Zacks Small Cap Research – CTSO: CytoSorbents Potential for High Margin Revenue Growth Supports Price Target of $4.00 – Technologist

By Thomas Kerr, CFA

NASDAQ:CTSO

READ THE FULL CTSO RESEARCH REPORT

CytoSorbents (NASDAQ:CTSO) reported 2nd quarter 2024 results on August 13th and the results were mostly above our expectations. For the 2nd quarter of 2024, total revenues increased approximately 5.0% to $9.9 million. Total product sales were $8.8 million, an increase of 9.5% from the 2nd quarter of 2023. Grant income was $1.05 million in the 2nd quarter of 2024 compared to $1.35 million in the prior year period.

Product gross margin in the 2nd quarter increased to approximately 75% compared to 74% in the prior year period primarily due to greater efficiencies being realized at the new manufacturing facility in Princeton, New Jersey. As product revenues continue to grow, gross margins are expected to reach 80% over time.

During the 2nd quarter, research and development expenses were approximately $1.5 million compared to approximately $3.7 million for the 2nd quarter of 2023. This decrease was primarily due to a decrease in clinical trial costs related to the completion of the STAR-T trial in 2023.

Net loss for the 2nd quarter was ($4.1) million, which was an improvement from a net loss of ($6.1) million in the prior year period. Operating cash flow was a use of cash of ($4.8) million. The company’s burn rate is expected to improve throughout 2024 as cost saving measures take effect and the company’s product sales continue to increase total revenues.

Liquidity and Capital Resources

As of June 30, 2024, the company had current assets of approximately $21.9 million and current liabilities of approximately $10.3 million. At the end of the 2nd quarter, $25 million of the total shelf amount was allocated to the ATM facility, of which approximately $20.3 million is still available. During the 1st half of 2024, the company sold 53,290 shares at an average selling price of $1.03 per share, generating net proceeds of approximately $53,200.

In the 2nd quarter, the company closed on a $20 million credit facility of which $15 million was released to the company before the end of the quarter. $10 million of this is being held as unrestricted cash and $5 million is held as a long-term asset as restricted cash and will be released pending the DrugSorb-ATR submission to the FDA. (see more details below).

On December 13, 2023, the Company closed on a $10.3 million registered direct offering for the sale of 7,733,090 shares of registered common stock and warrants to purchase up to 2,706,561 shares of common stock. Each share of common stock and accompanying warrant to purchase up to 0.35 shares of common stock, were sold together for a combined purchase price of $1.33, for an aggregate purchase price of approximately $10,285,000. The company received net proceeds of approximately $9,785,000.

For the 2nd quarter of 2024, the company reduced its operating loss 48% year over year from $6.6 million a year ago to $3.4 million. The company also disclosed cutting an additional $5.0 million in operating expenses after the 2nd quarter closed.

As of June 30, 2024, the company had approximately $14.9 million in cash including approximately $8.4 million in unrestricted cash and $6.5 million in restricted cash. This should be sufficient to fund the company’s operations into the 2nd quarter of 2025.

CytoSorbents Releases Newly Redesigned Company and Product Website

On July 29th the company announced the release of a newly designed website. The new website was built from the ground up and unifies corporate and product information into a single, cohesive and comprehensive information hub for healthcare professionals, investors, and other stakeholders. Key features include:

➢ User-Friendly Layout and Intuitive Navigation – with easy access to essential information and optimized for both desktop and mobile browsing.

➢ Enhanced Easy-to-Understand Content – tailored for different stakeholders.

➢ News and Updates – dedicated to the latest developments and events.

➢ Comprehensive and Searchable Resource Library – from a collection of 1,000+ peer-reviewed publications, poster presentations, abstracts, white papers and case reports highlighting the use of therapies in many applications.

➢ Introduction to Our Experts – who are there to provide guidance and support.

➢ Voices Around the World – with insights and feedback from users worldwide.

➢ Dedicated Investor Relations site – for quick access to investor materials.

➢ Improved Contact Forms – facilitating faster communications and interactions.

CytoSorbents Secures $20 Million Credit Facility

On July 2nd, the company announced that they had secured a $20 million non-dilutive credit facility. The credit agreement, which has an initial term of three years, provides up to $20 million in total term loan proceeds including an initial tranche of $15 million. $10 million will be immediately available and an additional $5 million will be held in restricted cash and will be released with the acceptance by the FDA of the company’s planned De Novo application for DrugSorb-ATR and certain liquidity requirements. A second tranche of $5 million would be available in the 2nd half of 2025 with FDA marketing clearance for DrugSorb-ATM to help support an anticipated launch of the therapy in the United States.

CytoSorbents Announces the Launch and Availability of the PuriFi Blood Pump in the EU

On June 13th, the company announced the launch and immediate availability of its PuriFi™ hemoperfusion machine in the EU, following approval and certification under the EU Medical Device Regulation (MDR).

The PuriFi peristaltic blood pump features a number of innovations that separate it from other hemoperfusion pumps including a pre-assembled adult and pediatric blood line kit, auto-priming, an auto-leveling bubble catcher, an intuitive touchscreen graphical user interface with a step-by-step user-friendly set-up guide, optional blood warming, and a rapid 10-minute set-up time. These unique features enable an easy and fast method to administer the CytoSorb® blood purification cartridge for critically ill and cardiac surgery patients.

More information can be found here.

CytoSorbents Announces Regulatory Approval of CytoSorb in Taiwan

On June 24th, the company announced the regulatory approval of CytoSorb in Taiwan by the Taiwan Food and Drug Administration (TFDA). The approved indications include the extracorporeal removal of cytokines (cytokine storm, sepsis), bilirubin (liver disease), and myoglobin (trauma) from a patient’s circulating blood. The removal of the antithrombotic drugs Brilinta® (ticagrelor, AstraZeneca) and Xarelto® (rivaroxaban, Janssen/Bayer) during cardiothoracic surgery is also approved, with the goal of reducing perioperative bleeding. CytoSorb will be distributed throughout Taiwan by Hemoscien Corporation.

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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