Cautionary Notes Regarding Forward Looking Statements
This Quarterly report on Form 10-Q includes "forward-looking statements" within
the meaning of the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. These forward-looking statements include, but are not
limited to, statements about our plans, objectives, representations and
contentions and our expectations of the effects of the COVID-19 pandemic and are
not historical facts and typically are identified by use of terms such as "may,"
"should," "could," "expect," "plan," "anticipate," "believe," "estimate,"
"predict," "potential," "continue" and similar words, although some
forward-looking statements are expressed differently. You should be aware that
the forward-looking statements included herein represent management's current
judgment and expectations, but our actual results, events and performance could
differ materially from those in the forward-looking statements.
Factors which could cause or contribute to such differences include, but are not
limited to, the risks discussed in our Annual Report on Form 10-K, as updated by
the risks reported in our Quarterly Reports on Form 10-Q, in any prospectus or
prospectus supplement filed with the SEC pursuant to Rule 424(b) under the
Securities Act of 1933, as amended, and in the press releases and other
communications to stockholders issued by us from time to time which attempt to
advise interested parties of the risks and factors which may affect our
business. We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events, or otherwise, other than as required under the Federal securities laws.
Overview
This discussion of our financial condition and the results of operations should
be read together with the financial statements, including the notes contained
elsewhere in this Quarterly Report on Form 10-Q, and the financial statements,
including the notes thereto, contained in our Annual Report on Form 10-K for the
year ended December 31, 2020, as filed with the SEC on March 9, 2021.
We are a leader in critical care immunotherapy, investigating and
commercializing our CytoSorb blood purification technology to reduce deadly
uncontrolled inflammation in hospitalized patients around the world, with the
goal of preventing or treating multiple organ failure in life-threatening
illnesses and cardiac surgery. Organ failure is the cause of nearly half of all
deaths in the intensive care unit ("ICU"), with little to improve clinical
outcome. CytoSorb, our flagship product, is approved in the European Union
("EU") as a safe and effective extracorporeal cytokine filter and is designed to
reduce the "cytokine storm" that could otherwise cause massive inflammation,
organ failure and death in common critical illnesses such as sepsis, burn
injury, trauma, lung injury, and pancreatitis. These are conditions where the
mortality is extremely high, yet no effective treatments exist. In May 2018, we
received a label expansion for CytoSorb covering use of the device for the
removal of bilirubin and myoglobin in the treatment of liver disease and trauma,
respectively. In January 2020, we received a further label expansion for
CytoSorb to remove the anti-platelet agent, ticagrelor, during urgent and
emergent cardiothoracic surgery on cardiopulmonary bypass. In May 2020, we
received another label expansion for CytoSorb to remove rivaroxaban, a Factor Xa
inhibitor, for the same indication. We believe the current addressable market in
the United States for ticagrelor removal in cardiac surgery is approximately
$250 million based on our current pricing model, assuming FDA approval, that
could expand to $500 million should ticagrelor gain market share as the only
reversible mainstream anti-platelet agent. In the event that CytoSorb also
obtains FDA approval to remove novel oral anticoagulants ("NOACs") such as
rivaroxaban and apixaban, we believe the total addressable market in the United
States for ticagrelor and NOAC removal during cardiac surgery could potentially
increase to approximately $1.0 billion. In the event that CytoSorb obtains FDA
approval to be used prophylactically to remove ticagrelor and NOACs in all
patients undergoing surgery, we believe it would potentially expand the total
addressable market in the United States to approximately $2.0 billion.
CytoSorb is used during and after cardiac surgery to remove inflammatory
mediators, such as cytokines, activated complement, and free hemoglobin that can
lead to post-operative complications such as acute kidney injury, lung injury,
shock, and stroke. We believe CytoSorb has the potential to be used in many
other inflammatory conditions, including the treatment of autoimmune disease
flares, cytokine release syndrome in cancer immunotherapy, and other
applications in cancer, such as cancer cachexia. CytoSorb has been used globally
in more than 131,000 human treatments to date in critical illnesses and in
cardiac surgery. CytoSorb has received CE-Mark label expansions for the removal
of bilirubin (liver disease), myoglobin (trauma) and both ticagrelor and
rivaroxaban during cardiothoracic surgery. CytoSorb has also received FDA
Emergency Use Authorization in the United States for use in critically-ill
COVID-19 patients with imminent or confirmed respiratory failure, in defined
circumstances. The EUA will be effective until a declaration is made that the
circumstances justifying the EUA have terminated or until revoked by the FDA.
CytoSorb has been used globally in more than 5,750 human treatments to date in
COVID-19 patients. CytoSorb has also been granted FDA Breakthrough Designation
for the removal of ticagrelor in a cardiopulmonary bypass circuit during
emergent and urgent cardiothoracic surgery.
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Our purification technologies are based on biocompatible, highly porous polymer
beads that can actively remove toxic substances from blood and other bodily
fluids by pore capture and surface adsorption. The technology is protected by 16
issued U.S. patents and multiple international patents, with applications
pending both in the U.S. and internationally. In October 2020, we announced the
E.U. approval of the ECOS-300CY™ adsorption cartridge for use with ex vivo organ
perfusion systems to remove cytokines and other inflammatory mediators in the
organ perfusate, with the goal of improving solid organ support or
rehabilitation. We have numerous other product candidates under development
based upon this unique blood purification technology, including CytoSorb XL,
K+ontrol, HemoDefend-RBC, HemoDefend-BGA, ContrastSorb, DrugSorb, and others.
In March 2011, CytoSorb was "CE Marked" in the E.U. as an extracorporeal
cytokine filter indicated for use in clinical situations where cytokines are
elevated, allowing for commercial marketing. The CE Mark demonstrates that a
conformity assessment has been carried out and the product complies with the
Medical Devices Directive. The goal of CytoSorb is to prevent or treat organ
failure by reducing cytokine storm and the potentially deadly systemic
inflammatory response syndrome ("SIRS") in diseases such as sepsis, trauma, burn
injury, acute respiratory distress syndrome, pancreatitis, liver failure, and
many others. Organ failure is the leading cause of death in the ICU, and remains
a major unmet medical need, with little more than supportive care therapy (e.g.,
mechanical ventilation, dialysis, vasopressors, fluid support, etc.) as
treatment options. By potentially preventing or treating organ failure, CytoSorb
may improve clinical outcome, including survival, while reducing the need for
costly ICU treatment, thereby potentially saving significant healthcare costs.
The market focus for CytoSorb is the prevention or treatment of organ failure in
life-threatening conditions, including commonly seen illnesses in the ICU such
as infection and sepsis, trauma, burn injury, acute respiratory distress
syndrome ("ARDS"), and others. Severe sepsis and septic shock, a potentially
life-threatening systemic inflammatory response to a serious infection, accounts
for approximately 10% to 20% of all ICU admissions, and is responsible for an
estimated one in every five deaths worldwide. Sepsis is one of the largest
target markets for CytoSorb. Sepsis is a major unmet medical need with no
approved products in the U.S. or Europe to treat it. As with other critical care
illnesses, multiple organ failure is the primary cause of death in sepsis. When
used with standard of care therapy, that includes antibiotics, the goal of
CytoSorb in sepsis is to reduce excessive levels of cytokines and other
inflammatory toxins, to help reduce the SIRS response and either prevent or
treat organ failure.
In addition to the sepsis indication, we intend to conduct or support additional
clinical studies in sepsis, cardiac surgery, and other critical care diseases
where CytoSorb could be used, such as ARDS, liver disease, trauma, severe burn
injury, acute pancreatitis, and in other acute conditions that may benefit by
the reduction of cytokines in the bloodstream. Some examples include the
prevention of post-operative complications of cardiac surgery (cardiopulmonary
bypass surgery) and damage to organs donated for transplant prior to organ
harvest. We intend to generate additional clinical data to expand the scope of
clinical experience for marketing purposes, to increase the number of treated
patients, and to support potential future publications and regulatory
submissions.
Our proprietary polymer technologies form the basis of a broad technology
portfolio. Some of our products and product candidates include:
CytoSorb - an extracorporeal hemoperfusion cartridge approved in the EU for
• cytokine removal, with the goal of reducing SIRS and sepsis and preventing or
treating organ failure.
ECOS-300CY - an adsorption cartridge for use with ex vivo organ perfusion
• systems to remove cytokines and other inflammatory mediators in the organ
perfusate, with the goal of improving solid organ support or rehabilitation.
CytoSorb XL - an intended next generation successor to CytoSorb currently in
• advanced pre-clinical testing designed to reduce a broad range of cytokines and
inflammatory mediators, including lipopolysaccharide endotoxin, from blood.
VetResQ - a broad spectrum blood purification adsorber designed to help treat
deadly inflammation and toxic injury in animals with critical illnesses such as
• septic shock, toxic shock syndrome, severe systemic inflammation,
toxin-mediated diseases, pancreatitis, trauma, liver failure, and drug
intoxication. VetResQ is being commercialized in the United States.
HemoDefend-RBC-a development-stage blood purification technology designed to
• remove non-infectious contaminants in blood transfusion products, with the goal
of reducing transfusion reactions and improving the quality and safety of
blood.
HemoDefend-BGA-a development-stage purification technology that can remove
• anti-A and anti-B antibodies from plasma and whole blood, to enable "universal
plasma," and safer whole blood transfusions, respectively.
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K+ontrol-a development-stage blood purification technology designed to reduce
• excessive levels of potassium in the blood that can be fatal in severe
hyperkalemia.
ContrastSorb-a development-stage extracorporeal hemoperfusion cartridge
designed to remove IV contrast from the blood of high-risk patients undergoing
• radiological imaging with contrast, or interventional radiology procedures such
as cardiac catheterization and angioplasty. The goal of ContrastSorb is to
prevent contrast-induced nephropathy.
DrugSorb-a development-stage extracorporeal hemoperfusion cartridge designed to
• remove toxic chemicals from the blood (e.g., drug overdose, high dose regional
chemotherapy).
BetaSorb-a development-stage extracorporeal hemoperfusion cartridge designed to
• remove mid-molecular weight toxins, such as b2-microglobulin, that standard
high-flux dialysis cannot remove effectively. The goal of BetaSorb is to
improve the efficacy of dialysis or hemofiltration.
Clinical Studies Update
For a complete discussion regarding our clinical study history, please refer to
the section entitled Clinical Studies included in Item 1 of the Company's Annual
Report on Form 10-K for the year ended December 31, 2020 as filed with the SEC
on March 9, 2021. The following discusses the status of our clinical studies
subsequent to the filing of the Company's Annual Report on Form 10-K:
On November 25, 2019, the Company announced a voluntary pause in enrollment for
the REFRESH 2-AKI study at the recommendation of the study's Data Monitoring
Committee (the "DMC"). On July 24, 2020, the DMC recommended the resumption of
the trial with only minor modifications based on their review of requested study
data. The Company has now resumed the study at multiple trial centers, with
others planned to start, notwithstanding potential COVID-19 related delays.
The German government-sponsored and investigator-initiated REMOVE endocarditis
study completed its enrollment with a total of 289 patients in early-2020, but
the COVID-19 pandemic has caused delays in data monitoring and data analysis.
Topline data are expected to be reported in the first half of 2021 with full
data presentation thereafter.
The COVID-19 pandemic has also severely impacted our TISORB (Ticagrelor CytoSorb
Hemoadsorption) trial execution in the United Kingdom. The COVID-19 pandemic
has severely hampered execution of non-COVID-19-related clinical research in the
UK, including TISORB. As a result, TISORB only enrolled five patients over the
past eighteen months, a time period well beyond that originally intended to
complete the study. Accordingly, the decision has been made to stop the TISORB
study and focus our clinical resources on the execution of the U.S. randomized
clinical trial on ticagrelor removal (STAR-T).
In December 2020, the Company initiated CYTATION (CytoSorb Ticagrelor
Hemoadsorption), a Company-sponsored multicenter study in Germany to
prospectively evaluate the removal of ticagrelor during cardiopulmonary bypass
in patients on ticagrelor undergoing emergent cardiothoracic surgery. The first
patients have successfully been recruited, but due to the continuing impact of
COVID-19 pandemic, the execution of the CYTATION study has been delayed.
In March 2021, we announced the filing of an Investigational Device Exemption
(IDE) application to conduct the clinical study, "Safe and Timely Antithrombotic
Removal - Ticagrelor (STAR-T)," in the United States to support an initial FDA
regulatory approval. This was done under the previously announced FDA
Breakthrough Designation granted for the removal of ticagrelor in a
cardiopulmonary bypass circuit during urgent and emergent cardiac surgery. The
FDA granted conditional approval of this IDE in April 2021.
CytoSorb received European Union CE Mark label expansion for the removal of
ticagrelor and rivaroxaban during cardiopulmonary bypass in patients undergoing
cardiothoracic surgery in January 2020 and May 2020, respectively. Although the
severity and duration of the COVID-19 pandemic is uncertain, we are in the
process of launching the STAR (Safe and Timely Antithrombotic Removal) Registry
in Europe during 2021 to capture real world clinical outcomes in this latest
approved indication.
Pending resolution of the continued impact of the COVID-19 pandemic, we plan to
initiate the randomized PROCYSS trial in Germany in 2021, evaluating the ability
of CytoSorb to restore hemodynamic stability in patients with refractory septic
shock. We also plan to initiate the Hep-On-Fire single arm trial, evaluating
CytoSorb in patients suffering from acute alcoholic hepatitis, in Germany later
this year.
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COVID-19 Business Update
COVID-19 patients develop life-threatening complications such as ARDS, shock
(i.e. a potentially fatal drop in blood pressure), kidney failure, acute cardiac
injury, and secondary bacterial infections. The underlying cause for these
complications is often a cytokine storm that results in a massive, systemic
inflammatory response, leading to the damage of vital organs such as the lungs,
heart, and kidneys, and ultimately multiple organ failure and death in many
cases. CytoSorb has been used in more than 131,000 treatments as an approved
treatment of cytokine storm in the European Union and is distributed in 67
countries around the world, where it has helped physicians control severe
inflammation while helping to reverse shock and improve lung and other organ
function.
The use of CytoSorb in patients infected with COVID-19 in Italy, China, Germany
and France began in March 2020. CytoSorb has now been used in approximately
5,750 COVID-19 patients to help treat cytokine storm and the related
life-threatening complications in more than 30 countries. Based upon initial
data and reports from physicians treating these complications, CytoSorb use has
generally been associated with a marked reduction in cytokine storm and
inflammation, improved lung function, weaning from mechanical ventilation,
decannulation from extracorporeal membrane oxygenation (ECMO), and a reversal of
shock. CytoSorb has been specifically recommended in the Italy Brescia Renal
COVID Task Force Guidelines to treat patients with severe COVID-19 infection and
Stage 3 renal failure on continuous renal replacement therapy. CytoSorb has also
been recommended in the National Treatment Guidelines from Panama for Adult
COVID-19 Patients if patients have either refractory shock, or have severe or
refractory respiratory failure requiring either high ventilator support or
extracorporeal membrane oxygenation. CytoSorb has now received approval from
the Drugs Controller General of India to treat COVID-19 patients in certain
instances. CytoSorb has also received approval to treat patients with COVID-19
from the Israel Ministry of Health (AMAR). In January 2021, Health Canada
granted Medical Device Authorization for the importation, sale, and emergency
use of CytoSorb in hospitalized COVID-19 patients.
The use of CytoSorb has not been approved in the U.S. by FDA. However, under
certain circumstances, investigational medical devices that have not yet been
FDA-approved may be made available for emergency use in the U.S. under the FDA's
Expanded Access Program ("EAP"). On April 13, 2020, we announced that the FDA,
in a different program than the EAP, granted Emergency Use Authorization (EUA)
of CytoSorb for use in U.S. COVID-19 patients. Under the EUA, CytoSorbents can
make CytoSorb available, through commercial sales, to all hospitals in the U.S.
for use in patients, 18 years of age or older, with confirmed COVID-19 infection
who are admitted to the intensive care unit with confirmed or imminent
respiratory failure and who have early acute lung injury or ARDS, severe
disease, or life-threatening illness resulting in respiratory failure, septic
shock, and/or multiple organ dysfunction or failure. The CytoSorb device has
been authorized by FDA under an EUA. It has neither been cleared nor approved
for the indication to treat patients with COVID-19 Infection. The EUA will be
effective until a declaration is made that the circumstances justifying the EUA
have terminated or until revoked by the FDA.
The CTC (CytoSorb Therapy in COVID-19) Registry has been launched and is
systematically capturing usage patterns and outcomes associated with the use of
CytoSorb under the EUA at U.S. institutions.
Government Research Grants:
We have been successful in obtaining technology development contracts from
governmental agencies such as the National Institutes of Health and the U.S.
Department of Defense, including the Defense Advanced Research Projects Agency
("DARPA"), the U.S. Army, U.S. Special Operations Command ("USSOCOM"), and
others. For a complete discussion of the various research grants we have
obtained, please refer to the section entitled Government Research Grants
included in Item 1 of our Annual Report on Form 10-K for the year ended December
31, 2020, as filed with the SEC on March 9, 2021. There following additional
research grant has been awarded subsequent to the filing of our Annual Report on
Form 10-K:
On April 19, 2021, the Company received notification that it received a U.S.
Army Medical Research Acquisition Activity Award (the "USAMRAAA") entitled
"Investigation of a potassium adsorber for the treatment of hyperkalemia induced
by traumatic injury and acute kidney injury in austere medicine." The USAMRAAA
Phase II Sequential Award, for up to $1,499,987, was granted to the Company to
continue development of two novel and distinct treatment options for
life-threatening hyperkalemia. This Award is being funded by the USAMRAAA under
Contract No. W81XWH21C0045.
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Comparison for the three months ended March 31, 2021 and 2020:
Revenues:
Revenue from product sales was approximately $10,143,000 in the three months
ended March 31, 2021, as compared to approximately $8,156,000 in the three
months ended March 31, 2020, an increase of approximately $1,987,000, or 24%.
This increase was driven by an increase in direct sales of approximately
$608,000 resulting from sales to both new customers and repeat orders from
existing customers and an increase in distributor sales of approximately
$1,379,000. Sales to hospitals in the United States under the EUA granted by the
FDA amounted to approximately $304,000 for the three months ended March 31,
2021. Though difficult to quantitate, we estimate that approximately $1.8
million of total product sales in the first quarter of 2021 was due to the
demand for CytoSorb to treat COVID-19 patients. In addition, as a result of the
increase in the average exchange rate of the Euro to the U.S. dollar, 2021
product sales were positively impacted by approximately $790,000. For the three
months ended March 31, 2021, the average exchange rate of the Euro to the U.S.
dollar was $1.21 as compared to an average exchange rate of $1.10 for the three
months ended March 31, 2020.
Grant income was approximately $455,000 for the three months ended March 31,
2021 as compared to approximately $551,000 for the three months ended March 31,
2020, a decrease of approximately $96,000 or 17%. This decrease was a result of
delays in grant related work caused by the COVID-19 pandemic as our research and
development employees were either deployed to work-from-home status or
reassigned to assist in activities related to increasing the production of
CytoSorb.
Total revenues were approximately $10,599,000 for the three months ended March
31, 2021, as compared to total revenues of approximately $8,707,000 for the
three months ended March 31, 2020, an increase of approximately $1,892,000, or
22%.
Cost of Revenues:
For the three months ended March 30, 2021 and 2020, cost of revenue was
approximately $2,751,000 and $2,385,000, respectively, an increase of
approximately $366,000. Product cost of revenues increased approximately
$354,000 during the three months ended March 31, 2021 as compared to the three
months ended March 31, 2020 primarily as a result of increased sales. Product
gross margins were approximately 77% for the three months ended March 31, 2021
and approximately 76% for the three months ended March 31, 2020. The increase
in the gross margin percentage in 2021 was due manufacturing efficiencies
achieved during the three months ended March 31, 2021 and the receipt of
approximately $388,000 related to the Employee Retention Tax Credit under the
Coronavirus Aid, Relief and Economic Security Act (the "CARES Act"). These
increases were offset by the impact of costs related to prior years tariffs as a
result of an audit by the German Customs Authorities. Excluding the
non-recurring negative impact of the 2018, 2019 and 2020 tariff adjustments of
approximately $732,000 and the offsetting non-recurring positive impact of the
Employee Retention Tax Credit which were recorded in the first quarter of 2021,
product gross margins were approximately 81% for the three months ended March
31, 2021. Please see Note 6 to the financial statements for details related to
this matter.
Research and Development Expenses:
For the three months ended March 31, 2021, research and development expenses
were approximately $2,282,000 as compared to research and development expenses
of approximately $1,965,000 for the three months ended March 31, 2021, an
increase of approximately $317,000. This increase was due to an increase in
salaries related to our clinical trial activities of approximately $333,000 due
to the hiring of additional personnel dedicated to the design of protocol and
the anticipated start of a clinical trial in the United States for the removal
of ticagrelor in emergent and urgent cardiac surgery patients and an increase in
non-grant related research and development costs of approximately $65,000.
These increases were offset by a decrease in new product development costs of
approximately $81,000.
Legal, Financial and Other Consulting Expenses:
Legal, financial and other consulting expenses were approximately $708,000 for
the three months ended March 31, 2021, as compared to approximately $519,000 for
the three months ended March 31, 2020. The increase of approximately $189,000
was due to an increase in hiring fees of approximately $151,000 due to the
hiring of certain senior level personnel and an increase in consulting fees of
approximately $111,000 primarily related to certain financial advisory fees and
information systems consulting. These increases were offset by decreases in
legal fees of approximately $60,000 and accounting fees of approximately
$13,000.
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Selling, General and Administrative Expenses:
Selling, general and administrative expenses were approximately $7,710,000 for
the three months ended March 31, 2021, as compared to approximately $6,317,000
for the three months ending March 31, 2020, an increase of $1,393,000. This
increase is related to an increase in salaries, commissions and other
employee-related costs of approximately $1,551,000, an increase in royalty
expenses of approximately $156,000 due to the increase in product sales, an
increase in commercial insurance of approximately $75,000 and an increase other
general and administrative expenses of approximately $50,000. These increases
were offset by reductions in sales and marketing costs, which include
advertising and conference attendance of approximately $151,000 and travel and
entertainment costs of approximately $190,000 due primarily to travel
restrictions related to the COVID-19 pandemic and a decrease in non-cash stock
option and restricted stock expense of approximately $98,000.
Interest Expense, net:
For the three months ended March 31, 2021, net interest expense was
approximately $10,000, as compared to net interest expense of approximately
$306,000 for the three months ended March 31, 2020. This decrease in net
interest expense of approximately $296,000 was the result of the payoff of our
outstanding term loans with Bridge Bank in December of 2020.
Gain (Loss) on Foreign Currency Transactions:
For the three months ended March 31, 2021, the loss on foreign currency
transactions was approximately $1,306,000 as compared to a loss of approximately
$668,000 for the three months ended March 31, 2020. The 2021 loss was directly
related to the decrease in the spot exchange rate of the Euro to the U.S. dollar
at March 31, 2021 as compared to December 31, 2020. The spot exchange rate of
the Euro to the U.S. dollar was $1.17 per Euro at March 31, 2021, as compared to
$1.22 per Euro at December 31, 2020. The 2020 loss was directly related to the
decrease in the spot exchange rate of the Euro at March 31, 2020 as compared to
December 31, 2019. The spot exchange rate of the Euro to the U.S. dollar was
$1.10 per Euro at March 31, 2020, as compared to $1.12 per Euro at December 31,
2019.
History of Operating Losses
We have experienced substantial operating losses since inception. As of March
31, 2021, we had an accumulated deficit of approximately $200,794,000, which
included losses of approximately $4,168,000 and $3,453,000 for the three month
periods ended March 31, 2021 and 2020, respectively. Historically, losses have
resulted principally from costs incurred in the research and development of our
polymer technology, clinical studies, and general and administrative expenses.
Liquidity and Capital Resources
Since inception, our operations have been primarily financed through the
issuance of debt and equity securities. At March 31, 2021, we had current assets
of approximately $79,635,000 including cash on hand of approximately $68,468,000
and current liabilities of approximately $9,759,000. During the period from
January 1, 2020 through July 15, 2020, we raised approximately $26,427,000 by
utilizing our ATM facility with co-agents Jefferies LLC and B. Riley FBR. In
addition, we received net proceeds of approximately $53,800,000 from our
underwritten public offering that closed on July 24, 2020. Also, we expect to
receive approximately $1,127,000 in cash from the approved sale of our net
operating losses and research and development credits from the State of New
Jersey in the second quarter of 2021.
We believe that we have sufficient cash to fund our operations well into the
future.
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COVID-19 Impact on Financial Results
Product revenues in 2021 were positively impacted by underlying strength in our
critical care and cardiac surgery business, and the use of CytoSorb to treat
critically-ill COVID-19 patients in the ICU. Though difficult to quantitate, we
estimate that approximately $1.8 million of our first quarter 2021 revenues were
directly or indirectly related to COVID-19. Given the order patterns we are
currently experiencing, we expect the COVID-19 pandemic will continue to have a
positive impact on product revenues in the second quarter of 2021. However,
COVID-19 revenues are expected to decline over the rest of 2021, as increasing
vaccinations globally result in fewer new cases, hospitalizations, and deaths
from COVID-19. These expectations may change depending on whether there is a
resurgence of COVID-19, or a containment of the pandemic.
In addition, as a result of the EUA granted by the FDA on April 11, 2020, we
began shipping CytoSorb to hospitals in the United States. Sales to hospitals in
the United States under the EUA amounted to approximately $304,000 for the three
months ended March 31, 2021. We are continuing to receive inquiries and orders
for CytoSorb. However, at this time, we cannot predict the overall impact U.S.
sales will have on our overall product sales during the remainder of 2021.
The COVID-19 pandemic has generally been a positive driver for CytoSorb sales
and it has highlighted the use of CytoSorb to treat cytokine storm and
hyperinflammation. This has been a catalyst for CytoSorb orders from existing
customers, but also from new hospitals in countries where CytoSorb was not
previously sold. We believe this increased usage during the COVID-19 pandemic,
as well as increased awareness of CytoSorb resulting from the increased sales,
could help drive further CytoSorb sales in the future. However, during the past
several quarters, the COVID-19 pandemic also caused disruptions to our normal
sales processes, which decreased access of our sales force to hospitals,
decreased effectiveness of virtual medical conferences, limited our ability to
market new indications, such as ticagrelor and rivaroxaban removal, reduced the
number of surgeries and other non-COVID-19 hospitalized patients, and slowed our
ability to generate clinical data to support our sales and marketing efforts.
With the pandemic in flux, we cannot predict what the near-term impact of
COVID-19 will have on overall ongoing product sales.
Grant revenues have been negatively impacted by the COVID-19 pandemic during
2020 and 2021. Our research and development employees were either deployed to
work-from-home or reassigned to assist in production activities to increase
production of CytoSorb. Currently, the team is executing upon our grant
contracts, but this may change depending on the severity of COVID-19 cases. As a
result, grant revenue may be reduced until such time as the pandemic is over,
however, this reduction is not expected to have a material impact on our
financial results because of the low gross margins associated with grant
activities.
There has been a worldwide slowdown in clinical trial activities as medical
providers focus on COVID-19 patients and this resulted in the temporary pause in
enrollment of our TISORB study in the United Kingdom, CYTATION study in Germany
and other clinical trials in Europe. Because of ongoing delays with the U.K.
TISORB single arm trial and slow enrollment, we have decided to stop the study,
in favor of dedicating those resources to the pending start of the U.S. STAR-T
randomized controlled trial. The clinical study results of our REMOVE study
sponsored by the German government have also been delayed as a result of
COVID-19. Our U.S. based REFRESH 2 trial has also been paused as a result of
COVID-19. These clinical trial activities and related expenses are expected to
increase substantially as the impact of the COVID-19 pandemic eases.
In addition, certain of our first quarter 2021 selling, general, and
administrative expenses, such as travel and conference expenses, are lower than
pre-COVID-19 levels due to the continuing restrictions on travel and the
cancelling of medical and investor conferences during the pandemic. This is
also a temporary situation which is not expected to continue once the pandemic
is contained.
There has been no adverse impact on our ability to access capital. Subject to
contractual lock-ups, we have the ability to access capital through our ATM
facility and through the equity markets, if needed. We do not expect that this
will change materially in the near future.
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Contractual Obligations
In March 2021, the Company entered into a lease agreement for a new operating
facility which contains office, laboratory, manufacturing and warehouse space.
The commencement date of the lease is April 1, 2021. The Initial Early Term
begins on the commencement date (April 1, 2021) and lasts to June 1, 2021. The
Early Term commences on June 1, 2021 and lasts until the date of issuance of the
certificate of occupancy for the manufacturing space (expected to be September
30, 2021). The lease also contains two five-year renewal options. Commencing on
the date of the receipt of the certificate of occupancy (September 30, 2021),
the remaining lease term will last for 15.5 years. The lease requires monthly
rental payments of $25,208 for the Initial Early Term, $88,254 for the Early
Term and initial monthly payments of approximately $111,171 in the first year of
the remaining term. Following the first year of the remaining term, the annual
base rent will increase by approximately 2.75% annually over the remaining term.
The lease also contains six months of rent abatement. In addition to the base
rent, payments of operating expenses and real estate taxes will be required.
These payments are to be based on actual amounts incurred during 2021,
multiplied by the Company's share of the total building space (92.3%). The
landlord will also provide an allowance of approximately $1,455,000 related to
certain building improvements as outlined in the lease. In April 2021, the
Company was required to provide the landlord with a letter of credit in the
amount of approximately $1,334,000 as security.
In April 2021, the Company entered into a Twentieth Amendment to Lease with the
landlord which will become effective May 31, 2021. This amendment extends the
term of the lease for the Company's existing facility to May 31, 2022. The
Company's base rent will be approximately $35,000 per month. In addition, the
Company is obligated to pay monthly operating expenses of approximately $30,000
per month. Under the terms of this amendment, the Company will vacate a portion
of the space as of May 31, 2022. The Company will continue to lease the
remaining space until December 31, 2022, at which time the Company will vacate
the remaining space and the lease will terminate. The Company's base rent for
the remaining space will be approximately $20,000 per month. Monthly operating
expenses will be approximately $11,000 per month. In addition, the Company
agreed to increase its security deposit by approximately $54,000 to a total of
$150,000. At the end of the lease term, the entire security deposit will be
paid to the landlord for the purpose of making any needed repairs to the vacated
premises, and the Company will have no further obligation to pay for repairs to
the vacated premises.
In September 2016, the Company's wholly-owned subsidiary, CytoSorbents Europe
GmbH, entered into a five-year lease agreement with Klimik GmbH for 760 square
meters of office and warehouse space. In May 2018, CytoSorbents Europe GmbH
entered into an additional lease agreement with Klimik GmbH which expanded its
office and warehouse space to 960 square meters. The leases have a total rent
obligation of $8,827 per month. Both leases expire on August 31, 2021. The
leases also provide the Company with an option to extend the terms for an
additional five-year period through August 31, 2026.
In January 2021, CytoSorbents Europe GmbH entered into a lease for 1,068 square
meters of additional warehouse space. The lease commences on April 1, 2021,
requires monthly payments of base rent of $7,784 and other costs of
approximately $239 and has a term of five years. The lease also has an option
to extend the lease term for an additional five-year period through March 31,
2031.
Off-balance Sheet Arrangements
We have no off-balance sheet arrangements.
Going Concern
Prior to June 30, 2020, the Company's consolidated financial statements were
prepared on a going concern basis, which contemplates the realization of assets
and satisfaction of liabilities in the normal course of business. On July 24,
2020, the Company closed an underwritten public offering of 6,052,631 shares of
its common stock at a public offering price of $9.50 per share (the "Offering").
Gross proceeds from the Offering amounted to approximately $57.5 million and,
after deducting the underwriting discounts and commissions and expenses related
to the Offering, the Company received total net proceeds of approximately $53.8
million. As of March 31, 2021, the Company's cash balance increased to
approximately $68.5 million, which the Company expects will fund the Company's
operations well beyond the next twelve months. As a result, the Company has
determined that the going concern risk has been substantially mitigated.
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CYTOSORBENTS CORPORATION 
