Cytosorbents Corp (CTSO) 2022 Q4 法說會逐字稿

Good afternoon, and welcome to the Cytosorbents Fourth Quarter and Full Year 2022 Financial and Operating Results Conference Call. (Operator Instructions) At this time, I'd like to turn the call over to our moderator, Jodi Hoover. Please go ahead, Mrs. Rover.

Thank you, and good afternoon. Welcome to the Cytosorbents Fourth Quarter and Full Year 2022 Financial and Operating Results Conference Call. Joining me today from the company are Dr. Phillip Chan, Chief Executive Officer; Vincent Capponi, President and Chief Operating Officer; Kathleen Bloch, Chief Financial Officer; Dr. Efthymios Deliargyris, Chief Medical Officer; Dr. Christian Steiner, Executive Vice President of Sales and Marketing and Managing Director of Cytosorbents Europe GmbH; Christopher Cramer, Senior Vice President of Business Development; and Dr. Irina Kulinets, Senior Vice President of Global Regulatory -- 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 9, 2023, 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 the fourth quarter and full year 2022 by management. Following that presentation, we will open the line up to your questions during the live Q&A session with the rest of the management team. And now it's my pleasure to turn the call over to Dr. Phillip Chan.

Thank you very much, Jodi, and good afternoon, everyone. So the first slide, I'd like to just cover some recent operational highlights. First of all, we ended last year with more than 195,000 cumulative CytoSorb treatments delivered as of the end of the year, up 20% from the end of 2021 and marking 10 years of CytoSorb commercialization. Second, our START pivotal trial passed the halfway point of enrollment with an acceleration of enrollment aided by addition of new Canadian sites following Health Canada approval of the study. We are on target to achieve 80 patients by spring of 2023 and complete enrollment of the study by the summer of 2023. We also added Dr. Richard Whitlock, Professor of Surgery at McMaster University Medical School and the Canadian Research Chair in Cardiovascular Surgery for the Population Health Research Institute, PHRI, as our Canadian principal investigator of the START trial joining Dr. Michael Gibson and Dr. Michael Mac. -- he has an outstanding track record of trial execution and brings a superb network of Canadian clinical trial sites specializing cardiovascular trials to the START trial.

We also strengthened our cash balance with $5 million in nondiluted debt financing from Bridge bank. And we also increased our product grand our product gross margins recovered in the fourth quarter to 75% and are expected to reach 75 to 80 plus percent as we ramp volume manufacturing. Last but not least, our sales momentum from the fourth quarter of last year has extended into the first quarter of this year to date with expectation of sales growth in 2023. I've lost most of the clinical update to Makis to cover later on in his slides. I now have the pleasure of welcoming Irina Kulinets to our management team. Dr. Irina Kulinets joined the senior management team as Senior Vice President of Global Regulatory. Her goals are to drive U.S. and Canada regulatory strategy and execution for DrugSorb-ATR ATR as well as to oversee European Union MDR compliance. Irina brings 30 years of experience in regulatory affairs and clinical research with a specialty in medical devices, having a track record of success leading to regulatory approval or clearance of many medical products via Class II 510(k) and Class III premarket approval or PMA pathways in the cardiovascular and neurovascular space.

Most recently, Irina served as Senior Vice President of Regulatory Affairs for MicroVention, a division of the Terumo Corporation conglomerate that generated an estimated $0.5 billion in annual sales last year. She has also worked for major companies such as Johnson & Johnson, Boston Scientific, CynoSure and others. And she also has extensive experience as a regulator and was appointed as a third-party FDA inspector and 510(k) reviewer on behalf of the FDA to review, assess and approve new technology.

With that, I'd like to invite Irina to have a few words. Irina?

Thank you, Phil, for kind introduction, and good afternoon, everyone. I'm excited to be a part of Cytosorbents team and with the current success of Cytosorbents product in many markets and encouraging trends of clinical research. I have high expectations for the patients and physician community using this product worldwide and eagerly anticipate the success of site assortments products on U.S. market. I'm looking forward to leading the registration of this life-saving product in many important regions. This is a great opportunity to participate in success of something so important...

Well, thanks -- thanks so much, Arena. And now I'd like to turn it over to Kathy to discuss our financials. Kathy?

Thank you so much, Phil, and hello to everyone on the call today. I will be discussing fourth quarter and full year 2020 Q financial results, including revenues and gross margins. And then I'm going to also provide an update on our working capital and our cash runway. Next slide, please. Total revenues for the fourth quarter of 2022, which include both product sales and grant revenue, was approximately $9.4 million, a 13% decrease as compared to Q4 2021 total revenue of approximately $10.8 million. Q4 '22 product sales were $7.6 million, a 21% decline over $9.7 million in Q4 2021 product sales. What we note, however, that sales in Germany, our largest market, were $3.3 million in the fourth quarter of 2022, which is an increase of 33% over the prior Q3 2022 quarter. COVID-19 sales were negligible during the fourth quarter '22 as compared to $1.7 million in the fourth quarter of 2021.

In addition, we experienced a decrease in the average exchange rate of the euro to the U.S. dollar, which lowered our fourth quarter 2022 product sales by approximately $865,000 such that on a constant currency basis, fourth quarter 2022 core non-COVID product sales were actually $8.5 million, which represents a 6.4% increase from our $8 million in core non-COVID product sales a year ago. Our grant revenue for the fourth quarter was $1.7 million compared to $1.1 million in the prior year. And our gross profit margins on product sales were 75% for the fourth quarter 2022 compared to 78% for the prior year. And the decrease that we experienced was due primarily to inefficiencies related to the relocation of our manufacturing operations to our new facility, which occurred during 2022.

Next slide, please. This chart breaks out our core non-COVID-19 product sales and our COVID-19 product sales by quarter. And as you can see, except for the $300,000 in COVID-19 sales in the first quarter of 2022, COVID-19 product sales have declined to virtually 0 for the remainder of the year. Fourth quarter COVID-19 product sales were 0. That compares to $1.7 million in COVID-19 product sales in the fourth quarter of the prior year. Note that Q4 2022 product sales are directionally higher than the immediately prior quarter, a quarter-over-quarter increase of 18%. And as I know Christian will be discussing later in the call, we are seeing positive trends in the market, particularly in Germany, our largest market. Next slide, please.

Total revenue for 2022, including both product sales and grant revenue, was $34.7 million compared to $43.2 million in 2021, a decrease of 21%. The Product sales were $29.4 million, representing a decline of 27% over 2021 product sales of $40.1 million. COVID-19 sales were negligible as we said, in 2022. That compares with $6.3 million in COVID sales for the prior year. The decrease in the average exchange rate of the euro to U.S. dollar lowered 2022 product sales by approximately $3.1 million, such that on a constant currency basis, 2022 core non-COVID product sales were $32.2 million, a 5% decrease compared to $33.8 million in court non-COVID-19 product sales 1 year ago. 2022 grant revenue was $5.3 million compared to 2021 grant revenue of $3.1 million. And product gross margins for the year were 70% in 2022 compared to 80% in 2021. This decrease is primarily due to the relocation, as I previously mentioned, we expect that as we increase production at our new facility during 2023, we will see gradual improvements in our gross margins, which should equal or exceed the 80% blended gross margins that we typically reported prior to 2022. Next slide, please.

This chart shows our annual product sales, and it's also broken down into COVID-19 product sales, the light blue part of the bar and core non-COVID product sales, the darker blue part of the bar. And we note that on a constant currency basis, 2022 core product sales were $32.2 million, which is just 5% lower than core non-COVID-19 product sales of $33.8 million last year. We also like to point out on this chart that core non-COVID-19 product sales are 30% higher than they were in 2019, which is the year immediately prior to the start of the pandemic. Next slide, please.

Lastly, I'd just like to say a few words about our working capital and cash runway. At December 31, '22, we had $23.8 million in cash, which includes $1.7 million of restricted cash. This also includes $5 million of loan proceeds, which we received under our debt facility in December. This is an interest-only loan over the next 12 months, and we are very comfortable with this level of debt at the moment. We are in discussions with Bridge Bank about extending our term loan commitment, which is scheduled to expire on March 24, 2023. Based on our detailed 2023 operating budget, we believe we have available cash to fund our operations beyond the next 12 months.

Conservation of cash is, of course, an important corporate priority, and we are focused on controlling expenses. We have and will continue to identify potential cost-saving opportunities to reduce our cash burn. During 2022, we reduced our overall headcount by 10%. We shifted our R&D employees to solely grant funded programs -- and in addition, we've reduced our inventory levels, providing for additional working capital. We have de minimis capital expenditures planned for 2023 compared to $6.1 million in actual capital expenditures in 2022. Our goal is through a combination of driving an increase in sales and gross margin, along with cost-cutting measures to significantly reduce our cash burn and to further extend our operating runway.

While the first quarter of 2023 is not yet complete, we are observing significant reductions in our quarterly cash burn. Our spend is laser-focused on and fully aligned with our strategic priorities, most notably our START clinical trial designed to support U.S. FDA marketing approval for drug or ATR. And now have brought up clinical trials, it seems like the perfect time to turn the call over to our Chief Medical Officer, Dr. Efthymios Deliargyris. Please go ahead, Makis.

Thank you, Kathy, and hello to everyone on the call today. For the next few minutes, we're going to discuss primarily the product versus the STAT trial, also provide an update on the remaining company clinical programs and of course, highlight some major data releases that happened already this year. So next slide, please. So the headline for today's clinical update is that we have made solid progress and now have increased visibility as we're moving forward. The strategy that we discussed with you on the last earnings call, we're focusing all our resources on our clinical research on the STAR-T trial and expanding to Canada. I'm very happy to report that it's paying off. STAR-T enrolling fast and has now crossed the halfway point with more than 50 patients enrolled. We can now reiterate the time lines previously stated that we will hit the next milestone of 80 patients this spring and that the trial will fully enroll this summer.

The STAR-T activities remain on pause and the plan also remains to resume this study upon completion of STAR. Also very encouraging by the enrollment rates with the STAR-T registry. In fact, we have enough patients enrolled that we will have the initial data readouts before the first half of this year. We're also accelerating our trials in critical care, specifically our process, randomized clinical study and our COSMOS international registry, which we will focus on this year to accelerate enrollment. And finally, the positive data flow for CytoSorb will continue in 2023 with a constant stream of presentations and publications in large international conference and peer-reviewed journals in all therapeutic areas, including critical care, liver and kidney and cardiac surgery. Next slide, please.

Now let's spend the next couple of slides talking about start. As I mentioned, we now have good visibility on the way forward. Just as a reminder, at the end of last year, in December, we received a green light from the DSMB, who finished their first safety review after the first 40 patients were enrolled and recommended that we continue the study as planned without any modification. Since that time, we have experienced accelerating enrollment. And now the majority of sites participating in the trial are actively contributed. Canada came on quickly and came on fast but has already contributed multiple patients in the study and its accelerating enrollment also. Now that we are past the halfway point, we're working closely with our regulatory colleagues. And as a side note, I would like to also welcome and be very thankful for Irina joining us such an experienced regulatory experts that will be critical in driving the filings with the FDA upon completion of the trial. And as we've shown you before on the bottom of this slide, you see the table outlining the 3 milestones of the trial with the first one that has already been completed that were reviewed already.

The second one, which is what you should be looking for next happening in this spring once we hit 80 patients enrolled and then the final milestone, which represents the full enrollment of the study with 120 patients, the final analysis and the DSMB close-out review, which were anticipated will take place this summer. Next slide, please. I want to give you a little bit more insight in the next few months as the trial is coming to completion. So let's talk a little bit about what you expect in the near future for the STAR-T trial. First of all, we estimate that the trial will be fully enrolled by the time the previously scheduled interim analysis process would be completed a process that requires a soft database log with full data cleaning and full event adjudications. I'd also like to remind you that performing an interim analysis comes with a statistical price, the so-called spend of alpha.

Therefore, now based on the fast enrollment, we have an opportunity to preserve all the alpha for the final analysis by foregoing the interim analysis, and we plan to do so. I will emphasize that this positive development is a direct result of the fast enrollment of the trial, which is directly related to the highly motivated investigative sites in U.S. and Canada, and is not at all related to any safety or other known concerns. So what you should be looking for next is the enrollment of 80 patients with similar as we did in late last year or trigger a press release. And from that point on, the following the second DSMB safety review. We anticipate that the interval between enrolling the APF patients and executing the DSMB review will likely be similar to the one from the first review in approximately 8 weeks. Next slide.

Now for the next couple of minutes, I'd like to provide you with a brief update on the progress we're making on the remaining company clinical programs. First in line, let's talk about process, our randomized clinical study in patients with refractory shock that we're executing in multiple sites in Germany. We now have the majority of the sites open and are in the process of executing an important protocol amendment that will allow earlier initiation of therapy and should also contribute to faster enrollment. This optimization of the trial was informed by observations from other studies, including our own CTC registry with this excellent results, but also from testimonials from real-world use that suggest that CytoSorb benefits are maximized with earlier initiation of therapy.

This approach is also in line with our commercialization strategy of offering treatment now to patients before they develop organ failure and require order support like continued renal replacement therapy with the use of a stand-alone hemoperfusion pump. We anticipate this amendment to be completed in the first half of the year and to drive faster enrollment for process in 2023. Now let's turn our attention to the STAR Registry. I'm happy to report that enrollment in the registry is exceeding our own projections. We believe that this is in large part driven by the increasing adoption of ATR or antithrombotic removal as the standard of care in many European heart centers. We already have more than 200 patients enrolled, and 2023 is an exciting year since we're going to have the initial data readouts starting with the presentation of the very large international conference of Interventional Cardiology, EuroPCR in Paris this May.

We also have submitted an additional analysis to the largest cardiovascular conference in the world, the European Society of Cardiology meeting that will take place in Amsterdam in August, and we also plan to present the European Association of Cardiothoracic Surgery in Vienna next October, should our submissions be accepted, of course, these meanings.

Finally, let's talk about Cosmos. This year will be the year of Cosmos. We will focus our attention and increase our resources and prioritize progress in this important registry. We believe that this platform allows enrollment for all the remaining CytoSorb applications with the exception of antithrombotic removal across multiple therapeutic areas. -- and that the data from the Cosmos registry would generate a wealth of high-quality evidence, both on the clinical benefits, but also the value proposition of CytoSorb for the years to come. We're happy with the opening over the first few sites, the first 2 countries, Germany and Spain in the first few sites and are happy to see that enrollment has shown a slight uptick in the recent months. Just as a reminder, the CTC registry we have discussed previously in detail, had the final results presented at the International European Society of Intensive Care Medicine Meeting last year, and now the main results have been submitted for publication. So please be on the lookout for the formal paper to be released shortly. Next slide, please.

During our last earnings call, we discussed about the flurry of new data in cardiac surgery that were presented at the European Association of Cardiothoracic Surgery. The study that really stood out was the multicenter analysis on staff endocarditis patients that was presented. I would like to spend a little more time now and refer you to the reference listed on the bottom for you to actually get the study or find the study online since it has now been formally published. After locos areas endocarditis is the most serious type of endocarditis. It carries the highest risk for morbidity and it carries mortality rates that can approach 40%. In this multi-center study, a total of 130 patients with confirmed stators endocarditis underwent cardiac surgery and valve replacement. 75 of those patients were treated with CytoSorb, while 5 of those patients underwent surgery without cytosol. The main results are summarized on the slide. On the left-hand side, on the diagram, you see on the bottom left the need for vasopressor support.

These are drugs that are given intravenously and try to maintain blood pressure in the presence of hemodynamic instability. And patients who were treated with CytoSorb had reduced need for such agents throughout the early postoperative period from -- right after surgery out to day 3 after the operation. However, what's more compelling is that the investigators specifically looked at 3 different mortality rates. First of all, patients who expired because of sepsis and that was significantly lower among those 3 with CytoSorb versus 22.8% and -- then they look at 90-day mortality that was 21.3% versus 40% in the control group. This represents really a significant absolute risk reduction of 18.7% in mortality, which in turn would translate to a number needed to treat to save a life of 5.3. The offers stated that they believe that these concurrent benefits were in large part related to the fact of the ability of the CytoSorb device to remove not only cytokines but also Staphylococcus -specific toxins such as Staphylococcus (inaudible).

Next slide. And finally, the highlight recently that you have probably already seen in our recent press release is the fact that we are very happy to report that for the first time, our technology has been mentioned in practice guidelines. Specifically, the 2023 European Society of Anesthesiology and Intensive Care issued guidelines for the management of severe perioperative bleeding. And they have included intraoperative hemadsorption in these guidelines with the statement saying that it may be considered as an adjuvant therapy to reduce leading complications in patients on ticagrelor or rivaroxaban undergoing emerging cardiac or aortic surgery on CPB. Next slide, please. And you will probably hear a few more words about this major development and how it's going to form our commercialization strategy from Christian coming up next.

So in conclusion, we now have visibility for STAR-T with more than half of the patients enrolled, and we're confident in the time lines of hitting the second milestone this spring and completing the trial enrollment this summer. We will proceed straight to final analysis with fully preserved alpha. There is no longer rationale for interim since the full enrollment will complete before the interim could be executed. We anticipate that we'll have top line results from STAR-T by year's end, approximately 3 to 4 months after the last patient completes the study. STAR-T remains on hold, and the plan remains to restart right after we complete our operational responsibilities will start to Star Registry is ahead of schedule with antithrombotic removal now becoming increasingly standard of care in real-world practice.

And finally, this year, we will prioritize both process and Cosmos with the intent of speeding up enrollment and generating critical evidence in our critical care applications. I also would like to remind you that we have a fully staffed very capable medical affairs team, but the priority in Europe is to support our business in all of our therapeutic areas. We anticipate increasing adoption of our therapy in 2023 based on the feedback we get from ongoing interactions with KOLs and users who continue to express high enthusiasm about our therapy. Also we believe that the constant stream of new and positive data presented at international conferences and the continuous flow of new positive publication across all of our therapeutic areas will be major tailwinds for our business and adoption of our therapy. So thank you for your attention. And with this, I would like to turn to Christian. Christian?

Yes. Thank you, Makis, and good afternoon to everyone in the United States, and good evening to Europe. Kathy and (inaudible) have already strived to you the overall situation and the status of our business development. The macroeconomic situation has not improved and remains to be challenging in many ways. I want to give you a few more insights about our commercialization outside the United States and share with you what we are seeing in the markets. I do believe that we are already in the middle of the stabilization of our silo commercialization. Although the environment in the markets characterized by shortage of personnel at the hospitals, inflation, energy costs and so on has not improved. But again, we have improved. First slide, please.

In the fourth quarter 2022, we could further improve the number of customer visits in our direct markets. However, we are still significantly below the number we have achieved before the pandemic. For example, in Germany, it's still approximately 25% lower. The shortage of personnel on ICUs leaves little time for meetings with industry representatives and for educational events. However, over the last 12 months, we could continuously increase our face-to-face time with customers. This led to the beginning of the turnaround we have experienced in Q4 2022. We could stop the decline of our business and increased the revenues by 16.9% compared to the quarter before. This is 15.3% higher than the comparable last quarter before the pandemic in Q4 2019. We -- more customers are buying again. They are buying more frequently and placing average bigger orders. That shows us that the patient population is somehow normalizing and more treatments are conducted. Next slide, please.

So much has been said already about the impact of the pandemic on the Medical Device business and about the challenging new situation in the health care systems. This chart is showing on an annual basis that although we have suffered from all these circumstances and needed to digest a 27% decline from the content years. We nevertheless could close the first post-pandemic year, 31% higher than the last prepone. I believe that this is the last earning call, we need to speak about the pandemic and its impacts. Although markets will not go back to their old aviation, we from now on can concentrate on quarter-over-quarter and year-over-year growth. Next slide, please.

This growth will partly be driven by several sales initiatives we have reported to you in the last few earnings calls. These are ongoing, and we will keep you updated regular. But a very significant growth catalyst for the next quarters and years will be that we are now ready to start addressing new additional customer groups and entering the mainstream market in certain allocations. The chart in the lower part of the slide is showing the early markets in green on the left and the big mainstream market on the right. Our growth so far was mainly coming from those early market customer groups. Some of our geographically markets like Germany, Austria or Italy are now mature enough to start crossing the chasm towards mainstream customers.

The possible application fields for CytoSorb are so many fold that we have to focus on only a few indications which are most advanced, and these are the following: number one, reversal of vasoplegic shock, which includes also the septic shock; number two, intra and possibilities of (inaudible); and number two, antithrombotic drug removal in cholic surgery patients. The first of those 3 indications is representing the biggest business opportunity but also it's the most complex application with many cofounding factors influencing the therapy outcome. The second and the third indication are part of our cardiovascular therapeutic area and represent smaller business opportunities, but also promise a possibility to faster get standard of care status. I will give you some more insights about our activities in our 3 therapeutic areas: cardiovascular, critical care and Live Kenai my next 3 slides. Next slide, please.

The biggest news for our therapeutic area cardiovascular is that hemadsorption therapy has made it into the new guidelines for the management of severe Perioperative bleeding by the European Society of Anesthesiology and intensive care, which has been published on March 1 this year. (inaudible) has already reported to you about this major achievement. But I just wanted to add 2 facts which are very important to us from a commercialization point and investor point of view. The offers obviously avoid the product name signs up, but only CytoSorb is specifically approved for the removal of ticagrelor and (inaudible) and this guideline entry is only based on (inaudible) data and evidence. Furthermore, in this therapeutic area, several very relevant studies on CytoSorb therapy effects infective endocarditis patients have recently been published or are submitted for publication. The body of evidence in the field is growing, and we can see the increasing excitement and momentum in the community. The attendance at Congresses, symposia and education events is rising, and we also can say that the support from renowned KOLs is getting stronger. Next slide, please.

In the therapeutic area Critical Care, we also can report a significant step forward in the acceptance of our therapy by key opinion leaders. Although not yet in guidelines, the therapy has been integrated as a therapy option for certain patients in the consensus paper on SEIS associated acute kidney engineering by leading European nephrologists and intensivist published just a few days ago. Also of great potential impact, several publications on the impact of Sales on the underlying mechanisms of several diseases are either out or will be published within the next few weeks. These confirm and support the medical rationale of salad therapy. In general, we see a new openness and a lot of excitement about our therapy in the intensive care community and with else. All the progress on the Medical Scientific side is feeding our marketing stories and augmentation lines, and I'm sure we will see the impact of this development within the next few months and quarters. Next slide, please.

Last but not least, I want to speak about our third and youngest therapeutic area, liver and kidney. We have started 2 awareness campaigns on an international level, and we see a lot of interest arising in these 2 fields. One sign of liver support in patients with liver dysfunction and 2 (inaudible) and rhabdomyolysis. There is no real solution for the medical needs in these 2 fields, and Sandor has initially shown remarkable results. Inspired by those findings, there was recently an expert meeting on the topic rhabdomyolysis are the biggest German intensive (inaudible) Germany. Leading nephrologists and intensivists in this field have started to get to consensus on the use of (inaudible) in this application as well. Next slide, please.

This slide should just illustrate for you how we are representing our company and the size of therapy at different medical conferences and trade shows. The 2 pictures in the lower part of the slide show that our symposia are attracting many, many attendants. Next slide, please. So to summarize, we had a very challenging year 2022 with a declining business due to the turbulences in the health care markets caused by the pandemic. The macroeconomic circumstances have not yet improved and will remain challenging in 2023. However, our 12 months of hard work have resulted in the turnaround we have seen in Q4 2022. And this stabilization has continued so far in Q1 of this year, and I'm very convinced that we just have started a new phase of growth for this company. I hope I could give you some insights and a little flavor from the market. And with this, I want to hand over to my colleague, Vince Capponi, our President and Chief Operating Officer. Vince?

Thanks, Christian. As we prepare for commercialization in the U.S. and Canada, our core sales and marketing team is established a go-to-market launch plan, identifying key personnel and sales operations to facilitate rapid entry into the market with a total addressable market of $250 million for ticagrelor alone, we believe a blended sales model of direct and distributors will provide broad access to the market in a cost-effective manner. Our COVID-19 distributor experience in North America has aided us in identifying distributors in both Canada and the U.S. that we can leverage to supplement our direct sales effort. We believe this blended sales approach will allow broader market access to the market and drive faster revenue growth in the early stages of launch with experienced distributors as part of the sales team. Regarding the antithrombotic removal application, we continue to receive positive feedback from our EU customers where we see ongoing adoption and growth in the market.

A device capable of meeting this unmet medical need to reduce the risk of postoperative bleeding for patients that have undergone CPB has had positive feedback. Even among our U.S. clinical trial sites, we see enthusiasm for the development of a medical device for antithrombotic removal. If STAR-T trial is successful and based on our experience in Europe, we believe there is significant upside ahead of our intraoperative use of DrugSorb ATR during CPB and add-on applications related to hospital-wide use as a preoperative treatment and subject for future label expansions. Reimbursement is a key consideration when launching a new medical product. We believe DrugSorb ATR would likely fall under this TCET or transitional coverage for emerging technologies reimbursement program for breakthrough devices under CMS, a favorable program announcement from CMS probably in late April, which strengthened the value proposition for DrugSorb ATR, especially in the elderly Medicare population, a major demographic we will address with DrugSorb ATR. However, given the value proposition we believe DrugSorb ATR presents, the TCET would be helpful but not necessary for us to be successful in the market, in our opinion. In summary, we -- as we finalize our commercial launch plans, our core commercial team is working closely with our clinical team to gain voice of the customer -- in addition, as we look to the commercialization, we are closely -- we are working closely with our regulatory team, gating our build-out of the commercial operations in line with our regulatory filing. Next slide, please.

Regarding the new facility, the end of 2022 marked a significant milestone for the company with the successful transfer of polymer manufacturing to the new facility and complete integration of the company under one roof. The polymer plant is fully commissioned and producing polymer today supplying our device manufacturing lines. An early look at KPIs suggest we should continue to see improvements in efficiency as a result of consolidating the operation under one roof and a contiguous manufacturing space in scale. We are currently ramping production to replace inventories that we utilize to bridge transfer of the operations and look forward to continued improvements in efficiency as we gain experience running the new plan.

Moving now to the cost of goods. The 2022 gross margins dipped to 70%, driven by the 2 plant shutdowns associated with the transfer of operations and several other nonrecurring items. We expect to see continuing increases in gross margin to historical levels of 80-plus percent as the year progresses in hand with increased sales as we experienced recovery in our core business. Next slide, please. R&D and product development teams are focused in 2 key areas: HemoDefend BGA and DrugSorb ATR. The HemoDefend market opportunity is large, covering 3 market segments, encompassing military, civilian and plasma processing industries. Our initial entry into the market will be focused on military applications associated with the universal plasma fresh hold blood and freeze-dried plasma applications. Follow-on commercialization efforts will address the larger civilian market encompassing blood transfusions and the plasma processing industry.

We continue to receive strong government funding for our research programs. In 2022, we received an additional $6.1 million in grant funding for our HemoDefend BGA product and Phase I grant for CytoSorb XL to address endotoxin removal. The backlog of grant funding is approximately $11.5 million currently, and it's important to note that the funding is nondilutive providing a cost-effective vehicle to advance the CytoSorb polymer platform. Product development continues to drive the drugs technical manufacturing plan for finalizing packaging and validation of DrugSorb ATR and our new facility. This work in conjunction with our clinical trial data will support our future regulatory submission and the launch of DrugSorb ATR in the U.S. and Canada. In conclusion, the R&D team remains focused on advancing these programs to support the development and monetization of these assets. Thank you. This now concludes my remarks. Let me turn it back to Phil.

Thank you very much, Vince. So -- our earnings release today covers much of this in greater detail, but just to give you some expectations for 2023. First of all, as you've heard today, we expect completion of the STAR-T pivotal trial in the U.S. and Canada this year with regulatory submission to FDA and Health Canada to follow. We have increased visibility on the likelihood now of drugs or HR contributing to future sales should the STAR-T trial be positive. We expect a rebound in international sales growth this year with economic relief for hospitals expected throughout Europe. And we have many new initiatives to drive sales growth, including new clinical data.

We have -- are now conducting full-size production from our new Princeton manufacturing facility with an expectation of a restoration of product gross margin to the 75% to 80-plus percent range that has -- we have been able to achieve historically. And we also expect more normalized year-over-year comparisons now that we believe that the euro has bottomed in 2022 and the fact that we did not have any COVID-related revenue or nominal COVID-related revenue in 2022. And as Christian mentioned, we will not need to make these core versus noncore comparisons next -- this year. Last but not least, we have -- expect to have reduced cash burn with tight control over expenses with no major capital expenditures with our current cash balance expected to be more than sufficient to drive our 2023 operating plan.

With that, that concludes our current prepared remarks. Operator, please open the call up for the Q&A session.

(Operator Instructions) Our first question comes from Mike Sarcone with Jefferies.

So my first one, just as it relates to Star-T, can you maybe talk to us about how you're thinking about approval time lines post submission and top line data presentation?

Yes. guess, and Irina, would you like to comment on that?

You, I can comment on that. At the moment, we are developing our regulatory strategy and would be able to inform the investment community when the regulatory strategy would be finalized. We are still waiting for results of clinical study, and we'll be acting exactly upon receiving the favorable results.

Okay. And just my second question, you talked about a continued focus on reducing OpEx and you've made some progress so far. Can you just elaborate? Are there any areas for incremental improvement that you could streamline even further?

Kathy, did you want to take that?

Sure, Phil, I can take that. We're constantly looking at making sure that we're focused on our core initiatives. And you do this in waves, right? You do one pass and then another pass and then another pass. One of the things that we did, as Mike has talked about earlier was we paused our STAR-T trial. So we can -- we saved an estimated $4 million in cost in 2023 by just putting that trial on pause. So we're always looking for opportunities where as we review our budget versus actual, where we have nonessential things. I can tell you that not having capital expenditures this year will save us $6.1 million, but we're open to other opportunities as we review our operating results and our budget versus actual comparisons. I think you'll see dramatic reductions in the burn this year, really dramatic.

Next... Our next question comes from Josh Jennings with Cowen.

Phil, it was great to see you earlier this week and congratulations again on the guideline announcement. I was hoping to just ask first on the guidelines, I think there's going to be some Star registry readouts as well throughout this year. And how should we be thinking about, I guess, the commercial adoption ramp for drug or ATR in maybe the second half of '23 or maybe throughout 2023. Are these being catalyst? Or is the STAR-T trial really going to be the big driver of adoption, not only approval adoption in the United States, but also the big driver adoption internationally.

Thanks, Josh. Makis, did you want to take that question?

Sure. Let me just -- first of all, the guidelines you heard from multiple people on the call today, we see that as a major development. Getting into guidelines, it's really a milestone for any intervention, any therapy, any drug, any device. So we think that's definitely a tailwind. It gives a different stature to the therapy. And of course, it gives the credibility from the review of tens of experts who form this guideline committees. So there's no question, I think that's a positive. The STAR Registry will have serial data readouts. We're hoping this year. As I mentioned, one presentation is already locked in this main Paris, in a massive meeting, the Euro PCR meeting. But we think we're going to have more -- and the reason we're going to have sequential analysis is because we're seeing this robust enrollment. The numbers keep going up and therefore a statistical power increases, we're able to look at subgroups, different drugs, different types of patients, types of surgery.

So we think the body of evidence will continue to grow and will support what we're already seeing, which is an increasing adoption and increasingly as a standard of care in many heart centers. The STAR-T trial will open up the U.S. -- the North American market, the U.S. and Canada, hopefully, if positive, of course. And once that's in play, we think then the story around ATR will be complete in addition with some health economic analysis that I've already begun to making their way from different health care systems showing that there's a lot of cost savings associated with that procedure. So I hope that helps.

I wanted to ask about the gross margin expansion and the return to that 75% to 80% range on the product gross margins. Is there any way to break out just the reliance on that expansion to volume growth? Or is it some of the cost reduction issues or recovery in costs? And also just on top of that is any pricing dynamics for CytoSorb that we should understand.

Vince, do you want to take the first part of that or Kathy? And then Christian, maybe you can talk about the pricing stability.

Okay. Sure, I'll take the first part about the gross margin. I mean it's -- there have been -- there will be efficiencies associated with this new facility and actually just the reduction in costs just out of efficiencies because we're under one roof as opposed to 2 sites we were in previously. But the second thing is the volume in the business is starting to come back. And the fact that we've scaled so much now the overhead absorption will be much better as we drive more biota year. So continued gross margin reduction will be a factor of both obviously, improvements in efficiency because of the new location, but also increases demand from the market, and that will continue to drive the price. And obviously, as most businesses that are volume driven, such as this, the higher the volume, it drops relatively quickly with increasing volume.

Christian?

Thank you, Josh, for the question. I have to say the price stability for sizes is very high. So we have very stable end customer prices and even could slightly increase prices in different markets. So this is mainly backed up by a continuous expansion of the value of a therapy. So as you have heard from Makis, there's a continuous stream of new clinical data, which really is supporting the price and supporting the value proposition. And I think we have not yet finished with this development and can show over the next few quarters and years increased volume of evidence and much more support for therapy. So very stable pricing, I say all over the boat.

Great. Maybe just one last question. Phil, was hoping to just hear sometimes hard for us to track some of these international markets, but how is the competitive landscape for purification technology shaping up? Anything we should have on our radar...

Yes, Josh, thanks for the question. I think that from a competitive standpoint, you can look at the level of competitiveness of our technology based on others just by looking at the volume of publications that have been put out by users over the years. We have some Chinese competitors that are trying to break into the acute care marketplace. But if you do a search on their technology or if you do a search on really probably our major competitor, which is Baxter and their offerings, you can see that the volume of those publications are very low, considering the amount of time they've been in the marketplace compared to our publication list, which continues to grow significantly every single year to again, hundreds and hundreds of polished articles now. So I think that we are -- continue to remain the leader in the blood purification space to treat life-threatening inflammation in acute care diseases. We are the leader.

In fact, the only player approved specifically to reduce antithrombotic agents in the European Union under our CE Marks certificate and continue to drive that leadership through new innovation and some of the studies that you've seen in (inaudible) endocarditis and a key respiratory distressed syndrome in liver treatment of acute liver disease and many others.

The next question comes from Sean Lee with H.C. Wainwright.

My first question is, previously, you mentioned that the revenue reduction in 2022 was mostly due to several headwinds, including the prevalence of mild Covid cases that limited access to hospitals. So I was wondering, have those headwinds cleared up so far this year? And what's your outlook for 2023?

Yes. Thanks, Sean. Maybe Christian, you can comment on that and if needed and I can comment as well.

Yes. Thank you very much for the question. Yes, I think the situation is very complex, including the pandemic eaten. Why we have in the beginning of the pandemic had a lot of treatments of coated patients and our sales and revenues was surging. -- when vaccination became available for the disease and also the virus has changed, then we have much easier cases and not so many ICU patients from cohort and so we have refute patients. On the other hand, during this pandemic, there was a lot of impact on the health care systems. So in the beginning, a lot of ICUs were just blocked for Covid patients so that other patients could not even enter the ICU. Because of this, a lot of surgeries have been postponed or even canceled. And this has led to a lot of death of patients because it could not be operated or treated. So this, together with the Covid pandemic and the death of many people who die from this disease or the spare disease. Many -- a big proportion of the LD population has died or suffered and this has also led to the situation that in 2022, we had less patients on the LCOs. So while the situation of the limited personnel and IT is remaining. I think patients are slowly coming back. And this is mainly because of surgery programs have been accelerated again and not yet on full speed, but much better than in the beginning of 2022. And yes, I think this is mainly the in a situation with the patients on IT and current surgery any additions.

Yes. I think as Christian mentioned, the further we -- I think the FDA will actually call them to the pandemic soon. given that the rates of COVID are very low around the world. And I think that the impact that COVID will have on our markets will sequentially decline. Certainly, a number of the issues that we face in the market today in terms of staffing shortages that we're seeing worldwide, particularly in nursing, remain. But I think gradually, those things will get better.

One of the major things that I mentioned in my remarks that really hurt was the drop in the euro, the weakness in the euro, given that a lot of our -- the majority, in fact, of our revenue are based in euro, that drop in the euro caused a significant drop in our revenue base in dollars. And so I think that given that the euro has likely bottomed as of last year, it's still close to parity to the U.S. dollar, but I think that predictions are that the euro will remain stronger than the dollar, and so year-over-year comparisons should look better. So I think that's one thing that we look forward to not having to talk about every quarter. But I think other things are improving as well. But certainly, it's been helpful that our stock prices improved, which opens up a lot of opportunities for us to gain new investors and other things.

Great. My second question is on the endocarditis study. The results are certainly very encouraging. So I was wondering whether a similar design study, a prospective study could be used to support U.S. approval in that indication?

Do you want to take that question?

Sure. So yes, endocarditis, it's an exciting area. Last year, we hired our Vice President of Medical Cardiovascular, Dr. Daniel Went, who is a distinguished cardiac surgeons for many years and kept telling us about the clear benefits that you saw and how well these patients with when treated with (inaudible) patients. And now we're seeing, again, data coming on from multiple centers, suggesting that managing hyperinflammation, controlling hemodynamics, very important in the outcomes of these patients. So absolutely, there's a possibility for us to design a prospective and execute the prospective study. However, what you heard from the last earnings and you're also hearing again today from us is that there's also a need and desire to stay focused and to execute at the task at hand. So we'll STAR-T and STAR-D already determined as being our next 2 studies. I think an endocarditis study would fit very nicely down the road since we will be working with the same institutions, the same physicians, the same investigators. And with the data accumulating, we could probably identify the right population study. So focus on anti-thrombotic removal for the near term, but certainly looking at endocarditis as an opportunity in the midterm. I appreciate your thoughts.

Next question comes from Tom Kerr with Zacks Investment Research.

Most of my questions have been asked and answered. Just 2 quick financial ones. Can you refresh my memory on the grant income backlog? Is that received over 1 year? Does that get spread out over 2 to 3 years, I forget.

Yes. The grant backlog is $11.5 million, and it's typically spread out over multiple years. These contracts with the DoD and other agencies are typically multiyear contracts where those dollars are earned over the course of the contract.

Okay. But we don't know if this is a 2- or 3-year contract or related to time frame?

It's a compilation of many different brands, in fact. And so many of those grants, particularly the ones we received last year or those contracts still have a 2- to 3-year time frame on them. but it varies. Some are near completion, but some are just beginning.

Got it. Okay. And then just last question is on the capital expenditures. I understand it's going to be diminished this year. But does that have to get ramped back up over the next 3 to 5 years? Would it ever get back in the millions? Or can you operate this business at very, very low CapEx needs.

Kathy, did you want to talk about that and maybe touch on the commercial expansion as well if drugs are HR...

Yes. I think that with regard to our CapEx of $6 million last year, that was because of the opening of our new manufacturing facility. So that was a big bolus of expense that we won't be experiencing hopefully for another 10 years. But our capacity has grown fourfold from $80 million to now $350 million to $400 million in annual capacity. So we should be pretty well set at our current plan. Prior to opening up the new plant, our CapEx spend was generally $30,000 to $50,000 a year. And now we have all new equipment in our facility. We have new labs. And so we can expect that maintenance capital needs to be low as we move forward, I would say, over the next 5 years at a minimum.

And at this time, I would like to turn the call back to management for any additional or closing remarks.

Well, thank you very much, everyone, for taking the time to get on this call with us and get an update on Cytosorbents progress. We're very excited about the near-term future, particularly with the pending completion of the START pivotal trial. If you have any questions that were not answered today, please feel free to reach out to Kathy at KBlockKBLOcha@siesorbanc.com, and we'll try to get you those answers as soon as we can. Thank you, everyone, and have a good night.

Thank you. That concludes our conference for today. I'd like to thank everyone for their participation. Have a great day.