CytoSorbents 2012 End of Year Shareholder Letter

CytoSorbents 2012 End of Year Shareholder Letter 
MONMOUTH JUNCTION, NJ -- (Marketwire) -- 01/09/13 --  CytoSorbents
Corporation (OTCBB: CTSO), a critical care focused company using
blood purification to treat life-threatening illnesses, issued the
following letter to shareholders. 
Dear Shareholders and Friends, 
As we welcome 2013, it marks an opportune time to reflect upon our
many important accomplishments in the past year and to further
elaborate on our vision for the future.  
Our mission is to improve and save lives, reduce spiraling healthcare
costs, and increase shareholder value by driving the success of
CytoSorbents. To this end, we are building the Company upon three
pillars of value.  

--  The first and most important pillar is the commercialization of our
    CytoSorb(R) cytokine filter in the European Union (E.U.), in other
    countries outside of the (E.U.), and eventually in the U.S. Based upon
    the growing number of potential applications we are seeing, we
    continue to believe that CytoSorb(R) has the potential to
    revolutionize critical care medicine by targeting the prevention or
    treatment of organ failure - the leading cause of death in the
    intensive care unit from such life-threatening illnesses as sepsis,
    burn injury, trauma, lung injury, pancreatitis, liver failure, and
    many others.
--  The second pillar is research and development and the creation and
    testing of valuable new products. Our highly biocompatible, porous
    polymer bead technology has demonstrated the unique and elegant
    ability to remove a broad range of unwanted substances from blood and
    other bodily fluids. We have expanded our product pipeline beyond
    CytoSorb(R) and BetaSorb (dialysis), to other development stage
    technologies that address large markets such as HemoDefend (blood
    transfusion), ContrastSorb (imaging and interventional
    radiology/cardiology), DrugSorb (drug overdose), and several more that
    have not yet been disclosed. We fund R&D through a combination of
    direct expenditures and non-dilutive government sources. In 2012, we
    were awarded approximately $5 million in R&D contracts from two
    U.S. Department of Defense agencies: DARPA and the U.S. Army. These
    contracts are valuable because they can advance our technologies while
    simultaneously helping to fund overall operating expenses.
--  The third pillar is business development. We seek to unlock the value
    of our technology portfolio through strategic partnerships with other
    companies. As a small, but rapidly expanding company, we would like to
    focus the majority of our resources on the commercialization of
    CytoSorb(R). Partnering with well-positioned and financially
    capable partners who are leaders in their respective fields and have
    the ability to bring our products to market, would provide an ideal
    way to realize the full potential of our technology.

This represents our overarching strategy for the Company. With trailing
revenues expected to be approximately in the range of $1.2-1.4
million in 2012 (unaudited results) -- a combination of primarily
grant income and early product revenue -- we hope that we are just at
the beginning of creating a valuable growth company.  
Commercialization of CytoSorb(R) 
We officially launched direct sales of CytoSorb(R) in Germany,
Austria and Switzerland in the second half of 2012. CytoSorb(R) is
approved in the E.U. as a first-in-class extracorporeal cytokine
filter to be used in any situation where cytokines are elevated. We
are positioning the device as a safe and powerful new tool to control
cytokine storm, reduce uncontrolled inflammation, and potentially
prevent or treat organ failure. The launch was the culmination of a
significant effort to position CytoSorbents as a commercialization
focused company. 

--  We recruited our Vice President of Sales and Marketing, Dr. Christian
    Steiner, and a direct sales force of 3 other sales representatives in
    Germany. We expect to increase the number of sales representatives
    this year, as needed, to take advantage of increased business
--  We established a European subsidiary in Berlin, Germany that has
    become the central point of direct commercialization in Germany,
    Austria and Switzerland
--  We manufacture CytoSorb(R) at our ISO 13485 certified manufacturing
    facility in New Jersey. We synthesize the polymer beads from raw
    chemicals and, today, CytoSorb(R) is one of the highest,
    ultra-pure, clinical-grade medical sorbents on the market. We are also
    vertically integrated -- assembling and shipping our CytoSorb(R)
    filters from this facility while instituting strict controls on
    quality and cost, with current gross margins greater than 50%. With
    economies of scale and increased volume, we have the potential to
    increase the profitability of CytoSorb(R)
--  Reimbursement has been established in both Germany and Austria at more
    than $500 per cartridge, reducing a major barrier to adoption
--  More than 60 key opinion leaders (KOLs) in our direct sales
    territories are now either using CytoSorb(R), want to use it, or
    are planning to use it in clinical studies. These KOLs are frequently
    the chiefs of the critical care department and/or prominent and
    influential leaders in clinical and scientific research for both
    surgical and medical critical care. We are also in the planning stage
    for more than a half dozen investigator-initiated studies
--  In 2012, we exhibited at 10 major scientific meetings with research
    talks or symposia at three of these. As more studies are performed
    with CytoSorb(R), we hope that our KOLs will begin to share these
    data with their peers at future conferences
--  We sponsored World Sepsis Day and participated in charity events in
    both New York and Berlin to help support non-profit organizations that
    are working to increase awareness of this significant unmet medical
--  We recently welcomed a new Chief Financial Officer, Thomas Bocchino,
    an accomplished executive with relevant experience in European and
    international distribution.

Since the first commercial availability of the CytoSorb(R) cytokine
filter in Q4 2011, through the end of 2012, we have generated product
revenues in the range of $190-$200K. CytoSorb(R) sales in Q4 2012
(unaudited results) are expected to be nearly half this total figure,
reflecting primarily the first full quarter that our direct sales
team was active.  
Going forward, we are implementing a multi-pronged strategy for
CytoSorb(R) sales expansion. The first part focuses on direct sales
in Germany, Austria and Switzerland, using our direct sales force.
The advantage of direct sales is that we intimately control the sales
process, have direct contact with the KOLs and end-users that
facilitates feedback and planning, and can sell with higher gross
margins. We are currently in the key opinion leader adoption phase,
where there is naturally a lag between when a KOL first agrees to use
or trial the CytoSorb(R) filter, to when we achieve first sales, to
when we can achieve broader departmental usage with reorders. That
said, as we have described before, KOL approval is one of the most
important steps to driving adoption and greater usage. CytoSorb(R)
has been generally met with enthusiasm by physicians, as little can
be done today to help critically ill patients, and CytoSorb(R)
attacks the well-known underlying causes
 of organ failure. This
seeding of the market will hopefully help generate ongoing data and
clinical usage in many different applications. 
The second phase of the strategy is to work with distributors or
strategic partners to expand the commercial footprint of CytoSorb(R)
to the rest of Europe and to other countries that accept European
regulatory approval. This will allow us to leverage their
pre-established sales force and distribution capabilities, including
important KOL contacts, enabling broader CytoSorb(R) filter sales.  
By layering these two sources of revenue with grant income from
government R&D contracts, we hope to accelerate our revenue growth
and time to cash flow breakeven. If our European strategy is
successful, it would provide an abundance of opportunities for the
Company. We estimate that Germany alone represents a total
addressable market of at least $500 million to $1 billion for
critical care applications. However, to further drive success of the
Company, we plan to pursue U.S. regulatory approval for CytoSorb(R).
We intend to leverage our existing FDA approved IDE application (to
run a small sepsis trial), to run a larger pivotal trial in the U.S.
The timing of a trial in the U.S. is subject to many variables, and
we are working through those now with the intent of conducting
detailed discussions with the FDA regarding trial design later this
year. Should a pivotal trial be successful in the U.S., it could lead
to U.S. FDA approval and be yet another major catalyst to CytoSorb(R)
adoption and usage worldwide. 
With each new CytoSorb(R) treatment, we learn more about how best to
use it. In our ongoing dosing study, CytoSorb(R) has been
successfully used with continuous treatment (each cartridge used for
24 hours) for 7 days with no serious device related events. The trial
is ongoing, with additional patients being enrolled, samples
collected and data being analyzed. We are currently expanding the
study to include a total of seven hospitals in Germany, all of which
are leading university hospitals that expressed an interest to join
our trial. We are also using the trial as an opportunity to answer
some important questions related to treatment, which will be helpful
to further guide clinical usage.  
Outside of the trial, in every day clinical practice, physicians have
had generally encouraging results with CytoSorb(R). For example,
there have been a number of cases of septic shock and multiple organ
failure where CytoSorb(R) was used in patients with extremely high
cytokine levels (e.g. IL-6 greater than 20,000 pg/ml). These patients
were extremely sick with a variety of infections ranging from a
Streptococcal limb infection to suspected gram negative sepsis
following complications from a gynecologic procedure. In each of
these cases, the prognosis was reportedly grim by the treating
physicians. With CytoSorb(R) treatment, IL-6 levels dropped
dramatically over the course of several days, with an eventual
resolution of organ failure, and patient recovery. Based upon
feedback from these physicians, they are interested in documenting
these surprising results for potential publication. 
There have also been a handful of cases, unfortunately, where
CytoSorb(R) has not been able to rescue the patient. A common theme
in these treatment failures appears to be either suboptimal usage of
CytoSorb(R) or treatment that was too late in the disease process. We
cannot expect CytoSorb(R) to save all patients, particularly when
patient's illnesses are so advanced that recovery is unlikely. That
said, the more clinical experience we gain with the technology, the
better the odds of treating these patients optimally and having a
better clinical outcome.  
Overall, we continue to make significant progress in our
commercialization efforts and are pleased with the initial physician
response and clinical experience. 
Research and Development update 
We continue to advance our technologies and grow our product pipeline
through investments in research and development. We have recently
been awarded approximately $5M in government contracts that help to
fund these efforts.  
DARPA $3.8M Contract
 As part of DARPA's "Dialysis-like Therapeutics"
program to treat sepsis, we were awarded a $3.8M five-year contract
in August to develop advanced polymers that can remove not only
cytokines but also a variety of bacterial and biowarfare toxins. Our
technology is ideally suited for this broad spectrum capability. In
fact, we have already demonstrated the ability of CytoSorb(R) to
remove a number of these toxins in vitro such as Staphylococcus
aureus alpha toxin, a potent toxin that is responsible for cell
destruction and widespread tissue damage in Staph. aureus and
methicillin resistant Staph. aureus, or MRSA, infection. MRSA is one
of the leading and most deadly hospital acquired infections. Outside
of this DARPA contract, Dr. John Kellum at University of Pittsburgh
has demonstrated in an animal model of sepsis, that a reduction of
cytokines by CytoSorb(R) hemoadsorption appears to redirect the
immune response to the area of infection, helping to control it even
in the absence of antibiotics, while preventing unwanted
immune-mediated injury to uninvolved, healthy organs. These new and
exciting findings highlight the multi-factorial and synergistic
benefit that CytoSorb(R) may have in these critical illnesses (i.e.
reduction of cytokine storm, removal of damaging bacterial toxins,
redirection of the immune response, and others) and why we believe
our technology is the best-in-class solution.  
United States Army $1M Phase 2 SBIR Award
 We are nearing the
completion of our negotiations of our $1 million Phase 2 SBIR award
with the U.S. Army. Ahead of this, we have been continuing our work
from the Phase I SBIR award, and should be in a good position to make
rapid progress with funding. We remain excited by the prospect of
continuing to work with the Army and obtaining efficacy data in
animal models of both burn injury and trauma which, if positive, will
help advance these applications in human treatment. We are also
encouraged by interest from other branches of the military in our
technologies, which may lead to other opportunities. 
Business Development 
One of the key goals of the Company is to establish strategic
partnerships for various products in our pipeline. We cannot
commercialize all of them by ourselves, so leveraging the expertise,
financial resources, and infrastructure of dedicated partners remains
a logical option. The majority of our products under development have
achieved proof-of-concept, at a bare minimum.  
One of our most advanced development candidates is our HemoDefend
blood purification technology. HemoDefend is designed to remove
contaminants in blood transfusion products that can cause transfusion
reactions, effectively "washing blood" without the cost, time and
trouble of actually doing so. We have made significant advances in
our in-line blood transfusion filter, demonstrating the ability to
filter standard packed red blood cells (pRBCs) that account for
nearly half of the 100+ million worldwide blood transfusions each
year, while removing significant amounts of contaminants such as
toxic free hemoglobin, and others. We have optimized the design so
that a unit of packed red blood cells passes relatively easily
through this low resist
ance, high flow filter by gravity alone in
under a half an hour. This meets the requirements of the vast number
of pRBC transfusions performed each year. We are also in the process
of optimizing our packaging to help drive down the unit costs of each
device. We also continue to make good progress on our "Beads in a
Bag" configuration, with demonstration of our neutrally buoyant bead
technology, and efficient removal of contaminants such antibodies,
cytokines, free hemoglobin, and bioactive lipids over 42 days. This
was the subject of our scientific poster presentation at the 2012
American Association of Blood Banks (AABB) conference. We believe
that HemoDefend represents a significant new innovation and
capability to the blood transfusion industry. 
Another product that we announced recently is our ContrastSorb
technology. ContrastSorb, still in early development, is designed to
try to prevent contrast-induced nephropathy. Patients with existing
kidney injury from diseases such as diabetes and hypertension, are at
higher risk of kidney injury when undergoing standard CT imaging
procedures using IV contrast, interventional radiology procedures,
and cardiac catheterizations. Unfortunately, due to vascular disease,
these are the patients who are most likely to require these
procedures. There are an estimated 200 million CT scans performed
each year with many requiring contrast administration. There are an
estimated 10 million coronary angiograms performed each year
worldwide, as either a diagnostic or therapeutic (stent placement or
balloon angioplasty) procedure for coronary artery disease, each
requiring high doses of IV contrast. Catheterization procedures for
peripheral artery disease and other interventional radiology
procedures also continue to grow rapidly. With our blood compatible
technology that can remove contrast with high single pass efficiency,
it potentially could be used during these procedures in high risk
patients to mitigate kidney injury. This type of technology could,
for example, be interesting to renal/dialysis companies, catheter
companies, interventional cardiology and radiology companies, and
potentially others. 
Investor Relations 
In 2012, we were pleased to attract positive analyst coverage from
both Zacks Research and Brean Murray. These reports, and the
continuing follow-on research notes, summarized the investment
opportunity well and represented the first research coverage on the
Company since going public in 2006. We commissioned
to produce an easy-to-understand and engaging three and a half minute
illustrated video synopsis on CytoSorbents that has also garnered
praise from both existing and potential investors. We were also
interviewed by MoneyTV in a high quality video, with additional
follow-on audio segments that helped to bring our message to a
broader television audience. We also worked with ProActive Capital to
broaden our social media exposure and to bring new content to
investors. Also, an article on our Company appeared on the front page
of Medical Device Daily, a daily web and print publication that has
excellent distribution into the medical device community. Many of
these materials can be found on our investor relations homepage.
Furthermore, we presented at numerous investor conferences, such as
the OneMedForum, Rodman and Renshaw, and Brean Murray conferences.  
The above activities demonstrate our commitment to support our
shareholders and to share our story with a wider investor audience.
In 2013, we plan to go one step further and have formally engaged
Alliance Advisors as our investor relations group. They are a
well-respected boutique firm that specializes in representing
companies of our size, with many institutional and retail investor
contacts. We also plan to devote more resources towards increasing
the visibility and profile of our Company in the media. Last but not
least, we expect the launch of our newly-designed website in the next
several months.  
Expanding our investor relations efforts fits with our longer term
goal of leaving the OTCBB and up-listing to a national stock
exchange. This requires significant preparation, and clearly must be
done at the appropriate time when our fundamentals justify it.
However, the advantages are many, including a higher profile and
greater access to the broader investment community, particularly
institutional investors. 
Goals for 2013-2014 
We have laid out an ambitious, yet potentially achievable, agenda for
the next two years. Some of our highest priorities are: 

--  Greater awareness of our story and technology through increased media
    exposure and improved investor relations
--  Revenue growth and increased product adoption in our direct sales
--  Distributor agreements for CytoSorb in Europe and elsewhere
--  Strategic partnerships for our pipeline products
--  Non-dilutive funding from grants and other programs
--  Commencement of a U.S. based trial
--  Clinical data and new clinical applications with data being presented
    at key scientific conferences
--  Improving liquidity and institutional sponsorship of our stock with
    potential up-listing to a national stock exchange

We appreciate the continued hard work and dedication of our employees
and the support of our shareholders and friends. My best wishes to
all for a happy, healthy, and prosperous New Year! 
Phillip Chan, MD, PhD
 Chief Executive Officer - CytoSorbents
Forward-Looking Statements  
This press release includes forward-looking statements intended to
qualify for the safe harbor from liability established by the Private
Securities Litigation Reform Act of 1995. Forward-looking statements
in this press release are not promises or guarantees and are subject
to risks and uncertainties that could cause our actual results to
differ materially from those anticipated. These statements are based
on management's current expectations and assumptions and are
naturally subject to 
uncertainty and changes in circumstances. We
caution you not to place undue reliance upon any such forward-looking
statements. Actual results may differ materially from those expressed
or implied by the statements herein. CytoSorbents Corporation and
CytoSorbents, Inc believe that its primary risk factors include, but
are not limited to: obtaining government approvals including required
FDA and additional CE Mark approvals; ability to successfully develop
commercial operations; dependence on key personnel; acceptance of the
Company's medical devices in the marketplace; the outcome of pending
or potential litigation; compliance with governmental regulations;
reliance on research and testing facilities of various universities
and institutions; the ability to obtain adequate and timely financing
in the future when needed; product liability risks; limited
manufacturing experience; limited marketing, sales and distribution
experience; market acceptance of the Company's products; competition;
unexpected changes in technologies and technological advances; and
other factors detailed in the Company's Form 10-K filed with the SEC
on March 30, 2012, which is available at  
CytoSorbents Corporation
Phillip Chan
Chief Executive Officer
(732) 329-8885 ext. 823 
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