Carmat — Development progressing in the US and EU

Carmat (PAR: ALCAR)

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Research: Healthcare

Carmat — Development progressing in the US and EU

Carmat continues to make progress in the development of the total artificial heart (TAH). In February, the FDA granted full approval for the company to initiate an early feasibility study (EFS) in 10 patients at seven US centres. Additionally, the company has obtained reimbursement from the Centers for Medicare and Medicaid Services (CMS) for the device and routine care items and services related to the study. The company expects to implant the first TAH in Q121.

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Written by

Maxim Jacobs

Healthcare

Carmat

Development progressing in the US and EU

Development update

Healthcare equipment
& services

4 December 2020

Price

€23.3

Market cap

€294m

US$1.18/€

Net cash (€m) at 30 June 2020

17.8

Shares in issue

12.6m

Free float

65.9%

Code

ALCAR

Primary exchange

Euronext Paris

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

15.7

22.5

17.1

Rel (local)

(0.2)

10.1

19.9

52-week high/low

€23.6

€11.6

Business description

Carmat is a France-based medical device company developing a biocompatible, artificial heart to satisfy the lack of donor hearts available for terminal biventricular heart failure patients. The company expects to initiate an early feasibility study in the US in Q420 and complete a pivotal study in the EU in Q121 though a CE mark may be granted in 2020.

Next events

TAH CE mark in EU

Q420

Initiate Carmat TAH trial in US

Q121

Analysts

Maxim Jacobs

+1 646 653 7027

Nathaniel Calloway

+1 646 653 7036

Carmat is a research client of Edison Investment Research Limited

Carmat continues to make progress in the development of the total artificial heart (TAH). In February, the FDA granted full approval for the company to initiate an early feasibility study (EFS) in 10 patients at seven US centres. Additionally, the company has obtained reimbursement from the Centers for Medicare and Medicaid Services (CMS) for the device and routine care items and services related to the study. The company expects to implant the first TAH in Q121.

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(€)

DPS*
(€)

P/E
(x)

Yield
(%)

12/18

0.72

(43.7)

(4.54)

0.0

N/A

N/A

12/19

0.70

(44.2)

(3.88)

0.0

N/A

N/A

12/20e

0.54

(44.4)

(3.52)

0.0

N/A

N/A

12/21e

28.2

(39.8)

(3.15)

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

CE mark expected by year-end

The EU pivotal trial continues to enrol, with 13 patients (out of 20) having been implanted with the TAH so far, with delays to enrolment due to COVID-19. Trial enrolment is now expected to complete by the end of Q121. However, the DEKRA notified body has agreed to a detailed schedule for filing and review of the dossier, which makes a CE mark by the end of the year still possible.

Study in the US to begin in Q121

In February, Carmat received approval from the FDA to initiate the EFS in 10 patients at seven US centres and in May announced reimbursement from the CMS. The trial is expected to begin after the FDA approves the last remaining amendment to the configuration of the TAH (eight amendments have been approved so far). The company expects the first implants to be performed in Q121, with enrolment completed by the end of the year.

€13m in funding granted by French Ministry

The French Ministry of Health and Solidarity has granted €13m in funding to Carmat to conduct the EFICAS clinical study, representing approximately two-thirds of the total study cost. The EFICAS study is expected to include 52 patients with enrolment starting in Q221. The primary endpoint will be the 180-day survival rate without a disabling stroke or until a successful cardiac transplantation. Besides providing data to drive adoption of TAH, it will also help support pricing and reimbursement for the product.

Valuation: €679m or €53.88 per share

We have decreased our valuation from €856m or €68.01 per share to €679m or €53.88 per share. This decrease is mainly due to more conservative revenue estimates in the near term as well as lower net cash. The company reported €45.3m in cash at the end of June, after drawing down €10m from a conditional loan from the European Investment Bank in May.

Progress being made

The company is coming closer to having TAH on the market. In February, the FDA granted full approval for the company to initiate an EFS in 10 patients at seven centres. The primary endpoint will be patient survival at 180 days after the implant or a successful heart transplant within 180 days of implantation. A progress report on the first three patients will be assessed by the FDA prior to the enrolment of the rest of the patients. Additionally, the company has obtained reimbursement from the CMS for the device and routine care items and services related to the study. The company expects to start enrolment in Q121 once the FDA approves the last remaining outstanding amendment to the configuration of the TAH (eight of nine amendments have been approved so far). The amendments would allow Carmat to use the ‘commercial configuration’ of the TAH in the study. Enrolment is expected to complete by the end of 2021.

The EU pivotal trial in patients with advanced heart failure continues to enrol, with 13 patients (out of 20) having been implanted with the TAH so far though the rate of enrolment has been negatively affected by COVID-19. The company still expects to obtain a CE mark by the end of this year after agreeing with the DEKRA notified body about a schedule for the filing and review of the dossier. In November 2019, Carmat presented data from the first 11 patients surgically implanted with the device. The six-month survival rate was 73%, which compares favourably to the 50% achieved in the earlier four-patient European feasibility study. Additionally, the company recently announced that it has been able to achieve over two years of support for an individual with the device, indicating the feasibility of long-term implantation.

To help put the six-month data into context, 266 patients involved in the INTERMACS database who received the SynCardia TAH achieved a six-month survival rate of 62%.1 This interim analysis of the Carmat TAH supports the biocompatibility of the device and further demonstrates its positive safety profile. These patients were managed with light anticoagulant therapy and did not experience common adverse events such as cerebrovascular accidents, gastrointestinal bleeding or infections related to the percutaneous cable, all relatively common issues with competitive products (see Exhibit 1), which we believe should help increase Carmat TAH adoption if approved.

  Arabía, F. A., Cantor, R. S., et al (2018). Interagency registry for mechanically assisted circulatory support report on the total artificial heart. The Journal of Heart and Lung Transplantation, 37(11), 1304-1312.

Exhibit 1: Comparative outcomes at six-month follow up

Survival rate

Stroke

Gastrointestinal bleeding

Driveline infection

Carmat

73%

0%

0%

0%

SynCardia

54–62%

23%

20%

22%

BIVAD

46–68%

7%

7%

7%

LVAD

90–92%

8%

8%

10%

Source: Carmat. American Society of Artificial Internal Organs Annual Conference June 2019.

The company also recently announced that the French Ministry of Health and Solidarity has granted €13m in funding to Carmat to conduct the EFICAS clinical study, representing approximately two-thirds of the total study cost. The EFICAS study will be a non-randomised study that is expected to include 52 patients implanted with TAH with enrolment starting in Q221. The primary endpoint will be the 180-day survival rate without a disabling stroke or until a successful cardiac transplantation. There will also be a cost-effectiveness analysis conducted comparing the cohort of patients implanted with TAH to a second cohort of patients receiving standard bridge to transplant therapy. Besides providing data to drive adoption of TAH, it will also help support pricing and reimbursement for the product.


Valuation

We have decreased our valuation from €856.0m or €68.01 per share to €679m or €53.88 per share. This decrease is mainly due to more conservative revenue estimates in the near term as well as lower net cash.

Exhibit 2: Carmat valuation table

Product contributions (net of R&D and marketing costs)

Indication

Prob. of success

Launch year

Launch pricing

Peak sales (€m)

rNPV
(€m)

Carmat artificial heart in EU market

Terminal heart failure and myocardial infarctions

30%

2020

€160,000

2,221 in 2025

936.3

Carmat artificial heart in US market (under HUD)

Terminal heart failure and myocardial infarctions

20%

2021

$200,000

713 in 2025

168.0

G&A expenses

(103.9)

Net capex, NWC and taxes

(338.7)

Total rNPV

661.6

Net cash at 30 June 2020

17.8

Total firm value

679.4

Total shares (m)

12.6

Value per basic share (€)

53.88

Source: Edison Investment Research

Financials

Carmat’s H120 reported post-tax loss was €20.8m, down roughly 13.3% from H119 (€24.0m). We have reduced our 2020 revenue estimate from €7.5m to €0.5m as we now expect the CE mark to be granted very late in the year so we do not expect any meaningful revenues. We are also introducing our 2021 estimates, which include €28.2m in revenues (related to the initial ramp of commercial sales), €16.6m in SG&A, €30m in R&D and a post-tax loss of €39.8m.

The company had €45.3m in cash and equivalents and around €27.5m in debt at 30 June 2020. In December 2018, Carmat engaged in a €30m non-dilutive loan agreement with the European Investment Bank (EIB). Carmat drew down the first of three available tranches of €10m in January 2019 and the second in May 2020. There is an additional €10m remaining under the facility, which can be drawn down any time before 17 December 2021. It is important to note the remaining drawdown is conditional on technical and financial milestones including the successful execution of the clinical trial or the raising of additional funds. In November, the company announced it has obtained a €10m loan that is 90% guaranteed by the French state. The initial term is 12 months but principal repayment can be extended for an additional five years.

We assume an additional financing requirement of €40m through 2021 in order to fund US clinical development and the commercial launch. As per our usual methodology, we assign these additional financings to long-term debt. We do not expect Carmat to start generating sustainable, positive, recurring operating cash flows until 2022 (previously 2021), once its sales and manufacturing efficiencies start to exceed all projected overhead costs.

Exhibit 3: Financial summary

€000

2018

2019

2020e

2021e

Year end 31 December

PROFIT & LOSS

Revenue

 

 

722

702

544

28,198

Cost of Sales

0

0

0

(18,274)

General & Administrative

(11,897)

(13,634)

(14,940)

(16,427)

Research & Development

(30,672)

(28,299)

(28,500)

(30,000)

EBITDA

 

 

(41,847)

(41,230)

(42,417)

(36,503)

Depreciation

(920)

(1,164)

(1,036)

(2,878)

Amortization

0

0

0

0

Operating Profit (before amort. and except.)

 

 

(42,766)

(42,394)

(43,453)

(39,381)

Exceptionals

(2)

(104)

0

0

Other

0

0

0

0

Operating Profit

(42,768)

(42,498)

(43,453)

(39,381)

Net Interest

(945)

(1,787)

(906)

(376)

Profit Before Tax (norm)

 

 

(43,711)

(44,181)

(44,359)

(39,756)

Profit Before Tax (FRS 3)

 

 

(43,713)

(44,285)

(44,359)

(39,756)

Tax

1,984

1,636

0

0

Profit After Tax and minority interests (norm)

(41,727)

(42,545)

(44,359)

(39,756)

Profit After Tax and minority interests (FRS 3)

(41,729)

(42,649)

(44,359)

(39,756)

Average Number of Shares Outstanding (m)

9.2

11.0

12.6

12.6

EPS - normalised (€)

 

 

(4.54)

(3.88)

(3.52)

(3.15)

EPS - normalised and fully diluted (€)

 

 

(4.54)

(3.88)

(3.52)

(3.15)

EPS - (IFRS) (€)

 

 

(4.54)

(3.89)

(3.52)

(3.15)

Dividend per share (c)

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

6,139

5,611

12,514

19,636

Intangible Assets

90

28

30

30

Tangible Assets

6,049

5,584

12,483

19,606

Current Assets

 

 

30,691

59,064

31,931

25,053

Short-term investments

0

0

0

0

Cash

25,302

55,505

25,612

18,644

Other

5,389

3,559

6,319

6,409

Current Liabilities

 

 

(10,601)

(8,601)

(10,940)

(10,940)

Creditors

(10,601)

(8,601)

(10,940)

(10,940)

Short term borrowings

0

0

0

0

Long Term Liabilities

 

 

(4,698)

(16,415)

(37,527)

(77,527)

Long term borrowings

(4,698)

(16,415)

(37,527)

(77,527)

Other long term liabilities

0

0

0

0

Net Assets

 

 

21,530

39,660

(4,022)

(43,778)

CASH FLOW

Operating Cash Flow

 

 

(37,229)

(38,458)

(41,050)

(36,592)

Net Interest

(945)

(1,787)

(906)

(376)

Tax

0

0

0

0

Capex

(2,293)

(649)

(7,938)

(10,000)

Acquisitions/disposals

0

0

0

0

Financing

5,059

59,634

0

0

Net Cash Flow

(35,408)

18,741

(49,893)

(46,968)

Opening net debt/(cash)

 

 

(57,009)

(20,603)

(39,091)

11,915

HP finance leases initiated

0

0

0

0

Other

(998)

(253)

(1,112)

0

Closing net debt/(cash)

 

 

(20,603)

(39,091)

11,915

58,883

Source: company reports, Edison Investment Research

General disclaimer and copyright

This report has been commissioned by Carmat and prepared and issued by Edison, in consideration of a fee payable by Carmat. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Carmat and prepared and issued by Edison, in consideration of a fee payable by Carmat. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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