Tuesday, February 22, 2011

CTSO: Cytosorbents Stockpiling Cash

Just last week Cytosorbents announced that it had expanded its patent portfolio with the awarding of two new patents, and this week the news is that the company is stockpiling cash.  It's been no secret that Cytosorbents would need cash come the second quarter, and the latest convertible note (CN) cash raise puts another $1.25 million in the bank for the company, and closes the note that began selling last year.

Cytosorbents also announced that it had received the last of the grant money awarded from the Qualifying Therapeutic Discovery Project program, which amounted in total to nearly half a million dollars, and yet another $59,000 was added to the coffers from the University of Pittsburgh Medical Center,'s NIH-funded sepsis grant.

When it rains money, it pours money, because in all, this is not an insignificant amount of cash for a small, speculative medical device company like Cytosorbents.

On the other hand, it should be assumed that additional cash will still be needed to fund the approval and commercialization of CytoSorb, if the European trial ends up being a success.

Now that Cytosorbents has taken care of the short term money problem, speculation will begin as to why the recent stockpiling of cash.  The no-brainer aspect of filling the war chest now is that the company was almost out of money. 

The speculative aspect of announcing the cash raising now is what makes it an interesting event, and therefore worth talking about.

Some believe that the company is preparing for CE Mark approval in Europe because the trial will be a success, while the opposing argument to that would be that raising cash now is necessary because if the trial is deemed a failure, then the company will need money in the bank to kick start the rest of the pipeline, which has been idle as CytoSorb has been the focus of all company resources.

It's my opinion that both sides of that argument should be respected.

Should the trial succeed, and the company moves forward with approval, then there will be ample opportunity to raise the additional funds that will be needed through an offering at a significantly higher price. 

Should it fail, however, that two million in the bank right now is not going to go very far, and the next cash raising event will not be pretty for Cytosorbents; but at least the two mil will let them tread water while they figure out the next course of action.

Aside from the cash raising, however, here's the comment from Tuesday's press release that is drawing the most attention:

"Our European Sepsis Trial is making excellent progress and the strengthening of our balance sheet with these additional funds will help support our ambitious near-term goals."

It's news of full trial enrollment that is dominating the recent speculation regarding Cytosorbents, and the fact is, "excellent progress" doesn't tell us that the trial is fully enrolled or completed - but it also doesn't tell us that it's not.

Such is the ambiguous nature of press releases in the biotech sector, sometimes they read more like an 'As the World Turns' plot line than that of definitive company progress.

"Ambitious near-term goals" is equally vague.  If the trial looks like it's going to be as success, then "ambitious" means commercialization of CytoSorb.  If the trial looks to be a failure, then "ambitious" means keeping the lights on in the HQ office.

The fact is, the only thing we know today that we didn't know yesterday is that Cytosorbents has more money.

We're still waiting on the trial update news.

This PR was more relevant than the patent PR last week, because we now know that the company can get by for a little while longer, but it's still a waiting game for investors.

The resulting dip on the financing deal was not significant enough to load the boat, in my opinion, but a few shares picked up at fifteen cents will go a long way if the trial news is positive, but again - with all the reward that this stock offers, the risk is that it goes to pennies if the trial fails.

If you believe in the law of threes, then the next PR should be a whopper.

Disclosure:  Long CTSO.

vfc@vfcsstockhouse.com


2 comments:

  1. Vinny,

    What type of timeline are you thinking in terms of months, when you mention your short term & long term price expectations in regards to ctso?

    I am curious as to what your gut is telling you about this stock?

    As well as what do you think would be a good entry point into ctso at this time?

    ReplyDelete
  2. Keeping the lights on at HQ for some more months isn't ambitious. Personally I do think they've a lot up their sleeves.
    Furthermore, Chan seems extremely busy lately.

    Oh, and "trial making excellent progress" doesn't tell anything on the success of the trial.
    It is IMO "We're finishing trial" in cryptic words.

    ReplyDelete

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