Earnings Call
Cytosorbents Corp (CTSO)
Earnings Call Transcript - CTSO Q4 2020
Operator, Operator
Good afternoon, and welcome to the CytoSorbents’ 2020 Financial and Operating Results Conference Call. Please be advised that the call will be recorded at the company's request. At this time, I would like to turn the call over to our moderator, Amy Vogel. Please go ahead, Ms. Vogel.
Amy Vogel, Moderator
Thank you. And good afternoon. Welcome to CytoSorbents' 2020 financial and operating results conference call. Joining me today from the company are Dr. Phillip Chan, Chief Executive Officer; Vincent Capponi, President and Chief Operating Officer; 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; 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 the risks and uncertainties in the company's filings with the SEC. As projections as to the company's future performance represented by management include estimates today as of March 9, 2021, 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 2020 by Dr. Chan, Dr. Efthymios Deliargyris, Chris Cramer, 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. At this time, it's my pleasure to turn the call over to Dr. Phillip Chan.
Phillip Chan, CEO
Thank you very much, Amy and good afternoon, everyone. Despite the backdrop of COVID-19, we had an outstanding 2020. We announced record 2020 CytoSorb sales of $39.5 million versus $22.8 million in 2019, a 73% increase. We also announced record Q4 2020 product sales of $11.5 million versus $6.6 million a year ago, a 74% increase. Our blended product gross margins were record 82% in the fourth quarter, and 76% for the year. We had a solid balance sheet with $71.4 million in cash as of the end of the year, and no long-term debt. And we delivered more than 121,000 cumulative CytoSorb cartridges to date, which was up 51% from 80,000 a year ago, with distribution across 67 countries. In addition, we treated more than 5,000 COVID-19 patients in more than 30 countries, including here in the United States under FDA emergency authorization granted in 2020. We received EU approval to remove ticagrelor and rivaroxaban during emergent cardiothoracic surgery. And we were also granted FDA breakthrough designation for the removal of ticagrelor for this application. We also received European Union approval for our new product called the ECOS-300CY cartridge to remove inflammatory toxins during ex vivo perfusion of solid organs for organ transplants. And we were awarded $8.4 million in contracts from DoD to complete HemoDefend-BGA preclinical development that will enable universal plasma as well as whole blood transfusions. One of the topics that we wanted to cover today is our sales growth strategy in the new normal. With our strong financial performance and solid cash position coupled with solid current and anticipated demand for CytoSorb, we're executing a number of key initiatives to drive growth. First, it is to maximize what remains of the COVID-19 opportunity and then it is to return to our pre-COVID-19 growth strategy, where we will be focused on achieving solid growth in product revenue while replacing COVID-19 sales, prioritizing the path to U.S. regulatory approval of CytoSorb based on ticagrelor removal in cardiothoracic surgery, executing on our new clinical strategy in the United States and in Europe, expanding our manufacturing facility to accommodate a peak capacity of $350 million to $400 million in sales, beginning to build out our U.S. commercialization team in anticipation of a potential U.S. approval and also driving to GAAP profitability. For today's discussion, given that the last three bullets are further out, we will focus on the first four bullets. First, let's talk about the status of COVID worldwide. After many weeks of decline, cases of COVID-19 have plateaued worldwide as you can see from the lower right-hand corner graph. What we have seen in the last few weeks has been a resurgence of COVID, particularly in Europe, as you can see by the darker and darker red countries, as well as in Latin America; this may be because of virus variants. We believe that COVID-19 is still expected to contribute to revenue, particularly in the first half of the year. In the United States, it's a similar story. However, as you can see here, COVID-19 has gone down quite dramatically. On the left-hand side is the heat map of the United States in early December of 2020. And these represent new cases of COVID-19. And in March 2021, you can see that the activity is significantly less in the United States. And this is represented by the graph on the upper right-hand corner, where you have seen also another significant decline since January of the new cases, daily new cases. But what you can see also in the last couple of weeks has been a plateauing of the curve. And with now the reopening of many states where they have now recommended doing away with masks, this may actually begin to rise again, we just don't know. But that decrease in the number of new cases was also correlated in the middle graph, with the cases of new deaths reported per day, now around 2,000 a day, and also by a significant decline in hospitalizations to less than 50,000, which is a positive thing. This has been in the environment of more vaccine availability. On the lower right-hand side, you can see where we currently are, less than 20% of the population is currently vaccinated now, but based upon projections of one to two million newly vaccinated people every day, the hope is that we will get to potential herd immunity, which could happen around somewhere between 60 plus percent of the population either having been infected or vaccinated. Now, the new variants may throw a twist into this because some of the new variants can actually escape potential immunity given by vaccinations and by prior infection. But this is something that we'll have to wait and see. Our first objective is to achieve solid growth in non-COVID sales. So, after COVID is done, our underlying non-COVID-19 core business grew 32% last year and accounted for 76% of our sales. COVID-19 sales were estimated at about 24%. This is important because it shows the health of our core non-COVID businesses and increases the visibility of our potential to continue growing this year. We plan to accomplish this in a number of different ways. First of all, we've significantly expanded our European sales team now to 95 people. Germany represents 51% of our overall product sales, followed by other direct territories where we have salespeople that represent about 17% of our product sales in 2020. And distributors and strategic partners accounted for 32% of our product sales. In Germany, we've seen that the rep productivity is actually quite good at approximately $1.2 million per rep in 2020, despite no traditional sales. Prior to COVID, the rep productivity with eight reps was about $1.8 million per rep. So, although we've dropped down a little bit, I think that the fact that they are already so productive is a very good sign. Our second focus will be to go back to sales processes that work. First of all, in-person selling to customers, in-person trade shows and medical conferences and clinical symposia, in-person training, as well as a strong push on marketing activities. We've benefited across the world because COVID-19 has raised awareness of CytoSorb for our therapy as a treatment of hyperinflammation and cytokine storm. Next, we want to maximize our existing applications. We are continuing to see strength in sepsis and septic shock and many other critical care illnesses such as acute respiratory distress syndrome and lung injury, trauma from lung injury, pancreatitis, and many others. And we also have about a third of our overall usage historically has been in cardiac surgery, particularly in high-risk surgery, and many other applications such as endocarditis, and others. Lastly, for post-surgical applications, and this is one of the reasons why the reduction in elective surgeries caused by COVID progressed in 2020. But as these procedures and the subsequent complications that often occur after these procedures, such as post-operative sepsis, and other complications, we believe that this will be again another driver to get us back to where we want to be on the growth curve for non-COVID business. Last but not least, we are going to maximize new applications. And one of those applications is something that we'll be focused on today in today's call, particularly on a clinical side. But this is to leverage our EU approvals to remove ticagrelor and rivaroxaban in emergency or urgent cardiothoracic surgery. Last year, we did not have an opportunity to maximize sales of this because of the significant inability to get into hospitals to talk to surgeons, a significant decrease in cardiac surgery workflow, as well as a decrease in the effectiveness of medical conferences that were held virtually. But we also have other applications as well; these are just some of them. We believe liver disease will be one of the major growth drivers in the future, and as we’ll be discussing momentarily, the HepOnFire study that we plan to start later this year, as well as new applications in ECMO. We have seen particularly here in the United States, but also elsewhere around the world, that the concurrent use of CytoSorb with ECMO has helped many patients get off mechanical ventilation, as well as became a leader for ECMO. We hope to be able to demonstrate this in the future, particularly in the early intervention of patients who are hyperinflamed. So, with that, let me turn it over to Efthymios to discuss the clinical update, and particularly prioritizing the U.S. approval and executing the global clinical strategy, Efthymios?
Efthymios Deliargyris, CMO
Thank you, Phil. And good afternoon, everyone. I'd like to spend the next few minutes giving you an update on our clinical progress and the clinical programs we're running, obviously with a priority on U.S. approval as Phil already mentioned. So, some highlights first relating to the execution of the clinical plan that we discussed on previous earnings calls. Over the past few months, we have been scaling up our clinical operational capabilities. We hired eight new clinical experience members to the team in 2020 in an effort to execute our studies in a cost-efficient and timely manner with increasing sponsor involvement. We will continue that expansion of the team in 2021. A very important addition worth mentioning is David Cox, a new VP of Global Regulatory, who dramatically increases our bandwidth when it comes to regulatory submissions. Going forward, we'll focus on generating rigorous, adequately powered, multicenter company sponsored trials. These are the trials that will help us get regulatory approvals and establish our treatments as a standard of care and inclusion in treatment guidelines. We will do so by partnering with top academic institutions and world-renowned investigators. We'll take a complementary approach of RCTs, randomized clinical trials registries, but also real-world evidence and health economic projects since the ability to demonstrate the value proposition is critical in the adoption of our device. As Phil mentioned, the COVID-19 pandemic had an impact on all aspects of the business, including in our clinical operations. There's no surprise that multiple clinical programs around the world suffered during the pandemic, and we experienced similar headwinds. We saw that in two different ways, either delayed or post enrollment of studies not related to COVID. A specific example for us was the TISORB study that's executed in the UK that suffered from nationwide lockdowns in the UK. But we've also witnessed the prioritization of COVID-related clinical research and the delay in review by the ethics committees and the IRBs of non-COVID-related clinical studies. We now have an updated path to FDA approval, clearly prioritizing the ticagrelor removal during cardiac surgery application. We will be executing a U.S. IND study, and I will spend a few minutes a couple of slides later to give you a little bit more detail. That is our top priority in 2021. However, we're also resuming the REFRESH 2-AKI trial, which many of you have been following for a while, and we believe that soon we'll be enrolling patients again. Finally, we will be pursuing a breakthrough designation for direct oral anticoagulant removal as well, in a very similar fashion to the breakthrough designation that was granted to us for ticagrelor removal. Finally, on the investigator-initiated trial side, we are still awaiting the REMOve readout. This is another example of how COVID-19 impacted the ability to monitor size, retrieve the data, and actually perform the necessary analysis for the topline results. But we expect that to be reading out very soon. On this next slide, there is a summary of the clinical programs that are active or will become active in 2021. You will see on the slide that the programs are categorized based on different colors relating to our cardiovascular applications and our critical care applications. We also want to demonstrate that we're taking a multi-disciplinary complimentary approach to our clinical plan that includes and prioritizes our RCTs, but we'll also be executing registries and the necessary complementary studies to provide either pilot efficacy data or mechanistic evidence for our applications. Starting on the blue on the cardiovascular side, on the top left, on the top of the RCT column, you will see the safe and timely antithrombotic removal ticagrelor or STAR-T study. This is going to be the IDE study executed in the U.S. focusing on ticagrelor removal in patients undergoing emergent cardiothoracic surgery. We expect that the IDE will be approved during the second quarter and we're doing all the necessary work in the background to have this study started in the third quarter of 2021. As noted already, we are resuming the REFRESH 2-AKI trial. This is also a U.S. IDE trial, focusing on the reduction of post-operative acute kidney injury. We also believe that this study will be actively enrolling in the second quarter of this year. We'd recently announced that we're launching the safe and timely antithrombotic removal, STAR registry in Europe. This is going to be an international registry. We're focusing on four countries, initially the United Kingdom, France, Germany, and Austria, but we plan to expand as the use of CytoSorb antithrombotic removal in real-world practice also expands, and we're estimating to be capturing and enrolling patients again in the second quarter of this year. Finally, we have two single-arm studies looking at generating pharmacokinetic and pharmacodynamic data in ticagrelor removal. The CyTATION and TISORB studies, CyTATION is firmly up and running. We had some delays in the review process by the IRBs in Germany due to COVID-19, but I'm happy to report that the study is actually actively enrolling patients. TISORB, the enrollment has greatly suffered from COVID-19 with rolling lockdowns. One is still in place in the UK and all non-COVID related research deprioritized. We are under review for the best path forward for the study. We're waiting for guidance from the regulatory authorities in the UK. And finally, this year, we plan to also initiate a similar single-arm PKPD study now providing mechanistic data for rivaroxaban removal. We believe that this study will also be up and running before the year’s end in 2021. Moving on now to our critical care programs. And first is the PROCYSS study. PROCYSS is going to be a multicenter randomized clinical trial that we're going to execute in Germany, looking at the ability of CytoSorb to provide hemodynamic stabilization in patients with refractory septic shock. We're able to submit the protocol for IRB review, which is still ongoing, but we do believe we'll be able to initiate the study and start enrolling patients in the third quarter of this year. The CTC registry is active in the United States. We now have six ECMO centers contributing and with the process of putting together the initial experience in the publication that we'll be submitting that in the near future. In the EU, we are expanding this registry, and we'll also be transitioning it to a more general critical care registry, the CTC CytoSorb therapy in critical care, because we do believe in the foreseeable future COVID-19 will no longer have as great of an impact and we want to be able to have a platform to capture the use of our device across critical care indications. Finally, you heard that from Phil earlier, we will be executing a pilot multicenter single-arm study in patients with alcoholic hepatitis who are suffering from acute on chronic liver failure. This is important – we do believe that CytoSorb has an excellent profile in providing benefit through both hyperinflammation reduction and removal of liver toxins that play a critical role in the pathophysiology in these patients. The protocol is currently being finalized. We are planning for IRB submission in Q2 and the beginning of the study by the year end of 2021. And this is the last slide on the clinical side, as Phil previously mentioned, our top priority this year we will be focusing on the U.S. IDE trial. The IDE submission is imminent, and we believe that we will have the review completed and approved IDE in the second quarter of 2021. The objective of the study will be to demonstrate the clinical benefits of intraoperative ticagrelor removal. The approach will be a multicenter study targeting high-volume U.S. cardiac surgery programs. Importantly, we have already identified, approached, discussed, presented the study and received agreement from most of the sites that will be necessary to execute this study. We will be sponsoring this study and the operational side will be handled by a combination of the CytoSorbents clinical team plus a CRO to assist us with the operational side. We have secured world-renowned principal investigators in an executive committee that will be overseeing the trial. As I've stated already, the IDE submission is imminent. We anticipate approval in the second quarter, and we're doing all the necessary steps in the background working on little work streams to be able to initiate the study and start enrolling patients in the third quarter of 2021. And with that, I'd like to turn it back to Phil.
Phillip Chan, CEO
Thank you very much, Makis. Now turning over to Chris, one of the questions that we've been getting a lot of is about our new partnership with B. Braun. This was just announced very recently. Chris, could you please give an overview of our partnership there? Thank you.
Christopher Cramer, VP of Business Development
Sure. Thanks, Phil. I'm very excited to welcome our newest partner B. Braun to the CytoSorbents partner network. This agreement represents a strategic win for the company by extending our marketing efforts for CytoSorb to a larger audience, ensuring ongoing access to the B. Braun OMNI platform and helping to validate and differentiate CytoSorb versus competing technologies. Privately held and based in Melsungen, Germany, B. Braun is one of the leading healthcare companies in the world with operations in 64 countries and over 64,000 employees. B. Braun develops medical devices, pharmaceutical products, and services for users around the world. In 2019, it generated sales of €7.5 billion. B. Braun Avitum, the renal therapies division manufactures and distributes products for patients with kidney disease, including continuous renal replacement therapy or CRRT, dialyzers, needles and syringes in chronic and acute hemodialysis systems like the OMNI and the OMNIset bloodline pictured here on this slide. Amongst top players like Baxter and Fresenius Medical Care, B. Braun is recognized as a global leader in renal replacement therapy and intensive care medicine. B. Braun is the market leader in South America and has a strong presence in hospitals throughout the world. Next slide, please. In February 2021, CytoSorbents and B. Braun executed a global co-marketing agreement, officially adding B. Braun to our partner network. I'm proud to say that along with FMC, CytoSorbents is now partnered with two of the largest and most respected strategic partners in acute care. The goal of this partnership is to leverage the world-class marketing and sales organizations of B. Braun and CytoSorbents to significantly increase the visibility and awareness of CytoSorb and OMNI, promote access to care for critical care physicians using CytoSorb and OMNI, and generate new sales leads per CytoSorb and OMNI. As part of the program, B. Braun and CytoSorbents will conduct joint marketing activities and customer training at major medical conferences throughout Europe, Asia, Pacific, Latin America, the Middle East, and Africa to promote the use of the combined technologies. Additional regional co-marketing events will be coordinated in countries where the companies are actively commercializing the respective technologies. The United States is specifically excluded. B. Braun will supply the market with OMNI and OMNIset Plus, while CytoSorbents and its network of direct sales, strategic partners, and distributors will continue to supply the market with CytoSorb. Lastly, let me just mention that this agreement does not alter our relationship with FMC. Our partnership with FMC remains active, and we will continue to work with them as usual in Europe, Mexico, South Korea, and other parts of the world. In closing, we're very excited about our new partnership with B. Braun and expect the relationship to help advance our CytoSorb commercial efforts and promote access to care for patients and physicians. That's it for now. And I look forward to having more updates on our progress on this topic for future earnings. Before handing it back to Phil, I wanted to give just a quick summary of all of our partnership efforts. Today, we're partnered with four of the largest and most successful healthcare companies in the world. In the acute care space, we're working with two of the top three players in B. Braun and FMC, as we just talked about. B. Braun is the newest addition to our partner network via global co-marketing agreement. FMC remains a longstanding partner of CytoSorbents since 2014. They currently distribute CytoSorb in six countries including Colombia, Czech Republic, Finland, France, Mexico, and South Korea. We also have a co-marketing agreement in place to promote the combined use of FMC’s multi-filtrated acute dialysis platform and CytoSorb. On the cardiac side, we're working with Terumo Cardiovascular. Terumo signed with us in 2016 for the distribution rights in cardiac surgery in France and Nordic countries. In 2020, we expanded our partnership with Terumo when they became our distributor in 10 states here in the U.S. under emergency use authorization for CytoSorb in COVID-19 patients. Finally, Biocon was our first partner signing one of the earliest distributors of CytoSorb dating back to 2013. Biocon maintains the exclusive distribution rights for CytoSorb in India and Sri Lanka. Overall, as you can see, we're in very good company with our strategic partners. In 2021, we'll continue to invest in our partner relationships and look for opportunities to grow these relationships with the ultimate goal of driving commercial adoption of CytoSorb. With that, I'll hand it back to you, Phil.
Phillip Chan, CEO
Thank you very much, Chris, for that overview. Now I'll turn it over to Kathy to talk about 2020 financial highlights. Kathy?
Kathleen Bloch, CFO
Thank you, Phil, and greetings to everyone. For today's call, I'll provide an update regarding CytoSorbents fourth quarter and full year 2020 now audited financial results. In addition, I'll provide some color around our working capital and cash runway. CytoSorb product sales for the fourth quarter of 2020 were approximately $11.5 million, which represents a 74% increase when compared to product sales of approximately $6.6 million for the fourth quarter of 2019. The fourth quarter of 2020 represents a new company record for quarterly product sales. It should be noted that the increase in the average Euro to dollar exchange rate did have a positive impact of approximately $800,000 on the fourth quarter 2020 sales. Our total revenues, which include product sales and grant revenue, was approximately $12 million for the fourth quarter of 2020, as compared to approximately $7.4 million for the fourth quarter of 2019, representing an increase of approximately 61%. Q4 2020 gross profit grew to approximately $9.4 million, an increase of approximately 77% over gross profits of Q4 2019. Importantly, our gross profit margins on product sales were a record high 82% in the fourth quarter of 2020, compared to 80% for the fourth quarter of 2019. Now turning to our annual results for 2020. Product sales for 2020 were approximately $39.5 million, representing a 73% increase over product sales of $22.8 million for 2019. This increase was driven by an increase in direct sales of approximately $8.9 million, and additionally, an increase in distributor sales of approximately $7.8 million. We also benefited from our first sales of CytoSorb in the United States under EUA, emergency use authorization, for the treatment of COVID-19 patients. Those sales contributed $1.3 million of product revenues in 2020. 2020 grant revenue was approximately $1.6 million compared to $2.2 million in 2019 grant revenue. And 2020 gross profit was approximately $30 million, an increase of $12.4 million, that was 70% greater than 2019 gross profit. Next, we'll take a peek at our quarter-over-quarter product sales. We've already stated that Q4 represented another record quarter, but it's also significantly higher than Q3 2020 sales of $10.2 million, that's a 12.5% quarter-over-quarter increase in sales. This chart shows our quarterly product sales, however, it breaks it out between our COVID-19 sales and our core non-COVID-19 business in critical care and cardiac surgery. And while it's difficult to quantify, we did a detailed analysis and came up with estimates that our Q4 2020 product sales related to the treatment of COVID-19 patients were approximately $2.5 million. Total 2020 sales to treat COVID-19 patients were approximately $9.4 million or about one fourth of our revenues for 2020. There's no doubt that COVID-19 has had a positive impact on our 2020 revenues, but we know that our underlying core non-COVID business in critical care and cardiac surgery grew 32% in 2020. The COVID-19 benefit to sales was offset to some extent by decreases in sales, which were related to elective procedures that were avoided or postponed during the pandemic, particularly in cardiac surgery where CytoSorb might otherwise have been used. As a result, as the COVID-19 pandemic is contained, elective surgeries are expected to increase and we expect to benefit from improvements in our core non-COVID-19 business. Turning now to our year-over-year product sales chart. We can see that year-over-year product sales continue to grow. And just as importantly, also shown on this chart is a solid green line, which represents our product gross margins. As you can see, we have also continued to improve product gross margins over the year, with our Q4 2020 product gross margins now at 82%. With these greater than 80% gross margins that we are now routinely experiencing, we can expect to observe further improvements in operating results as sales revenues grow. This last slide, we'll take a look at our working capital. As of December 31, 2020, we had a healthy $71.4 million in cash. In the fourth quarter of 2020, we additionally paid off our $15 million term loan with Bridge Bank, and we simultaneously entered into an agreement with Bridge Bank where we retained the ability to draw down $15 million in term loan debt should we wish to exercise this option in the future. We also recently received approval for the sale of our 2019 New Jersey net operating loss in R&D tax credits, and this will generate cash proceeds of approximately $1.1 million, which is expected to be received in the next few weeks. Our 2020 cash burn from operating and investing activities was approximately $7.3 million. With our $71.4 million of cash, we believe we have sufficient liquidity to provide for the continued commercialization of CytoSorb, as well as our robust clinical trial strategy. Finally, with regard to our capital structure as of December 31, 2020, we have approximately 48.6 million common shares on a fully diluted basis. And that concludes my report. I'd like to turn it back to Phil.
Phillip Chan, CEO
Thank you very much, Kathy. CytoSorbents has not historically given specific financial guidance on quarterly results until the quarter has been completed. However, provided that the current order pattern continues, and notwithstanding several key related to the COVID-19 pandemic, we expect our product sales for Q1 of this year will exceed those of Q1 of last year. We also expect that 2021 will represent another year of growth. That concludes our prepared remarks. Operator, if you will, please open up the call for the live Q&A session.
Josh Jennings, Analyst
Hi, good afternoon, Phil, and the Cytosorbents team. Thanks for all the details on the update. It's clear that the COVID-19 utilization drove utilization in 2020, and may create a comp headwind as you head through 2021. Any way you can just help us think about I know there's a lot of unknowns around with the pandemic, but how trends have gone so far in the first quarter, and then maybe just help us think about the offsets? I think you called out return of elective procedures. There'll be more utilization. We have to think that with the increased utilization for COVID cases, critical care conditions are more comfortable using CytoSorb in inflammatory pathophysiologic states. You've got the ticagrelor indication, a couple of countries over in Europe with any other layers of growth that you would call out there that will help offset any decrease in the COVID utilization channel?
Phillip Chan, CEO
Yes. Thanks, Josh. I think that the point that we've been trying to get across is that the underlying core business that is non-COVID is very healthy. Again, it's 76% of our total product sales for last year, and even with all the disruption that COVID caused, as Kathy mentioned. We still actually showed 32% growth. So that was actually very nice growth alone. And on top of that, it was supercharged by COVID-19. That being said, I think that we've had a lot of growth initiatives that we had been putting in place prior to COVID. Our goal is to work on those now. I mentioned a lot of those already in the presentation, but maybe to give a little bit more color, Christian, would you mind maybe giving some commentary?
Christian Steiner, Executive VP of Sales and Marketing
Yes. Thank you, Phillip, and thank you, Josh, for the question. It has been said already by Phil and also by Kathy, the year 2020 was very challenging, but nevertheless, it was very successful. So, it was very challenging for the commercialization teams because they faced several restrictions. As it was said as well, there were less patients in our core business fields. So, despite being the most successful year with record sales, this was the result of all the work in the years before. It was not just an accident caused by the pandemic. This is reflected by the growth we had despite having treated fewer patients in our core business fields or less than we could have treated. So, the year 2021, I think will be challenging as well, but it will benefit from 2020. So, I have a number of points I want to share with you. Number one, there is increased awareness, which of course will help to support the core applications. This increased awareness is on the treatment call, which is systemic inflammation, but also on the therapy CytoSorb. Number two, the sales forces and support teams are really ready, motivated, and trained to go out again and see the existing and new customers. This was not possible in the last year. There’s still a lot of restrictions for our salespeople to meet customers and to look for new customers in the hospitals. Number three, the pandemic has forced us to develop additional digital platforms, and this will not stop when the pandemic must stop; people are using these formats in the future, as they are now, and this will support the normal sales model with the one-to-one meetings or in-person meetings. Number four, which has not been underlined enough, is that we've expanded our footprint from 2020. We have 10 more countries where we have registrations now. We have two more countries with emergency use, which is the USA and in Canada. First, I think it is very important to say that the body of evidence has grown and the start of the massive clinical programs, as described by Makis, in our core business fields will feed the movement of the community. Lastly, the further development of growth driving segments does not appear as it has been mentioned by Phil, but also supports and capitalizes growth. And these segments include the ATR segment, anti-thrombotic removal currently for ticagrelor and rivaroxaban. Just to give you an example, 90% of the heart centers in Germany are customers of ours, and 50% of those are already using CytoSorb in this application after only one year after the approval. Similar is true for Sweden, which has one of the highest adoption rates of ticagrelor, where we have 90% penetration in the hospitals or heart centers in Sweden. Second, the liver segment, as Phil pointed out, liver diseases will be a very important segment of growth in the future. The short-term goals are to replace commonly used liver support techniques, and of course, also develop major education fields. The third segment, which is going to be important as a new segment, is the ECMO segment. We have treated patients with ECMO in the past, but in the last year we have gained many experiences and learned many lessons in terms of patient selection and how to conduct the therapy. Just to give you one of many cases as an example. This case report is from a hospital in southern Germany, with a tiny ICU of less than 10 ICU beds. They were a new customer last year; they only had one ECMO machine and had never used CytoSorb before. They had an initial training in summer but had an experienced head of department coming from Munich University, which was advantageous. The patient was a mother of two in her late thirties, presented with a progressive COVID lung failure, or ARDS, accompanied by massive systemic inflammation and cardiovascular failure. The treating team thought they had very little chance to survive, but they immediately started ECMO plus CytoSorb. Three days of continuous treatment led to hemodynamic stabilization and ultimately allowed the patient to be weaned off ECMO, and she survived the acute life-threatening phase. Unfortunately, this patient experienced a second hit, a bacterial infection leading to septic shock with massive inflammation and lung and cardiovascular failure, again with little chance of survival. However, they started again with the combination of CytoSorb and ECMO early and treated continuously for five sessions. This led to cardiovascular stabilization, the patient regained lung function and improved overall to the point of being weaned from ECMO and discharged from the ICU. The patient is now in rehab, with no long-term neurologic or kidney dysfunctions. This case illustrates the importance of understanding that we need to treat similar patients with proven systemic hyperinflammation and initial organ failures. We must initiate treatment early and dose CytoSorb adequately, and this will ultimately lead to success in those types of patients. I think the situation in 2021 would be challenging, but we will be much better prepared than many others, and it will be improved for us and for many other medical device companies. The commercialization teams are highly motivated and are waiting to get out there again. The massive investments and energy, money and manpower into the clinical programs will generate fuel for sustained long-term growth in the future. I hope this answers most of your questions, Josh.
Josh Jennings, Analyst
Yes, thanks for reviewing all those layers. I want to just one follow-up, Phil, just congratulations on all the progress on the movement with the FDA and being on the cusp of the IDE approval of ticagrelor removal. I just wanted to hear your updated thoughts on the cardiac surgery indication. Now that REFRESH two trials are going to be in the process of restarting, how do you see the U.S. regulatory timeline for cardiac surgery compared to the U.S. timeline for ticagrelor removal in terms of things going smoothly from here? Any timelines you can share for potential U.S. approvals for those two indications? Thanks for taking the questions.
Phillip Chan, CEO
Yes, thanks very much, Josh. I think that what we're focused on right now is that the ticagrelor removal application is the shortest, what we believe is the lowest risk and fastest route to commercialization in the United States. That’s why this will be taking the top priority in our clinical program. REFRESH 2 has enrolled 153 patients into a 400-patient study and is just about to get going again, as Makis had mentioned. The completion of that trial is expected to be later out than what we should be able to do with ticagrelor. I think the good part about ticagrelor removal is that this has the potential to be a very rapid study; it is an intervention during surgery followed by a relatively short follow-up period, with hopefully very clear endpoints. As we finalize and hopefully get the IDE approved by the FDA, we'll come back with more detail on the size of that study and we'll also be able to estimate better the timing of that study as well.
Operator, Operator
And our next question is from Anthony Petrone with Jefferies.
Anthony Petrone, Analyst
Thanks. Congratulations, everyone. I hope everyone's staying healthy. Maybe to start Phil with the CTC registry, you mentioned in the prepared slides that a publication in the U.S. is being prepared at the moment. So maybe just a little bit of timing update on the CTC registry publication in the U.S., and then how we should be thinking about that trial expanding into Europe. As we think about 2021 under a scenario where that data is positive, how do we think about potentially that adding to COVID related sales in 2021 and maybe offsetting some of that headwind? And I'll have a few follow-ups.
Phillip Chan, CEO
Yes, I'll turn it over to Makis. Thanks, Anthony. I'll turn it over to Makis for some additional color on that. The good part is that the CTC registry has been rolling relatively quickly. It's been doing so I think based on enthusiasm by centers, but also by active management by the current clinical team, which I think is very good. We've been accumulating, particularly in ECMO, many cases of ECMO in CytoSorb, again as a way to rust the lungs and promote lung healing to try to resolve the very significant lung injury that occurs in these patients. Again, prior to COVID, CytoSorb had already been used in thousands of ECMO treatments; this is one of the reasons why we were able to get moving very rapidly here in the COVID pandemic. But in terms of talking about the implications of any type of analysis, let me turn it over to Makis, who can give a little additional color.
Efthymios Deliargyris, CMO
Thank you, Phil. Anthony, thanks for the question. I wanted to mention that in addition to the CTC data coming out of the U.S., we have a substantial experience now from around the world. There have been publications coming out from different countries reviewing those outcomes, and we have internally formed a task force that we're collating all the international experience that we are planning to submit for review manuscript to look at the ex-U.S. experience in COVID-19, which is in numbers far greater than what we have in the U.S. Now regarding the CTC registry, we are seeing that the use of CytoSorb under the EUA is frequently favored in patients on ECMO, simply because it allows for this unique therapeutic strategy of allowing for lung healing. We are focusing on capturing that experience and getting to publication. We do believe we are approaching now the numbers that will constitute a meaningful experience. We do plan, like I said, to submit in the very near future. We will have to be a part of a peer review process that is hard to estimate, but most journals have been working pretty quickly when it comes to COVID-19 related research. We are hopeful that, come late spring, early summer, we should have that data out, maybe even sooner based on the willingness of the journal to work with us to publish quickly.
Anthony Petrone, Analyst
That's helpful. Maybe a couple of follow-ups. Second one on the data front would just be the specific timelines on the REMOVE endocarditis. I know you said that's coming relatively soon, is that sounds like potentially that’s a first half event, or is it more like mid-2021? And then just in terms of Germany, maybe a high-level update on how many of the 400 mid-size hospitals with a big focus on sepsis, where that penetration sits heading into 2021? How should we expect 2021 to play out in terms of new center adds? And then, as a quick follow-up to that, just on the penetration from existing accounts, how should we be thinking about how that will trend in 2020? Thanks.
Efthymios Deliargyris, CMO
So, I'll just give you a quick answer about REMOVE and then I'll turn it over to Christian to give you the answers related to penetration in Germany. REMOVE is a German government funded trial and run independently by an academic research organization. So in that regard, we don't have any involvement at any level, and therefore we're just basically waiting for updates ourselves. Our understanding is that all the COVID-19 related updates have taken it to where we are now, but we're really, really close. We do anticipate that it would be in the first half of this year for every bit of information we're getting for the investigators; they should have the data, the topline results by the first half of this year. Christian, do you want to take the second one?
Phillip Chan, CEO
Yes. Well, Christian, let me turn it over to you in a second. Yes. I think in terms of, we've not disclosed, we're in hundreds and hundreds of hospitals throughout the country. These are large university public hospitals, mid-tier hospitals, and many small hospitals, as well. This number continues to grow actually last year. However, most of our orders, I think in our existing business in Germany, were related to reorders given that our sales reps were not able to go out there and open new hospitals. Christian mentioned that there were some, but I think the vast majority of the revenue came from reorders. Maybe Christian, you can comment on that.
Christian Steiner, Executive VP of Sales and Marketing
Yes. So this is actually right. The situation led – or the circumstances led to a very difficult scenario for recruiting or acquiring new customers. Those who were in the process quite advanced and sometimes had the opportunity to treat COVID patients could be turned into customers, and were successful; this is reflected by the examples I just gave. In general, I think acquiring new customers was difficult, and it was far below what we experienced in the past and also without COVID because as you said already underneath, the salesforce was massively increased towards the beginning of 2020. Actually, the salesforce is a mix of sales representatives and support personnel like perfusionists, and application specialists for the cardiac and critical business. So, it's a very nicely functioning team and I expect many new customers for this year, but I also expect that we will regain customers. We have – I wouldn't say lost last year, but the slowdown or the shutdown of different elective programs meant that there were simply no patients in certain departments. And so, these departments have not welcomed orders over the last year or maybe over some of the quarters. I expect strongly that they will come online again when they have patients coming from these different fields.
Anthony Petrone, Analyst
Thanks again.
Operator, Operator
And our next question is from Danielle Antalffy with SVB Leerink. Your line may be muted.
Sean Lee, Analyst
Hi, guys. Thanks for taking my questions. My first question is on the PROCYS study. Could you provide some more color on the design of the study and what its goals are? Is it looking to set up some results for a future U.S. study?
Phillip Chan, CEO
Yes. Thanks, Sean. Efthymios, would you like to comment on that?
Efthymios Deliargyris, CMO
Sure. Thanks, Phil. The PROCYS study is a multicenter randomized clinical trial where we're targeting between 20 to 30 sites in Germany. This is still a pilot study. We have continuously received feedback from the use of CytoSorb, and one of the most consistent clinical benefits is the ability to provide rapid hemodynamic stabilization, which is a key clinical goal for these people with sepsis and septic shock requiring multiple vasopressors to maintain their blood pressure. This is something that we want for the first time to test in a rigorous, adequately powered way in a multicenter fashion. The PROCYS study will focus on that, and we'll also look at other important clinical outcomes in that study, including ICU and ventilator-free days, and monitor mortality in this population. The idea behind the PROCYS study will be a definitive study in providing the evidence we can produce rapid hemodynamic stabilization, and also a pilot study to inform potentially larger RCT, looking at more traditional clinical outcomes in sepsis shock.
Sean Lee, Analyst
Great, that was very helpful. My second question is on HepOnFire. The liver failure seems to be another indication that you guys are pursuing this year. I was wondering if you could provide some rationale behind that, what the design of the study could be? And what the treatment is like for liver failure right now? How does CytoSorb fit into that?
Efthymios Deliargyris, CMO
I’ll let Phil chime in as well, but let me give you a couple of specific pieces about HepOnFire. HepOnFire is also going to be a pilot study, but much smaller, PROCYS is estimated to be in the 160-patient range. The HepOnFire will be substantially smaller into single-arm studies, not a randomized clinical trial. The idea is that you will recruit patients that have underlying liver dysfunction, primarily related to alcoholic liver disease, but in the midst of an acute exacerbation where, in addition to the inability of the liver to clear the toxins and the accumulations of these toxins, you have this simultaneous hyper-inflammatory response. The idea is that CytoSorb would target both of those main drivers of morbidity and mortality in that population. The background hypothesis is actually very strong. We believe we will be able to show both biomarker modifications to this population and track the course of traditional risk scores used in these populations, demonstrating these patients do better than what is currently the standard of care for that population. It’s meant to be a pilot study, but we feel very strongly about the application based on the pathophysiological substrate of where CytoSorb should generate a lot of benefit. Phil, do you want to add any color to that?
Phillip Chan, CEO
Yes, I mean, liver dialysis has been out there for a while. MARS remains one of the leading liver dialysis platforms in the world, but it hasn't really fulfilled its commercial potential, because, I think, it's difficult to use a multi-cartridge system. Specifically, it does not remove the inflammatory toxins that often drive the reasons why that person is in the hospital in the first place and having such a bad exacerbation of their chronic liver disease. I think that CytoSorb, in a head-to-head study with MARS, that was published earlier this year actually demonstrated superiority and the ability to remove different things. Some things, for example, we can remove bilirubin extremely well, we can remove ammonia, bile acids, and a number of different things related to the pathophysiology of liver disease. Where we're going now, we believe that CytoSorb has a single cartridge system, which is easy to implement, and has the potential to become the leader in this field. That's one of the reasons why we're really excited by the opportunity, which is why we're pushing forward with the single-arm HepOnFire study, but also pushing forward on the application for commercial sales. If you believe in liver dialysis, we believe that there are a lot of advantages for CytoSorb over existing albumin-based therapies like prometheus, MARS, and SPAD, and others.
Sean Lee, Analyst
I see. Thanks for the additional color now. That's all I have.
Phillip Chan, CEO
Thank you, Sean.
Danielle Antalffy, Analyst
Hey, good afternoon, everyone. Sorry about earlier. Can you hear me now?
Phillip Chan, CEO
Yes, we can. Hi, Danielle.
Danielle Antalffy, Analyst
Okay, perfect. Sorry about that. So, I'm not sure if this question is for you, Phil, or Kathy. But just curious how sustainable the gross margin profile is in the near term as the global ramp progresses? Over the near to medium term, what the drivers are of operating leverage? Then one quick follow-up.
Vincent Capponi, President and COO
All right. Thanks, Phil. Thanks, Danielle, for the question. So, Danielle it is sustainable. Clearly, we are continuing to improve the efficiencies we saw in Q4. As we go to the next scale, we will be able to improve that efficiency even further. The thing we always have to keep in mind, obviously, is volume, which has a big component of that, as well as, product mix between the more revenue efficient, direct sales versus distributor sales. We believe it's sustainable, and we can continue to drive the gross margin. In addition, we are obviously looking at second-generation devices, which will be more efficient to assemble and be more capable of being automated to be able to drive the volume with less labor and therefore, better cost.
Phillip Chan, CEO
Yes, when we discuss our operating margins, we think that we can be among the best in the industry, right. So the medical device margins, as you know, kind of are in that range of 15% to 20% operating margins. Some players like Edwards are in the 30%, but they've been as high as 50% in the past. We believe that we're bringing a lot of innovation to the table that has tremendous value clinically, and we believe we have an excellent business model where we can be on the high end of that 30% to 50% operating margin range. When you think about the levers that we can pull on how we try to optimize our operating margins and improve our operating leverage, there are a number of big buckets, right? One is obviously topline growth; if everything goes well, we believe that 30% to 50% topline growth is possible. If we get U.S. approval, we could even potentially exceed that growth rate. The second thing is that from a gross margin perspective, it's really based on a number of factors. One is ASPs; right, our ASPs are relatively fixed currently. But in the United States, however, which is a fairly virgin territory, we believe that the ticagrelor application could potentially command a much higher ASP than we're currently receiving in Europe, because of the health economics benefits of decreased bleeding risk and other types of decreased stay in ICU. The third is, as Vince mentioned, with 82% blended product gross margin, that mix is higher marketing, direct sales and lower margin distributor sales; this is actually really high for any company in the healthcare space. The pharma industry is in that 70% range for gross margins, but our margins could potentially exceed 85% this year, or more in the biotech range of 80% to 90%. As Vince mentioned, we are beneficiaries of all the cost reductions because we are the manufacturer of the device; we think scaling, particularly moving to a new facility, could accommodate about $400 million in annual sales, allowing for modest CapEx and increased efficiencies, which will further reduce COGs. As Vince mentioned, we're also going to be introducing more automation, helping to decrease our COGs, as well. Lastly, from an operating expenses perspective, our reps in Germany are doing about, our reps and specialists are doing about $1.2 million in sales. But we've already seen that one hospital can yield $1 million to $3 million for sepsis alone. So, the more we can maximize the productivity of our sales team, the better control we'll have over our operating expenses. The hybrid sales model enables us to go direct without the additional infrastructure to reach across 67 countries, which we will likely continue to do. Leveraging our infrastructure partners' resources is another way that we can help control our operating expenses. Many reasons contribute to our belief that this is a superior business model with the potential for considerable profitability and cash flow, which is one of the key reasons we're excited by it.
Danielle Antalffy, Analyst
Okay, that's helpful. And then just a quick question; I appreciate this will be dependent upon timing. Once you secure U.S. approval, how should we think about the ramp trajectory? How much you can leverage the existing hospital or current hospital experience in light of COVID in the U.S. to drive potentially faster ramp compared to a normal product launch? Thanks so much.
Phillip Chan, CEO
Yes, thanks, Danielle. I think that we brought on some great resources. Vince is leading U.S. commercialization. We've now brought on Jim Komsa, who is the VP of U.S. Sales and Marketing. The goal going forward is to try to find the best model to get the greatest coverage at the lowest cost. We have resources to go direct throughout the entire country, but that may not be the ultimate strategy because we know that unit volume, the surgical volume, is often highest in metropolitan centers. We can absolutely focus in these areas while using distribution elsewhere to help supplement that. We've been working with some great partners under the FDA emergency authorization for COVID-19 in the United States. They may be in the mix, and we will see. But the opportunity to penetrate this market is rapidly we believe is very strong, provided we have successful studies and have compelling clinical and health economics data to make that happen.
Operator, Operator
Thank you. At this time, I'd like to turn it back to management for any additional or closing remarks.
Phillip Chan, CEO
Thank you, everyone, for joining today's call. If you have any additional questions, please reach out to Amy at [email protected], and we'll try to reply to your questions where possible. Thanks very much.
Operator, Operator
Thank you. That concludes our conference for today. I'd like to thank everyone for their participation. Have a great evening. Thanks.