By Thomas Kerr, CFA
NASDAQ:CTSO
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CytoSorbents (NASDAQ:CTSO) reported 3rd quarter 2024 results on November 7th and the results came in above the company’s updated guidance provided on October 1st. Total revenues increased approximately 6.6% to $9.4 million with product sales increasing 11.0% to $8.6 million. Product revenue guidance was in the $8.3-$8.5 million range. Grant income was $777,593 in the 3rd quarter compared to $1.06 million in the prior year period.
Product gross margins decreased to 61.0%, compared to 72.0% in the 3rd quarter of 2023 which reflects the impact of a planned production slowdown to rebalance inventory and a short-term manufacturing issue that has since been resolved. This was above the company updated guidance of gross margins in the 50%-60% range. We expect product gross margins to return to normalized levels in the 4th quarter.
After approval and full commercialization of DrugSorb-ATR in North American markets, we expect gross margins to reach the 75%-80% range over the long-term.
During the quarter, research and development expenses were approximately $1.8 million compared to approximately $3.7 million for the 3rd 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.
GAAP net loss for the 3rd quarter was ($2.3) million, which was an improvement from a net loss of ($9.2) million in the prior year period. Operating cash flow for the first nine months of 2044 was a use of cash of ($12.1) million. The company’s burn rate is expected to improve throughout 2024 and 2025 as cost saving measures take effect and the company’s product sales continue to increase total revenues. Cash burn rate is expected to be in the $3.0 million range over the next several quarters. However, it’s possible the company could reach breakeven status in terms of cash flow at some point in the 2nd half of 2025 due to ongoing cost savings initiatives.
Adjusted EBITDA loss improved to ($3.6) million compared to a loss of ($5.6) million in the 3rd quarter of 2023. Adjusted EBITDA eliminates the effects of stock compensation and foreign currency translation.
Liquidity and Capital Resources
As of September 30, 2024, the company had current assets of approximately $16.6 million and current liabilities of approximately $8.4 million. Cash balances at quarter end were $5.7 million in unrestricted cash and restricted cash of $6.5 million. The restricted cash primarily consists of $5.0 million in loan proceeds that can be released upon 1) submission of the DrugSorb-ATR De Novo application to the FDA and 2) equity raises of up to $5.0 million.
At the end of the 3rd quarter, $25 million of the total shelf offering amount was allocated to the ATM facility, of which approximately $19.7 million is still available. During the first nine months of 2024, the company sold 53,290 common shares at an average selling price of $1.03 per share, generating net proceeds of approximately $53,200.
We believe the company is sufficiently funded through the approval and launch of DrugSorb-ATR in 2025. The company has $10.0 million in available funding through the debt and equity markets mentioned above. An additional $5.0 million in loan proceeds is available upon FDA marketing clearance of DrugSorb-ATR in the U.S.
Valuation and Estimates
Our 2024 revenue estimate is adjusted to $38.2 million and our 2024 EPS estimate is adjusted to a loss of ($0.30) per share based on improved cost controls at the company. We believe 2025 revenues could reach $43.0 million. Our 2025 EPS estimate is a loss of ($0.14) 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. The company expects product gross margins to be more consistently in the 75-80% range after full commercialization of DrugSorb-ATR in North American markets.
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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