CytoSorbents Corporation (NASDAQ: CTSO) Full Year 2017 and Q4 2017 Earnings and Operating Results Conference Call

CytoSorbents Corporation (NASDAQ: CTSO)

Full Year 2017 and Q4 2017 Earnings

and Operating Results Conference Call

March 8, 2018 @ 4:45 pm Eastern

This official company transcript has

been edited for clarity and does not differ materially in content from the actual conference call except where noted. Slide numbers

have been inserted to allow readers to follow along with the associated presentation.

Good afternoon, and welcome to the CytoSorbents

2017 Financial and Operating Results Conference Call. At this time, all participants are in a listen-only mode. Following the formal

remarks, we will open the call for your questions. 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, Jeremy Feffer. Please go ahead, Mr. Feffer.

and good afternoon. Welcome to CytoSorbents' 2017 Financial and Operating results conference call. Joining me today from

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 March 8, 2018, 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 2017 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. At this time, it's

my pleasure to turn the call over to Dr. Phillip Chan. Phil?

Thank you very much, Jeremy. Good afternoon

everyone and welcome to our earnings call. 2017 was an exceptional year for the Company. We had record 2017 total revenue of $15.1

million with $13.4 million in CytoSorb sales due to strong reorder rates. We also had 2017 blended product gross margins of 71%,

mixing higher margin direct sales with lower margin distributor and partner sales, up from 67% a year ago. We also had 35,000 CytoSorb

treatments delivered cumulatively, up from 20,000 a year ago, and ended the year with a healthy cash balance of $17.3 million.

We expect that 2018 will be a transformational

year for the company with the achievement of key milestones. These were detailed in the press release issued earlier today but

in brief they are: achieving operating profitability on a quarterly basis - excluding non-cash expenses and clinical trial costs,

progress towards potential US regulatory approval for two products, generation of new clinical data, new and expanded strategic

partnership, and greater market awareness for our company and life-saving technology. Certainly in the Q&A period, we can cover

any of these items in detail.

Just to give you an update on key clinical

programs. On the U.S. REFRESH 2 Study, which is a pivotal 400-patient randomized controlled PMA multi-center trial targeting the

reduction of post-operative acute kidney injury using CytoSorb during complex cardiac surgery, including valve replacement and

aortic reconstruction with hypothermic cardiac arrest, we have obtained FDA IDE approval as announced in late December, central

ethics committee approval, and now CMS (Centers for Medicare and Medicaid Services) approval. We have also strengthened the clinical

team to execute upon the trial. The majority of REFRESH 1 clinical sites will be participating in this REFRESH 2 trial, with several

coming online in the near term, one of which is already screening patients with the first patient to be enrolled very soon.

The German REMOVE Endocarditis Study is

a 250-patient randomized, controlled trial evaluating the safety and efficacy of CytoSorb used intra-operatively during valve replacement

surgery for infective endocarditis. The primary endpoint is a reduction in the SOFA score. Importantly, this is a study that is

being fully funded by the German Federal Ministry of Education and Research. Their interest in funding this study is due to the

growing numbers of people with infective endocarditis due to the opioid crisis and intravenous drug use with dirty needles that

can lead to infective endocarditis. This study has now enrolled its first patient and is beginning to ramp.

Finally, our HemoDefend in-line

filter for packed red blood cells is nearing human clinical trials. We have been making very good progress with the generous

support of the National Heart, Lung and Blood Institute (NHLBI), as well as US Special Operations Command, or USSOCOM. This

is a product that targets the 100 million packed red blood cells (pRBC) that are transfused each year worldwide. You may be

familiar with many companies that are targeting the decreased risk of blood-borne pathogens in transfused blood products.

These are companies doing either nucleic acid testing for viruses or pathogen reduction like Cerus or Terumo-BCT. In

contrast, HemoDefend is complementary to these pathogen reduction technologies. HemoDefend pRBC is a point-of-transfusion

in-line filter focused on reducing non-infectious contaminants that can cause transfusion reactions ranging from relatively

mild fever and allergic reaction, to very severe transfusion-related acute lung injury which is the leading reported cause of

transfusion-related deaths that occurs in roughly 1 in 1,000 to 1 in 5,000 transfusions. The HemoDefend pRBC in-line filter

reduces antibodies, cytokines, free hemoglobin, bioactive lipids, and many other substances that can cause transfusion

reactions. We have talked to the FDA informally, and with the support of NHLBI, we expect to initiate a pivotal study within

12 months that is designed to lead to US approval for HemoDefend pRBC.

With that, allow me to turn it over to

Kathy to talk about the financial highlights. Kathy?

Thank you, Phil, and good afternoon, everyone.

For today's call, I'll be providing an update regarding our December 31, 2017 financial results, product sales progress,

and around our working capital and cash runway.

CytoSorb product sales for the year 2017

were $13.4 million, which is an increase of $5.2 million or 63% over 2016 product sales of approximately $8.2 million. Grants and

other income grew 34% from $1.3 million in 2016 to $1.8 million in 2017, and total revenues, which includes product sales and grant

income, increased by 59% to $15.1 million for the year 2017 as compared to $9.5 million for 2016. As Phil mentioned, we are very

pleased that our 2017 annual product gross margins grew to 71%, and this is primarily a result of product cost reductions that

were achieved during 2017, and as we look to 2018, we expect product gross margins to further improve as our new manufacturing

facility comes online in the second quarter.

If we look now at our graph of annual product

sales growth, we note that our compound annual growth rate, or CAGR, was 62% over the past three years and we are, of course, observing

a very positive trajectory here.

Let's also look at our quarter-over-quarter

product sales. Our fourth quarter 2017 product sales of approximately $4.3 million represented yet another record product sales

quarter. This is an increase of 25% over the previous quarter and we are very pleased with the solid quarter-over-quarter growth

that we have been experiencing. We've guided that at a quarterly product run rate of approximately $5.5 million, we expect

to achieve operating breakeven, which excludes non-cash expenditures and also clinical trial costs. With our track record of strong

revenue growth and numerous catalysts expected to fuel future sales growth, we remain very confident that we will achieve this

important milestone in 2018.

Lastly, we'll take a quick look at

our working capital position. At the end of 2017, we had a record $17.3 million in cash, which is expected to provide funding for

our operations, including clinical trial activities, into 2019. In the fourth quarter of 2017, through our At-The-Market (ATM)

equity facility with Cantor Fitzgerald, we sold approximately 267,000 shares of our common stock at an average price of $6.58 which

generated net proceeds of about $1.8 million. In addition, in December, the Company received a net cash amount of $677,000 from

the sale of the 2016 state NOL and research and development credits under the State of New Jersey Technology Business Tax Certificate

Transfer Program. As of December 31, 2017, we had approximately 33.5 million common shares on a fully diluted basis.

With that, I'd like to turn the call

much, Kathy. In terms of guidance, we have not historically provided guidance on quarterly results until the quarter has been completed.

We continue to expect that Q1 2018 CytoSorb sales will exceed product sales in the first quarter of 2017 and we remain very optimistic

about our growth opportunities. We reiterate our guidance on continued growth and achieving operating profitability in 2018 on

a quarterly basis, less non-cash expenses and clinical trial costs. We anticipate expansion of blended product gross margins, currently

at 71%, as we scale manufacturing and our new plant comes on-line, as Kathy mentioned, in the second quarter of this year.

That concludes our current prepared remarks.

Thank you. As a reminder, if you do have

a question, please press *1 on your touchtone phone. Please make sure your mute button is turned off to allow your signal to reach

our equipment. In order to ensure all analysts have a chance to ask a question today, please limit your questions to one follow