Investing in the micro-cap health care sector is 180 degrees removed from your grandfather’s idea of health care stocks. Everyone knows what kind of stocks we’re talking about. Merck (NYSE: MRK), Pfizer (NYSE: PFE) and scores of others. Boring, but fairly dependable… these aren’t the type of health care-related stocks today’s investors seek out when they’re looking for real growth.

Investors who want real growth in the health care space head to the biotech or medical device sub-sectors. Quite possibly one of the more alluring things about micro-cap biotechnology and medical device firms is that these tiny companies often have cut-and-dry situations. Or said another way…a binary outcome.

Thumbs up or thumbs down

Many have the potential to see their sub-dollar share prices rocket to $5, $10, $20 and beyond, graduating to small-cap and maybe even mid-cap status along the way. The kind that make you chest pounding proud that you were so smart to see the potential…and pocket a 25, 50 even 100x return.

On the other hand, many more will be here today, but gone tomorrow because their innovations missed the mark. It was yes or no…thumbs up or thumbs down. These didn’t make it.

That’s not going to be the case with CytoSorbents (OTCBB: CTSO), a critical care focused therapeutic device company using blood purification technology to treat life-threatening illnesses….primarily those in the ICU.

CytoSorb®, the Company’s “First-in-Class” Cytokine Filter, which is approved in the European Union is a potentially breakthrough therapy that attempts to address one of the most challenging unmet medical needs in medicine…the ability to prevent or mitigate multiple organ failure – the leading cause of death in the intensive care unit (ICU) from any cause.

From the Company’s website…[our] purification technology is based on biocompatible, highly porous polymer beads that can actively remove toxic substances from blood and other bodily fluids by pore capture and surface adsorption. Each polymer bead contains millions of pores and channels that can be modified to remove substances as small as drugs, to substances as large as antibodies. (Editor’s note: if you want to read more about the technology, visit the Company’s website.)

Key Investment Considerations for CytoSorbents

Here’s my first bottom line comment…I think CytoSorbents’ game-changing blood purification technology will revolutionize the way doctors treat life-threatening illnesses in intensive care units and will be a key market driver for the Company.

Secondly…CytoSorb™ is now available for sale in Germany for the treatment of critical care illnesses under a controlled market release, with a planned broad product launch in Germany this year and availability in other E.U. countries; that’s assuming continued positive results from clinical studies, available capital, the usual caveats.

Why Germany? It’s the largest medical device market in Europe and the third largest in the world.

Plus, Germany is particularly attractive as specific reimbursement has now been established for CytoSorb at more than $500 per device. For now, it’s also worth noting the Company is assembling a sales team and has a sizable target market of 2,100 hospitals; which seems to be a great place to start.

Of course, there are risks with CytoSorbents (this is a development stage company after all) just as there are with most micro-caps, but the key here is the potential rewards seem to far outweigh the risks and the stock probably trades at a valuation that isn’t justifiable, meaning it’s too low.

Here’s a third key

Any Intellectual Property?…how about 29 issued patents!

“The heart of CytoSorbents’ products are biocompatible, highly porous polymer beads that can remove a wide range of toxic substances from blood and bodily fluids based on pore capture and surface adsorption. Each bead is approximately the size of a grain of salt, has millions of pores and channels that capture substances of a certain size, while excluding others. The uniqueness and competitive advantage of the technology lies in its biocompatibility, ease of modification and ultra-high purity. The technology is covered by 29 issued patents,” Zacks said in a recent research note.

We’re just guessing, but there’s probably a very good chance that the patents held by CytoSorbents are currently worth more than the entire company. That is to say the sum of CytoSorbent’s intellectual property is quite valuable and the market is significantly undervaluing the shares…especially at a market value of less than $23 million (market close 6/19/12)

Incidentally, the company has not commenced U.S. clinical trials as of this date, and that’s fine given the expense and time to approval, so it’s all about their European initiative at this moment. Should CytoSorbents’ efforts in Germany and the E.U. prove positive, the stock will move a good bit higher and it’s unlikely they will face any difficulty in finding the financing needed for the U.S. trials.

Here’s the biggest key for CytoSorbents’ success…Management, management, management

There’s not much I need to say here other than this team can get the job done. I suggest you take a few minutes and visit the Company’s website, look at management, the board, and the scientific as well as medical advisors and I think you’ll agree with me: http://www.cytosorbents.com/

OK…so this isn’t grandpa’s idea of healthcare investing. But grandpa didn’t have a chance at a 25, 50 or 100 to one return. I can’t say for certain that CytoSorbents, which is trading in the 10-12 cent range will go to 50 cents, or $1, or $10…but I “think” those of you who will be patient with this name can look back and say, “I knew this one was going to be a winner!” Yes I did.

Mike Casson
Executive Editor
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