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Cytosorbents Corporations. (NASDAQ:CTSO)

Q2 2014 Results Earnings Conference Call

August 12, 2014 04:15 p.m. ET

Executives

Amy Vogel – IR

Phillip Chan – President and CEO

Kathleen Bloch – CFO

Christian Steiner – VP, Sales and Marketing, Germany

Vincent Capponi – COO

Analysts

Operator

Good day everyone and welcome to the CytoSorbents' 2014 Second Quarter Financial Results Conference Call. Today’s call is being recorded and at this time, I’d like to turn the conference over to Amy Vogel. Please go ahead.

Amy Vogel

Thank you, operator and good afternoon. Welcome to CytoSorbent's second quarter 2014 operating and financial results conference call. With us today are, Dr. Phillip Chan, Chief Executive Officer and President; Vincent Capponi, Chief Operating Officer; Kathleen Bloch, Chief Financial Officer; Christian Steiner, Vice President of Sales and Marketing from Germany.

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 to you to a more detailed discussion of these risks and uncertainties in the company's filing with the SEC.

Any projections as to the company's future performance represented by management include estimates today as of August 12, 2014 and the company assumes no obligation to update these projections in the future as market conditions change.

During today's conference call, we will first have an overview presentation covering the financial and operational highlights for the quarter by Dr. Chan and Ms. Bloch. We again have taken everyone's submitted questions and will do our best to address them in the presentation, and also in the Q&A session with management to follow. Thanks everyone again for participating. If we do not answer your question, we would ask you contact the company directly after the call today.

At this time, I would like to turn the call over to Dr. Phillip Chan. Please go ahead, Dr. Chan.

Phillip Chan

Thank you very much Amy and thank you to everyone for submitting your questions and making time to join the call today. Welcome.

Unfortunately, Chris Cramer, our Vice President of Business Development is out sick, but I will cover some business development matters in my remarks. Following a short introduction for new and potential investors, Kathy will go over the financial progress for the second quarter of 2014 followed by a discussion of our Cardiac surgery trial for potential application of CytoSorb and Ebola treatment and case report studies and followed by Q&A period.

I would also encourage investors to visit our website at www.cytosorbents.com to obtain a copy of earlier transcripts and presentation. A recent interview by the Wall Street transcript will be available on our website very shortly that cover some additional questions in greater detail.

With that let me turn to slide four. CytoSorbents is an emerging leader in the $20 billion critical care immunotherapy space. We are leading the prevention or treatment of life threatening inflammation in the intensive care unit.

Information plays a major role in nearly every known disease. This could be life threatening conditions like sepsis, trauma, burn injury, influenza, Ebola virus and others. It could also be in auto immune diseases like rheumatoid arthritis, inflammatory bowel disease, psoriasis and lupus, heart disease, peripheral artery disease, cancer, cancer cachexia, graft versus host disease, neurodegenerative diseases like Alzheimer’s disease, multiple sclerosis Parkinson’s, and many, many others. The unfortunate part is that uncontrolled inflammation wreaks havoc on the body and can be deadly.

The problem with severe inflammation is that it can cause cell death, organ injury ultimately leading to organ failure. And organ failure is when vital organs like the heart, the brain, the kidneys, the lungs or the liver when they stop working and that is incompatible with life and it causes nearly half of all deaths in the ICU today, but little can be done to prevent or treat it. And this is where our technology comes in.

CytoSorb removes the “fuel to the fire” of inflammation. CytoSorb represents one of the most powerful immunotherapy tools to control information. It is approved in the European Union as the only specifically approved extra-corporal cytokine filter and is clinically proven to reduce key cytokines in blood in critically old patients.

Its approved for use in any situation where cytokines are elevated and is safe and has been used safely in more than 3000 human treatments with no serious device related adverse events reported.

The heart of the technology is a highly porous polymer bead roughly the size of a grain of salt. These beads have millions of pores and channels in every single bead allowing it to act like a tiny sponge to remove harmful substances from blood, based on size as well as surface absorption. It is protected by 32 issued U.S. patents and multiple applications pending. It is manufactured at our ISO 1345 certified facility in New Jersey, and it is one of the highest-grade medical sorbents on the medical market today.

The goal of CytoSorb is to prevent or treat organ failure rather than letting patients spiral down the well of organ failure and inflammation. Our goal is to try to stabilize these patients when they come into the intensive care unit thereby reducing the severity of illness and helping reduce the cost of ICU care.

We believe that because of this and because of the many applications that this technology has we have the potential to revolutionize critical care medicine. CytoSorb is currently marketed in 19 countries around the world, in fact its available for sale in all 20 countries in the European Union but its currently sold today directly in Germany, Austria and Switzerland and with established distribution in 16 or further additional countries including the U.K. Ireland, Netherlands, Turkey, Russia, India, Taiwan and the Middle East covering approximately 1.7 billion lives.

We are currently expanding to other EU countries and countries outside the EU that accept the CE mark. The technology has also been the beneficiary of more than $15 million in U.S. Government support. This includes our almost $4 million five-year contract with DARPA under the Dialysis-Like Therapeutics program to treat sepsis, a $1.15 million in the Phase I and Phase II SBIR contracts in the U.S. Army for burn injury and trauma research and more than $3 million committed by the U.S. AirForce in funding a 30-patient human pilot study in trauma that the FDA has approved to move forward with and skipping again at the bottom here, the NHLBI, a division National Heart, Lung and Blood Institute a division of NIH is also supporting another product under advance development called HemoDefend that is designed to purify blood transfusion products in order to reduce transfusion reactions.

So with that, let me turn it over to Kathy to talk about our 2Q, 2014 operating and financial highlights. Kathy.

Kathleen Bloch

Thank you, Phil, and good afternoon everyone. For today's call I will be providing an update regarding CytoSorbent's revenues and I will also comment on the company’s progress related to uplifting to a national exchange either NASDAQ or NYSE MKT.

And as you will see the comparative financial results demonstrate our strong continuing revenue growth. For the first half of 2014, our total revenue was approximately $2.1 million which is an increase of 215% compared to total revenues of approximately $663.000 for the first half of 2013.

Product sales for the first half of 2014 were approximately $1.2 million, which is an increase of more than 300% over product sales for the first half of 2013 which were approximately $304,000.

Grant income and other income for the first half of 2014 was approximately $854,000, which is up 138% as compared to grant and other income of approximately $359,000 for the first half of 2013. Our first half blended gross margins were approximately 36% while our CytoSorb product gross margins were approximately 63%.

Turning to the quarter ended June 30, 2014, product sales for the quarter were approximately $663,000, that’s a 418% increase over product sales of approximately $128,000 for the second quarter of 2013. Second quarter 2014 product sales were the highest quarterly product sales in the company’s history.

Gross margin on these product sales in the second quarter of $214 were approximately 65%. Our grant and other income was approximately $361,000 for the second quarter of 2014 as compared to grant and other income of approximately $164,000 for the second quarter of 2013.

Total revenue for the second quarter of 2014 was approximately $1 million, which is an increase of 252% compared to total revenues of approximately $291,000 for the second quarter of 2013.

Now we’ll take a look at the Company’s historically quarterly sales for each of the last eight quarters since we began commercialization of CytoSorb in last 2012. With our record second quarter product sales of $663,000 the Company has now posted its fourth consecutive quarter of double-digit quarter-over-quarter growth.

Our current annual run rate is now in excess of $2.6 million as compared to our annual run rate of approximately $0.5 million just one year ago. As always at these early stages of commercialization we continue to point out to our investors that we are experiencing quarter-over-quarter variations in sales.

Many different factors influence each quarter sales results, including when new distributors come on board. When CytoSorb achieves final product registration in new territories, the timing of repeat orders and other seasonal factor such as holidays in the territories where we sell our products as well as many other factors.

For example, Germany celebrated six public holidays in the second quarter each of which effectively shuts the country down for days at a time. The trailing 12 month slide thus depicts the rapid growth that we are seeing in CytoSorb sales.

For each quarter it summarizes the trailing 12 month of CytoSorb sales and once again it continues to demonstrate the acceleration and upward trends that sales are taking overall. Sales for the 12 months ended June 30, 2014 were approximately $1.8 million as compared to sales for the 12 months ended June 30, 2013 of approximately $406,000.

This represents an increase of approximately $1.34 million or a year-over-year product sales increased of 331%. With regard to expectation, sales momentum remained strong and we expect that this positive trajectory in the trailing 12 month sales will continue into the current quarter.

Our balance sheet remains [fixed] with more than $9.6 million in cash and short-term investments at June 30, 2014 and we are continuing to execute on our stated path for the commercialization of CytoSorb.

And now I’d like to turn the Company’s planned up-listing. Management at CytoSorb remains committed to up-listing to a major national exchange before the end of 2014 because of the many advantages it will bring.

Currently, we have few institutional investors, because most hedged funds, pensions and mutual funds cannot invest in OTCBB companies that are penny stocks or less than a certain market cap and up-listing remove this restriction and will enable these lager investors to take positions in our stock.

We believe this will significant improve trading volume in our stock and thereby enhance liquidity for all our investors. We believe that an up-listing will also improve our visibility and credibility with the investment community.

Many research, analyst, know our company, and they follow our progress, but do not cover us, because we’re in OTCBB Penny Stocks. By removing this restriction, we would be a major set closer to expanding our research coverage. And importantly a national market listing would also reduce our cost of capital and enable us access to more sources of capital.

Previously we met with representatives at the NASDAQ and the NYSE MKT and we’ve reviewed and evaluated the listing requirements for each exchange. We’ve already taken many steps to prepare for the up-listing which I will review in some detail. In July 2014 we announced the Company’s consolidation of its SEC and International Legal Counsel with the Global Law Firm DLA Piper LLP.

DLA Piper is one of the largest international business law firms with offices in most major markets around the world and legal expertise across a broad range of practice areas, which include corporate and finance, litigation and arbitration, sarbanes oxley compliance, government affairs, labor law, intellectual property and technology and tax.

DLA Piper’s expertise particularly in the medical device sector will be invaluable as we execute our transition to a nationally listed company leader this year. We have since adopted a Code of Business Conduct and Ethics and we are currently updating our insider trading policy all of which required governance items for the major exchanges.

We’ve also made numerous improvements to our system of internal controls over financial reporting both here, in the U.S. and in Germany, and we are continuing in the process of selecting an independent third-party who will help to manage the documentation and testing of our system of internal controls which is another requirement for company traded on a major exchange.

Other activities to meet the remaining listing requirements are also underway. For example, we are currently actively interviewing financial experts to serve on our Board of Directors and act as a Chairperson of our, to be formed Independent Audit Committee.

We are currently working with those institutional investors to our story ahead of the up-listing, creating demand on the other side of an up-listing is a key part of our strategy. We are also working to simplify our capital structure.

We expect to enact a reverse stocks split to bring our stock price up to the minimum price required by the major exchanges. But this ratio will be dictated by the share price at the time of the up-listing.

It is important for shareholders to understand that a reverse split does not change the value of your holdings. For example, if you have 1,000 shares at $0.30 per share, that is valued at $300, after a ten for one reserve stock split you will have 100 shares at $3 which is also valued at $300.

It is important for shareholders to remember that we have repeatedly stated that we will execute the up-listing when the company is ready and when we are experiencing major operational momentum such as continued growth in sales, a new strategic partnership, advances in our U.S. pivotal trail to name a few, and that is a principle that continues to guide us overall in the up-listing process.

At this point, I’d like to turn the call back to Phil. Phil?

Phillip Chan

Thank you very much, Kathy. Now I’d like to go over some items and questions that shareholders have submitted particularly as they relate to our U.S. cardiac surgery pivotal trial plans and the Ebola outbreak. Just to give you some background on cardiac surgery. There are approximately 1 million cardiopulmonary bypass surgeries in the United States and in the European Union annually. There’s another half a million in the rest of the world particularly in India and China.

These are done for many different reasons. One of the most common is for coronary artery bypass graft surgery for blocked heart arteries. There is open valve repair, as well as cardiac defect repairing in congenital heart disease, for example, or lung transplantation as well as LVAD implantation, left-ventricular assist device implantation for heart failure.

The problem with cardiac surgeries that patients develop inflammation due to many things that are associated with cardiac surgery starting from cracking open chest, stopping the heart from beating, bypassing the blood into heart lung machine, sucking up blood from the field with cardiotomy suction reversing heparin [anti-clog] with protamine and many, many other aspect of the surgery.

This leads to a production of cytokines and activation of complement and a release of free hemoglobin that together works to induced inflammation causing cellular injury and organ injury ultimately leading to multiple organ failure particular lung and kidney failure.

In high risk patients the risk of developing kidney and lung failure could be as high as 30%. There’s been no technology that has been able to easily introduce into the heart lung machine that is bypassing blood around the body to directly reduce cytokines storm complement factors, free hemoglobin and other inflammatory mediators expect for the direct washing of blood which can be cumbersome and problematic in certain processors.

Leukoreduction filters are used today to remove cytokines producing white cells, but do not work to remove cytokines directly. This we believe is a multimillion dollar market that we maybe able to address with our cytokines filter.

That being said CytoSorb can use two different ways in cardiac surgery. One is intra-operatively in the heart lung machine blood circuit, in a bypass circuit as you see on the left hand side or can be use with the standard dialysis machines to treat the patient after the surgery is done when the patient is recovering in the intensive care unit.

When we first talk to you about this cardiac surgery trial, we were really focused on either the intra-operative usage of CytoSorb to prevent post-operative complications, which is option number two or the post-operative use of CytoSorb to treat post-operative inflammation, which is number three.

In our discussions with our advisors, we have elected not to pursue the post-operative approach at the current time. However this approach is being pursued by many investigators in Europe.

Instead we are focused on the intra-operative usages of CytoSorb. And now based on our discussions with our key advisors, there maybe a third path that we could take, which is the use of our CytoSorb therapy intra-operatively, but rather than looking at clinical biomarker – clinical endpoints such as a reduction in organ dysfunction.

There maybe an opportunity to actually get approval for CytoSorb in the United States to a demonstration of inflammatory biomarker reduction. This has a number of advantages over a traditional cardiac surgery trial that would be envision in number two and that it would be a shorter trial. It would be a less expensive trial. It would be a less risky trail. And instead of being a PMA, which is the most rigorous path for approval for medical devices through the FDA, this could potentially be de novo' 510(k) path.

So, although we have been delayed in our submission of the IDE, what we’ve been doing with the time has been to actually do a lot of in vitro stimulations looking at the reduction of inflammatory biomarkers. And I’m pleased to say that those results have been very satisfactory. So our goal right now pending discussions with the FDA is to potentially due an inflammatory biomarker reduction study, and we would expect to submit an IDE in the fourth quarter of 2014. Of course, this is dependant upon discussions with the -- successful discussions with the FDA and an acceptance by the FDA of this trial strategy.

We are – we have been reassured by some of the more recent data that has been coming out, most recently a paper, the first paper published for the intra-operative usage of CytoSorb is published in cardio technique just recently. And this was the retrospective of 40 patient cardiac surgeon study, where 20 patients received CytoSorb therapy intra-operatively, and 20 patients did not in the heart, lung machine circuit. This was a study done at the University of Munich at Grosshadern which is one of the largest hospitals in Southern Germany. These patients underwent high risk surgery with hypothermic cardiac arrest and antegrade cerebral perfusion.

The treatment was associated with a statistically significant reduction in interleukin-6 and procalcitonin in a three day post operative period. And what this does is that it gives us visibility on the U.S. pivotal trial in cardiac surgery as it relates to a reduction in inflammatory markers. This paper can actually be found on our website for download.

Turning to the Ebola virus. Ebola is one of the most deadly viruses known with a very high mortality rate of 50% to 90% depending upon the strain and is very contagious. Typically transmitted through contact of bodily fluids, following an incubation phase up to three weeks, has an abrupt answer to symptoms including high fever, chills, weakness and body pain followed by more severe symptoms including diarrhea, cough, headache and bleeding with vomiting of blood or blood in the stool. It is often called hemorrhagic fever.

Patients typically die with timely death from the answer to symptoms anywhere between 6 to 16 days and it culminates in a cytokine release syndrome that stimulates deadly information and ultimately organ failure.

One of the key reasons why Ebola is so deadly is its ability to evade the immune response resulting in an advance infection that again triggers the immuno response leading to organ failure. It does so by initially suppressing the anti viral cytokine immune response which allows [breath in] viral replication. Next, it also releases soluble viral glycoproteins. These normally coat the surface of the virus but when they are soluble they are free floating and they will interfere with white blood cell activation and also act as a decoy so that antibodies cannot neutralize the virus.

The scientific rationale behind using CytoSorb and Ebola virus is that we may benefit patients by reducing "cytokine storm" primarily, but also by potentially removing soluble glycoproteins which are about 50 [indiscernible] in size right in the range that we remove things with CytoSorb thereby buying us time for the immune system to kill the virus.

And when you look at patients who survived Ebola virus, they typically have very high titers of protected antibodies and in fact these high titers of protected antibodies have been used to help transfer immunity to patients who are currently infected with the Ebola virus.

So could CytoSorb help? And this is one of the major questions that has been posed to us. Well, the 2014 Ebola epidemic in West Africa has been called an international emergency by the World Health Organization and continues to grow already infecting nearly 1,900 people and claiming more than a 1000 lives. Based on estimates, the epidemic is expected to continue throughout the year.

There are now some experimental therapies that are being tried, but there is no definitive treatment for Ebola today. Our strategy for outreach includes reaching out to many different organizations including the World Health Organization, the FDA, the CDC as well as government agencies such as [USAMRIID] non profit organizations and also hospitals treating Ebola patients inside and outside of West Africa particularly those in Europe and the United States or patients with advanced infection have been, at least some of them have been sent.

The problem with treating patients directly inside West Africa is that the level of medical care is typically very poor and only until you go to westernized medical centers do you have the ability to treat with dialysis type products. When we have more information on our – on the potential usage of CytoSorb and this Ebola epidemic, we will of course let the public know.

So turning to business development given Chris Cramer’s absence, let me remind you that our polymer bead technology enables a diverse and valuable pipeline. As you see here, CytoSorb is used for critical care and high risk surgeries and in the CE mark-approved, but we have another a number of products behind that as well as the ones that we have not yet even disclosed publicly, where the products have the ability to potentially be out licensed and developed by other companies. One of our most advanced products that Vince will talk about a little bit later is HemoDefend designed to try to help purify the contaminants out of the blood supply that can cause transfusion reactions and adverse outcomes including death.

Many of you have seen this slide before and what this is just here to reiterate is the many areas where we got medicine. It could be the renal dialysis space; it could be the critical care space and catheter space, cardiac surgery, blood transfusion as well as biotech and immuno therapy. We have ongoing discussions with a number of these strategic partners for potential business relationships and we hope to have additional detail on those in the months to come prior to our uplifting.

One of the major strategic partnerships that we do have is with Biocon which is the largest biotechnology company in India often called the Amgen of India. And now Biocon has been seeing quite a bit of success after its launch in September 2013 of CytoSorb in the country. And in fact they are one of our largest distributors in terms of distribution sales and they continue to re-order product on a very regular basis. They have increased their commitment to CytoSorbents and are now hiring a dedicated sales force to actually sell CytoSorb in India which is fantastic.

And in September, so next month it will be embarking on a city by city tour throughout India with one of our key opinion leaders to basically talk about the applications of CytoSorb in the areas of critical care. They have already had a number of their own success stories that they are working to publish as well.

So I’d like to finish my comments with just a couple of case report studies that I think you would find are interesting. CytoSorb has the ability to be – in any clinical situation where cytokines are elevated, and one of these situations which you have not heard of before is acute graft dysfunction.

Now, acute graft dysfunction occurs is a major complication after transplantation of organs. In this particular case we are talking about liver transplantation and it is a life threatening event that requires emergency re-transplantation. Now as many of you know the wait list is typically very long to get a matched organ for a specific patient. However, in an emergency re-transplantation they have no choice but to take typically a mismatched organ to help to try to save the patients life.

The inflammatory response however in this case is very robust and accounts for most of the systemic complications and increase mortality in this procedure. So this is a patient who is a 46-year old man with a history of liver cirrhosis, who underwent an initial liver transplantation that failed. He then underwent a second emergency liver transplant but was ABO blood type incompatible. CytoSorb was used during the re-transplantation surgery to stabilize the patient hemodynamically and with the therapy he was able to be weaned of -- of all the place of pressure support by the end of the therapy.

Below you see a table looking at the effect on key cytokines during the first treatment which is called CytoSorb number one, and then the second treatment which is called CytoSorb number two. The legend below the table shows what T1, T2, T3 means. T1 means start a surgery, T2 after graft reperfusion, T3 end of surgery, T4 and T5 before and after the second cyto [indiscernible]. And what they saw was that key cytokines such as IL-6, IL-8 and CT1 TNS and intra – content were decreased significantly.

So not only were they seeing an improvement in heamodynamic stability, but they were also correlating this with a key reduction in inflammatory and certain anti inflammatory cytokines and in this patient liver function returned to normal five days after surgery and he left the -- to post and he sees a care unit after seven days and that performance out patients follow up, the patient was doing very well with normal liver function. This was the case report study actually presented by the surgeon at a major clinical conference.

On this next slide is a case of toxin shock syndrome. Now many of you have heard of toxic shock syndrome before as it relates to the use of tampons but it can happen in any Staphylococcal or Streptococcal infection. And this is a case report of a 17 year old man who suffered an injury to his ankle and unexpectedly began to develop a fever. He rapidly deteriorated and was hospitalized the next day at a major hospital in Rotterdam, Netherlands where antibiotics were started immediately. However, he continued to decline and was admitted to the ICU he also went into shock.

The patient became globally red and swollen and was suspect to have toxic shock syndrome. Now on the right hand side are pictures of patients, one is an infant with toxic shocks, toxic shock syndrome and the other is an adult and you can see his hands and you can see what is called a scalded skin syndrome. And this is a direct result of a toxin called the toxic shock syndrome, toxin number 1 that is released during infection that triggers the immune response but then causes the immune system to attack essentially the body leading to this massive sloshing of killing of skin and scuffing of the skin cells. Well, this patient was suspected to have toxic shock syndrome and they surgically explored the injured ankle revealing the Staphylococcal infection confirming the diagnosis. And the patient was still in shock and developed respiratory failure requiring incubation.

And at that time it was decided to start the patient on CytoSorb and within five minutes his blood pressure began to increase and after three hours of treatment the patient’s swelling and redness had completely resolved.

This is another case where the intervention of CytoSorb was directly correlated with the improvement in the patient. The total CytoSorb treatment was only 14 hours and the patient went on to fully recovery. This was just a case report study, just a very recently.

So these are the types of studies that we continue to see and I think are continue to be encouraging to physicians that our device is actually helping to improve clinical outcomes and really change the course of patient’s disease.

With that, that concludes our formal presentation. Let me turn it over now to Amy to start the Q&A session. Amy.

Question-and-Answer Session

Amy Vogel

Thank you Dr. Chan. Thanks. Over the last week we’ve collected the number of questions from investors. Question, could you please give us an update on sales and the development of the different markets?

Phillip Chan

Yes, of course. Thank you, Amy. We had another strong performance in the second quarter. We saw significant growth in sales in both our direct and distributor markets and are very much on track with how our sales trends causing in.

Currently direct sales of CytoSorb still accounts for the majority of our product revenue and we were pleased to achieve our sales targets. There were many public holidays and -- come to nine bridging days in Germany that makes second quarter from a sales opportunity standpoint a short quarter.

Reorder volume of direct sales probably the most important indicator of continued use and adoption accounts for most of our direct sales and short, healthy 25 quarter-over-quarter percent growth.

At certain hospitals we are seeing that CytoSorb is being regularly used for specific indications. That is actually the first step to becoming standard of care at those hospitals. Although the majority of our sales efforts are focused on our existing customers, we continue to expand our new customer base as moderate quarter-over-quarter growth for new orders following a substantial increase in Q1.

Our distributor business also continues to grow with strong reorder performance from Turkey and India in particularly. As mentioned we are waiting for higher product registration in Russia and the Middle East, which we hope to get soon as we just signed on Taiwan.

To-date we have not yet have meaningful sales from these countries, however the dialysis and blood purification markets are very strong there and we expect these territories to be significant contributors to our revenue growth going forward.

We also expect to expand distribution to a number of other countries by the end of the year and are on track to do so. We also intensified our marketing efforts as discussed during the two previous investor calls.

CytoSorb therapy has been presented at several conferences by a number of users; product example at International Liver Transplant Society meeting in London by the use of CytoSorb after liver transplant has been discussed.

What was particularly interesting was our CytoSorbents satellite symposium at the joint meeting of the German and Austrian society for internal medicine and critical care physicians. The attendance of our symposium was completely full; it was almost 20% of the whole conference participating in our session.

Furthermore, we have been invited by certain potential strategy partners to inform their customer while this new extra corporate therapy at specialized conferences. We have been participated in two of these meetings in Germany already and the third one is plan to take place in Berlin later this year.

Amy Vogel

And what do you think is needed to establish CytoSorb as a standard of care therapy for septic shock or other indications?

Phillip Chan

Severe sepsis and septic shock are our largest target markets. They count for 10% to 20% of all ICU admissions. In other countries such as India nearly a quarter of all ICU patients have sepsis, but sepsis are very complex disease and not seeing the patient is exactly alike. Historically this has made sepsis very difficult to treat.

We believe that CytoSorb attack sepsis in many ways that has not been possible before. CytoSorb works through use cytokines storm to control deadly information which can also remove certain bacterial toxins and importantly it can have redirect the activated cellular immune system to target the infection and avoid injury to healthy organs.

To make CytoSorb standard of care for sepsis requires that we develop strong medical evidence that therapy works and that we collaborate with medical societies both nationally and internationally.

We are currently considering a larger scale randomize controlled trial in sepsis to take place in Germany that would help answer this question. In the meantime we have many investigator initiated studies in severe sepsis and septic shock that are either enrolling or are planned that will help generate additional data.

Furthermore, our International CytoSorb Registry, which will help collect data on how CytoSorb is best used, is currently online and in [data] testing, so official launch is planned for World Sepsis Day in September. Also as discussed earlier, we continue to seek [medi case] report where CytoSorb has worked extremely well. We take these cases and try to learn as much as possible from them.

Finally we need to show evidence also economic benefit in order to achieve reimbursement worldwide. For CytoSorb if we can save just one or two days in ICU to some people who already pay for it? We have seen this already many times. We plan to include cost effective measures in all of our major clinical trials.

Amy Vogel

And when we’ll begin to see the data?

Christian Steiner

We currently are concentrating our efforts in Europe to generate appropriate medical evidence and are making a lot of progress. During the last quarter two case reports in intensive care medicine and the 20 versus 20 patient retrospective control study from University of Munich using CytoSorb during cardiac surgery have been published.

We are reaching a stage where there are many of these case reports being prepared. There’s quite a number of key leaders planning to either publish or report their positive experience regional, national and international conferences, as well as in other medical centers where we want to introduce CytoSorb therapy.

We have a number of ongoing investigated initiative studies for different applications. We hope to see data from two studies in cardiac surgery, one at University of [indiscernible] Medical University of Vienna either the end of this year or first quarter of next year.

Recently a major 100 versus 100 patient’s prospective randomized controlled study using CytoSorb intra-operatively during cardiac surgery has been started at the University of Cologne. These are just some examples of studies where data has been generated or is generated and we expect to see much more data in the next six to 12 months. Thank you. Back to you, Amy.

Amy Vogel

Thanks very much, Christian. Another topic on people minds is the Air Force trauma trial and grant program such as DARPA. Vince, could you please elaborate a little regarding the progress in these programs?

Vincent Capponi

Thank you, Amy. As we discussed in the last investor update, the U.S. Air Force Rhabdomyolysis trials up and running and we are working with the second site to bring that group on as soon as possible. We have been targeting critically injured patients with the very highest levels of myoglobin release from injured muscle. These patients are at the highest risk of developing acute kidney injury. However these high [thresholders] made it difficult to find suitable patients to enroll could meet all the inclusion and exclusion criteria of the trial.

As a group we are currently discussing with the U.S. Air Force lowering this threshold to include patients with still very high levels of myoglobin, but at levels that are move commonly seen. We do not think that this will negative impact the study as a primary goal of this study is to reduce high levels of myoglobin.

Regarding the DARPA, DOD, SBIR and HemoDefend SBIR we continue to make good progress on these three grants, having received approximately $358,000 in Q2, 24 grant revenue. We recently had an excellent discussion with the new program manager of the DARPA DLT program and are looking forward to finishing our year two effects and begin planning for year three of our five-year contract.

During year three, we will begin – we will be taking various new technologies that we’ve developed under the program and beginning pilot scale production to produce enough devices for the DARPA integrator, but tell labs to test in large animal models.

We have currently completed the burn injury portion of our U.S. Army Phase II SBIR contract and are working our trauma injury model currently. This is a program that is very exciting because we have been developing quite a number of new technologies.

Once this is completed we would discuss with the U.S. Army about potentially advancing to Phase III study. We’re also finishing our very ambitious Phase I HemoDefend SBIR contract with our collaborators at DARPA. We are currently summarizes a data and support for applying a Phase II SBIR contract to further advances application.

Consulting new grants we’ve identified a number of additional grant opportunities that we believe are well aligned with CytoSorbents platform technology. These grants range from different type applications to test blood quality, the treatment of inflammatory conditions specifically associated with Biowarfare.

As we develop these opportunities we will discuss them in contacts to both financial benefits for company and technology advancement in future updates. Securing non-dilutive funding to advanced development of the CytoSorbents technology platform continues to be one of our key objectives.

Amy Vogel

Thanks, Vince. Have you started construction on a new manufacturing facility given the uptick in sales?

Vincent Capponi

We began several initiatives since our last update regarding capacity build. First we began certain infrastructure updates to our existing facilities. These infrastructure updates will allow us to further increase our capacity to satisfy our near term needs as we pursue our next objective, a new plan build out. To that end we have begun the process of looking at alternative options including larger facilities to provide both near and long term increase in manufacturing capacity.

In addition we began to process of identifying several engineering firms to quote on our plan design. The firms will help us with the facility modifications, equipment installations and startup. The preliminary engineering we completed earlier will facilitate this process and should reduce the total time necessary to bring a new plant online. Outsourcing to manufacturing always remains an option, but for reasons of maintaining control over the know how, controlling production lead times and maximizing gross margins we’ve elected to maintain this in-house.

Amy Vogel

And what is the current status of the development of HemoDefend product?

Vincent Capponi

Regarding HemoDefend we’ve recently secured additional space for our process and equipment, development engineering. Separating the HemoDefend development process from our manufacturing equipment allows us the ability to continue the process and equipment development testing without disruption to our manufacturing operations. Concurrently we continue to work on the design to establish the best geometry device size for the inline filter application.

As we progress down the HemoDefend development pathway, we will provide updates from time to time. As an additional know, based on critical trials like and the Canadian counterpart controlled trials.com it appears that the two large randomized control studies looking at the impact of age, blood and cardiac surgery patients called the RECESS trial and critically ill patients called the ABLE trial have been completed.

If not too soon, we may hear about the data or at least topline data at the upcoming AABB or American Association of Blood Banks Conference in late October. If one of these studies demonstrates increased risk with transfusions of older blood, it could significantly elevate the value of approaches like HemoDefend that help purify the blood of degradation products like free hemoglobin that have long been associated with increased risk of older blood.

Amy Vogel

Thank you, Vince. While we seemed to have covered the major questions, Dr. Chan, do you have any closing remarks?

Phillip Chan

Thank you, Amy. Thank you everyone for being on the call today. If you have any additional question, feel free to forward them to Ms. Amy Vogel at avogel@cytosorbents.com, and we will try to address them in our next update. Thank you again, and have a great evening.

Operator

Thank you. That does conclude our conference for today. I’d like to thank everyone for your participation and have a great day.

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Source: Cytosorbents' (CTSO) CEO Phillip Chan On Q2 2014 Results - Earnings Call Transcript

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