Sunday, January 03, 2016

CytoSorbents Continues Despite Disappointing Financials

CytoSorbents Corporation (ticker CTSO) has a brand new approach to removing blood impurities in critically ill patients. Hemoperfusion is one of several extracorporeal methods that capture and remove potential threats from blood. IBISWorld thinks the total blood dialysis market is quite large, and the revenues of publicly traded dialysis leaders are indeed sizeable. A simple glance at the financials of dialysis market leaders Eli Lilly (ticker LLY), Baxter International (ticker BAX), and Fresenius Medical Care (ticker FMS) shows how difficult it will be for Cytosorbents to make headway.

The most relevant comparison should be between CytoSorbents and Fresenius because their product lines are both specific to the blood dialysis market. Here's a basic comparison, from the latest available reporting periods.

Gross revenue (ttm): $3.9M
Profit margin: -284.9%
ROE: -127.6%
EPS: -$0.69

Gross revenue (ttm): $17.1B
Profit margin: 6.12%
ROE: 12.2%
EPS: $1.72

It's not even close. Fresenius is by far the more successful company. I'm not sure why CytoSorbents even went public in the first place, or why their executive team's compensation is so high, given their very poor financial performance. They have almost doubled their gross revenue each year since 2012 but their negative net income grows even larger. That's just plain embarrassing.

I had some hope that a deeper look into CytoSorbents would reveal something worth seeing. I just can't see past those very disappointing top line and bottom line results over several years. The retained earnings were over -$130M by the end of September 2015, and that's a huge negative hole for a small company fighting into a mature market with high regulatory barriers. I don't think I need to take this any farther. It is obvious that CTSO does not deserve to be anywhere near my own money.

Full disclosure: No position in CTSO or any other stocks mentioned at this time.