Carmat SA (ALCAR) Earnings Call Transcript & Summary

Good morning, everybody. So today, we are gathering together in order to give you a business update about CARMAT. So we'll give a view on what happened last year, and then we'll get into more details about what our plans for 2023. And finally, we'll end up with our perspective of the future. So the speakers today, altogether with me. So I have Pascale d'Arbonneau, our Chief Finance Officer, on the left. She's accompanied by Francesco Arecchi, who's Director of Global Market Development; and Dr. Piet Jansen, who's our Chief Medical Officer. So the agenda today will start with CARMAT achievements, will be followed by the clinical update. Then we'll go to the commercial strategy. We'll speak about manufacturing and finance, and we'll end up with the outlook for the coming future. So CARMAT achievements. So 2022 has been a very important year for us. So as you will remember, we got approved in 2020. We started commercially in 2021. And rapidly after we started very quickly commercial operations, we had some quality issues, and we decided to voluntarily suspend the implants in order to understand better what happened. So after many months of work, we were able to see that it was about quality. It was quality old. Design was not impacted. We learned a lot. We did a lot of work with our suppliers, which allowed us to resume the commercial operations in November last year. Rapidly after we started commercial operations, we enrolled the first patient in EFICAS in December, the French study, which is aimed at helping us to support the development of the therapy. Francesco will come back to it. Then we've been able as well to raise EUR 72 million in 2 operations last year despite a very difficult environment. On top of it, we worked parallelly on different financial tools. And we were very happy to report that the European community approved the blended financing up to EUR 17.5 million. And last, but not least, we submitted the dossier to restart the EFS to the FDA, and we are now waiting for their response. So the past year was a very important year because it allowed us to build a strong relationship with our suppliers. I mean we knew it was something we needed to do for a long time, but we were limited by resources, and we felt we have the right time to change the way we were working, and we allocated a lot of resources to work with our key critical suppliers. On top of it, obviously, we kept a very important relation to our customers to make sure that they could follow us in the resumption of commercial operation and restart to select patients for treatment, both in commercial and clinical settings. CARMAT road map. So as you know, so since the PIVOT study started in 2016 in Europe, we've been accelerating quite nicely the pace for development, and we got CE mark in 2020. We started EU commercial operations in 2021 as well as European -- U.S. feasibility study. As very often, we had some quality issues right after we started. We learned a lot after we started scaling up manufacturing as very often in medical device. So we've been spending a lot of time to understand what happened exactly, and we were able to identify and correct the issues we had in 2021 last year, which allowed us to resume commercial operations. And the plan now is really to restart the EFS to be able to initiate the U.S. PIVOT in 2024 to submit and get approval of the PMA in 2026. So I think that's very important because despite the frustration, obviously, because we've been stuck last year for almost 1 year, obviously, we are not able to treat patient. We have an untapped need for that kind of treatment. But that's very important. Bear in mind that nowadays, we are the only company approved in Europe for this kind of biventricular support. And more importantly, if we compare to the projects that started at the same time we did start in 2008 or even before, we are the only company approved for commercial operations in Europe and -- who started as well EFS in the U.S. The other 2 companies are still in animal preclinical studies. So just to show you that we've been very fast anyway despite all the problems we encountered in terms of execution to get commercially approved and in the U.S. clinical setting. Obviously, I think that was the initial vision of Alain Carpentier when he cofounded the company with Matra Defense. Our goal is really to fight against the shortage of organs donor. And obviously, the need is growing exponentially. As you know, we'll come back to it. And our vision is still to be the first total artificial heart to be approved for destination therapy. That's really what we work for every day, and we are confident we'll get it very soon. So I will hand over to Piet in order to update us on all the learnings of the past years in terms of clinical and tell us where we are aiming to.

Yes. Thank you, Stephane. So to better understand the clinical experience that we have so far, let's take a look together at the distinctive features of the CARMAT artificial heart. So first of all, inside our device, we have surfaces that are in contact with blood. Those surfaces are built from biological compartments, which allow the smooth passing of the blood cells without being activated. In addition to that, we also have a system that produces very minimal shear stress, which is a normal approach for devices like this to have blood cells that are undamaged when they pass through the system. The result of this is that we do not see any hemolysis, which means blood cells that are ruptured. And we also have, thanks to that, the possibility to use a very low-intensity anticoagulation. The second feature that is important to understand is that we have biventricular support and full pulsatility, which basically means that the device operates like a normal functional heart. The device is activated by electrohydraulic system, which produces pulsatile physiological flow, and it is also silent, which is very important for the patients. And last, but not least, we could say that we are the only device that has autoregulation of blood flow. This is based on pressure sensors that are located inside the device, and we use algorithms to make sure that the device responds to the patient's needs. So it's only with the combination of these features that we were able to produce outstanding clinical results. So if we look at the overall clinical experience since we first implanted the Aeson device in 2013, we have treated 33 patients who suffered from advanced biventricular heart failure. With the Aeson device, the longer support duration was more than 25 months. From this experience, we have had 11 patients who received the device as a bridge to transplant who are successfully transplanted. And the overall experience of these 33 patients is 15.5 years. The graph on the right shows you the cumulative experience so far. And it's clear that the last 2 years since we have the CE mark, and we are active in commercial field as well in clinical studies. We saw a high increase of usage of our device. So let's take a look at the patient selection. Patient selection is important if we grow because we want to be sure that we guide the clinicians when they start with a program like this that they select the right patient and also make the selection on time, so that it's not too late, and the patient is already in a phase where it's very hard to restore organ functions. And we do this with the help of medical proctors. We have been using more device, and we have been trained on the implant procedures and the follow-up of these patients. So with that, we're able to assess benefit risk for each individual patient and define the right timing of the intervention. Based on this and our growing experience, we are also more confident right now to select high-risk patients because with the 50 years of patient experience, we know very well how the device functions and, more importantly, how patients respond to the function of the device. So right now, we are also selecting patients that are at a high-risk region. What's also important for us and for the clinicians is that we have a virtual implant tool, which means that based on the chest CT scans from patients, we can do a virtual implantation of the device. It's called anatomic compatibility studies. And early on, we are quite conservative. But if we look at the most recent virtual implants that we did, we are able to address population that is much smaller. And our smallest patient effect was 1 meter and 55 centimeters or 5 foot 1 was the first female patient that we implanted. So the surgical procedure and recovery. And I've been with the company for over 10 years, and I remember the very first implant procedures are really experimental surgeries. We haven't developed the procedure as a routine case yet, but we were able, thanks to the help with a group of enthusiastic surgeons to build the procedure that nowadays almost is like a routine procedure that can be compared to a heart transplant or to open heart surgery. And for every implant that we do at [indiscernible], we have a proctor available. With that, the implant procedure success has been 100% right from the first case. So we were able to implant a device as intended, and the patients all were able to be removed from intensive -- from the operating tier to the intensive care. And with this growing experience, we also now look at patients that have had previous surgical procedures. And also, we've done a few patients who were supported by another mechanical support device, which was not providing sufficient flow for the patients to recover. Then the flow autoregulation is a critical element of our device because it immediately restores the physiological blood flow. And not only that, it also provides an organ perfusion that is optimal. So with that, patients can recover faster. They can start mobilizing within a couple of weeks. And this also is an optimal condition not only for discharge from the hospital, but also when they're at home waiting for a donor or a transplant. As I already mentioned, heart transplantation was done in 11 patients. I mean these procedures were also 100% successful, notably because the device has the shape and the size of a normal heart and also because there were no adhesions or tissue adherence to the device. So the explant procedure is relatively simple, and it looks a bit like doing a heart transplant. Then again, if we look at the unique competitive advantages of the Aeson device, it's only thanks to the combination of these advantages that we are so successful. So if we look at the 4 criteria that are needed to provide true physiological flow, meaning biventricular support, pulsatility, autoregulation of flow and the high compatibility. The existing devices, the existing artificial heart, which is phlegmatically driven device is pulsatile, and it provides biventricular support, but it doesn't provide autoregulation. And because it has 4 mechanical valves, it's certainly not hemocompatible. And then the biven support is a peculiar group because this is used more and more by clinicians who would like to have access to our device but are currently using 2 LVADs to support the device. So in this environment, the clinicians have to manage a sick heart, which is still in place the LVAD and the RVAD, which are not communicating. So if you combine all these features, you get to the Aeson device. And with this, we provide full physiological flow. And that's the only reason why we have an unparalleled safety profile. We have no patients with cerebrovascular accidents, no strokes, no gastrointestinal bleeding, which is a huge burden for patients that are treated with continuous flow devices. It's the main reason for rehospitalization for those patients. And last but not least, we have not seen any infections at the drive flying exit side because we have this combination of pulsatile flow and biventricular support. So if we summarize this, we believe that with our therapy, we provide a game-changing proposition for the clinicians and the patients. From the patient side, it's a true quality of life improvement, not only because the blood flow is responding to the patient needs, but also -- and it's very important that there are very few drugs needed for these patients. There's no need for immunosuppression like for heart transplant. And as opposed to the existing support devices, thanks to the hemocompatibility, these patients really have a very low-intensity anticoagulation, which also means that there are less risks associated with the use of high anticoagulation levels such as bleeding. And last but not least, which is very important for the patient, it is very easy and simple to handle the external components, which is a small controller box and a set of batteries that need to be recharged. Then from a surgical perspective, we have now a program in place to select patients with proctors. So it's not only the clinician. He can use our proctor-based experience. Notably, the virtual implant has been very helpful for clinicians to assess the compatibility of the device. And thanks to that, we have 100% successful procedure. And not only that, because the procedure is successful, that also contributes to a fast recovery of these patients. From a technology perspective, CARMAT is the only device that can function in autopilot fashion like an airplane. There's no need for the clinicians to adjust the settings of the device. They can focus entirely on the management of their patients. The immediate restoration of organ perfusion and flow allows the patient to recover very quickly. And what I already mentioned is thanks to this unique hemodynamic and hemocompatibility profile that we see very few clinically related complications after the device has been put in place. So with this, I hand the microphone over to my colleague, Francesco.

Thank you, Piet. I would like to start my part with -- by mentioning the strong customer advocacy. Doctors really appreciate the fact that Aeson works as a healthy heart. And this element is extremely important because it allows them to focus on the patient, to focus on the treatment of the other vital organs, resulting into a fast and efficient recovery for the patient after surgery. Moreover, they are pleased to see that patients do not go back to the hospital with those typical MCS devices complications such as stroke, GI bleeding and driveline infection. And they also appreciate what CARMAT has put in place in order to help them treat their patients. They usually talk about best-in-class clinical support and an excellent training. It's also important to say that what drives good clinical outcome is not only the performance of the therapy but also the organization which is built in order to support the therapy itself. And CARMAT has decided to put in place for the commercialization of its products certain program that implies different elements such as the medical proctoring. We do have a strong collaboration with 4 physicians in Germany and 1 in the U.S., experts in the field of MCS. We do also have a committed field team. And we have decided to organize a dedicated training for the doctors carried out by experts, and we do put available to our doctors a program to support them on patient screening. And last or not -- and not least, case coverage. We decided at CARMAT to have 100% case coverage policy. So for the commercialization of the Aeson devices, we established a journey for our medical staff towards autonomy. The first step of this journey is the initial training, 1.5 day conceived for the entire heart transplants team. After the initial training during the first 3 cases, we are present at the implant with 1 surgeon proctor and 2 field therapy specialists. One of them stays at the hospital during the patient's ICU stay. And from the fourth case onward, in agreement with the hospital, we can reduce our presence to one field therapy specialists. Throughout the journey, we have available for our doctors the 3D virtual implant tool already mentioned by Piet. We do organize for them continuous on-site training, and we do offer a clinical support outline, which is available 24-hour a day, 7 days a week. From a pure business perspective, in 2023, our priorities will be mainly Germany and Italy. We have the objective to have 30 hospitals implant-ready by the end of the year. We will continue our effort on securing reimbursement and funding for the therapy that until now has been extremely successful. Just to give you some concrete examples. We have obtained satisfactory reimbursement in all the hospitals we have started the therapy in Germany. And obviously, we are going to size up the organization according to our market expansion ambitions. In this context, it is also important to mention the EFICAS study in France. In the country, we have a very clear market access strategy, which is based on this study that will allow us to collect further safety and performance data, but also and above all, health economics data the CARMAT will use in order to demonstrate the positive budget impact that the therapy can have on the national health care system. This -- the study will drive further product adoption. It will allow us to support the therapies, value proposition, not only in France, but in general, in Europe and to get French definitive reimbursement, which is going to be fundamental for a successful commercial launch in the country. The EFICAS study is a study of 52 patients treated with Aeson total artificial heart and is carried out in collaboration with 6 hospitals in France. And you can see the list of those hospitals on the slide. To conclude, the prevalence of cardiovascular disease is constantly increasing. Cardiovascular diseases remain the leading cause of death worldwide. Patients suffering from advanced heart failure experience very poor quality of life, and only 5% of them; are treated today. CARMAT has the opportunity with its device, total artificial heart Aeson, to really disrupt the market of cardiovascular devices, thanks to this replacement without complication of the cardiac function. The BTT indication only will allow CARMAT to have access to more than 2,500 patients a year, which will allow CARMAT to meet its business objectives this year in 2023, but also in the years to come. And now I hand it over to Pascale.

Thank you, Francesco. So in terms of manufacturing and finance, so as explained, as outlined by Francesco, the challenge is not the market. I mean the market is huge, and it's not the demand. We show -- we see a high demand from physicians and, actually, patients. The challenge is more for CARMAT to be able to produce enough devices to meet that demand. And in the medtech sector and for us, as we have a very sophisticated device, I mean the supply chain is a challenge, and the ramp-up in production is a key challenge. So as you know, we resumed manufacturing last year. Given the lead times and the supply limitation at some supplier levels, we are planning to produce in excess of 100 devices in '23. We've got a capacity of 250, but we'll be able to produce in excess of 100 device in '23. Beyond '23, obviously, in order to meet the demand, we have devised a strong and very robust manufacturing road map, which will allow us to increase production capacity to 500 devices a year in '24 and 1,000 devices a year by 2027. So it's going to be a 2-step road map to reach 500 first and then 1,000 by 2027. So given that manufacturing road map and now that we have a clear commercial strategy and market access strategy, we are in a position to give some financial guidelines. So for 2023, we gave a guideline of annual sales of EUR 10 million to EUR 13 million. It's based on what Francesco described. So 30 active centers commercially and the EFICAS deployment because, as you know, we record in sales, both commercial sales and the devices that we sell to hospitals as part of the EFICAS study in France and the EFS study in the U.S. Obviously, the sales will be phased in line with manufacturing output. So you should expect more sales in the second part of the year than in the first part of '23. So that's the first guideline annual sales for '23. The second guideline is about 2027 when we are planning to reach breakeven. So profitability on the back of a strong development of sales, obviously, but also on the back of a drastic cost of goods reduction that we've planned and also on the back of the commercial launch of Aeson in the U.S. in 2026. So what does that mean in terms of financing? So as previously communicated, we've got a cash run rate until July '23, mainly thanks to 2 equity raises that we completed in '22, 1 in April, EUR 41 million, and 1 in December, EUR 31 million. In addition to that, we got blended funding from the EU as part of the EIC program. So it's a funding of up to EUR 17.5 million, including EUR 2.5 million of grants, which is -- which we've got for sure, and EUR 15 million, which are optional. It's in equity, so we need to discover that with the EU. So the timing is uncertain, and that's why it's not included in the cash run rate so that will extend our cash run rate beyond July '23. In the very short term, we also work on a number of other funding options to extend cash run rate in the very short term. So we think we'll be -- and we hope we'll be able to communicate on those in the next few weeks or months. And beyond that, as we reach breakeven in '27, in between, in order to fund the company, you should anticipate further capital increases. Capital increases remain the first-line financial option. That's our preferred financing option. But in addition to that, as a second line option, we look at all tools, dilutive and nondilutive. And on this, I will hand over to Stephane.

Thank you, Pascale. So to end up with this presentation today, we'll speak about the outlook about the future. So I think as Pascale said, well, clearly, the potential is very important for this therapy. So if you run the map, so as of today or 5 years ago, when we took a look at the literature, basically, there was a need in excess of 200,000 patients between the U.S. and Europe for biventricular support. And if you multiply it by roughly $200,000, it gives the potential beyond the $40 billion by 2030. What is interesting as well? As you know, we are approved today for virtual transplant. And given the number of patient in waiting list in Europe and U.S., nowadays, well, the leadership in BTT sufficiently generate more than $1 billion a year in revenue within the 10-year horizon. What is very important as well is to bear in mind our positioning. So as you saw in Piet's presentation, well, our technology set the bar very high. I mean we are the first technology, which doesn't show any clinical complications. So I'm speaking obviously stroke, infection or basically bleeding. We are ahead of other projects. As I said earlier, we all started in 2007 and '08. And while the others are still in preclinical, we are approved in Europe, and we started the study in the U.S. in humans. And all the feedbacks of doctors are very positive about the potential of the technology even versus human organs. So we are poised to lead our transplant segment, we believe. What is very interesting as well, if you compare to the other technologies in cardiology, well, especially international cardiology, I'm thinking stands in 2000 [indiscernible] valves, [indiscernible] valves. I mean, very soon, the companies have been stopped by the limitation in terms of capacity at hospital and doctor levels, which is not the case today in cardiac surgery, so at least not in the short term. And obviously, for the company, as I said, well, I think clinically speaking, we saw the product just outstanding. So now our challenge is to be able, as Pascale said, it's to supply the demand with the adequate quality required. In terms of strategic road map and key forthcoming milestones. So the milestones for 2023, well, that -- the first full commercial year for CARMAT. So that's a pivotal year for us. Our goal is obviously to accelerate the enrollment in the EFICAS study, which will be paramount for us to drive adoption of the product worldwide and to support the value proposition. To complete the early feasibility study, and doubling the manufacturing capacity by the end of the year to be able in 2024 to increase the capacity up to 500 devices a year, and last but not least, it's to have at least 30 commercial center active by the end of the year. If we project ourselves a bit longer, well, obviously, we need to keep on thinking about increasing manufacturing capacity. So we are already thinking about next step to get beyond 1,000 devices before 2027. Obviously, we are working in the health care industry, and we need to have adequate reimbursement or funding to be able to sell our products. And as, well, Francesco said, we had very positive quick wins already in Germany, and we believe it should keep on going this way. Obviously, to be able to get to a breakeven sales is very important, but another component, especially in medical device, it's to reduce the cost of goods sold. So we have a task force right now to make sure that we'll be able to reduce it drastically rather quickly, and that will happen, obviously, working with our suppliers and collaborating, partnering with them to make sure that we're able to get to a lower COGS. And obviously, paramount from a commercial standpoint for us will be to access the U.S. market, which is the larger single market in health care nowadays in the world. And this by 2026, that's a pretty, I would say, a conservative or classic pathway. So basically, it goes through EFS and then PIVOT study in the U.S. to then be able to submit PMA in 2026 to get an approval the same year. So that said, our ultimate objective remains the same. I mean we want to become the first total artificial heart approved for destination therapy in order to address the donor organ shortage. So as a reminder, well, our annual sales target is between EUR 10 million and EUR 13 million. And our goal, our aspiration is to do all what we can to be able to reach breakeven by 2027. Thank you very much. And now I will move to the question-and-answer session.

So first question. How do you plan to double your production capacity in 1 year? Well, that's something we already started. So we rented the building next door to the first building we have now for manufacturing, the same place. And we will start all the work in March. So we should be ready at the end of the year. So basically, we'll move -- we'll increase the clean room in Building 1 while we will move the assembly part to Building 2. What are the next steps awaited in your discussion with the FDA? So obviously, the process is very different from the notified body in Europe where you work with CAPAs. So you analyze the root cause. You do CAPAs, corrective action, preventive actions. And your answers -- well, your actions with test, analysis and results to show that you resolve the problem. With the U.S., it's a bit different. So we had some -- a series of question that we answered at the end of the year. So now we're in the process of waiting for the answers from the FDA. There is no clear agenda because we had to go through just submission, and there are no real deadlines. What were the measures put in place after your investigation to resume implantation? So we spoke about that several time. I will come back to it very quickly, but we are probably mostly around the electronic board and PCBs and the [ PAMPs ]. So we've been doing tests to make sure we could correct the issues. And once we got positive testing, well, we were able to resume manufacturing. So basically, on the PCB or printed circuit board who has a 100% X-ray control. What is the refund procedure for your products in the U.S.? So as of today, we are around $300,000. Of the 30 active centers target in 2023, how many will be active in Germany? So Francesco?

So the idea is to have, let's say, around 2/3 of that centers that we have -- that number of centers that we have mentioned.

Okay. So roughly 20. Could you tell us what pro forma cash is? Not sure. Yes.