Good afternoon and welcome to the CytoSorbents Second Quarter 2023 Financial and Operating Results Conference Call. [Operator Instructions] Please be advised that the call will be recorded at the company's request. At this time, I'd like to turn the call over to our moderator, Taylor Devlin. Please go ahead, Taylor.

Thank you and good afternoon. Welcome to CytoSorbents Second Quarter 2023 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, Interim 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, Senior Vice President of Business Development; Dr. Irina Kulinets, Senior Vice President of Regulatory. Before I turn the call over to Dr. Chan, I'd like to remind listeners that during the call, management's prepared remarks may contain forward-looking statements, which are subject to risks and uncertainties. Management may make additional forward-looking statements in response to your questions today. Therefore, the company claims protection under safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from results discussed today, and therefore, we refer you to a more detailed discussion of these risks and uncertainties in the company's filings with the SEC. Any projections as to the company's future performance represented by management include estimates today as of August 1, 2023, and we assume no obligation to update these projections in the future as market conditions change. During today's call, we will have an overview presentation covering the operating and financial highlights for second quarter of 2023 by Dr. Chan and Ms. Bloch. Following that presentation, we will open the line to your questions during the live Q&A session with the rest of the management team. And now it's my pleasure to turn the call over to Dr. Phil Chan.

Thank you very much, Taylor, and good afternoon. Today, I have the pleasure of being able to update you on our most recent operational progress. We recently announced that the pivotal STAR-T trial completed enrollment ahead of internal projections with strong performance amongst our 30 clinical centers in the United States and Canada. This followed the second independent data and safety monitoring board evaluation in June on unblinded safety data on 80 patients, where the DSMB recommended completion of the trial without modification. In the second quarter of 2023, we achieved total revenue of $9.4 million, including product sales of $8.1 million versus $7.3 million in product sales a year ago, representing the third consecutive quarter of sequential product sales growth. Product gross margins grew 700 basis points to 74% from 67% a year ago. And we have now exceeded 212,000 cumulative human treatments delivered across 75 countries worldwide. We announced the appointment of Alex D'Amico as new Chief Financial Officer to start next week, August 7, 2023. Alex brings 20 years of broad finance, SEC reporting, M&A, fundraising and accounting experience to the company. And our outgoing Chief Financial Officer, Kathy Bloch, will stay on as a consultant and help to manage the transition. We also introduced Michael Bator as the new Chairman of the Board at the Annual Meeting in June. Michael has been a Board Director since 2015 and currently serves as a founder and partner of Court's Advisory Group, the Capital Markets Investment Bank. Michael was also the former Managing Director of Healthcare Research at Jennison Associates, a very large family of funds with more than $175 billion in assets under management. Last but not least, we announced the theranostic collaboration with Humedics. Humedics is the manufacturer of the EU-approved LiMAx liver function test that is…

Thank you, Phil, and greetings to everyone on today's call. Let's start with our first slide on second quarter revenues. For the quarter ended June 30, 2023, total revenue, which includes product sales and grant revenue, was $9.4 million compared to total revenue of $8.5 million in the second quarter of 2022, which is an increase of approximately 11%. Product sales for the second quarter 2023 were $8.1 million compared to approximately $7.3 million for the second quarter of the prior year. And our second quarter 2023 product gross margins were 74% compared to 67% for the second quarter of 2022 and 68% in the first quarter of 2023. And this predicted improvement in gross margins is expected to continue throughout the year as we fully complete all the start-up activities associated with our new manufacturing plant and continue to ramp up production. Our second quarter grant revenue was $1.3 million compared to $1.2 million in the same quarter of the prior year. Next slide, please. For the 6 months ended June 30, 2023, total revenue was $18.9 million, an approximately 10% increase over the $17.2 million in total revenue for the same period of 2022. First half 2023 product sales were $16 million compared with $15.3 million in the same period of 2022. And grant revenue was $2.9 million in the first half of 2023 compared to $1.9 million in the prior year. Next slide, please. So this next chart depicts our trailing 12-month product sales, and it's broken down into COVID-19-related and core non-COVID-19-related product sales. Our core product sales of $30.1 million in the trailing 12-month period ended June 30, 2023, they're just slightly behind core product sales of $30.7 million in the trailing 12-month period ended June 30, 2022. And this was due to the difficult…

Yes. So thank you very much, Kathy. I apologize for that. Today, CytoSorb drives our growth. CytoSorb forms the foundation of our company with an EU-approved product that is sold around the world that has generated approximately $200 million in sales since launching more than 200,000 human treatments around the world. It is a high-margin razor-blade business model with industry top-tier 80-plus percent blended product gross margins. And it has had strong validation by customers, partners and government agencies with current sales that supports near breakeven, less clinical trial costs, which we believe helps to derisk the company and the investment opportunity. We believe CytoSorb represents the fuel for strong future growth anticipated growth, targeting the $20 billion to $30 billion worldwide total addressable market of major unmet medical needs in critical care, cardiac surgery as well as liver and kidney disease. And we believe this gives CytoSorbents the potential upside of a biotechnology company with a lower-risk profile of a high-margin medical device company with sales. But soon, we believe that the story could change with CytoSorb and DrugSorb-ATR representing dual growth engines for the company. We are raising to the finish of STAR-T, where we are rapidly nearing the completion of the study expected imminently with top line data expected later this year. For STAR-T to be successful and DrugSorb-ATR achieves U.S. FDA and Health Canada regulatory approval, we intend to commercialize DrugSorb-ATR in both the U.S. and Canada, a potentially major second engine of growth working in tandem with CytoSorb to drive sales. DrugSorb may open an expected initial U.S. and Canadian total addressable market of $300 million to $350 million for Brilinta alone, which could expand should Brilinta go generic as Ticagrelor, where we expect significant penetration given that major unmet medical need indicated by our FDA breakthrough device designation. If successful, this could transform CytoSorbents into a dual U.S. and international growth company that current and prospective institutional and retail shareholders are excited about and have been waiting for and that can create potentially significant value. With that, the formal remarks, operator, please open the Q&A session.

[Operator Instructions] And our first question will come from Joshua Jennings of TD Cowen.

Congratulations on completing the enrollment for STAR-T. And Kathy, congratulations on your retirement. Was hoping to just get a refresh, I apologize for this basic question, but just, Phil, if you could help us -- remind us about the differences just in the devices, DrugSorb-ATR versus CytoSorbents. The reason I'm asking the question is just the study -- I think CytoSorb absorption during emergency cardiac operations in patients with a high risk of bleeding, I believe that CytoSorb is U.S. -- sorry, EU approval or CE Mark approval for the indication to remove antithrombotic cardiothoracic surgery. And just with that data that's out there and trying to kind of use that as a signal for the prospects of success for STAR-T. Just want to be reminded of the differences of those 2 devices.

Yes. Thanks very much, Josh. So the DrugSorb uses an equivalent polymer technology to CytoSorb. But DrugSorb-ATR is more of a drug removal system with blood lines and other things that allow us to connect to the heart-lung machine. So from a technical perspective, what CytoSorb can do, DrugSorb can do. So if that is helpful.

Absolutely. And just thinking about the interim analysis and getting through the -- any changes in the study protocol, I mean like that clear positive signal on the safety side. But is there any, I guess, clinical signals you would put forward either from real-world experience with CytoSorb as indication in Europe or clinical data, including that study that I just referenced in terms on the efficacy side for STAR-T that this signals that investors should be really considering as they're trying to analyze the potential success of the STAR-T study?

I can turn that over to Makis. Makis, would you like to handle that? And I can add color.

Thanks, Phil, and thanks for the question. So the -- as Phil mentioned previously, we have announced in our last earnings call that we're going forgo the interim analysis based on the speed of enrollment. So the fact that we completed the study so soon would not have allowed significant amount of time -- sufficient amount of time for the interim analysis to be performed. However, by foregoing that, we did not have, not us nor the DSMB, any further insight into the efficacy side. And therefore, now the data remain fully blinded as they're being entered by the sites. They will undergo the process of being validated and cleaned, leading to database lock, as you heard earlier. And obviously, after that, we will pursue the final analysis and the top line results of the study. So until then, that -- we only have the DSMB review on the safety information of the trial, which we already reviewed today. We had 2 of those reviews that were both unremarkable without any findings and without any recommendations for changes in the trial. So that's a long way to tell you that as of now, the data remain blinded, but we do have the positive feedback for the safety of the study.

Sorry, I'm just classifying the safety reviews as interim analysis. And then maybe lastly, just thinking about -- I may be getting a little bit ahead of myself, but think about the plans for STAR-T and potentially kicking that study off for Xarelto and Eliquis removal. I mean, will the catalyst be or, I guess, if you think about the decision tree, we need to see success in STAR-T to -- and prior to thinking about or initiating the STAR-T trial?

Okay. So let me try to respond to that one as well. So the STAR-T trial, you start getting an addressable population that's even larger than the Ticagrelor population. And we've seen that not just on our literature review of the numbers that are out there but primarily from the direct feedback from the site. So we believe that the opportunity for these 2 blockbusters, Xarelto and Eliquis, is even greater than for Brilinta. So in that regard, it's definitely an opportunity worth pursuing. Now in relation to STAR-D, we are now in a very good position that we have the full apparatus to execute and study in place. From our clinical team -- our internal clinical team, all our vendors and our partners that we're working to execute the study, most importantly, the site network from STAR-T, these are highly performing sites. They did excellent STAR-T. So we believe that STAR-D, once we resumed, will actually be efficiently executed and be able to enroll fast. The results of STAR-T will be very helpful, of course, especially relating to the safety of the device since the application is very similar. As you know, the STAR-D trial is targeting the same use of the device, intraoperatively for patients undergoing cardiac surgery. So there's a lot of similarities between the 2 trials that we discussed previously, but more importantly now, we have the playbook, the right partners and the right sites to execute briskly the STAR-D trial.

And our next question will come from an Si of B. Riley.

Maybe I can start with a high-level question first, and then I have a follow-up. So first, during your market research, Phil, can you remind us the trend of using antidote for Anticoagulants, such as AndexXa, Praxbind in the U.S. and EU?

Sure. And actually, Makis, this is an ideal question for you.

Sure. Thank you for the question. So the use of these reversal agents that are approved in the marketplace now, specifically Andexanet that is indicated for the reversal of the drugs we referenced before, the direct oral anticoagulant like Xarelto and Eliquis, is approved in the presence of severe life-threatening bleeding. So those drugs are used where somebody has suffered in life-threatening bleed. The usual measures are not successful in stopping the bleeding, and then they applied. The population that we are addressing is actually much larger populations. These are patients at risk for bleeding. So if you can imagine, these are patients who are coming in with a heart attack, they have their cardio angiogram, they see that they need surgery, but because they receive these drugs are sitting -- waiting for the drug to wash out at risk for having a second heart attack, for example, but they're not bleeding. So in that population, it's -- as of now, there are no available solutions to help them have a timely operation -- a safe and timely operation. So these patients now are waiting in the hospitals for a long time. The drugs that we're referencing would only be indicated if they were bleeding. In addition, some case reports with these drugs were used in the setting of patients heading into surgery, especially relating to Xarelto and Eliquis, the reversal agent, Andexanet, can interfere with the necessary anticoagulation that are required when people are put on a heart-lung machine. So it poses also a complicating factor that may put the operation at risk, and therefore, are not widely used in this setting, and they're certainly not approved for that application. The reversal agent for the bigger trend, which has a very, very small piece of the pie of the market share for these Anticoagulants, does carry an indication that can be used because it has been studied also in people heading to cardiac surgery. Having said that, there are so few patients on this drug. Again, at least in our sites, we have not experienced any of the clinical teams using these drugs in the setting. They're all opting to just wait and let the drugs wash out, which is exactly unmet need that we believe can target by allowing the surgery to proceed while at the same time removing the offending agent and reducing the bleeding risk.

Yes. Got it. As a follow-up here I have is -- I'm curious about the U.S. market when you have a third party or have third-party distributor. Can you clarify how you split the responsibility? Will you take on the responsibility of marketing and education, and then they do the face-to-face interaction with surgeon?

Vince, do you want to take that?

Sure, Phil. I'll take that. Thanks. In the U.S., we plan to use a blended approach of direct sales and distributors. We have some strong distributors that we developed in -- during the COVID period, when we were selling CytoSorbents or CytoSorbents under EUA. And we will use those distributors in those select regions since they have very, very close relationships with the cardiac surgeons. And so the rest of the U.S., we intend to focus on direct sales, specifically with probably a sales force of about 19 people.

And our next question will come from Christopher Campbell of JEF.

This is Chris on for Mike. I was wondering if you could elaborate a little more on the trends you're seeing in the core German market and how that's trended so far through the third quarter.

Yes, we -- thanks very much, Chris. We -- Christian, would you like to comment on that? There's only so much we can say about third quarter results so far. But Christian, feel free to try.

Yes. Thank you, and thank you for the question. So as Chris said, we cannot obviously comment on the third quarter. But as you have seen already in the first and second quarter, there's a significant improvement compared to last year. This is mainly because we have much better access to the hospital, but also we'll be, I think, carried in the next half year by a number of publications we have received over the first half. So all this together has to balance. There's still critical or complicated situation in the hospitals. There are still ICU capacities blocked because there's not -- there's a shortage of staff, and there's still less cardiovascular interventions compared to before the pandemic. But the charts, which have been shown by Kathy, show that we are already much higher with the core business compared to the business before the pandemic but also considering the core business during the pandemic. I think It's a stable improvement. And yes, the second half, I think, show further stabilization.

And our next question will come from Jim with Alliance Global Partners.

This is Lora Real calling in for Jim Loy. So with enrollment now complete for the STAR-T trial and on top line data set to be announced by the end of the year, what type of data are you specifically anticipating in order to submit your regulatory submissions to both the FDA and Health Canada?

Thank you, Lora. Makis and Irina, would you like to take that?

Yes, I can take that. We consider that -- at this point, we don't know the results of a clinical study, STAR-T. But it is in the mid control study, and data is blinded until the final analysis would be completed. This data would be sufficient to support regulatory filing in United States and in Canada. This data also might be used in some other territories. But at this point, the United States and Canada would -- regulatory submissions would be relying consulate.

And maybe, Makis, you can talk about the -- Makis, maybe you could talk about the primary endpoint and some of the secondary endpoints as well.

Sure. Thanks for the question. So I think like with any regulatory review, the agency will have to perform a benefit-risk analysis for this proposed new intervention. So the STAR-T is designed to provide all that information. So first of all, the safety, and we already talked about this on this call, we had some interim reviews and we'll have a final review as well. So safety will certainly be supported by the data for STAR-T for the necessary review by the agency. For efficacy, we are looking at 2 specific things in STAR-T. First of all, we want to establish the mechanism of action. So we're looking for the drug removal of the drug to actually be validated in [ vivo ] . We're going to be measuring the levels of the drug before surgery and after surgery. That's actually the key secondary endpoint of the trial to show that the drug is effectively removed from circulation compared to the control arm when the device is not used. The second piece of the efficacy, which is actually the primary endpoint of the trial, is a composite endpoint looking at various events that cause bleeding -- perioperative bleeding. So we're measuring things like transfusions. We're measuring things like the amount of blood that comes out of the chest after the operation. And that will give us a picture of the overall bleeding rates between the intervention on the control arm. So I think the overall information from the STAR-T trial will be sufficient to -- for the agency to review to come up with the benefit-risk analysis necessary during this process.

Understood. And may you also go over the joint marketing agreement that you answered with Humedics and the LIMAX diagnostic tool? And then what might you expect in terms of increased customer awareness and use for both of the products involved?

Yes. Why don't -- Chris, why don't you take that one?

Yes. Thank you, Phil. Yes, thank you for the question. As Phil had mentioned, Humedics has a really innovative, noninvasive liver function test. And basically, what it helps physicians do to assess how much liver function a patient may have. And they got to start with presurgical planning, but I think ideally, what we hope to do is to leverage the test, and as Phil had mentioned, use this as a diagnostic test to help stratify and identify the right patients who would ultimately be best suited for our treatment. So that's I would categorize that as maybe near a mid- to later objective of the partnership. But today, we're leveraging the commercial organizations to get in front of key customers for our product, customers like hepatologists, hepatic surgeons and others. And I think the real near-term benefit of this is that the partnership could be valuable because it will help introduce us to customers who may not yet be familiar with CytoSorb but could be good buyers of the product. So I think this is just another way for us to accelerate our commercial efforts in the field of liver therapy.

And our next question will come from Sean Lee of H.C. Wainwright.

My first one is on the U.S. market -- potential U.S. market for DrugSorb-ATR. So you mentioned a -- currently a $250 million opportunity. So I was wondering how many of these cardiac surgeries per year that are sort of using Ticagrelor -- in patients using Ticagrelor that you believe could be benefit from DrugSorb-ATR?

Thanks, Sean. Makis, would you like to take that one?

Sure. So what Phil showed you today is that the acute coronary treatment syndrome patients, which is about 1 million or more admissions as such in the U.S. every year, require the use of Antiplatelet drugs. Aspirin is one, but they also require one of these P2Y12 inhibitors. The position of Ticagrelor within that marketplace is constantly improving based on the very good efficacy data, especially over Plavix. So the number of patients on Ticagrelor have been growing over the past few years, and we believe that trend will continue to go up with the generic availability of the drug and obviously, hopefully, potentially the availability of DrugSorb. So from all those patients, about 100,000 of them out of this 1 million, about 10% when they present with ACS will require surgery. And that surgery takes place in the hospital. These are not patients that are stable enough to be sent home, to be allowed to stop the drug and then come back for surgery without risk of bleeding. They are staying in the hospital being monitored. And currently, these hospitals are waiting multiple days until they can be operated. The amount of patients from those 100,000 that are on Ticagrelor we estimate -- like I said before, we have estimated in the past that the market share for Ticagrelor is approximately half of that market and may potentially grow even more in the future. So that -- those are the assumptions behind the number that Phil has quoted previously about the total addressable market with this device. So to summarize, about 10% of patients presenting with an acute coronary syndrome need to go to surgery. These patients are on P2Y12 inhibitors and aspirin, dual anti-platelet therapy. And the percentage of Ticagrelor patients within that population is high and will continue to grow, we believe, with the generic availability of the drug.

Great. My second question is on your commercial planning in the U.S. and Canada. So you mentioned that you expect to start building out a direct sales team starting next year. So I was wondering, would you be pursuing an entirely 2 deck sales or a hyper model, where you have some direct sales surgeries and some distributors? And in terms of personnel, what's the size of the sales team that you're looking at?

Yes, Vince, would you like to cover that?

Sure. Thanks, Sean, for the question. So we do plan to do a hybrid model, Sean. We have some good distributors from the COVID EUA program that are -- actually are specialists in cardiopulmonary bypass equipment. And so we will combine that with a direct sales force of about 19 people. I think with the distributors, they have the established relationships. And so we would obviously leverage their Rolodex to get into those accounts quickly to establish the use of DrugSorb-ATR. And then in the rest of country, we will go in with a direct sales force, and that will be roughly about 19 people. Does that answer your question?

I think the other thing to note is that at the price points that we're talking about in the United States, we've talked about a number of about $5,000 per cartridge compared to $1,000 for CytoSorb in the European Union. Our product gross margins for DrugSorb-ATR are expected to be well above 90%. So with a highly profitable, high-margin disposable device such as DrugSorb-ATR, the payback on sales of that product is very quick. And I think I was telling someone the other day that we have a lot of experience in terms of commercialization experience based upon our -- what we've been doing in Europe. We, again, have been in the market for now 11 years with CytoSorb and have a full-fledged, fully operational sales and marketing commercialization team that has a gamut of sales and marketing folks but also product support, clinical support, clinical and medical affairs and application specialists, customer service, et cetera, et cetera. We look to replicate that here in the United States and know how to do this cost effectively and so are looking forward to the opportunity to do that here in the U.S.

[Operator Instructions] Our next question will come from Tom Kerr of Zacks SCR.

I think most of my questions have been asked. Just a couple of quick ones and some financial ones. You guys don't talk about those programs under development much anymore. Any comment on that? The HemoDefend and the contrast and that sort of stuff, are you still working on those efforts?

Absolutely. The HemoDefend-BGA program is the beneficiary of more than $15 million in government grant funding, particularly from the Department of Defense. It is a priority actually for our R&D program outside of the work that we're doing on CytoSorb and other key programs, and it is well funded. And so if you're seeing a lot of the press releases we put out on these technologies, we have funding to really bring it to clinical studies and potentially even commercialization. So we are active on that. I think we're making some outstanding progress. We are looking to address multiple different markets, including military markets, including civilian transfusion markets as well as plasma processing markets with our technology because we believe that universal plasma has a place in each of those verticals. We really look forward to the day when a bag of freeze-dried universal plasma is on every -- or multiple bags of freeze-dried plasma is in every ambulance, for example, in the world given that plasma is a life-saving product with lots of beneficial components in it, such as coagulation factors and other things that are very useful for trauma patients and are much better at resuscitating patients than what they're using today, which is simple saline. And so you can imagine how large this opportunity could be worldwide. And it's one of the reasons why we're very excited about that program. We don't talk about it much, but be very clear that we are making some nice progress.

Okay. Great. A couple of quick financial questions, though. The burn rate expected to remain around $4.5 million. As you guys stated in the press release, you're funded through 2023, but you have substantial more liquidity than that. Just trying to get that data and figure that out.

Kathy, did you want to address that?

Yes, I'll take that. Thanks, Phil, and thank you for the question. So our cash burn moving forward is estimated to be around $4 million a quarter. That's just what we're expecting as we move into 20 -- out of 2023 and into 2024. Of course, beginning with -- when we begin to have sales in the U.S. of DrugSorb-ATR, Phil already mentioned that it's a very quick payback. And it is -- and we're targeting average selling prices of around $5,000 versus the $1,000 that we sell CytoSorb for currently. So what are now up to 80% gross margins will be very high 90% gross margins on those products. So they'll be very profitable. We do have an ATM in place. We do have the ability to borrow additional debt if need be to extend the cash runway.

Okay. I think I understand, but it seems like with that amount of liquidity and a $4 million burn rate, you'd be funded beyond 2023 instead of through 2023. But maybe I'm reading into that too much.

No, you're reading it right. It will be beyond 2023.

Well, if there are no -- okay, operator, sorry?

I'm sorry, there are no further questions. I'd like to turn the call back to you, Phil, for closing remarks.

Thank you, Tanya. Well, thank you, everyone, for joining the call today, and a special thanks for the analysts who asked some excellent questions. If you do have any other questions, please feel free to reach out to Kathy Bloch this week at kbloch@cytosorbents.com or me at pchan@cytosorbents.com, and we'll reply to your questions where possible. We look forward to our next quarterly call. Thank you, everyone, very much. Have a great evening.

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