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Cytosorbents Corp (NASDAQ:CTSO)
Q2 2020 Earnings Call
Aug 4, 2020, 4:45 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon and welcome to the CytoSorbents' Second Quarter 2020 Financial and Operating Results Conference Call. At this time, all participants are in a listen-only mode. Following the formal remarks, we will open the call for your questions. Please be advised that the call will be recorded at the company's request.

At this time, I'd like to turn the call over to our moderator, Jeremy Feffer. Please go ahead, sir.

Jeremy Feffer -- Managing Director

Good afternoon everyone. Welcome to CytoSorbents' second quarter 2020 financial and operating results conference call.

Joining me today are Dr. Phillip Chan, Chief Executive Officer; Vincent Capponi, Chief Operating Officer; Kathleen Bloch, Chief Financial Officer; Dr. Efthymios Deliargyris, Chief Medical Officer; Dr. Christian Steiner, Senior Vice President of Sales and Marketing from Germany; and Christopher Cramer, Vice President of Business Development.

Before I turn the call over to Dr. Chan, I'd like to remind listeners that 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 August 4th, 2020, 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 second quarter by Dr. Chan and Ms. Bloch. Following their presentation, we will open the line to your questions, during the live Q&A session with the rest of the management team.

At this time, it's my pleasure to turn the call over to Dr. Phillip Chan. Phil.

Phillip P. Chan -- Chief Executive Officer

Thank you very much, Jeremy, and good afternoon everyone. We had a very busy and productive record second quarter. First, second quarter 2020 total revenue grew 58% to $9.8 million and product sales grew 61% to $9.5 million over the second quarter of 2019. Trailing 12-month product sales were a record $30 million. Blended product gross margins were 70% in the second quarter, lower than 76% a year ago, due to a higher percent of distributor sales over direct sales and higher cost of ramped COVID-19 production.

One of the hallmarks of the second quarter was that the US FDA granted Emergency Use Authorization or EUA to CytoSorb for use in adult critically ill COVID-19 patients with imminent or confirmed respiratory failure, enabling commercial sales to US hospitals and generating approximately $667,000 in US revenues. We also achieved FDA breakthrough designation for CytoSorb during the quarter to remove ticagrelor during on pump urgent or emerging cardiothoracic surgery. We also received EU approval for CytoSorb to remove rivaroxaban during on-pump cardiothoracic surgery as well.

In May Dr. Efthymios Deliargyris, better known as Makis started as Chief Medical Officer and has done a fantastic job in a short time at the company. We've also treated now more than 1,200 COVID-19 patients in more than 30 countries, including here in the United States. We received $1.1 million in non-dilutive funds from the New Jersey Technology Business Tax Certificate Transfer Program and we were also awarded a $2.9 million Phase III STTR contract to advance HemoDefend-BGA to clinical trials for universal plasma and for whole blood treatment.

Finally, we expanded distribution to 65 countries, adding nine Latin American countries for our distribution network. One of the most gratifying milestones was announced yesterday. CytoSorb which is now celebrating the delivery of more than 100,000 CytoSorb treatments cumulatively to-date, with tens of thousands of patients treated in a wide variety of applications, with many publications documenting the lives that CytoSorb has helped to save.

To all of our supporters and to the broader CytoSorb family, you have our sincere thanks for making your commitment -- for your commitment and contributions in helping to advance CytoSorb as a therapy that is making a difference to people across the world. The joint statement that we made in the press release yesterday sums up my thoughts well. But I wanted to say that I've been blessed with outstanding colleagues at the company, particularly on my management team with whom I've had the pleasure of working closely with over the years to build this company, and I thought it would be fitting to turn it over to each of them to say a few words upon this very significant occasion before we continue.

To lead it off, I'd like to invite Dr. Christian Steiner, Senior Vice President of Sales and Marketing and Managing Director of CytoSorb Europe, whose passion for the therapy rivals my own, to start. Christian?

Christian Steiner -- Senior Vice President of Sales and Marketing

Yeah. Thank you Phil. You said already some facts about myself. My name is Christian Steiner, Senior Vice President Sales and Marketing. I'm based in Berlin, Germany and I'm heading from here the commercialization of CytoSorb therapy from the beginning. So what does it mean, more than 100,000 CytoSorb treatments? What does it mean to me? First of all, of course this means that we have treated more than or we have treated tens of thousands of patients and every single one had his or her life threatening situation. We don't know exactly the number, but we know that each and every one of these lives helped by our therapy is precious and we are working hard every single day to increase this number.

So secondly, also more than 100,000 commercial treatments. That means that we have generated more than $90 million for the company. And this money has supported to build this interdisciplinary commercialization structure we have, has created this strong movement, and also has built awareness of this kind of therapy. When we started in 2012, nobody knew about the therapy and I was actually driving around in Germany to convince ICU doctors to give it a try. Today we are selling in 65 countries. Some markets they just have started as we have France, Latin America, but there's quite a number of hospitals where CytoSorb therapy has already become standard of care in certain indications. And also CytoSorb therapy has been listed as a potential therapy in this COVID pandemic in several countries and also by the World Health Organization.

I actually want to thank my teams here from CytoSorbents Europe, from CytoSorbents Switzerland and CytoSorbents Poland for the amazing performance, stamina, motivation and enthusiasm during this journey, and obviously also for [Indecipherable] patients. And third, last but not least, if you look at the variety of indications which have merged over these few years, and those we are working on in the background, I'm absolutely convinced that this is the beginning of a big era and we will change medicine.

Thank you. Phil?

Phillip P. Chan -- Chief Executive Officer

Thank you very much Christian. And let me please turn it over to Vince, our Chief Operating Officer and President. Vince?

Vince, you may need to come off mute.

Vincent Capponi -- President and Chief Operating Officer

Sorry about that. Thank you. This has been a fantastic journey for all of us. It is a rare opportunity to be part of a growth story such as CytoSorbents, moving a product concept in the lab into full commercial distribution as we've done with CytoSorb. We are changing medicine. We're providing lifesaving therapy as Christian mentioned to battle deadly information and of the recent label expansion for anti-platelet and anti-thrombotic drug removal will open new opportunities in North America through the breakthrough designation. With this recent financing, we're now going to be able to expand our current capacity that supports $80 million business to one of the $300 million to $400 million business. While we aggressively pursue the next generation absorber, we're all looking forward to the CytoSorb-XL.

It's been both, an honor and a privilege to work with so many talented people, probably on this project to bring us to this point in our development of growth. I'll have to say thank you to our engineering, quality, R&D and production teams for all your hard work. Your perseverance has brought us to this point and I have to say congratulations for a job well done.

Thanks Phil. Back to you.

Phillip P. Chan -- Chief Executive Officer

Great. Thank you Vince. And Kathy, our Chief Financial Officer. Kathy Bloch?

Kathleen Bloch -- Chief Financial Officer

Good afternoon everyone. When I joined CytoSorbents more than seven years ago, the company was just beginning to commercialize CytoSorb in Germany and to this day, I can remember the excitement when an invoice would come from across the pond. We would all huddle around it and we'd ask, how many devices is it? Is it a new hospital or an existing customer with a repeat order? And so now, today the invoice register is sent electronically with dozens of invoices daily. So we've come a long way.

And over the last few months we've had the opportunity to bring CytoSorb to the United States to assist in the treatment of severely ill COVID-19 patients, and that has been so gratifying for us. And we've also come a long way in terms of the financial resources that we have available to meet our goal of bringing our life-saving CytoSorb technology to the world.

When I joined the company in 2013, we had approximately $1.3 million in cash. We had to be very scrappy back then. I think we're still scrappy today. However, following the completion of our recent equity financing, we now have more than $89 million in cash and I want to echo what Phil and Christian and Vince said about this, because this capital is vital to our future success. It will enable us to generate the clinical data required to obtain US FDA approval, it will further allow us to secure and expand our production capacity and furthermore drive worldwide sales and growth, which will ultimately lead to operating profitability.

Yes, we've come a long way and that's because of all of my great colleagues and all the employees of CytoSorbents Corporation really all over the world, and I'd like to send a sincere thank you to everyone for all their hard work and dedication that has taken us to this amazing milestone, more than 100,000 CytoSorb treatments worldwide. I'm privileged and honored to work alongside each of you. This is only the beginning. We have much more work to do in the future to ensure that our life saving technology can reach and help many more people throughout the world, and I know you all join me in looking forward to even greater successes yet to come. Thank you.

Back to you, Phil.

Phillip P. Chan -- Chief Executive Officer

Thank you, Kathy. And Makis, Dr. Deliargyris, our Chief Medical Officer. Makis?

Efthymios N. Deliargyris -- Chief Medical Officer

Thank you, Phil. Let me start off on a personal note, I'm the most recent addition to this management team. Only joined it just near three months ago, but I can tell you, within those three months, the developments and the excitement has been incredible. You've already heard some of the milestones that we achieved, some very important developmental milestones, including the CE Mark approval for anti-thrombotic removal, ticagrelor, rivaroxaban specifically in the EU, the breakthrough designation by the FDA for ticagrelor removal, these are incredibly important accomplishments of the company.

But as a physician, as an interventional cardiologists having treated those patients first-hand and seeing them suffer from major and often fatal bleeding complications, having CytoSorb as a clean solution will really transform the standard of care for the management of these patients, and I'm extremely excited and thrilled to be involved in all these incredible programs. Recently, we also had the opportunity to engage with US hospitals through the Emergency Use Authorization and we're already receiving incredible stories, success stories from clinical teams throughout the US who have been able to manage, the often lethal cytokine storm effectively with CytoSorb and hear those patient stories of survival. It has been an incredible feeling as a physician to be able to be part of such a wonderful story.

And then lastly, this past month we had our first milestone review of our pivotal REFRESH 2-AKI Trial and the DMC after a very thorough review of the safety data recommended that the trial resumes again, giving us another path toward approval in the US. Needless to say, none of this would have been possible without the incredible commitment and dedication of a very talented regulatory medical and clinical teams of CytoSorbents, both in the United States and Europe.

Looking ahead, we remain very excited and these same talented teams are now ready and laser-focused to pursue our top two priorities. First, to gain U.S. approval for CytoSorb; and second, to execute an ambitious clinical trial program that will establish CytoSorb across multiple indications as a Standard of Care in critical care medicine and cardiac surgery and drive the next 100,000 treatments worldwide.

So, thank you and back to you, Phil.

Phillip P. Chan -- Chief Executive Officer

Thanks very much, Makis. And last but not least, our Vice President of Business Development, Chris Cramer. Chris?

Christopher Cramer -- Vice President of Business Development

Thanks Phil. 100,000 treatments is a big accomplishment and I just wanted to echo the points made earlier by my colleagues, especially those recognizing and thanking all of the patients, the physicians, our employees and the investors that have worked tirelessly to get us to this point, and to talk about the role the strategic partners have played in our journey. Partners have and will continue to play an important role in the advancement of CytoSorb. Today, we are working with some of the largest and most well respected partners in the world, including Fresenius Medical Care, Terumo Cardiovascular and Biocon. Early on when we were just getting started, when we were relatively unknown, partners played an important role in validating and building awareness of our technology. Partners like Biocon in 2013, FMC starting in 2014, and Terumo in 2016, were some of the earliest believers in CytoSorb and their efforts to establish the therapy had been crucial to our success.

All of these partners have been instrumental in helping us to launch and grow CytoSorb. In addition to sales, partners have played an important role in elevating the global brand awareness, but CytoSorb through their involvement in medical conferences, symposium and their promotional efforts. Last, through their extensive physician relationships, they have made valuable contributions to our growing body of evidence by spearheading the development of clinical publications, which were essential to the advancement of our therapy. While our work isn't finished yet, we're still in the early stages of a much bigger opportunity. I'd like to take a moment to thank our partners, FMC, Terumo and Biocon for their ongoing support, and I look forward to them continuing to play an important role in our future success.

Phil?

Phillip P. Chan -- Chief Executive Officer

Thanks very much, Chris. On behalf of the Board of Directors of CytoSorbents and the management team again, thank you to everyone who's been involved in the story and we look forward to having many more successes to come.

With that, on the next slide recently on July 24, 2020 we completed a landmark public offering of $57.5 million of our common stock with net proceeds to the company of $54 million, raising our cash balance to roughly $89 million, significantly strengthening our balance sheet. This was led by Cowen and SVB Leerink with co-manager B. Riley FBR helping as well. This drew a tremendous amount of interest from institutions to invest with participation from a solid core, well regarded, long-term healthcare focused institutional investors. And as part of the financing and given our financial position, we agreed to not raise additional equity capital, in other words ATM financings or secondary public offerings. For the next 90 days, we have no current plans to raise additional funds.

We've been often asked the question by many investors about why now? Well, the funding serves multiple purposes. First, it increases our institutional ownership with the core anchor of strong institutional investors. It also provides growth capital to take advantage of near term growth opportunities and to strengthen worldwide sales. It also allows us to move forward with an expansion in manufacturing that should take us to a capacity production as Vince mentioned of $300 million to $400 million in sales, while allowing us to invest in automation and other improvements that are expected to improve product gross margins.

It is also expected to fund the company to expected GAAP profitability and provide financial stability in uncertain times. It also enables us to vigorously pursue company-sponsored clinical studies intended to drive CytoSorb as Standard of Care and it provides additional resources in addition to grant the contract to fund development of our exciting pipeline. But probably most importantly, why now is that it enables us to expand beyond today and unlock what we believe is a very powerful and potentially lucrative US opportunity.

Today, our US opportunity is really threefold. One, it is trying to help patients here in the United States, while helping increase the awareness of our product throughout hospitals and medical communities throughout the country. Second, it involves a pivotal trial path, which REFRESH 2-AKI, our AKI trail that is now undergoing resumption. The last but not least and what we'll focus on mainly today is the FDA breakthrough therapy designation for CytoSorb for the removal of ticagrelor, a major blood thinner used in the treatment of acute coronary syndrome and using our therapy to remove it during emergency or urgent cardiac surgery.

To touch on COVID-19 and CytoSorb, CytoSorb is now being used to treat more than 1,200 critically ill COVID-19 patients in 30 countries around the world. And if you look at our earnings press release today, you'll see links to many COVID-19 webinars that support a number of findings. One is the reduction of cytokine storm and inflammatory mediators such as IL-6, ferritin, CRP and others that is often attributed or is often responsible and being considered responsible for those having the most severe and life threatening illness. It was also pointed to improve respiratory function in acute respiratory distress syndrome and the weaning of patients from mechanical ventilation and ECMO. And third, it has also been associated with improved hemodynamic stability and a reversal of shock.

The US FDA Emergency Use Authorization enabled CytoSorb to be commercially sold to all hospitals in the US for use in critically ill COVID-19 patient, 18 years of age or older with imminent or confirmed respiratory failure. That has led to US sales in the second quarter of $667,000, primarily through inbound interest for our therapy from the US hospitals. Now we are currently expanding US Commercialization efforts via distribution and internal resources to meet the current surge and a potential second COVID-19 wave that is expected this winter. And with the US leading new and overall cases of COVID-19 globally, the emergencies authorization is expected to remain through spring of 2021.

Although COVID-19 has slowed in Western Europe, it is surging elsewhere where we continue to ship our therapy and we are preparing again for the second wave of what looks to be a very challenging flu and COVID mixed winter season. We are also targeting data publication and capture via our CTC COVID-19 registry, as well as our international CytoSorb registry, and there are a number of investigator initiative studies that have been registered in clinicaltrials.gov and elsewhere that are also working to collect additional data.

In addition to FDA Emergency Use Authorization for COVID-19, CytoSorb has also been recognized in many other countries around the world. For example in China, blood purification is now in the handbook to treat cytokine storm is in the handbook of COVID-19 prevention and treatment. In Columbia, CytoSorb is in the expert consensus in the Colombian Journal of Nephrology. In Great Britain, CytoSorb is the subject of the medical -- of a med-tech innovation briefing published by NICE. In Germany, CytoSorb has been the subject of courses on the treatment of severe COVID-19 in [Indecipherable] medicine.

In India, the DCGI has now approved CytoSorb for approval for the treatment of COVID-19 and is now included in the COVID-19 Expert Management Considerations guidelines. Very recently, CytoSorb has also been approved by the Ministry of Health of Israel, Medical Devices Division called AMAR for the treatment of COVID-19. And CytoSorb is also specifically mentioned in the Italian Brescia Renal COVID-19 Task Force recommendations and the Panamanian National Guidelines on the treatment of adult COVID-19 patients.

Now on the next slide as Mike has mentioned, REFRESH 2 is now being resumed, and as he mentioned, on July 28 we announced that the REFRESH 2 data monitoring committee reviewed the data from an analysis done by our CRO and ourselves on the existing data that exists for the 153 patients included in the trail to-date, resulting in a favorable opinion on safety and a recommendation at the trial resume with only minor modifications, pending COVID-19 restrictions, our goal is get the study back on track and moving to the scheduled interim analysis upon completing enrollment of 200 patients.

And now, I'd like to talk about really what we believe is potentially one of the fastest, least expensive, highest visibility applications for potential US approval that we have today and that is the removal of blood thinners during cardiothoracic surgery. We talked about this in bits and pieces over the past conference calls, but here the story is laid-out in one shot. So earlier this year, CytoSorb received European Union approval to remove two well-known blockbuster blood thinners or antithrombotics during cardiothoracic surgery. These agents are using millions of patients to reduce the risk of stroke and heart attacks. The first one is ticagrelor, which is a blockbuster P2Y12 anti-platelet agent that is often used in patients with acute coronary syndrome who come in with signs and symptoms of having a heart attack. And this particular product has more than $1.6 billion in worldwide sales and it is again used predominantly for people going into the cath lab to get a stent.

The second drug is rivaroxaban, which is a blockbuster Factor Xa inhibitor, also called a novel oral anticoagulant or NOAC. With more than $7 billion into 2019 sales used as lifelong therapy in patients with atrial fibrillation, but also in many other illnesses such as those with deep vein thrombosis or pulmonary embolism or those with severe peripheral artery disease. The problem is that patients that require emergent or urgent cardiothoracic surgery on these blood thinners can develop potentially serious and life threatening perioperative bleeding. The good thing about CytoSorb is that it installs easily into a heart lung machine or a Cardio Pulmonary Bypass machine and as blood flows through the cartridge, it removes these drugs rapidly during surgery and greater than 90% from whole blood in Cardio Pulmonary Bypass simulations to reverse their anticoagulant effect. We believe that CytoSorb can quickly become a cost effective standard of care to prevent bleeding due to antithrombotics helping to drive sales growth.

This slide shows that the risk of bleeding is high in CABG patients on ticagrelor. In the ticagrelor registration PLATO trial, 1,584 patients underwent CABG surgery randomized between dose received either ticagrelor or its competitor called Plavix or also known as Clopidogrel, and those patients with life-threatening bleeding are shown in this diagram. Bleeding risk is high despite waiting up to seven days off the drug prior to surgery. So you can see that if patients need to go to emergency surgery right away after failing the cath lab and not being able to get a stent, their risk of serious major or fatal life threatening bleeding is up to 65% if they have to go to surgery that first day. Those on ticagrelor are the ones in the black bars and those with Plavix are the ones in the diagonal striped bars. But what you can see however is that even when you wait for multiple days to allow the drug to wash out, which is the only recommended way of dealing with reducing the bleeding risk, that the bleeding risk is still extremely high.

So the good part about it is that CytoSorb removes the drug rapidly and in a landmark study done at the St. Georg Hospital, Asklepios Hospital in Hamburg, Germany, they demonstrated a reduction in bleeding complications and this is the study laid out. It was in 55 consecutive patients. It was in 16 patients initially who did not use CytoSorb and then after a certain point in time, they all used CytoSorb and these are patients who were either loaded on ticagrelor and had to undergo emergency surgery on the left hand side or had to undergo emergency surgery with rivaroxaban on-board on the right hand side.

And what you can just see by comparing the two columns is that whichever leading complication you look at, whether or not it's procedure duration, the need for red cell or platelet transfusion, test tube drainage which is an indicator of continued bleeding complications or whether or not it's rethoracotomy and the need to go back and reexplore the chest cavity to figure out what is bleeding or if its days in the intensive care unit or total length of stay, you can see that those on CytoSorb did remarkably better than those without CytoSorb and these results have actually been seen by many physicians using the therapy for this same application in many centers around Europe. In a separate analysis done in the United Kingdom, this is translated into a projected cost savings to the hospital of approximately $5,000 per patient, including the cost of CytoSorb.

Now what this has all done is it has set the stage for potential expedited US regulatory path given our FDA breakthrough designations here in the United States. As I mentioned before in April, the FDA granted breakthrough designation to CytoSorb to remove ticagrelor during cardiopulmonary bypass and emerging -- urgent cardiothoracic surgery, which highlights the unmet medical need recognized by the FDA, but also helps to facilitate the path toward potential US FDA approval. We're now in the process of defining the regulatory paths for the therapy with the FDA, whether or not it's a 510(k) versus the de novo 510(k) or PMA. If a clinical trial is needed, competitors such as Portola, that was recently acquired by Alexion for $1.4 billion and PhaseBio that is a public company that is still in the clinical trial phase, they've established an FDA Precedent, that surrogate markers such as platelet aggregation of Factor Xa activity can be used as the primary endpoint for FDA approval. And in the sub-study, in the paper coming out of St. Georg Asklepios Hospital in Hamburg, Germany, four out of five or 80% of patients treated with CytoSorb had a rise in the MEA or Multiple Electrode Aggregometry Assay that correlates with the restoration of platelets function giving us additional visibility that if we were to pursue a trial, that we could see benefits here as well.

Meanwhile, additional data is being collected, particularly from the UK TISORB Trial to obtain UK NICE recommendation and the parallel study called a citation trial in Germany, as well as a collection of real world experience via the STAR or safe and timely antithrombotic removal registry that has been set up and established. Now for those of you who've not yet had the opportunity to view the key opinion leader event on CytoSorb Antithrombotic Removal that we held on July 13 last month, I would urge you to view that and this is available, just click on the banner, the front banner on our home page on the cytosorbents.com webpage, but what you'll hear are some seminal discussions from leaders in the field, including Dr. Michael Gibson, Dr. Robert Story and one of the -- and the Chairman at Department of Surgery at Asklepios Klinik St. Georg that was a pioneer in actually implementing this therapy for the removal of blood thinners, Professor Michael Schmoeckel in a session hosted by our own Dr. Makis Deliargyris. I urge you to take a look at that event which really lays out the opportunity, not just in cardiac surgery, but even beyond.

What you may not have seen before is this slide and this basically highlights that today if we were able to get US Regulatory Approval, we would have a total addressable market today of roughly $250 million based upon 50,000 urgent and emergent cardiac surgeries in patients on ticagrelor, assuming a $5,000 price point for the therapy. However, we expect that the ticagrelor market share is expected to grow from today, because one it's going off patent in 2024 and price erosion from generic competition will help drive adoption. And also CytoSorb makes ticagrelor reversible, giving it a very strong competitive marketing advantage versus other anti-platelet drug like Plavix or clopidogrel, an Effient also called prasugrel that are non-reversible. So why would someone every load someone on a non-reversible agent when a reversible agent is available.

And then last but not least, this next slide shows what the current market opportunity is for ticagrelor, $250 million. It could potentially expand to $50 million if ticagrelor begins to take market share from its competitors. But now when you add on ticagrelor and other no-NOACs like rivaroxaban and apixaban for example in cardiac surgery, it raises the total addressable market to $500 million. And if you watch the webinar, you'll see that the market for reducing bleeding risk in all surgeries, not just cardiac surgeries is even greater at $1.5 billion. And so here in the United States, this is just the opportunity here and it is supplemented by the massive opportunity in Europe and elsewhere as well.

So with that, let me turn it over to Kathy for the financial highlights. Kathy?

Kathleen Bloch -- Chief Financial Officer

Yes. Thank you, Phil and my greetings again to everyone. For today's call, I'll provide an update regarding CytoSorb second quarter 2020 financial results, including product sales progress and in addition, I'll provide an update around our working capital, our recent equity raise and our cash runway.

Next slide please. So our product sales for the second quarter of 2020 were a record $9.5 million, which represents our best quarterly product sales ever. This is approximately 62.7% increase over product sales of $5.9 million for the second quarter of 2019, and in addition, this brings the company's annual product sales run rate to approximately $38 million. Now this increase in product sales in Q2 was driven by an increase in direct sales of approximately $1.7 million from both new customers and repeat orders from existing customers, along with an increase in distributor sales of approximately $2 million. And in addition as Phil noted, we had our first sales of CytoSorb in the United States of approximately $667,000 under the Emergency Use Authorization granted by the FDA.

For the quarter, although it's difficult to quantify, we estimate that approximately $2.4 million to $2.6 million worth of our product sales were due to the demand for CytoSorb to treat COVID-19 patients. Now our total revenue which includes product sales and grant revenue was approximately $9.8 million for the second quarter of 2020 as compared to approximately $6.2 million for the same quarter of 2019, which represents an increase of 57%. Our second quarter 2020 gross profit grew to $6.5 million, a 48% increase or $2.1 million over gross profit of approximately $4.4 million for the second quarter of 2019. Our gross profit margins on product sales were approximately 70% for the second quarter of 2020 as compared to 76% for the second quarter of 2019. But if we exclude certain production costs associated with the ramp-up that occurred during the quarter, our second quarter gross profit margins for 2020 are approximately 78%, so it's still very healthy.

Next slide please. Now we'll just turn to our six months financial results, where product sales for the first half of 2020 were approximately $17.7 million, which is a 69.5% increase over product sales of $10.4 million for the first half of 2019. And though it is difficult to quantify, we estimate that approximately $3.9 million to $4.3 million worth of sales was due to demand for CytoSorb to treat COVID-19 patients, and this increase in sales that we saw was offset to some extent by decreases in sales related to elective procedures, because during the pandemic, many hospitals hold its elective surgery surgical procedures such as in cardiac surgery where CytoSorb may have been used.

Next slide please. Now looking at our quarter-over-quarter product sales, our Q2 2020 sales of $9.5 million represent a new record for quarterly product sales, and given the order or patterns that we are currently experiencing, we expect that the COVID-19 pandemic will continue to have a positive impact on product revenues in the second half of 2020. However, this may change with containment or the development of a vaccine to withhold the pandemic.

Next slide please. Looking at our trailing 12 months product sales, as you can see from this chart, overall, our annual product sales growth continues to exhibit a very strong growth trajectory and we expect continuation of this overall positive trend in the future as a result of our progress with regard to several factors, including one, the expansion of our sales and marketing resources; two, increased public awareness of cytokine's storm and the need to control the over-active immune response in seriously ill patients, which is one of the benefits of COVID-19 to the company; three, organic growth in our existing markets; four, increased international expansion; and five, the continuing publication of new clinical data in a wide variety of applications.

And finally, we'll take a look at our working capital and cash runway. Next slide please. As of June 30th, 2020, we had approximately $35.1 million in cash. In July, we closed the sale of shares of our common stock and received gross proceeds of approximately $57.5 million and after deducting expenses related to the offering, we received total net proceeds of approximately $54 million, bringing our cash balances today to approximately $89 million, which the company expects will fund the company's operations well beyond the next 12 months. As a result the company has determined that the going concern risk disclosures that were previously included in our financial statements have been eliminated in the June 30th, 2020 financial statements, and we believe that we have sufficient cash to fund our operations well into the future.

Briefly turning to our capital structure. As of June 30th, 2020, we had approximately 42.3 million common shares outstanding on a fully diluted basis, to which we added approximately 6 million shares in July as a result of the equity offering, bringing our total fully diluted shares outstanding to approximately 48.3 million shares.

Phil, I'd like to turn the call back to you at this point.

Phillip P. Chan -- Chief Executive Officer

Thank you, Kathleen. CytoSorbents has not historically given specific financial guidance on quarterly results until the quarter has been completed; however, provided that the current order pattern continues and not withstanding uncertainty related to the COVID-19 pandemic, we expect that the third quarter 2020 sales will be one of the company's strongest quarters in terms of product sales.

That concludes our prepared remarks. Operator, if you would please open the call up for the Q&A session.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question comes from Andrew D'Silva with B. Riley FBR. Please proceed with your questions.

Andrew D'Silva -- B. Riley FBR Inc. -- Analyst

Good afternoon. Congrats on all the progress during the quarter. I mean really impressive and really what a difference a year makes. Just a few questions from me. Just to start, can you just help me understand what manufacturing looked like during the quarter and where you are currently in the third quarter? I believe you were running near full capacity for at least part of the second quarter, but obviously with margins being compressed sequentially, there appear to be some inefficiencies that were present. Can you just let me know if the transient nature of COVID-19 and the scale-up made it challenging to meet any real time CytoSorb demand. And if that's the case, do you believe you worked out a lot of that here in Q3 as second waves are starting to come up at various hot spots?

Phillip P. Chan -- Chief Executive Officer

Yeah. I mean what I would say is that after receiving the Emergency Use Authorization in April and having the pandemic really just hit us in March, we've done actually an outstanding job in ramping production to be able to grow product sales over 60% year-over-year this quarter. Certainly in order to do that we incurred much higher labor costs in terms of overtime and other incentives as well. There is also increased inefficiencies when you work at that very high level and achieved that so rapidly. But we fully expect that the gross margins will return to the expected levels that we've attained in the past, roughly 80% or even higher going on in the future.

Andrew D'Silva -- B. Riley FBR Inc. -- Analyst

And then, as it just sort of relates to the transient nature of COVID-19, do you think now that in Q3, you're even more equipped to just handle the changes in hot spots in real time?

Phillip P. Chan -- Chief Executive Officer

Yeah. COVID-19 is kind of an unusual pandemic and it has spread throughout the world and hits one place very hard, but leaves that place you know within two to three months and then goes on to attack another area. Of course I think we're all expecting that a second wave occurs -- will occur in the fall and the worst going in to the winter season. And so from a manufacturing side, you know we've been planning for that eventuality and have been following COVID sales throughout the world, particularly you saw in the last quarter distributor sales were very strong as countries where we have independent distribution or partner sales have been hit quite hard. So we fully expect to be prepared for that, come the second wave.

Andrew D'Silva -- B. Riley FBR Inc. -- Analyst

Okay, great to hear. And as it relates to the blood thinner opportunity, has there been any interest or anything that you can talk about with AstraZeneca or any NOAC manufacturers since you've expanded the label in Europe, and obtained breakthrough status domestically. And then kind of tying into this, how prevalent are perfusionists and cardiologists in treating COVID-19 with CytoSorb? If they are utilizing it internationally, is there any cross over with the removal of blood thinners? Just curious on how everything's kind of tying together from a bigger picture.

Phillip P. Chan -- Chief Executive Officer

Yeah. In terms of your second question, yes. So CytoSorb is being used with something called ECMO or Extracorporeal Membrane Oxygenation. This is a machine that can oxygenate your blood outside your body when mechanical ventilation fails. So the lungs are so diseased that no matter how, what percentage of oxygen you pump into the lungs, the person will still likely die, because of poor gas exchange in the lungs. And so it turns out that those who are running ECMO are often cardiac surgeons, because in ECMO machine is very similar to a heart-lung machine in an operating room and those others who are running it are also the perfusionists as well. And so these are the same people who are obviously operating on patients, you know who are on blood thinners as well. So it provides actually a nice overlap in our marketing efforts. We certainly know many of the cardiac surgeons who are out there running ECMO programs, but who are also operating on a daily basis as well and so it's right, straight within our sales vertical.

And your first question again Andy, sorry.

Andrew D'Silva -- B. Riley FBR Inc. -- Analyst

Just if any of the NOAC, yeah.

Phillip P. Chan -- Chief Executive Officer

Yeah. So it's not anything that we can comment on at the current time.

Andrew D'Silva -- B. Riley FBR Inc. -- Analyst

Okay, great. And I've got a few more questions. I'll just ask one quick and take the rest offline. How many hospitals right now would you estimate are at over $1 million in CytoSorb sales right now?

Phillip P. Chan -- Chief Executive Officer

So we've not disclosed. We've only disclosed one customer that was over that level, because it was a large percentage of our overall sales and when additional hospitals meet that requirement, we'll disclose it.

Andrew D'Silva -- B. Riley FBR Inc. -- Analyst

Okay, great. Best of luck going forward and congrats again on all the progress this year.

Phillip P. Chan -- Chief Executive Officer

Thanks so much, Andy.

Operator

Thank you. Our next question comes from Josh Jennings with Cowen & Company. Please proceed with your question.

Joshua Jennings -- Cowen & Company -- Analyst

Hi, good afternoon. Thanks Phil and Kathy. Congrats on a record product sales quarter. I wanted to just -- you have multiple shots on call here in terms of getting full approval in the United States from the FDA. REFRESH 2 also have the ticagrelor removal indication, And you have the EUA in hand for COVID-19, critically ill COVID-19 patients. Is there a path that you can see may not be fully established, but for data accrual in critically ill COVID-19 patients to potentially seeking approval pathway for that indication down the line here?

Phillip P. Chan -- Chief Executive Officer

Well, I think that as we've discussed before, you know COVID-19 is just another viral pneumonia. It causes a typical acute respiratory distress syndrome phenomena that is seen in other viral phenomenas like seasonal influenza for example. There are certainly differences with COVID-19 and that is often causing a hyper-collegial ability phenomenon and the formation of tiny clots in the lungs as well. But the same complications that COVID-19 patients see, whether or not its acute respiratory distress syndrome or shock or renal failure, these are all the same complications that we are treating today in both bacterial and viral sepsis patients.

So it's not so much that you know we're fixated on getting COVID-19 data, but it is actually trying to obtain data on complications of viral pneumonias like COVID-19 that may help form the basis of US Regulatory approach in the future. But at the current time, we are still in the process of working to gather data, trying to get the numbers of patients that have been treated into our CTC Registry and to be able to analyze that data in a way that is presentable to the FDA, but we are very committed to that process and there's a lot of things happening in the company that are focused on trying to get all that data all in one place.

Joshua Jennings -- Cowen & Company -- Analyst

Now that makes sense. Thanks for that. And just from the ticagrelor removal indication and the path forward for the US, you talked about potential 510 (k), de novo 510(k) or PMA. FDA decisions are always wild-cards for everyone, but how optimistic are you that you could potentially see a 510 (k) path opened up by the FDA either straightforward or de novo and maybe when do you think -- when will that decision be made by the FDA and when will you know the path forward for ticagrelor removal in the US?

Phillip P. Chan -- Chief Executive Officer

So we're in current discussions with the FDA now and it would be premature to speculate on what path that might be. But I think that the goal is to work with -- our entire program is really -- our goal is to basically get that answer soon and so maybe Makis if you wanted to comment on what that might look like.

Efthymios N. Deliargyris -- Chief Medical Officer

Yeah. Thanks Phil. So this indication which already has been accepted in the EU and was granted breakthrough designation here in the US involves cardiac surgery patients. To a large part, you know we have gained some experience in the population with the REFRESH 2 Trial as well. So we believe that going forward, we can form our discussions about the breakthrough designation with some of the information and safety data that's emerging from REFRESH 2. These are the kind of topics we are actively discussing with the agency. And based on that, in the very near future, we should be able to have in the line path forward, like Phil said, we got a line we haven't gained yet, but we are in the process of having the discussions to lead to that clarity. So I'm not sure that I can add anything more to that, but we're having some nearly, what I think is going to be very successful interactions with the agency and we should have that clarity that you asked me for fairly soon.

Joshua Jennings -- Cowen & Company -- Analyst

Excellent. Maybe just one last question and I'll get back in the queue. The CE-Mark label extensions for antithrombotic removal, can you talk a little bit about how that's playing out commercially so far. I know it's still early days, but I wanted to just put that on the table for you guys and thanks for taking the question.

Phillip P. Chan -- Chief Executive Officer

Sure. Christian, maybe you'd like to take that question.

Christian Steiner -- Senior Vice President of Sales and Marketing

Yeah. Thank you Phil. Josh, as you said, it's very early for this extension in terms of the last label extension, the rivaroxaban removal. This has happened only in the middle of Q2, so there was -- especially because of the pandemic there was lot of excess problems to the hospitals. There was no chance to restart the system indication. But the other one, the rivaroxaban remover is on the CE-Mark a little bit longer from Q1 and there we have first successes. For example, in Germany we serve roughly 90% of the heart centers and of those 50% are using or have used already [Indecipherable] for removal of ticagrelor. Occasionally, but many of them also regionally. So that is full of success and we will see how this evolves in the future.

Joshua Jennings -- Cowen & Company -- Analyst

Great. Thanks again.

Operator

Thank you. Our next question comes from Jason McCarthy with Maxim Group. Please proceed with your question.

Michael Okunewitch -- Maxim Group -- Analyst

Hey guys, this is Michael Okunewitch on the line. Thanks for taking the question. So, let's just see, now we're going into the third quarter and you said -- I mean, I know you don't give guidance, but you did say that you are expecting it to be a particularly strong quarter. So I'd like to gauge to give us a bit more clarity on whether you're expecting to see somewhat of a reduced impact of a typical third quarter seasonality due to COVID or if you are still expecting that to hit?

Phillip P. Chan -- Chief Executive Officer

Well, I think from a seasonality perspective, you know in certain parts of the world, COVID-19 has temporarily, I believe decreased as a problem. So for example, Western Europe is one of those areas. However, in other parts of the world, COVID is surging. As I mentioned in the press release today, it's in the Americas, it's in Southeast Asia, it's in Eastern Europe and Japan and other countries, in India as well. And so the COVID-19 is not taking a holiday and again, I think that COVID-19 will as Kathy mentioned, remain a catalyst here in the second half of the year.

Now from a seasonality standpoint and from a -- what we often see as a European slowdown in July and August, and so we're just at the beginning of August now. But again to our guidance, you know should order patterns continue with what we've seen in July, again, we expect this quarter to be among our best in terms of product sales.

Michael Okunewitch -- Maxim Group -- Analyst

All right, thank you. And then just one more brief one. I wanted to see what time period the 667,000 in US COVID sales cover. I know that the EUA was on 4/13 [Phonetic], but did sales start immediately or was there a bit of a lag time before you started actually making sales.

Phillip P. Chan -- Chief Executive Officer

So prior to the EUA, we were actually donating devices under a different path called the Extended Access Pathway, also called Emergency User Compassionate Use. They were typically used as therapy of last resort. But then after the EUA, there was a bit of a lag time on the order of a couple weeks as we geared up for commercialization. Just to remind you, we are not a commercial organization here in the United States and it was through the collective effort of many at the company that you know we were able to meet the demand for the products here in the United States. So as we switch now to Q3, the focus will be less on passive sales and more of a proactive outreach using distributors and others to get out there in the market, and to get at these hospitals. What we find is that those hospitals that know about our product are actually very enthusiastic about it, and our goal is to continue to create awareness through an active marketing program here in the US.

Michael Okunewitch -- Maxim Group -- Analyst

All right. Thank you very much and again congratulations on the quarter.

Phillip P. Chan -- Chief Executive Officer

Thanks very much, Michael.

Operator

Thank you. Our next question comes from Sean Lee with H.C. Wainwright. Please proceed with your question.

Sean Lee -- H.C. Wainwright & Co. -- Analyst

Good afternoon guys and thanks for taking my questions. My first question is still on the manufacturing side. So at the end of Q1 you had mentioned that you had more than $2 million of order backlogs because of manufacturing and with the ramping up of manufacturing during Q2, I was wondering whether you were able to clear off back orders and what would be the capacity right now, like the annualized capacity right now for CytoSorb?

Phillip P. Chan -- Chief Executive Officer

So, I think that what we found was that there were a lot of -- some of the backlog that we had came from countries where COVID peaked actually very quickly and this happened in a number of European countries for example where either the outbreak was not as bad as predicted for example in Germany or where again COVID peaked quickly and then went away. And so in fact some of those, some of that backlog we never had a chance to fulfill, because those devices were not needed at the end of the day. But that being said, you know in terms of capacity production, we still remain at the peak, maximum capacity of about $80 million out of this facility. We are looking to make some capital improvements to try to expand that a little further as we transition to a new larger facility. But at the moment, we do have capacity continue to produce at about $80 million in sales.

Sean Lee -- H.C. Wainwright & Co. -- Analyst

Great. And my second question is on the REFRESH 2-AKI study. So to your questions, you kind of mentioned that the DSMB has green light the study continue. I was just wondering whether they recommended any changes to the protocol and how are you -- what precautions are you going to take to restart this study while the pandemic is still going on.

Phillip P. Chan -- Chief Executive Officer

Sure. Let me have Makis comment on that one. Makis.

Efthymios N. Deliargyris -- Chief Medical Officer

Thanks Phil. So, I'm going to start from the second part, which is regarding the pandemic. And as you know it's a very different story across different regions of the US. So in some areas, the impact of the pandemic now has really not been an issue and a lot of the clinical activities are resuming, while in other areas a lot of the trials have been put on-hold secondary to the surges, in cases specifically in the south, southeast and Midwest. So it's going to be a site-on-site process, understanding exactly what situation they are at and what the IRB [Phonetic] is saying regarding engaging non-COVID related studies.

Regarding the first part of the question, if you recall the study was put voluntarily on hold, primarily due to improvement in data monitoring and data quality. So a lot of the work that's been done in the past few months was to identify some of those gaps and make sure this no longer exists going forward. And the DMC basically agreed on the modification, some additional data collection. So there's no protocol related recommendations that I made nor, procedures, study procedures that are changing except the type and amount of data that's being collected. So we view that as very minor, not a big logistical hurdle for us to get across, to get the study going again.

Sean Lee -- H.C. Wainwright & Co. -- Analyst

Great. That's good to hear. My final question is on the HemoDefend-BGA. So the company was recently awarded a $4 million contract by the Department of Defense to complete the pre-clinical development and according to the contract, it is for up to three years. So I was wondering is it going to take up to three years to develop HemoDefend or can we expect that to maybe move into clinical studies sooner.

Phillip P. Chan -- Chief Executive Officer

Vince, would you comment on that?

Vincent Capponi -- President and Chief Operating Officer

Sure. Sean, so you know for the ABG product, basically that's different than the first HemoDefend product, right, which is the one that we were working on previously with COVID. But with this antibody group product, I think it could get possibly to the clinic within the three years. I don't know that's going to take that entire time, but you know we're just in the early stages now with this money to really drive that program forward. We had done some initial work in this area, but now with these finances, I think that we're -- especially through this grant, we are in a position to really move that program forward. But as you know, we are just all coming back from the R&D team and just coming back from the time and manufacturing during the COVID period. So we are just starting to get those programs back up. I think we can move that program forward pretty aggressively.

Sean Lee -- H.C. Wainwright & Co. -- Analyst

Okay, that's great. And that's all I have. Thanks again.

Phillip P. Chan -- Chief Executive Officer

Yeah. And maybe just a little color Sean. So this program is actually now well-funded with the most recent announcement of an additional $4.4 million in grant, in contract funding. And so I think it's in everyone's best interest to try to accelerate this as fast as possible and there's nothing I don't believe that's contractual that prevents us from running faster. In fact, they would -- in discussions with program managers, they would actually prefer it. So if we can use that money, really catalyze this program, get a product to market fast, you know that would definitely be our goal.

Sean Lee -- H.C. Wainwright & Co. -- Analyst

Yeah. That sounds great.

Operator

Thank you. There are no further questions at this time. I would like to turn the floor back over to management for any additional or closing remarks.

Phillip P. Chan -- Chief Executive Officer

Well, thank you again everyone for your participation today. We are very excited about what the future may bring. If you have any other questions, please feel free to reach out to Jeremy Feffer at jeremy@lifesciadvisors and we'll try to respond to your questions where possible. We look forward to our next quarterly call. Thank you everyone. Have a good night.

Operator

[Operator Closing Remarks]

Duration: 66 minutes

Call participants:

Jeremy Feffer -- Managing Director

Phillip P. Chan -- Chief Executive Officer

Christian Steiner -- Senior Vice President of Sales and Marketing

Vincent Capponi -- President and Chief Operating Officer

Kathleen Bloch -- Chief Financial Officer

Efthymios N. Deliargyris -- Chief Medical Officer

Christopher Cramer -- Vice President of Business Development

Andrew D'Silva -- B. Riley FBR Inc. -- Analyst

Joshua Jennings -- Cowen & Company -- Analyst

Michael Okunewitch -- Maxim Group -- Analyst

Sean Lee -- H.C. Wainwright & Co. -- Analyst

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