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CTSO: Equity Raise, Cancer Applications, REFRESH I Data Upcoming


By Brian Marckx, CFA


Restocked Cash Balance, Upcoming REFRESH I Data, Cancer Shows Additional Promise

CytoSorbents (NASDAQ:CTSO) has been busy the last several weeks which included an equity financing which raised $11.5M (gross) and should provide a healthy runway towards furthering their U.S. regulatory program(s), adding a cancer immunotherapy expert to their scientific advisory board and announcing additional validation of CytoSorb’s potential utility in several indications, including in cancer.  

Relative to the financing, CTSO sold 2.56M common shares (including 333k optional underwriter’s overallotment) at $4.50/share (~18% discount to prior-day close) for gross (and approximate net proceeds) of $11.5M ($10.4M).  Pro forma for this equity raise, cash balance at 2016 year-end would be approximately $15.6M.  Cash burn averaged approximately $2.1M per quarter in 2016 – at that rate the pro forma cash balance represents an approximate runway through roughly Q3 2018.  While additional R&D activities including the U.S. clinical program could steepen cash needs, we think at least some (and potentially all) of that increase will be offset by an increase in cash generation via our expectation of continued significant revenue growth.  We also note that the additional share count from the raise has no effect on our modeled EPS or target share price given that we had already included an expected near-term equity raise in our model.  We reiterate our $12.50/share price target. 

On the operational front….

- We look forward to the upcoming REFRESH I efficacy data presentation on May 1st at AATS.  As we have noted in the past, we think additional positive clinical data, particularly from randomized trials such as REFRESH, will have major influence on further adoption and utilization of CytoSorb. 

As a reminder, REFRESH I is a multi-site 40+-patient randomized study comparing CytoSorb plus standard-of-care (SOC) to SOC alone (1:1) in the reduction of free hemoglobin in patients undergoing elective complex cardiac surgery requiring cardiopulmonary bypass with anticipated duration of more than 180 minutes.  In October 2016 CTSO announced positive safety-related information.

Management has indicated that they are confident the data will show that CytoSorb was effective in lowering plasma free hemoglobin.  And perhaps just as encouraging was their comments on the Q4 call (Feb 26, 2017), indicating that they have identified certain cardiac surgeries which are associated with particularly high levels of plasma free hemoglobin – more than 50% of REFRESH I patients fell into this category.  These procedures/patients could be the low-hanging fruit in terms of demonstrating efficacy and also help to power REFRESH II, which could commence later this year (following discussions with FDA and requisite IDE approval).   

- And while the U.S. strategy is currently focused on a cardiac surgery indication, it’s important to remember that CytoSorb could have effective utility in a number of different indications.  One of which is sepsis and another is in cancer applications.  While sepsis has been a significant topic of CTSO in the past, cancer has not received nearly as much attention (although CytoSorb has shown some utility in oncological applications).  That could soon change, however.  A few weeks ago CTSO announced that Dr, Carl June, an expert in CAR T-cell cancer immunotherapy, joined the company’s scientific advisory board for the purpose of guiding the strategy in oncology.  

Just days prior to the Dr. June announcement, CTSO revealed that CytoSorb had been used successfully in several patients with a condition called hemophagocytic lymphohistiocytosis (HLH) – one of these was the subject of a case report published in early March in the Journal of Clinical Immunology.  Studies have shown that subjects with secondary HLH, which is often caused by virologic infection and characterized by a strong and sometimes uncontrollable immune response – including cytokine release syndrome (CRS), can exhibit responses similar to cancer patients treated with certain immunotherapies. Specifically, severe CRS (i.e. severe inflammatory response with excessive and harmful levels of cytokines) which can lead to serious complications including organ failure and even death, has been associated with the use cancer immunotherapies such as CART-19 and blinatumomab as well as with secondary HLH.  While corticosteroids and tocilizumab have been used with some success in controlling CRS, there are drawbacks.  This includes that corticosteroids are suspected of potentially comprising immunotherapy efficacy.  Relative to tocilizumab, researchers have noted that its use should be avoided if macrophage activating syndrome (MAS) is suspected.  

The similarity in CRS response in HLH and cancer patients treated with immunotherapies and CytoSorb’s apparent early success in treating HLH patients (via reduction in inflammatory markers) is encouraging, particularly as it may relate to the leveraging the massive interest in and growth of the immunotherapy segment.  CTSO notes in their March 20, 2017 press release that “we have confirmed the interest in the therapy, once available, as an adjunct to tocilizumab, and before high dose steroids are administered.  We plan to continue to pursue applications of our therapy in the treatment of CRS in the United States, Europe, and elsewhere, as cancer immunotherapies continue to expand worldwide.”  

So while cancer has been what we would characterize as a back-burner application – that could soon change given the recent hiring of Dr. June and the additional recent clinical work indicating CytoSorb’s potential utility in oncology-related areas.   


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