Cytosorbents Corp (CTSO) Q2 2026 Earnings Call Transcript

Good afternoon, ladies and gentlemen, and welcome to Cytosorbent's second quarter earnings call conference call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star-0 for the operator. This call is being recorded on Thursday, August 6, 2026. I would now like to turn the conference over to Pete Mariani. Please go ahead.

Thank you, Matthew, and good afternoon, everyone. Welcome to Cytosorbent's second quarter 2026 conference call. Joining me today is Dr. Philip Chan, our chief executive officer, and Dr. Mikas Delia-Garris, our chief medical officer. During today's call, we will have an overview presentation covering the operating and financial highlights for the second quarter of 2026, and a review of our four key drivers of value creation, including a regulatory update on our process to obtain U.S. marketing approval for DrugZorb ATR. Following the presentation, we will open the lines to analysts for questions. Before I turn the call over to Phil, 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. Therefore, the company claims protection under the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from results discussed today. The forward-looking statements we make today may reflect our reviews and estimates as of today, August 6, 2026, and we assume no obligation to update these obligations in the future as market conditions change. We encourage investors to review the risks discussed in our annual report on Form 10-K filed with the SEC on March 30, 2026, and as updated by risks reported in our quarterly reports on Form 10-Q and in press releases, and other communications to shareholders issued from time to time. In addition, for a reconciliation of non-GAAP measures, please refer to today's press release and the corporate presentation on the investor section of the company's website. And now I'll turn the call over to Phil. Phil?

Thank you very much, Peter, and thank you very much, everyone, for joining today. Turning to our operational update, when I think about the second quarter, one word comes to mine progress. While we recognize that our share price continues to reflect skepticism regarding our ability to execute, we believe the company today is materially stronger than it was just one year ago. Over the past year, we have fundamentally reshaped our organization. We've significantly reduced our operating cost structure, improved manufacturing efficiency, strengthened our commercial organization, advanced our regulatory programs, and substantially reduced our operating cash burn. Importantly, these improvements are not theoretical. They are now being reflected in our financial performance. Before discussing the quarter, I'd like to remind investors what Cytosorbens has become. We've built a proprietary blood purification platform based on our highly engineered polymer technology. Today, this platform supports two major franchises. First is our commercial cytosorb business, which has now generated over 300,000 treatments in more than 70 countries and continues to produce high-margin recurring revenue. Second is DrugSorb ATR, our investigational cardiovascular device, which we believe has the potential to open an entirely new U.S. growth engine. Together, these businesses provide us with both a growing commercial presence around the world. I believe this slide summarizes the quarter very well. revenue remained stable at approximately $9.6 million. Gross margins improved to 73%, representing continued manufacturing excellence. Most importantly, operating cash burn declined to approximately $200,000, excluding restructuring costs, bringing us substantially closer to our objective of achieving operating cash flow break-even. These improvements did not occur by chance. They reflect disciplined execution across manufacturing, commercial operations, expense management, and cash management. Collectively, they position the company significantly better than we were 12 months ago. Although we're pleased with our operational progress, we recognize that investors ultimately care about value creation. We believe Cytosorbance now has four largely independent opportunities to create meaningful shareholder value over the next 6 to 18 months. The first is to achieve operating cash flow break-even. Second is to return our core Cytosorb business to sustainable revenue growth. Third is opening the U.S. market through DrugSorb ATR. And finally, unlocking the strategic value of our HemaDefend BGA franchise. Each of these initiatives can independently create value, but together they represent a compelling pathway to fundamentally strengthening our company. I'd like to now turn the call over to Pete Mariani to discuss our progress towards operating cash flow breakeven.

Thanks, Phil. Achieving an operating cash flow breakeven has been a key objective for us, and we're pleased with the continued progress toward this goal in the quarter, including an increase in gross margins to 73%, a 27% reduction in operating loss, and a 38% improvement in adjusted EBITDA loss. and, importantly, a reduction in our operating cash burn to $200,000, excluding restructuring payments. These gains reflect disciplined execution across our organization, including manufacturing optimization, improved working capital management, commercial execution, and tighter cost controls. As a result, we remain on track toward our objective of achieving operating cash flow break-even in the second half of this year. This slide shows the positive 12-quarter trend line, noting the improvement in negative free cash flow, which we defined as total cash used in operating activities plus cash used in investing activities, and demonstrates the meaningful progress towards this important objective. We believe that achieving cash flow profitability is important because it fundamentally changes the company's financial profile. Every dollar of operating cash burn eliminated reduces future financing needs, strengthens our balance sheet, increases strategic flexibility, and allows a greater proportion of future growth to accrue to shareholders. Although important work remains, we believe that progress achieved over the past year demonstrates that this strategy is working and that we remain on path to achieving our goal of becoming operating cash flow break-even in the second half of this year. Phil? Thanks, Pete.

Now we get to our value driver number two, which is returning the Cytosorb business back to growth. Our commercial strategy remains focused on returning Cytosorb to consistent growth. This quarter growth was driven primarily by our distributor network, which is was up 16% year-over-year, and direct sales outside of Germany, which was up 9% year-over-year. Germany remained challenged following our restructuring due to headcount restrictions. However, the smaller organization is becoming increasingly productive. We've strengthened leadership, improved execution, and intent to selectively hire three to five additional sales representatives through early 2027 to restore country coverage. Outside Germany, we're encouraged by continued momentum. Although geopolitical instability temporarily affected our Middle East business, physician interests remain strong, and we continue to believe that this region represents meaningful future upside. Commercial success ultimately depends upon consistent physician education. Our strategy continues emphasizing the right patient at the right time with the right dose. We're also seeing growing physician interest across multiple critical care and cardiac surgery applications, while continuing to introduce our hot swap technology, which further expands our platform capabilities by enabling the switch out of the device more frequently. In addition, the feedback on our Purify platform continues to be very positive, and the placement of these machines continues to grow. This is a platform that is intended to help centers use our therapy earlier, and in doing so, collectively, be able to drive the treatment of the right patient at the right time with the right dose. With that, I'd like to now turn it over to Dr. Mikas Dele-Aguiris to talk about the third value driver, which is opening the U.S. market through drug-absorbed ATR. Mikas?

Thank you, Phil, and good afternoon to everyone on the call. Before we get into the update about drugs with ATR, it's important to once again set the stage about the opportunity for drugs with ATR to solve a major clinical need. Tons of millions of patients around the world are on blood thinners. These include the class of directorial anticoagulants with blockbusters like Eliquis and Xarelto, and also platelet blockers like Berlinta. These patients are on these drugs for a long time. many of them for the rest of their lives, with the intent of reducing the risk of having thrombotic complications as more heart attacks, strokes. However, these patients on these blood thinners have an estimated annual risk of approximately 10% that they will require an emergent or urgent operation that often includes cardiac surgery. In fact, 5% to 10% of emergency cardiac procedures do take place in patients on chronic antithrombotic therapy. And among heart attack patients, approximately 5% to 10% of them, they do require an urgent cabbage operation to treat the ongoing heart attack. The problem arises by the fact that the presence of blood thinners greatly increases the risk for bleeding around surgery. The only option available for these patients right now is the delay of surgery for multiple days until the drug washes out of their system. There is therefore a major unmet need that we're trying to solve with drugs of ATR. First, many of these patients cannot afford to wait for surgery. They're simply too sick, too critical. Secondly, for those who can wait, they can suffer recurrent complications, meaning another heart attack, potentially a stroke, heart failure, or even death, while they're sitting in a hospital bed waiting for the operation that they need. Drug Drug ATR has received two FDA breakthrough designations highlighting the lack of available effective therapies for this problem.

And we believe that Drumsum ATR has the potential to address this pervasive and serious unmet medical need.

Over the past few months, we have heard from a few of our investors that they'd like to understand our clinical story and our clinical data better. So, with the opportunity of the publication of the main results of the STAR-T study, we would like today to discuss in more details the results of our pivotal trial. On this slide, you see the front page of the publication in the leading American cardiac surgery journal, the Journal of Thoracic and Cardiovascular Surgery. And on the right-hand side of the slide, you will see what the editor selected as a central message from this trial, which we will discuss in more detail later in the presentation. Next slide, please.

A very brief overview of the design of the trial.

The trial was designed to enroll 140 patients that would require an urgent operation while on Berlinta. These are patients that did not have the benefit of washing out for over three to five days, as the current guidelines recommend. Once the decision was made to proceed to surgery, these patients were randomized in a double-blind fashion to either receive the device or to receive a sham device, which is the control arm. The only study-related intervention took place during the operation, meaning for the patients who received the device, the drugs or ADR device was inserted within the heart-lung circuit, as you see on the top right of the slide, while the control patients received the sham device. The rest of the care of these patients was according to the standard of care at the leading institutions that participated in this trial. The follow-up of the trial extended out to 30 days. So this trial was intended to assess the safety and the efficacy of the device. The safety was assessed by good clinical practice level assessment of adverse events that occurred in both study groups during the trial that was independently reviewed and assessed by a data safety monitoring board comprising experts in the field. The efficacy was assessed through a composite of three types of events, either a fatal bleed, a clinical bleed, according to a standard definition, or by the volume of blood loss within 24 hours after surgery that was collected in the chest tubes that these patients routinely have after open heart surgery. There were 29 sites that participated, 22 in the US and seven in canada and we're very lucky to have a trial leadership comprising some of the luminaries in the field including dr michael mack cardiac surgeon from baylor scott and white dr michael gibson international cardiologist from harvard university and dr richard whitlock who is the head of the cardiovascular research organization up in canada from mcmaster university next slide please.

Let's discuss the population within the study.

There were 140 patients as we discussed that were randomized. That constitutes the intent to treat population. And those 140 patients were balanced between the drugstore arm and the control arm with 70 patients in each group. However, as the protocol outlined, the analysis in the trial were performed only among patients that received an actual device, a study device, and underwent a cardiac operation. Eight of the 140 patients did not meet that criteria and were excluded from the modified intention-to-treat population, which was, again, the primary analysis population of the trial and included 132 participants. Once again, this was balanced between the two groups, and therefore, within the MITT, there were 66 patients in each of the study groups. However, as you also see on the slide, there were two other important categories within the MITT population that were not balanced between the two study groups. First was the amount of protocol deviations that basically represented that the trial procedures were not properly followed in the trial, specifically relating to a technique called acute normovolemic hemodilution, or ANH, which represents a practice in some institutions where the patient's own blood is removed at the beginning of surgery, replaced by crystalloid solutions, and then given back to the patient at the end of the operation. As you can imagine, such a practice would redose the patient with a drug that was present in the blood entering the surgery and therefore negate any effect of the drug-related ATR device. This was a major deviation, and we tried to protect and educate the sites from doing it, but still there were some of those cases observed which were more frequent in the drug-related ATR arm. The second important consideration was the type of cardiac operation. The starting trial was primarily a CABG trial, coronary artery bypass grafting. And as you see on this slide, 92% of all surgeries were CABG. Only 8% of the surgeries including the trial were different other surgeries on CABG, including aortic surgery, valve surgery, or combination operations. However, once again, this occurrence was imbalanced between the two arms. Therefore, if you look at the combination of major deviations and other surgeries, we ended up with a significant number, significant difference between the two groups of 15 versus 6. We have accounted for those imbalances in our analysis in the CABG per protocol population that we will focus on later.

Next slide. The safety results of the trial are very straightforward.

The study met the primary safety endpoint as assessed by the independent DSMB, which concluded that there were no safety concerns and no additional risks associated with the use of the device. In this table, we have summarized the actual event rates as listed in the published paper, and you will see that there's an absolute balance between the two arms in any type of adverse events. More importantly, I'd like to highlight that there were no serious adverse events related to the device. There were no unanticipated adverse events related to the device. And there were no adverse events leading to discontinuation from the study related to the device. There was one death in each arm, which represents a fairly low rate, which we believe is a reflection of the high-quality sites participating in this trial.

Next slide. The picture on the efficacy side requires additional explanation.

So the primary analysis of the trial was done on the MITT population that we discussed previously, which comprised 132 patients. We looked at the clinical events of bleeding, fatal bleeding, and blood volume and chest tube drainage in two different ways. In the first composite efficacy endpoint, we included both the occurrence of moderate and severe bleeding events. The second composite endpoint solely focused on the presence of severe bleeding events. We analyzed these events in a hierarchical manner using a statistical method called the WIN ratio. Just to give you a headline around the win ratio, when the ratio is above one, that favors the intervention. So what you see in the primary population, although the win ratio for both endpoints was above one, statistical significance was not achieved. However, if you recall the imbalances that were reviewed previously, then we should focus on the second analysis that accounted for those imbalances, which is the CAPAGE per protocol population analysis in 111 patients and the first thing that you will see is that for both endpoints the one including moderate bleeding and the one only focused on severe bleeding the wind ratio values are higher compared to the overall population and in fact in the endpoint that limits the analysis to severe bleeding events we now have a statistically significant reduction and a Witten ratio of 1.59.

Next slide, please.

One of the highlights of the study was the ability to track in a very quantitative fashion the amount of blood loss suffered by the patients in the trial. And the way to do that is by measuring on an hourly basis the blood loss collected in the chest tubes. What you're seeing here is all the data related to chest tube drainage within the trial. On the left-hand side, you see the hourly measurements and the cumulative accumulation out to 24 hours between the two arms. In the gray arm, in the gray bars is the control arm and in the blue arms is the drugstore arm. You can see, even though it's probably small on your screen, that from the first hour after surgery, there was less bleeding in the blue group compared to the gray group. In fact, that reduction achieved statistical significance within the first four hours and was maintained throughout the duration of observation after 24 hours. However, what's more important probably and more clinically meaningful is the analysis on the right. There's always blood loss after cardiac surgery. It's expected, and that is why every patient walks away with those chest tubes. What is not expected is excessive blood loss, which is driven by the blood thinners. So the intent of the drug of ATR device is not to eliminate blood loss, because that's just simply part of surgery. The intent is to reduce the occurrence of severe bleeding events, severe cases of severe blood loss. So the way we analyze the data is we took the actual blood volume observed in the trial, chested drainage blood volumes, and separate them in the four quartiles. The first quartile represented the patients who had the least amount of blood loss, as you see on the graph, less than half a liter. And then on the fourth quartile was patients who had more than 945 ml and again these are the observed data these are not arbitrary breakdowns this is the actual quartiles of blood volumes observed in the trial and there are two important observations in this analysis first of all the distribution is different between the two groups there's the clustering of lower blood volumes in the quartiles with lower blood volumes for the blue group, and there is more, more frequent, higher frequency of bigger blood loss in the gray group. In fact, the statistical test, which is called P for the trend lines between the two groups was significant. But most importantly, if we just focus on those patients who experienced significant blood loss, they were in the fourth quartile, they were the worst of the worst, There was a highly significant reduction, approximately 60% of the risk of having such a major bleed if the device was used.

Next slide, please.

This slide shows what the study investigators and the journal's editors considered to be the central message of the trial. This is a traditional composite analysis of severe bleeding events, according to the standard definition that we use, or the occurrence of chest tube drainage greater than one liter. Just to give you some context, each of us, a normal, average weight adult, has approximately five liters of blood. So losing one liter represents approximately 20% of the total blood volume for a patient. This is also a cutoff that's considered highly clinically meaningful by surgeons. So when we combine the risk of having either a major severe bleeding event or losing more than one liter of blood after surgery, there was a 58% risk reduction with the use of the device. In fact, it was an absolute risk reduction of 16.3%, 13.7% with treatment, 30% with control, that translates to a number needed to treat of six. More simply put, you can prevent one major bleed from happening for every six patients that are treated with a device. This is a highly favorable number, and just as a comparison, it's significantly lower than NMTs that are accepted in standard clinical practice, which are between 50 and 100 for traditional therapies like blood pressure medication or cholesterol-lowering medication.

Next slide, please.

So what we discussed previously was that when moderate bleeding was included within the composite endpoint analysis, we were not able to demonstrate a significant effect. However, when the analysis was limited to severe bleeding, that's when the p-values became significant. Obviously, this raised some questions for us. Why would the device not reduce moderate bleeding, but only severe bleeding? Well, it turns out this was likely a definition problem, not a study definition problem, not a device problem. The UTDBV definition for moderate bleeding frequently allowed a single unit of blood product transfused to account for a moderate event. So we dove a little deeper, and we actually went and looked at these moderate reading events to see if they were the same between the two groups. And what we saw was when these events did occur, according to the definition, patients treated with a device required 50% less blood products to manage these events compared to the control patients when they suffered these events. And that observation was consistent in regardless if the transfusions were red blood cells, platelets, fresh frozen plasma, or cryoprecipitate. This is important because we believe shows that the device works across the spectrum of bleeding, but the sensitivity of the definition was not high enough to be able to uncover this effect.

Next slide, please.

So we hope that you now have better understanding and also understand why we believe our clinical data are strong. But what is important also is our progress that we're making with the FDA. A little bit of review of the history with the regulatory path for drugs or because the primary endpoint of the start from trial was missed, the FDA denied our original de novo application based on the approval standard that requires the probable benefit outweighs probable risk and subsequently upheld that denial during the appeal process. However, there were three very important and we believe positive outcomes that occurred during the appeal process. First, the FDA agreed that there were no major issues associated with device use. That's a key to the benefit-to-risk evaluation for all de novo devices. FDA also stated that a new clinical trial is not needed and that additional information that can be provided may support the company's desired label claim. Finally, FDA indicated that upon a new submission, a focused review of the remaining open items was possible. As we have previously disclosed, we've had follow-up discussions with the FDA, and we have now obtained clarity on the additional information that will be required to support the probable benefit. This includes additional mechanistic data that will likely be generated from a small experimental study and real-world evidence analysis based on existing data from the increasing use of the device in the everyday practice in Europe. We have a pre-submission meeting scheduled later this month with FDA to discuss the option for generating the additional mechanistic data. We have already identified the appropriate data to support the real-world evidence analysis, and in fact, preliminary results will be presented at the end of this month at the the European Society of Cardiology Conference. Once all the additional information is available, we will then file the new de novo application as soon as possible with obviously a lot of the work already in progress.

Next slide.

However, we're also excited about the potential shot, second shot on goal for drugs or ATR to open the US market. And that is in relation to the removal of DOACs or direct oral anticoagulants. Among all patients with antithrombotics, the DOACs are the leading category. In fact, the market leaders within that category, which is Eliquis and Xarelto, as listed on this slide, rank among the top blockbuster pharmaceuticals in the world, generating annual sales in close to $20 billion in 2025. We have also previously discussed that Drumsum ATR has already received a second breakthrough device designation from FDA for the removal of Eliquis of Xarelto during cardiac surgery. And we have also previously discussed that it is our intent, following initial marketing approval, to expand the label for Drumsum ATR to include the removal of DOACs during cardiac surgery. Therefore, given the delays in Ticagola's submission, we have now scheduled a separate pre-submission meeting with FDA, which will also occur later this month, to review with the agency the available data for the DOAC indication and determine in a collaborative manner what, if any, additional information will be required to support a parallel de Novo submission for DOAC removal. Meanwhile, as the regulatory process is ongoing, we are seeing that the evidence base for antithrombotic removal with our device continues to grow. Earlier this year, at EuroPCR in Paris, which is the world-leading course in cardiovascular medicine, we had two key presentations. One, in relation to urgent CABG in patients with acute coronary syndromes, demonstrating that choosing Berlinta over Plavix and using our device results in significantly less bleeding after surgery. That was a rigorous analysis utilizing propensity score matching to adequately compare the intervention and the control arms. We also presented an interview report from the Star Registry highlighting some of the patients that were actually on DOAC, not Belinta, during CABG, where the device also was used and it appeared to result in low bleeding rates. Later this month in Munich, at the European Society of Cardiology, which is the world's largest cardiovascular conference, two additional analyses will be presented. A matched comparison of patient-level data in patients on Belinda undergoing urgent CABG. This is the type of data that the FDA is also expecting us to include in the new submission. We have identified an adequate control group, and we're utilizing our data from the star registry for these comparative analysis. Obviously, I cannot go into the results as the data are embargoed. The second analysis includes the German experience that is increasingly now highlighting the protocolized use in operations in major heart surgery centers in Germany where the device now is becoming standard of care. So there's a sample of over 200 patients treated just at German institutions, and these investigators are very enthusiastic about presenting the results. This rigorous reward analysis highlights the increasing adoption of our technology as part of the operative protocols of leading European heart centers and the bleeding reductions that are associated with the use of our device. And now to my final slide, as we have communicated previously, we believe that drugs of ATR represents a win-win-win innovation, first for patients. It minimizes the delays to definitive surgery. These patients are very critically ill, and they do not wait for their surgeries. Once they get operated, it reduces the serious bleeding risk. Having a serious bleeding event is associated with a complicated hospital stay and has been highlighted in the literature as driving increased morbidity and mortality after cardiac surgery. It's also a win for surgeons. Our device is very easily integrated into the heart-lung machine, therefore it does not increase the workload of the surgeons. It reduces perioperative bleeding complications. Not only does it protect the outcome of the procedure, but it also protects the surgeon's reputation and their quality rating since blood product transfusions and postoperative bleeding are part of the rating system for cardiac surgeons. It allows for faster disposition of patients, increased throughput, and reduces the expense and time consumption regarding exploratory surgery. Many times when patients suffer a major bleeding after cardiac surgery, they have to return to the operating room for a second operation. And then finally, drugs are a win for hospital administrators because it reduces cost and resource utilization in their hospitals. It avoids the costs associated with a three to five day delay for drug washout that can be up to $30,000 in the intensive care unit or up to $10,000 in a planned cardiac telemetry bed. It also reduces the adverse events and protects the hospital's CMS and star rating. What you also don't see on this slide, it's also a potential to increase the volume in these hospitals, because more open beds means that they can do more surgeries. Especially for Cabbage, it's a profit maker for the hospital. It's a very attractive value proposition. And with that, I'd like to thank you for your attention. I will turn it back to Phil.

Thanks very much, Mikas. That was really helpful. I greatly appreciate it. Well, I'm pleased to now have the opportunity to discuss, really for the first time, our fourth value driver, which is to realize the strategic value of human defend BGA, the technology we've been working on for many years and that we believe is not at all reflected in today's valuation. But before I do that, let's talk about the importance of universal plasma. Plasma is the life saving a cellular portion of blood that contains coagulation factors, antibodies, and other things that are vital for blood clotting, immunity, and other functions used widely in trauma and critical care, but is blood-type specific due to the presence of anti-A and anti-B blood group antibodies. Universal plasma, on the other hand, can be given to anyone, regardless of blood type, and is generated artificially by removing the anti-A and anti-B antibodies, making it readily available. However, to date, the technology has been very expensive and very difficult to scale. The wide availability of universal plasma would significantly simplify the logistics of plasma collection and usage at the hospital level, dramatically lower complexity of plasmid administration in mass casualty and emergency situations without the need to blood type the patient. Think about earthquakes. Think about rad nuke events. Think about mass trauma from serious explosions and other things. Think about all the people who would be using this, like first responders, medics, paramedics, people in an emergency room, and others. And when coupled with free-stried plasma technology, it would enable the holy grail of lightweight portable, non-refrigerated free-stried universal plasma, which enables the product to be stockpiled and have broad availability on ambulances, first responder vehicles, medic packs, and others. In addition, the ability to remove anti-A and anti-B antibodies is important in the multi-billion-dollar plasma processing industry, dominated by names like GRIFFLES, CSL Plasma, Takeda, Baxter, and others, who make IVIG, albumin, clotting factors, and many other blood products from plasma. Hemodafen BGA can remove anti-A and anti-B antibodies to easily and cost-effectively create universal plasma and other blood products. Which brings us to hemodafen, which is enabling universal plasma and blood products. Hemodafen is a simple, gravity-driven filter that removes anti-A and anti-B blood group antibodies to enable universal blood products. And it turns out that the same filter can be used to generate not only universal plasma, but universal platelets as well, as well as increase the donor pool of whole-blood, low-titer donors. It addresses critical needs in trauma, emergency, military, and civilian transfusion, as well as in the plasma processing industry that we just mentioned. And it was developed with more than $16 million in non-dilutive Department of Defense and government funding and supported by leading experts and partners. We have now de-risked this product concept with a path to U.S. FDA and EU clearance and potential additional non-dilutive funding from the Department of Defense or other government agencies. What we have been able to accomplish is a scalable platform technology targeting a multi-billion dollar market opportunity with multiple potential exits through acquisition by plasma trauma or other blood tech leaders or other strategic alternatives. Importantly, this is a pre-commercial, non-revenue-generating asset today and not part of Cytosorbent's core operating or cash-producing businesses. While strategically important, ChemoDefend is not generating revenue and not reflected in Cytosorbent's current valuation. But let me tell you quickly how this works. A single cartridge can convert a unit of plasma in 15 minutes to a universal plasma unit with no equipment needed. You take a unit of plasma, you filter it with a Humanofen BGA cartridge. Plasma flows by gravity through a small filter. The beads inside remove the antibodies, and safe universal plasma is then collected in a new sterile bag. This is a fast process where universal plasma can be generated in under 15 minutes. It's safe, preserving clotting factors, and is biocompatible. It's simple, does not require power, does not require training, and is held in a closed sterile system without the need for any type of electricity or machines. and it has an expected shelf life of more than a year with scalable manufacturing. Where we are today is actually in a very good place for human-offend BGA and over the past year we've made tremendous progress. Human-offend BGA development is now complete and has been tested and validated by multiple blood centers and government and industry players. It is currently undergoing device validation for human clinical studies. And in July 2026, along these lines, we've now received constructive FDA feedback regarding an anticipated clinical pathway following a pre-IDE submission to FDA with plans to begin clinical trial testing in the future. We also are in continued discussions with U.S. government agencies regarding potential non-dilutive funding of the full clinical trial process through approval. And importantly, it's important to note that universal fresh frozen plasma could greatly simplify blood logistics in a hospital, which is a multi-billion dollar market. Also importantly, the first freeze-dried plasma biologic license application has been now granted, paving the way for the holy grail of freeze-dried universal plasma. Again, plasma that can be on any emergency room shelf or first responder vehicle or military vehicle to treat trauma and severe hemorrhage. And we would be providing the universal plasma component for that potentially. Because of this, Hemodefend BJA is a valuable asset with multiple potential pathways to create shareholder value, including commercial partnerships, licensing opportunities, government funding, and other strategic alternatives. And with that, I'd like to turn it over to Pete to cover the financial highlights.

Thank you, Phil. I'll take a few minutes to review the high-level financial results for the quarter and provide some additional context for improved operating margins and the path towards operating cash flow break-even. Next slide. First of all, first quarter revenue was $9.6 million, consistent with the prior year and up 9% sequentially from the first quarter. As Phil noted, year-over-year revenue performance was driven by growth in our distributor and strategic partner territories, as well as direct sales outside of Germany, which was offset by lower sales in Germany. The decline in Germany reflects a smaller, more focused sales team as we continue to restructure the team's sales process and leadership. We're encouraged by the progress of this streamlined team and now expect to add three to five sales representatives through early 2027, which we believe will improve territory coverage and accelerate revenue growth. Revenue in our distributor and strategic partner territories increased 16% year-over-year and 18% sequentially, while revenue in our recently established presence in the Middle East remains below expectations in the first half of the year due to disruptions related to the Iran War, we remain encouraged by our team's progress in the region and expect this important geography to contribute to future revenue growth. Change of the foreign currency rates positively impacted revenue by approximately 4% compared to the prior year. Next slide. The gross margins improved to 73% in the second quarter of 26, up from 69% in Q1 of this year and 71% in Q2 of the prior year. The improvement was driven through manufacturing optimization, improved sourcing and production efficiencies, and disciplined cost management. We believe these gains are sustainable and provide an opportunity to further margin expansion as volumes increase. Operating expenses decreased 7% to $9.7 million for the quarter compared to $10.4 million for the prior year period. Excluding the $270,000 restructuring charge recorded during the quarter, total operating expenses would have declined 13% year over year. The restructuring charge reflects severance and related costs associated with an additional reduction in force and other cost-saving initiatives implemented during the quarter. As a result of these actions, we are now a much leaner, more focused organization, and total headcount reduced by approximately 23% since September of last year. Improved gross margins and lower operating expenses drove a 27% improvement in our operating loss, which narrowed to $2.6 million from $3.6 million in the prior year period. Net loss for the quarter was $4.4 million, or $0.07 per share, compared to net income of $1.9 million or three cents per share in the prior year period. The large year-over-year change was primarily driven by the non-cash impact of foreign currency gains and losses. However, adjusted net loss, which excludes the non-cash impact of foreign currency gains and losses, as well as non-cash compensation and restructuring charges, improved 22% to $2.9 million or five cents per share, compared to an adjusted net loss of $3.7 million, or $0.06 per share in the prior year period. Now, adjusted EBITDA loss, which also excludes the non-cash impact of foreign currency gains and losses, non-cash stock compensation, and restructuring charges, improved 38% to $1.6 million from $2.6 million in the prior year. We use adjusted EBITDA as a key measure to a key measure of overall profitability and expect continued improvement in the second half of the year as the full impact of our cost reduction initiatives are realized. And finally, our total cash equivalents and restricted cash was approximately $5.9 million on June 30, 2026, compared to $6.3 million at the end of the first quarter. Cash burn improved to $400,000 for the quarter, including approximately $200,000 in restructuring-related payments, resulting in a net operating cash burn of approximately $200,000. As we noted earlier, this improvement reflects the benefits of our cost reduction program, operating efficiencies, improved working capital dynamics, and disciplined cost management, and we continue to expect to achieve operating cash flow break-even in the second half of Now I'll turn the call over to Phil. Thanks, Pete.

Looking ahead, we believe our four independent value drivers drive one uncommon value. Taking together, these four value drivers represent multiple independent opportunities to create value over the next 16 to 18 months. The first reduces financial risk by expanding operating margins and achieving operating cash flow break even. The second returns our core Cytosaur business to consistent profitable growth. The third opens the U.S. market and establishes what we believe can become a second major commercial franchise. And the fourth unlocks the value of a highly differentiated blood purification platform with meaningful strategic optionality. We believe each of these initiatives has the potential to independently strengthen our business and increase shareholder value. Together, they have the potential to fundamentally transform cytosorbents into a stronger, more profitable, and more diversified medical technology company. Although more work remains, we believe our accomplishments over the past several quarters have stabilized the company and have positioned it for this next phase, where our entire organization remains intensely focused on disciplined execution. In the near future, we intend to regain compliance with our NASDAQ listing requirements, broaden the awareness of our company and our four separate value drivers, and importantly, secure the company financially. We appreciate our shareholder support and look forward to updating all of you as we continue to make progress on each of these important objectives. With that, operator, we'd now be pleased to open the line for questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the number one on your touchstone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the number two. If you are using a speakerphone, please leave the handset before pressing any keys. One moment, please, for your first question. And your first question comes from Tom Kerr of ZAKSER. Please go ahead. Your line is open.

Hi, guys. Thanks for all the additional information. Two quick ones. Can you clarify the timing of the submissions if you do a, the Dragos or ATR submissions, if you do a parallel? Like if you just do one and you're expected January, now you have to do a parallel submission for DOAC. Does that drag it on an extra two or three, four months before the parallel submission can be submitted? I hope that made sense.

Yeah, no, I, Micah, do you want to address that?

Sure, sure. No, I think we truly mean parallel. We don't think that one submission will necessarily impact the timing of the other one. You know, we are on the FDA's review clock, basically. So a lot of the time required here is basically for the FDA to grant us these meetings and to provide us with the feedback. In terms of the Ticagola submission, it will come down to collecting the additional information and having it available as we discussed, but that submission is already a long way in progress since we have obviously a lot of the materials already in place. For the DOAC removal submission, a lot will depend, you know, on our initial interaction with FDA, as we disclosed earlier today, that meeting will take place also late this month. So that will give us a better bit of understanding because that will kind of hopefully lay out some sort of a path forward of what we need to include in the new submission. But once these paths are clear, and we believe that for the Ticagolo one, we have a lot of clarity already, they plan to proceed truly in a parallel fashion, those two applications.

Got it. That makes sense. Just a quick one for Pete. On the gross margins, were you implying that there's still operational efficiencies on the cost of goods sold sign where maybe the second half of the year could get above the 73, 73.1% gross margin? Or is that a steady state, do you think, for a while?

Yeah, I think it depends on volume. I think the comment I made was that volumes increase. I think it gives us the opportunity to see expansion.

Got it. All right. I'll jump back on the line.

Thanks, Tom.

Thank you. And your next question comes from Sean Lee of HCU Wainwright. We're glad your line is open.

Hey, Sean, we can't hear you. You may be on mute.

Oh, my bad. Thanks. Sorry about that. Thanks for taking my question. For Germany, do you expect to come, sorry, do you expect to, how long do you expect these new reps to become a critical to the revenues? and do you think they'll be sufficient to return the country to growth?

Yeah, you know, Germany has a population of about 80 to 90 million people and so for a small sales force to be able to cover that entire country is difficult. We have a lot of centers, in fact, that have been or are customers where we just can't visit them because we've been limited by the number of folks that we have on the street. And so the good part about it is that, you know, what we have seen is that it doesn't take a lot for an experienced sales rep to get up to speed. It can be as quick as three months, as long as six months, but typically that's when they're starting in a new territory that has not already been developed. But what we're saying is that they would be basically going to territories where hospitals were customers or are customers, but just haven't been detailed in a long time. And we think that they can begin to become productive actually very quickly. And so we've been asked before about, well, doesn't three to five sales reps cost a lot? And we have a compensation mechanism common to other companies in the space where it's a lower fixed, higher variable commission compensation scheme, where basically if they don't produce, they don't make as much money as they could if they were very productive.

And so it helps us limit our initial costs and helps get them to become very productive reps very quickly. um pete i don't know if you had any yeah no i i guess i'd say a couple things one we're actually really pleased with some of the improvements that this core the smaller core group is doing and we see increased productivity out of that group um and we think that in the back half of the year that core group in and of itself we'll see some additional sequential growth um but your question is as we're going to add three to five reps through the end of or through the early part of 27, you know, it will take each of them probably three to six months to come up to speed. So I think that we'll get some initial revenue growth just through improved execution of the current team right now. And then as you get into the middle part of next year, I think we'll begin to see contributions from the ads that we're planning in the second half.

Great. Thanks for the additional comment on that. My next question is on the drug sorbet R. It's good to see that all the real-world evidence is coming in that could support the next submission. So, I was just wondering whether you've discussed with the FDA or whether they've pre-agreed to the data source for these data, for these real-world evidence, and also the comparator and the statistical analysis to be used?

Mikis? Sure, sure. No, thanks. That's a great question.

So the FDA late last year in December, they issued a guidance dedicated to real-world evidence. So they have already kind of laid out in a large extent kind of their expectations of what the data sources should look like. So, and obviously during our previous discussion, we had the opportunity to discuss with them so we believe we have appropriate and adequate data sources um obviously our own internal company data uh you know our our the collection of our data is high fidelity and we adhere into all the regulatory requirements but it's been a little more challenging to find the adequate control groups but we think we have found them uh from external data sets and applying the the guidance that the FDA provided, you know, reviewing it and applying it to this data, we believe will constitute the kind of data the FDA is expecting to see. Now, at the end of the day, as you know, it will all come down to the review of this data. The FDA frequently has questions on the data that they will not, you know, be able to voice those questions until they actually see the data. So we have had the initial interactions. We understand what the expectations are. We believe we have good data. And we believe that the statistical analysis plan that we have put forth is a rigorous one, including leveraging independent expert statistical groups. So it will come down to what the FDA's question will be after they review the data. But we have a pretty good roadmap of what we should be submitting to them.

I see. That's very helpful. My last question is on Hemodefend BGA. So, with the development complete on that, are there any plans to start a clinical study by yourself, or is it more a case of waiting for the right partner or the government grant?

Yeah, we currently, our focus as a company is on cytosorb and drug-sorb ATR, and we believe, however, that, you know, blood and blood products are a priority for the U.S. government and the Department of Defense. They've already funded this program amongst different institutions in the U.S. government to the tune of $16 million, and we believe that we've been able to execute upon those grants, and contracts extremely well and hope that we will be able to gain the financial support of other agencies to bring this home to an approved product through clinical trials. So we are currently looking at all strategic options related to human defend BGA. We are not looking to fund that out of our financial resources from cytosorbents at the current time, but should we be able to obtain this non-dilutive government funding or partner this with a strategic partner, we would accelerate our plans to get this into clinic. And again, one of the great things that we've now received is now FDA feedback on what that clinical program could look, should look like, and so giving us clarity for helping to design those studies. So, you know, more to come, and in fact, hopefully a lot more to come on the Human Defend BGA program, and we look forward to informing shareholders about that progress.

I see. That's all I have, and thanks again for picking my questions.

Sure. Thanks, Sean. Thank you. And there are no further questions at this time. I would now like to turn the call back over to Phil Chan for your closing comment.

Thank you. And thank you, everyone, for attending the call this evening and for your continued support. We look forward to updating you on our progress on a more regular basis in the future. Thank you, everyone, and have a great night.

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