CTSO: Initiating Coverage of CytoSorbents
Brian Marckx, CFA
We have initiated coverage of
CytoSorbents Corporation (
CTSO
)
with an Outperform rating. See below for access to our full
20-page report on the company which includes our financial model
and provides further discussion about the company, their products,
target markets, and commercialization
strategy.
CytoSorbents Corporation is a development-stage, critical-care
focused medical device company attempting to revolutionize the
treatment of life-threatening illnesses in the intensive care unit
(ICU) using blood purification. Their goal is to prevent or
treat multi-organ organ failure, the leading cause of death in the
ICU, with an immunomodulatory approach that removes excessive
cytokines, toxins and other inflammatory mediators that can damage
vital organs. The approach uses a unique biocompatible porous
polymer bead technology to remove a broad range of toxins from the
circulatory system and other bodily fluids that cannot be removed
by standard hemodialysis or hemofiltration.
In March 2011 CytoSorb, the company's flagship product, achieved CE
Mark approval and can now be sold in the European Union as an
extracorporeal (i.e. - outside the body) cytokine filter.
CytoSorb is designed to treat critical care illnesses where an
excessive production of cytokines, or "cytokine storm", leads to
organ failure including in conditions such as sepsis (i.e. - blood
poisoning) and infection, trauma, acute respiratory distress
syndrome, severe burns, and acute pancreatitis. Following its
debut introduction at industry conferences in Europe during Q3
2011, the company began a test-market release of CytoSorb in
Germany. The device is being manufactured at the company's
ISO 13485-certified facility in New Jersey and is now generating
some initial modest revenue in Germany, where it is reimbursed by
insurance. CytoSorbents is in the midst of assembling a sales
team and expects a broader market release in Germany later in
2012. Until then, sales are expected to be nominal as they
gear up to implement the bigger launch. The company also
expects to pursue distribution partnerships for sale of the device
in Germany and other parts of Europe. The initial roll-out
will target European countries with favorable market dynamics and
insurance reimbursement.
A recently completed small multi-site European clinical trial
showed CytoSorb treatment was safe and significantly reduced key
cytokine levels in patients with both sepsis and respiratory
failure - the company is currently in the manuscript preparation
process. The current game plan is to conduct further clinical
studies in sepsis and foster investigator-led trials in other
critical care diseases where inflammation and organ failure are
common themes. The aim is to generate additional clinical
data and experience for marketing purposes, to increase the number
of treated patients, and to support potential future
publications. The company has initiated dosing studies
related to longer use of CytoSorb which will generate additional
data points and is expected to assist in the design of an optimized
pivotal sepsis trial protocol. Assuming availability of
adequate and timely funding, and continued positive results from
clinical studies, the company intends to continue commercializing
CytoSorb in Europe. The company's U.S. development and
regulatory approval strategy (which would ultimately require
U.S.-based studies) is designed to leverage an already FDA-approved
IDE (investigational device exemption) application to run a small
sepsis trial in the U.S. but may depend in part on results of the
dosing sepsis studies.
CytoSorbents recently received a Small Business Innovation Research
(SBIR) grant from the U.S. Army to develop their technology to help
treat trauma patients with rhabdomyolysis, which could also
eventually lead to other military projects. The company is
also in contract negotiations with the U.S. Defense Advanced
Research Projects Agency (DARPA) to use the CytoSorb technology as
part of its program to develop a blood purification device in the
treatment of sepsis. DARPA's Dialysis Like Therapeutics
program plans to develop an easy to use "smart" system to treat
septic patients with a blood purification device that can sense
cytokines, toxins, pathogens and activated cells in real time, and
remove them from the body.
Beyond CytoSorb, the company's R&D efforts include the
development of their HemoDefend technology which is focused on
removal of contaminants from the blood supply - with the intent of
reducing risk of reactions from tainted blood in transfusion
patients, to preserve the freshness of new blood, and increase
blood shelf life. CytoSorbents is looking to out-license
their HemoDefend technology and noted they received encouraging
interest following introduction of the platform at the October 2011
American Association of Blood Banks conference.
CytoSorbents is headquartered in Monmouth Junction, N.J. The
common stock is quoted on the OTC Bulletin Board under the ticker
CTSO. Conversions of preferred stock into common along with
multiple rounds of financing to fund operations have resulted in
the outstanding share count growing from about 123 million at the
end of 2010 to 190 million at the most recently (3/31/2011)
reported quarter end - the fully diluted share count is well over
double this amount (although on a fully-diluted basis, the market
cap is still under $50MM). The company will need to raise
additional capital to finance operations and to that end, in
December 2011 they signed an agreement with an existing
institutional investor to sell to them up to $8.5 million worth of
common stock (at prevailing market prices) over the next 32
months.
For a free copy of the full Initiation Report, please visit
scr.zacks.com.
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