesting dynamics. In Canada, physicians follow guidelines that recommend only Brilinta for blood thinner treatment in patients having a heart attack, while in the U.S., there are other options. Canada has far fewer major cardiac centers, meaning patients in remote areas often wait long for interventions, which increases the need for dual antiplatelet therapy. We believe the Canadian market will be strong for us.

Thanks, Phil. I completely agree with your remarks. Canada has a very uniform treatment paradigm that they implement on a national level, where they try to adopt best therapies and quickly come with national guidelines. Ticagrelor is a great example. One of the major issues is a bottleneck in some of these large volume institutions. They would be very enthusiastic about a solution that can potentially alleviate that congestion patients experience while waiting for care.

Now regarding the total addressable market, considering the dynamics we've discussed, it might be a solid number to anchor yourself on right now.

How do we think about grant income for the rest of the year? The grant income we received this quarter is similar to what we can expect for the rest of the year. However, we are applying for new grants. The reason that the grant income is lower is just that we completed three grants last year. The backlog is still strong at $5 million, and we expect to build it with more success in obtaining new grants, which should positively affect our quarterly results.

Yes, I'd be happy to. I think we can expect to see similar quarterly results for the rest of the year as we saw in the first quarter. However, I will point out that we are applying for new grants. So with more success on gaining new grants, we will likely see that number come up again.

Thank you, and thank you, everyone, for joining the call today. If you have any other questions, please feel free to reach out to Kathy at [email protected], and we will reply to your questions where possible. We look forward to our next quarterly call. Thank you very much. Good night.

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