By Thomas Kerr, CFA
READ THE FULL CTSO RESEARCH REPORT
DrugSorb-ATR Submission
On October 1, 2024, CytoSorbents (NASDAQ:CTSO) announced the submission of its DrugSorb-ATR medical device De Novo marketing application to the U.S. Food and Drug Administration (FDA) on September 27, 2024. The goal of this product is to reduce the severity of perioperative bleeding in patients on ticagrelor (Brilinta®, AstraZeneca) who are undergoing coronary artery bypass graft (CABG) surgery. The FDA has previously granted Breakthrough Device Designation to DrugSorb-ATR to address this major unmet medical need which makes it eligible for priority review.
Dr. Phillip Chan, Chief Executive Officer of CytoSorbents, stated, “The DrugSorb-ATR De Novo submission to FDA is the culmination of multiple years of significant clinical, regulatory, and manufacturing accomplishments company-wide, centered on the execution and data analysis from the U.S. and Canadian pivotal STAR-T randomized controlled trial and the product development of DrugSorb-ATR. “We are very proud of our dedicated CytoSorbents team and external clinicians, collaborators, and consultants who helped to achieve this major milestone. Meanwhile, we have also completed our DrugSorb-ATR Health Canada Medical Device License (MDL) application, which will be submitted with the expected near-term receipt of MDSAP certification.”
Ticagrelor is a blood thinning drug frequently administered in the hospital to patients suffering from a heart attack. If patients are not eligible for a coronary stent, they will often require CABG surgery to restore blood flow to heart muscle. Current guidelines recommend the delay of surgery by three to five days to allow “washout” or natural elimination of the drug to reduce the high risk of serious and potentially fatal perioperative bleeding from the use of the blood thinner.
The 140-patient North American STAR-T randomized, double-blind, sham-controlled trial evaluated the safety and efficacy of DrugSorb-ATR in patients undergoing urgent CABG surgery on ticagrelor to remove the drug and reduce the severity of perioperative bleeding complications compared with patients operated without the device. These safety and efficacy data from STAR-T form the basis of the marketing approval submissions (see more details below).
U.S. and Canada Regulatory Review
The U.S. FDA De Novo process for medical devices provides a marketing pathway to classify novel medical devices for which general controls alone, or general and special controls, provide reasonable assurance of safety and effectiveness for the intended use, but for which there is no legally marketed predicate device. Following application acceptance by the FDA, De Novo submissions enter the substantive review phase where FDA Breakthrough Device designation and an associated interactive priority review, called “sprint discussions,” can accelerate the process.
The Health Canada Medical Device License (MDL) authorizes manufacturers to import or sell Class II, III, and IV medical devices in Canada. The license ensures that these devices meet the necessary safety, quality, and efficacy standards per the Medical Devices Regulations. MDL requires MDSAP certification, which the company expects to receive shortly, at which point it will file its MDL application.
Final regulatory decisions on DrugSorb-ATR are expected from FDA and Health Canada in 2025.
Preliminary Third Quarter 2024 Financial Results and Business Update
The company estimates that 3rd quarter 2024 Product Sales (excluding grant income) will be in the range of approximately $8.3 million to $8.5 million, representing growth of 7% to 10%, versus $7.8 million in the 3rd quarter of 2023.
A planned temporary slowdown in production to rebalance inventory levels along with a short-term manufacturing issue resulted in a significantly lower number of CytoSorb devices produced in the 3rd quarter. Because of this, we estimate that product gross margins for the 3rd quarter will be in the range of approximately 50% – 60%, compared to 71% in the prior year period. This short-term manufacturing issue has likely been resolved and the company expects a return to more normalized production levels and product gross margins in the 4th quarter of 2024. The company continues to have adequate inventory to meet current demand.
Valuation and Estimates
Our 2024 revenue estimate is $39.7 million and our 2024 EPS estimate is adjusted to a loss of ($0.33) per share based on improved cost controls at the company. We believe 2025 revenues could reach $44.5 million. Our 2025 EPS estimate is a loss of ($0.12) per share.
The company has implemented significant cost-cutting measures to reduce the cash burn, including major reductions in headcount, termination of non-core R&D programs, termination of the STAR-D trial to focus on STAR-T, and a third consecutive year of salary freezes for executive management. The benefit of these cost cuts on operating expenses, particularly the headcount reductions, will become more apparent going forward as notice periods and severance payments are completed.
In addition, the company has worked diligently to optimize manufacturing efficiencies. In the 2nd quarter of 2024, CytoSorb product gross margins were 75%. In the near-term, the company expects product gross margins to be more consistently in the 75-80% range on a quarterly basis in 2024 compared to an average of 72% in 2023.
We are still confident the company can generate substantial levels of free cash flow over time, particularly if the approval and commercialization of DrugSorb-ATR is successful in 2025. We maintain our price target of $4.00 per share.
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