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MarketScreener Homepage  >  Equities  >  Euronext Alternext  >  Carmat    ALCAR   FR0010907956

CARMAT

(ALCAR)
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Carmat : Universal registration document

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03/13/2020 | 12:40pm EDT

CARMAT

2019 Univer-

sal Registration Document

Including Annual

Financial Report

CARMAT

2019 Universal registration document

1

GENERAL REMARKS

In this universal registration document, the terms "CARMAT" or the "Company" shall mean the company, CARMAT.

This universal registration document contains information on the Company's objectives and its avenues for development. This information is sometimes identified by the use of the future or the conditional, and terms that refer to the future, such as "consider", "envisage", "think", "have as an objective", "expect", "intend", "must", "aspire", "estimate", "believe", "wish", "can" or, where appropriate, the negative form of these verbs, or any other variation or similar terminology.

The reader's attention is drawn to the fact that these objectives and avenues for development depend on circumstances or events which may or may not occur.

These objectives and avenues for development are not historical data and must not be interpreted as guarantees that the events and data set out will occur, that the hypotheses will be verified or that the objectives will be achieved.

By their very nature, the objectives and avenues for development in this universal registration document could be affected by known and unknown risks, or by uncertainties linked specifically to the very nature of clinical trials, the regulatory, economic, financial and competitive environment or by other factors which could lead to the Company's future results, performance and achievements being significantly different from the objectives that have been formulated or suggested here.

In particular, these factors may include the factors set out in Chapter 2, "Risk Factors", of this universal registration document. It is therefore possible that these objectives and avenues for development may not be achieved, and the statements or information in this registration document may turn out to be erroneous. As such, the Company will under no circumstances be required to provide updates, subject, that is, to the applicable regulations and in particular the General Regulations for the French Financial Markets Authority (AMF).

This universal registration document also contains information relating to the Company's activity, as well as the market and industry in which it operates. This information specifically comes from studies carried out by internal and external sources (analysts' reports, specialist studies, sector publications and any other information published by market research companies, public bodies and corporations and learned societies).

The Company considers that this information presents a faithful picture of the market and the industry in which it operates, and that it faithfully reflects its competitive position. However, although this information is considered to be reliable, it has not been verified by an independent expert, and the Company cannot guarantee that a third party using different methods to gather, analyze or calculate data on the markets would obtain the same results.

Investors are invited to consider carefully the risk factors described in Chapter 2, "Risk Factors", in this universal registration document. If some or all of the risks materialize, this could have a negative impact on the Company's activity, its position, its financial performance or its objectives.

In addition, other risks, not currently identified or considered as non-significant by the Company, could have the same negative effect.

Drawings, images, graphics and photographs used in this document are purely for illustration purposes, and shall in no case constitute a commitment of any kind on the part of CARMAT. The reproduction in any form of any part of this document is strictly prohibited.

To assist the reader's understanding, this universal registration document has a glossary attached. Words identified by an asterisk "*" when they first appear can be found in this glossary. A summary of references used in the document and their sources is provided at the end of the document.

The French version of this universal registration document (URD) was filed with the Financial Markets Authority (AMF) on Friday March 13, 2020, as the competent authority under Regulation (EU) 2017/1129, without prior approval in accordance with the article 9 of the said regulation.

The URD may be used for the purposes of a public offering of securities or the admission of securities to trading on a regulated market if it is supplemented by a securities note and, if applicable, a summary together with all amendments to the URD. The whole is approved by the Financial Markets Authority in accordance with Regulation (EU) 2017/1129.

content

Message from the chairman and from the CEO ....................................................................................................

 4

mission and vision ...........................................................................................................................................................

 6

carmat profile ..................................................................................................................................................................

 8

History of the company ................................................................................................................................................

 10

carmat and its shareholders ....................................................................................................................................

12

1

3

Description of

financial

activities

informations *

p. 15

p. 61

5

INFORMATION on the

company and its

capital

p. 119

1.1 Heart failure..........................

 p. 16

1.2 Markets and market

players .................................

p. 25

1.3 The first physiological heart

replacement therapy............

 p. 30

1.4 Go-to market

process.................................  p. 36

1.5 Strategy of the

Company ..............................

p. 40

3.1Notes on activity in the 2019

reporting period.....................

p. 62

3.2Financial statements as at

December 31, 2019................

p. 70

3.3Auditors' report on the annual

financial statements..............

p. 86

3.4Internal control and risk

management procedures relating

to the preparation and processing

of accounting and financial

information............................

p. 88

5.1Legal structure ....................

 p. 120

5.2Share capital *.....................

p. 120

5.3Major shareholders *...........

p. 135

5.4Memorandum and articles of

association .........................

 p. 138

5.5Particulars of the legal affairs

of the Company in the financial

period *................................

 p. 153

5.6Regulated agreements ........

p. 154

2

RISKS

FACTORS *

p. 49

2.1Methodological approach......

p. 50

2.2Summary of significant and

specific risks.........................

p. 51

2.3Detailed presentation of

significant and specific

risks.......................................

p. 52

4

corporate

governance

p. 91

4.1 Composition of the Company's

administrative and management

bodies *................................

 p. 92

4.2Conflicts of interest in the

governing, management and

supervisory bodies and the

executive board....................

 p. 97

4.3Specialized commitees..........

p. 98

4.4Statement on corporate

governance *......................

 p. 100

4.5Compensation and

benefits of directors and

management *.....................

 p. 104

4.6Staff and organization *.......

 p. 116

6

ADDITIONAL

information

p. 157

6.1 Author of the registration

document *..........................

 p. 158

6.2Statutory auditors *.............

 p. 158

6.3Information from third parties,

declarations by experts and

declarations of interest .......

 p. 159

6.4Publicly accessible

documents and 2017 - 2018

historical information..........

p. 159

6.5Information on holdings ......

 p. 160

6.6Recent events......................

p. 160

6.7Cross-reference tables.........

p. 161

6.8Glossary..............................

p. 164

Items forming part of the Annual Financial Report are clearly identified in the table of contents by the symbol *.

Items forming part of the Corporate Governance Report are available within the 4.1, 5.6, 5.2.6 and 4.4.3 paragraphs

CARMAT

2019 Universal registration document

3

Q&A with the

chairman

Jean-PIERRE GARNIER

How do you see the potential of CARMAT after more than a year as president of the company?

I am more than ever convinced that the CARMAT artificial heart is a breakthrough technological innovation without equivalent on the market and that the Company has the potential to become a leading player worldwide. Given the low number of grafts available for patients suffering from heart failure, the CARMAT bioprosthesis was developed to be a real alternative to transplantation and it is this vision that continues to drive all of our teams within the Company. We are delighted that everyone's efforts are gradually turning into successes as the pivotal study progresses.

To date, the longest duration of individual support exceeds 2 years, which is particularly encouraging. Crossing this symbolic 2 years milestone for a patient confirms the fundamentals of the prosthesis, namely its reliability and biocompatibility, and illustrates its potential to become a long-term solution for patients, in line with our objectives. We have achieved more than 7 years of cumulative support as part of our clinical studies, which is an exceptional achievement for such a complex medical device.

In addition, we have observed excellent results in patients eligible for transplantation, five of whom have successfully received a human graft following the improvement in their health thanks to the initial support provided by the CARMAT artificial heart. This shows that the procedure for explanting the prosthesis is well mastered and reproducible, thus opening up real potential for development in the bridge to transplant therapy (BTT).

What does this imply in terms of market access strategy?

The bridge to transplantation approach is a real opportunity to move quickly in validating the device in real life and thus quickly establish the credibility of our device on the European market, and then worldwide. The data we have in the pivotal study certainly demonstrate the value of our artificial heart in a bridge to transplant (BTT) configuration.

This BTT option actually expands our initial vision, to make our artificial heart a definitive solution (Destination Therapy

  • DT) for patients not eligible for transplant. I would add that probably the border between the BTT and DT no longer exists and we are already observing it in the pivotal study when
    a patient eligible for transplantation receives our artificial heart but then he is not lucky enough to benefit from a human graft afterwards.

Are the goals you set for the Company achievable?

When I took office a little over a year ago, our objectives were clear: to make the prosthesis available to as many people as possible, to make progress in the United States and to successfully transform CARMAT into an industrial and commercial company.

From this point of view, the CE marking which is expected this year, will be a major achievement for CARMAT, and above all the realization of hope for many European patients in a therapeutic impasse.

As for our desire to internationalize, the recent positive moves with the FDA bring us decisively closer to the American market and we consider it realistic to start implantations as part of the feasibility study in the United States, in the 4th quarter of this year.

Finally, I am very satisfied with the progress made by the Company in terms of transformation into an industrial and commercial company, in particular with the transfer and reliability of all of our production activities on the new Bois- d'Arcy site in 2019.

4

2019 Universal registration document

CARMAT

message from

the CEO

stéphane piat

What were the highlights for you in 2019?

2019 was a structuring year for CARMAT in several respects. First of all, we were able to resume production in May at the Bois-d'Arcy production site following final technical adjustments which make us particularly confident about the quality of the prosthesis, an essential criterion for its long- term reliability.

Following this, the pivotal study was able to resume gradually with the agreements of the competent authorities received in Denmark, the Czech Republic and Kazakhstan. At the end of the year, it was therefore the 12th patient in the study who benefited from our prosthesis, which has enabled us to achieve cumulative continuous support of more than

7 years to date. This record duration corroborates the intermediate results of the first part of the study and again shows that the prosthesis fulfills its role perfectly, with no serious complications observed in the implanted patients.

In parallel, our very positive discussions with the American health authority (the FDA, Food & Drug Administration) enabled us to obtain a conditional approval in September for a feasibility study in the United States. Since then, we have been able to answer all of the remaining questions from the FDA and obtain its full approval in early 2020, which will speed up discussions with the 7 selected renowned American hospitals, but also with the «Centers for Medicare

  • Medicaid Services "(CMS) to obtain compensation for the costs of the study.

From an organizational point of view, the appointment of Alexandre Eleonore within our managerial team as Industrial Director supports our market access strategy. His expertise will notably facilitate the ramp-up of the Bois-d'Arcy production site, in line with the further transformation of CARMAT into an industrial and commercial company.

Finally, we have considerably strengthened our financial structure thanks to a private placement with investors who share our long-term vision for a total amount of

€60 million in September 2019. This fundraising provides us

with financial visibility up to the third quarter of 2021 and the resources necessary to confidently consider the next steps in our project.

Will 2020 be the year of obtaining CE marking?

We are working to quickly finalize the pivotal study, and are indeed working in concert with our notified body DEKRA to obtain the CE marking by the end of the year.

But CE marking is not an end in itself since it is important that our prosthesis can benefit the largest number of patients. On this point, we are delighted that in France, the French National Authority for Health (HAS) has deemed our device eligible, with a few observations, for a clinical study as part of the 'Forfait Innovation' program. This program facilitates the testing of innovative devices in France, by covering the costs of the study. If our prosthesis demonstrates its benefits in the context of this clinical study, we can positively envisage its reimbursement in the long term, in our country.

The development in the United States, the leading market for medical devices in the world, is another important strategic pillar for CARMAT in 2020. The protocol for the American feasibility study has been extended to 10 patients eligible for transplantation, and we will thus be able to work with

7 of the most renowned centers in the United States. If our discussions on the cost of the study with the CMS are concluded quickly, American hospitals will be able to include the first patients in the study as early as the 4th quarter of this year.

Quality, finally, remains at the top of our concerns. In 2020, we will therefore continue to work on the continuous improvement of our production processes, which must respond perfectly to production imperatives on a commercial basis.

CARMAT

2019 Universal registration document

5

MISSION and vision

With its artificial heart, CARMAT is dedicated to providing doctors with innovative technologies to save lives and improve the quality of life of patients with terminal heart failure. Ultimately, the company aims to become the No. 1 alternative to heart transplantation. CARMAT relies on the commitment of its teams and the support of its shareholders

CARMAT aims to meet a major public health challenge related to cardiovascular diseases, heart failure, the leading cause of death in the world. More specifically, CARMAT aims to provide a lasting solution to the treatment of terminal heart failure,

a disease for which there are very few effective options today, mainly cardiac transplantation.

Heart failure is a progressive disease that affects 20 million patients in Europe and the United States. Within this population, tens of thousands of people are terminally ill. The number of human grafts available is only 4,000 to 5,000 per year. The artificial heart CARMAT is intended to offer a permanent solution to these patients who are facing a therapeutic impasse.

MARKET

A fast-growing,high-potential market with more than 200,000 patients suffering from terminal biventricular heart failure each year

Only 5,000

grafts

available per

year

CARMAT TEAM

A Board of Directors chaired by Jean-Pierre Garnier, including 9 directors, 5 independent and 2 internationally recognized cardiology experts.

A multidisciplinary and highly qualified team of more than 100 employees.

Stéphane Piat, as Chief Executive Officer, leads all of CARMAT's activities.

Board members as at December 31, 2019

(Alain Carpentier is Honorary President of the Board, Karl Hennessee is missing on the picture)

6

2019 Universal registration document

CARMAT

CARMAT PROSTHESIS

A prosthesis :

  • highly biocompatible,
  • self-regulatingwhich automatically adapts to the patient's needs,
  • pulsatile.

An innovative leader position with strong intellectual property and significant barriers to entry thanks to the scientific leadership of Pr. Carpentier and the technological excellence of the Airbus Group.

The first physiological cardiac bioprosthesis aimed at becoming a credible therapeutic alternative to heart transplantation.

  • a nominal surgical technique that is easily reproducible by any cardiac surgeon,
  • a return to home of the patient, after implantation, allowing a good quality of life.

2019 NEW FINANCING

ng i c n

a n

€60.0M

partners.

In September 2019, CARMAT raised € 60.0 million from

investors specialized in healthcare and from strategic

i

F

CARMAT

2019 Universal registration document

7

CARMAT PrOFILE

Founded in 2008, after more than 15 years of research, CARMAT develops a total artificial heart, orthotopic *, bioprosthetic *, self-regulating, pulsatile and implantable, as well as its external power supply system.

The name CARMAT originated from the meeting in the early 1990s between Professor Alain Carpentier and Jean-Luc Lagardère, then Chairman of Matra Defense (Airbus Group). This resulted in a very active cooperation starting in 1993 with the aim of designing a bioprosthetic artificial heart.

This unique partnership combines:

  • the experience of more than 30 years of Professor Alain Carpentier, father of modern valvular heart surgery. Professor Carpentier has developed treatments for biological tissues of animal origin, which have enabled him to design the most widely used biological valves in the world (Carpentier- Edwards® valves). He has also developed
    the technics of restorative surgery and mitral annuloplasty used today all over the world, on the principle that a device must always be associated with a reproducible procedure; and
  • Matra Defense's (Airbus Group) expertise on embedded systems and their constraints (reliability, severe environments, mass and volume) enabling engineers to work on the concept using simulations, modeling, testing.

The Company's goal is to address a global public health need that is the treatment of advanced heart failure. It is a severe, progressive, and often fatal disease that is constantly increasing in developed countries.

The CARMAT bioprosthetic artificial heart project thus aims to offer a long-term therapeutic solution to patients suffering from advanced biventricular heart failure, who are not eligible for transplantation or awaiting transplantation, who have exhausted all treatment possibilities and to whom no satisfactory solution is currently offered.

To date, the artificial heart CARMAT highlights 3 major technical achievements, leading to undeniable competitive advantages compared to other medical devices on the market:

  • The only artificial heart whose surfaces in contact with blood are made of biologically compatible materials to reduce thromboembolic risks;
  • The first intelligent artificial heart which adapts immediately and automatically to the metabolic needs of the patient;
  • Special attention paid to patients' quality of life, with the development of light external equipment and quiet operation.

Implantable Part

External Patient

System

8

2019 Universal registration document

CARMAT

CARMAT initially aims for CE marking to be able to market its prosthesis soon in Europe. To this end, CARMAT submits for analysis and review to a certification body, DEKRA, the elements of a dossier comprising a technical part and a clinical part. The clinical part of the dossier includes the clinical results obtained during the preclinical trials, the feasibility study of 4 patients finalized early 2016 and the ongoing pivotal study started in August 2016.

As a reminder, the pivotal study aims to validate the safety, efficiency and performance of the system and will contribute to the CE marking filing process. The objective of the Company is to implant around 20 patients and to demonstrate the survival of these patients over a 6-month horizon.

CARMAT also aims to obtain PMA (pre-market approval) over the next few years, which would

allow the Company to market its prosthesis in the United States. In this context, the Company obtained authorization in September 2019 from the FDA (Food & Drug Administration) to start a feasibility study in the United States on 10 patients. If successful, this study would be followed by a larger pivotal study to achieve PMA.

The clinical, industrial and commercial development of CARMAT will generate additional financial needs which the Company estimates to date that they could exceed € 100 million. Fundraising or other types of financing will therefore be required beyond, in particular, the fundraising of € 60 million carried out in September 2019, and the drawing of the two remaining tranches of € 10 million each of the loan conditionally granted by the EIB in December 2018.

SCOPE OF ACTIVITY

2020

2021

2022

EUROPEAN

Finalization of the pivotal study

Continued commercial deve-

MARKET

Marketing in Europe

Obtaining CE Marking

lopment in Europe

ACCESS

US MARKET

Start of transplantations in the

Start of the pivotal study in

United States as part of the

Finalization of the EFS study

ACCESS

the United States

feasibility study (EFS)

Continuous improvement of

production processes

INDUSTRIAL

Continuation of the actions of

securing critical supplies

Production ramp-up

MARKETING &

COMMERCIAL

Preparation for commercial launch

Commercial launch in Europe

Product final commercial

Continuous improvement

PRODUCT

configuration

of the product

SUPPORT

Adaptation of the

organization and strengthening of information systems

Implementation of sales

FUNCTIONS

administration and sales logistics

FINANCING

Continuation of the actions of

financing of the Company

Source CARMAT - Provisional project schedule

CARMAT

2019 Universal registration document

9

history of the

CARMAT receives €5 million in

company € 5 M research tax credits (CIR) for the year 2012, in line with the

Company's 2013 financing plan

First successful implantation performed

2014

on December 18, 2013 at the Georges

Pompidou European Hospital by

2008

Professor Christian Latrémouille

Creation of CARMAT

CARMAT obtains

33 M€

authorization from the

by Matra Défense

ANSM to conduct a

(Airbus Group),

Grant to CARMAT

feasibility study in France

Truffle Capital and

involving four patients

and its partners

Professor Alain

of €33 million in

Carpentier

2013

subsidies and

repayable advances

by Bpifrance under

the Strategic Indus-

trial Innovation

Further elements

scheme, the largest

added to the ANSM

amount ever granted

file, notably the

to a Young Innova-

CARMAT is a winner

results of the implants

tive Enterprise by

at the European

on animals and the

Bpifrance

Mediscience

intermediate results

Awards in the Best

on the durability tests

Technology category

2009

2012

Approval from

Completion of

Appointment of

the CPP (patient

modeling and

Marcello Conviti

protection

optimization work

as chief executive

committee*)

on the artificial

officer of CARMAT

heart (900 grams)

CARMAT presents

€ 29,3 M

in readiness for

preclinical

the assembly and

hemocompatibility

Capital increase

implantation phase

data to the 25th

in the amount of

for the preclinical

Annual Congress

€29.3 million (issue

trials

of the European

premium included)

Association for

2010

Cardio-Thoracic

Surgery

CARMAT granted the

2011

€ 16 M

status of "Innovation

Enterprise" by

Capital increase of €16 million,

Conclusion of

Bpifrance for Mutual

including issue premium, on the

an agreement

Funds for Investment

occasion of CARMAT's flotation

with Edwards

in Innovation (FCPI)

on Euronext's Alternext market

Lifesciences,

in Paris

the world leader

in the cardiac

valves sector

and hemodynamic

monitoring, for the use

of Carpentier-Edwards

biological cardiac valves

in the CARMAT bioprosthetic

artificial

heart

10

2019 Universal registration document

CARMAT

€ 5,3 M

€ 60 M

Full transfer of

CARMAT secures its future

In September 2019, CARMAT

production to the

funding, reaching the 5th

Bois d'Arcy plant.

raised €60 million through

milestone of its agreement

a private placement, with in

with Bpifrance and

Authorization

particular the participation

receiving €5.3

received from the

of certain historic

million

FDA to initiate a

Authorization

shareholders and the entry

feasibility study (EFS)

received to

of new shareholders (family

in the United States.

recommence

offices and entrepreneurs).

2015

on the CARMAT

feasibility trials

bioprosthetic heart

The patient receiving

an implant of

2019

the CARMAT

bioprosthetic heart

at Nantes Teaching

€ 11 M

Hospital on August 5,

CARMAT puts in

2014 went home and

€ 30 M

Finalization, with

benefited from the

place a new flexible equity

prosthesis for almost

In December 2018,

positive results, of

financing arrangement

nine months before

the first part (cohort

with Kepler Cheuvreux,

he died

CARMAT was granted a

1 of 10 patients) of

a mechanism enabling

conditional loan of

the pivotal study.

CARMAT to raise over

€30 million by the

Beginning of the

€11 million over the year

European Investment

implantations of

In November

Bank (EIB)

cohort 2.

A third implantation

CARMAT receives

The Bois d'Arcy

of the CARMAT heart is

authorization from

plant is certified and

carried out on April 8

ANSM and from the

commissioned.

by the cardiac surgery

CPP for completion of

department at the

the clinical feasibility

Georges Pompidou

study

2018

European Hospital

A fourth implantation of the

Resumption in May

€ 53 M

CARMAT heart is carried

out on December 22 by the

2017 of the trials

In December 2017,

team at La Pitié Salpêtrière

corresponding to

CARMAT received

on a patient suffering from

the pivotal study

more than €50

severe biventricular failure

(after approval of

million following

the ANSM in France)

the completion of a

2016

and enlargement in

fundraising exercise

Europe (Kazakhstan

open to the public, a

and Czech Republic)

transaction carried

of this pivotal study.

€ 50 M

out notably with

Discussion also

the support of two

The feasibility study relating

initiated in the United

historic shareholders

States with the FDA

At the end of April, CARMAT

to four patients being

(Pierre Bastid and

raise €50 million though

completed, the experience

Antonino Ligresti)

a private placement, with

gained allows CARMAT to

the support in particular

start work on preparation

of certain historical

of the pivotal study, after

2017

shareholders and also with

both ANSM and the CPP

the arrival of new investors

authorizations

At the end of August, the

Stéphane Piat

replaces Marcello

first implantation under the

Conviti as chief

pivotal study is carried out.

executive officer to

However, the patient concerned

define

and support

died at the end of November, the

CARMAT's commercial

analyses performed showing no

strategy to address the

involvement of the CARMAT prosthesis in

market

the patient's death

CARMAT

2019 Universal registration document

11

CARMAT and its shareholders

shareholders as at december 31, 2019

(to the knowledge of the Company)

TREASURY STOCK

MATRA DÉFENSE

FREE FLOAT

0.0 %

(Airbus Group)

39.6 %

13.2 %

CORELY BELGIUM

& BRATyA SPRL

8.3 %

AIR LIQUIDE

0.6 %

Pr Alain Carpentier

& HIS Association

5.3 %

THÉRABEL PHARMA

2.5 %

LOHAS

SANTÉ HOLDINGs SRL

11.5 %

7.3 %

BAD 21

Truffle Capital

5.2 %

Cornovum

2.8 %

3.6 %

Analysts' coverage

Broker / Analyst

Opinion

Target share price

Opinion's date

Gilbert Dupont

Accumulate

€24.00

February 12, 2020

Portzamparc

Buy

€22.90

February 12, 2020

Oddo-BHF

Buy

€27.00

March 10, 2020

Edison

- *

€68.01

September 27, 2019

*: Edison does not give any recommendation but only an evaluation of the company.

12

2019 Universal registration document

CARMAT

information on the CARMAT share

Number of shares

Mnemonic

Share price & mar-

Average

Market

outstanding

ket capitalization

liquidity

Status

(December 31,

&

(December 31,

(12 months

ISIN code

2019)

2019)

during 2019)

Euronext

ALCAR

€19.28 / share

12,609,649

8,186 shares / day

Growth

FR0010907956

€243.1 m

contacts

Chief executive

Chief financial officer

Chairman

and Head of investor

Head office

Website

officer

relations

Pascale d'Arbonneau

36, avenue de l'Europe

Jean-Pierre Garnier

Stéphane Piat

78 140 Vélizy-Villacoublay www.carmatsa.com

+ 33 1 39 45 64 50

France

contact@carmatsa.com

CARMAT

2019 Universal registration document

13

- blank page -

14

2019 Universal registration document

CARMAT

1description1of activities

description of

activities

CARMAT

15

15

2019 Universal registration document

1

description of activities

1.1 heart failure

1.1.1 Pathology and causes *

Heart failure occurs when the myocardium (cardiac mus- cle) can no longer carry out its essential function as a blood "pump" and provide a sufficient cardiac output to satisfy the metabolic needs of the organism. When the failure reaches the left ventricle, one talks of left ventricular failure; when it reaches the right ventricle, one talks of right ventricular failure; when the failure reaches both ventricles, the left and the right, one talks of biventricu- lar heart failure.

Essentially, the heart is unable to keep up with its workload. The heart tries to make up for this by enlarging in an effort to pump more forcefully and by pumping faster in order to pump more volume in unit time. The body also tries to compensate in other ways by making the blood vessels narrower and by diverting blood away from less important organs to favor key organs like the brain and kidneys.

These temporary measures mask the problem, but the muscle failure continues, at varying rates, until these compensatory measures are no longer effective. The patient then begins to experience the classic symptoms of heart failure in an ever-increasing way (see table on next page: NYHA classification).

The above is a description of the more common chronic condition but heart failure can also occur as an acute event, most commonly as a result of a heart attack caused by ischemic heart disease (IHD - coronary artery disease). Other causes of heart failure are listed in the following table.

Major causes of heart failure:

Condition

Description

Ischemic Heart Disease

A buildup of fatty deposits on the walls of the coronary arteries which limits the

supply of blood to heart muscle.

High Blood Pressure

Increase the work that the heart needs to do which leads to increased muscle

mass and a need for more blood supply.

A group of heart muscle diseases leading to functional and structural damage.

Cardiomyopathy

Diverse causes including inherited, infections, some cancer treatments and

substance abuse.

Abnormal heart rhythms cause the heart to pump inefficiently. Types vary from

Rhythm Problems

relatively mild atrial (upper chamber) to disruptions of the ventricular (main

pumping chamber). Can be treated by medications and/or pacemaker and auto-

matic defibrillator devices. Often secondary to coronary disease.

Valves can become stenosed (narrowed) or regurgitant (leaky) due to; older

Damage to Heart Valves

age, infections, coronary disease, congenital defects, high blood pressure and

diabetes. Consequently, heart function is compromised to an extent depending

on the number and degree of valvular defects.

Structural defects that develop in the womb before a baby is born. These can

Congenital Heart Disease

vary from a small "hole in the heart" to major structural deformities. Most can

be partially or fully repaired but may cause problems in later life.

Tobacco, alcohol and recreational drugs all cause damage to heart muscle and

Substance Abuse

the vascular system. Some prescription drugs also have toxic side effects on

the heart which depend on dosage and length of use.

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Heart failure can affect the heart in different ways:

  • The most common failure affects the left ventricle (the main pumping chamber) which can fail in two ways. It may lose its ability to contract forcefully enough (sys- tolic failure) or it may not relax enough, in order to fill properly (diastolic failure).
  • In right heart failure the weaker right ventricle is unable to pump enough blood through the lungs and since the left side relies on receiving blood from the right side, the entire pumping action of the heart is compromised. The right ventricle has much less resilience than the left and can therefore fail more easily. Right sided failure is most often secondary to left sided failure as blood volume backs up as a result of a compromised left func- tion. Right heart failure may also be secondary to lung disease or an acute event such as an allergic reaction, infection or to a blood clot which lodges in the lungs. Up to 30% of patients whose left heart failure is treated with a left ventricular assist device develop right heart
    failure 01, 02, 03, 04.

Practitioners distinguish the severity of failure or extent of the handicap using the NYHA (New York Heart Asso- ciation) classification which is based on symptoms and includes 4 classes.

There is also a number of other guidelines published by the various professional bodies such as that of the Euro- pean Society of Cardiology : Guidelines for the Diagnosis and Treatment of Acute and Chronic Heart Failure.

Heart Failure being a progressive disease, the prognosis is poor: less than 50% survival, 5 years after the diagnosis 05, and more than 40% of deaths within a year following initial hospitalization 06.

In the NYHA, a shift to class III is a decisive moment 07 :

  • for the patient: it marks the passage between a vir- tually normal life and a considerably reduced activity, very often involving a loss of autonomy;
  • clinically this means more aggressive therapies, a dependence on drugs, and, with class IV, the start of repeated hospitalizations;
  • for society, this represents an explosion of the costs, particularly due to hospitalizations: a class IV patient costs the community up to 15 times more than a class II patient 08.

Class III and class IV patients represent between 20 and 35% of the total, with class IV reaching up to 5% of heart failures.

NYHA

Class I

Class II

Class III

Class IV

Tiredness, palpitations,

Symptoms and dis-

Symptomatic even at

Symptoms

No symptoms

shortness of breath

comfort on the least

rest

after a sustained effort

effort

Inability for all activity,

Activity

No limitation

Modest limitation

Marked reduction

permanently confined

to bed

01 Dang NC et al. Right heart failure after left ventricular assist device implantation in patients with chronic congestive heart failure. J Heart Lung Transplant 2006 ; 25 : 1-6.

02 Boyle AJ et al. Predictors of poor RV function following LVAD implantation. J Heart Lung Transplant. 2003 ; 22 : S205.

03 Kormos RL et al. Right ventricular failure in patients with the HeartMate II continuous-flow left ventricular assist device: incidence, risk factors, and effect on outcomes. The Journal of thoracic and cardiovascular surgery. 2010 ; 139(5):1316-24.

04 Cordtz J et al. Right ventricular failure after implantation of a continuous- flow left ventricular assist device: early haemodynamic predictors. EuropeanJjournal of Cardio-Thoracic Surgery. 2014 ; 45(5):847-53.

05 Blackledge HM et al. Prognosis for patients newly admitted to hospital with heart failure : survival trends in 12 220 index admissions in Leicestershire 1993- 2001. Heart. 2003;89:615-620.

06 Stewart S et al. More 'malignant' than cancer ? Five-year survival following a first admission for heart failure. Eur J Heart ailF. 2001;3:315-322.

07 Launois R et al. Coût de la sévérité de la maladie ; le cas de l'insuffisance cardiaque. Journal d'économie médicale. 1990, T. 8, n° 7-8, p. 395-412.

08 Kulbertus HE et al. What has long medical treatment to offer and what does it cost. Eur Heart J 1987 (suppl F) 26-28.

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1.1.2 Epidemiology, prevalence

and incidence

The prevalence* of heart failure is rising sharply in developed countries.

The prevalence of heart failure can be estimated at 1-2% in the western world and the incidence* approaches 5-10 per 1 000 persons per year 09. Both prevalence and incidence vary by country 10 (Table 1 hereafter).

In Europe, the disease affects approximately 2% of the

  1. Mosterd A, Hoes AW. Clinical epidemiology of heart failure. Heart 2007;93:1137-1146.
  2. Global public health burden of heart failure. Card Fail Review 2017 Apr ; 3(1) :7-11. Doi : 10.15420/cfr.2016 :25 :2.

Table 1

Table 2

general population 11, 12 i.e. approximately 15 million Euro- peans 13, 14. The prevalence increases greatly with age 15. A French epidemiological study has shown that it can affect nearly 12% of patients over the age of 60 16.

  1. Cowie MR, et al. The epidemiology of heart failure. Eur Heart J 1997; 18:208-225.
  2. Davies MK et al. Prevalence of left ventricular systolic dysfunction and heart failure in the Echographic Heart of England Screening Study: a population based study. Lancet 2001; 358:439-444.
  3. Remme WJ et al. Public awareness of heart failure in Europe : fiirst results from SHAPE. Eur Heart J 2005 ; 26:2413-2421.
  4. McMurray JJ et al. ESC Guidelines for the diagnosis and treatment of acute and chronic heart failure 2012. Eur Heart J 2012 ; 33:1787-1847 (nombre incluant les 51 pays adhérents de la Société européenne de cardiologie).
  5. Conrad N, et al. Temporal trends and patterns in heart failure

incidence: a population-based study of 4 million individuals. The Lancet. 2018;391(10120):572-80.

16 Saudubray T et al. Prévalence et prise en charge de l'insuffisance cardiaque en France : enquête nationale auprès des médecins généralistes du réseau Sentinelles La revue de médecine interne 26 (2005) 845-850.

Savarese G Global Public Health Burden of Heart Failure. Cardiac Failure Review 2017;3(1):7-11. DOI: 10.15420/cfr.2016:25:2

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In the United States, over 5.8 million people were suffe-

The paradox is that the availability of these new medi-

ring from heart failure in 2012, with an annual incidence*

cations or new technologies has enabled more effective

of over 550,000 new patients annually. According to a new

treatment of acute coronary syndromes and considerably

study published by an American Heart Association wor-

increased patient survival after an infarction which is the

king group in May 2013, the prevalence of heart failure in

strongest predictor of left systolic dysfunction and the risk

the United States should increase by 46% between 2010

of heart failure: patients no longer die immediately but are

and 2030 17, bringing the affected population to over 8 mil-

treated long term, during which time the disease conti-

lion people.

nues to develop. Consequently, the total number of people

living with a compromised heart function and with clini-

A more recent publication in 2017 predicts the number of

cal heart failure will increase considerably in the coming

new cases of heart-failures to hit 772.000 in the Unites-

decades 21. This evolution also leads to a population of

States in 2040 (see Table 2 on previous page).

older heart failure patients, suffering from various comor-

bidities, and thus even less susceptible to have access to

In addition, end-stage chronic heart failure with alte-

transplants 22. Out of the 8.5 million American people suf-

red ejection fraction*, focused market for CARMAT,

fering from heart failure predicted by the AHA by 2030,

would affect 4.1 million people in Europe and the United

only 2.5 million of these will be under 65 years old.

States 18, 19 (people under 75).

Currently heart transplantation is only available to some

This progression of the epidemiology is linked to the aging

5,000 patients per year, and durable MCS devices

of the population, but also, in the case of advanced heart

(mechanical assistance) offer a treatment to a further

failure, to the improved survival after a myocardial infarc-

8,000 patients, with variable results. This means that

tion and to the progress made in the medicinal treatments,

we currently do not have an effective therapy for most of

such as betablockers* and diuretics* 20 or coronary stents.

the patients. More than 30% of patients supported by a

durable MCS system require bi-ventricular support, cur-

17 Heidenreich PA et al. Forecasting the impact of heart failure in the United

rently only available with a Syncardia® TAH (see paragraph

1.2.2).

States: a policy statement from the American Heart Association. Circ Heart Fail.

2013 ; 6:606-619.

18 The ECHOES study, Midlands, UK: Davies M, Hobbs F, Davis R, et al.

Prevalence of left-ventricular systolic dysfunction and heart failure in the

Echocardiographic Heart of England Screening study: a population based study.

et d'évaluation de santé) - Avril 2001 - E.

Lancet. 2001 Aug 11;358(9280):439-44.

21 Tendera M. Epidemiology, treatment, and guidelines for the treatment

19 CARLA study, Sachsen-Anthalt, Germany: Tiller D, Russ M, Greiser KH,

of heart failure in Europe. European Heart Journal Supplements (2005) 7

Nuding S, Ebelt H, et al. (2013) Prevalence of Symptomatic Heart Failure with

(Supplement J), J5-J9.

Reduced and with Normal Ejection Fraction in an Elderly General Population.

22 Croft JB et al. Heart failure survival among older adults in the United States

20 Évaluation de l'assistance ventriculaire en attente ou en alternative à la

: a poor prognosis for an emerging epidemic in the Medicare population. Arch

transplantation cardiaque. Rapport de l'ANAES (Agence nationale d'accréditation

Intern Med 1999 ; 159:505-510.

1.1.3 Economic challenge

Heart failure constitutes a real public health challenge which is set to increase: in Western countries, the cost of heart failure is now one of the largest of all chronic diseases.

According to study from the American Heart Association working group published in May 2013, the total cost of heart failure which was 31 billion dollars in the United States in 2012 is estimated to be 70 billion by 2030. The direct costs (medical costs) of patient treatment is expected to increase by 250% between 2012 and 2030. Taking account of all the direct costs from resulting co-morbidi- ties, the cost will explode to 160 billion dollars in 2030.

Moreover, this study points out that 80% of the medical expenses are attributable to the hospitalizations.

There are no recent studies dealing with the cost of heart failure on a European level. As an example, the direct cost of advanced chronic heart failure in France was in the region of 1.5 billion euros 23 (3.3 billion euros for the long term condition class which combines serious cardiovascular diseases - ALD 5 in 2009, only for the general National Health Insurance system) and was reported to affect over 730,000 people in 2011 (a 9% increase compared to the previous year).

In a statement released on May 7, 2010 on the occasion of the European Heart Failure Awareness Day, the French Society of Cardiology and the French Federation of Cardiology recalled some figures. In France there are more than 100,000 new cases a year. 10% of these patients were hospitalized, the average length of hospitalization exceeding ten days and the rate of re-admission within six

23 Régime général de l'Assurance maladie (French National Health Insurance system)- www.ameli.fr/l-assurance-maladie/statistiques-et-publications/donnees-statistiques/affection-de-longue-duree-ald/.

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months being 20%. In 2008, heart failure was the main diagnosis for 195,800 hospital stays in France for which the daily cost of a hospital stay in cardiology intensive care was over 2,000 euros.

Overall, heart failure represents 2.5% of the total expenditure on health care in Western countries, with costs linked to hospitalization alone representing more than 70% of

the total cost of the disease 24. Due to repeated hospitali- zations, class IV chronic heart failure represents between 61% and 92% of the total cost of heart failure 25.

  1. McMurray JJ, Stewart S. Epidemiology, aetiology, and prognosis of heart failure. Heart 2000; 83:596-602.
  2. Clegg AJ et al. Clinical and cost effectiveness of LVAD for end stage heart failure - Health Technology Assessment NHS - 2005.

1.1.4

available

are identified, ranging from Stage A (high risk of develo-

treatments

ping heart failure) to Stage D (Advanced heart failure) 26,

The onset of heart-failure may be prevented or delayed by

as shown in the below chart.

a certain number of measures, such as treating high blood

Various national regulatory and professional bodies also

pressure. However, once this disease reaches the chronic

produce guidelines and recommendations.

phase it is essentially incurable and treatment goals are

directed at improving clinical status, functional capacity,

quality of life, minimizing hospital admissions and redu-

The four stages of heart failure and associated treatment

cing mortality.

plans:

Heart Failure can be classified according to its severity

and associated treatment plans. In this scheme 4 stages

26 Cardiac Failure Review 2017;3(1):7-11. DOI: 10.15420/cfr.2016:25:2

Stage A

Stage B

Stage D

Stage C

Refractory

High risk

Structural

Structural

symptoms

with no

heart

disease,

requiring

symptoms

disease, no

Previous or

special

symptoms

current

intervention

symptoms

Hospice

VAD, transplantation

Inotropes

Aldosterone antagonist, nesiritide

Consider multidisciplinary team

Revascularization, mitral-valve surgery

Cardiac resynchronization if bundle-branch block present

Dietary sodium restriction, diuretics and digoxin

ACE inhibitors and beta-blockers in all patients

ACE inhibitors or ARBs in all patients; beta-blockers in selected patients

Treat hypertension, diabetes, dyslipidemia : ACE inhibitors or ARBs in some patients

Risk-factor reduction, patient and family education

From Yancy, C. W., et. al. "2013 ACCF/AHA Guideline for the Management of Heart Failure:

A Report of the American College of Cardiology

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From Stage B onwards, treatment involves a tailored combination of medications and this is known as Optimal Medical Therapy (OMT). Unfortunately, because of the many drug related side effects, one of the constraints of OMT is compliance, with an estimated 40% of patients not adhering to their treatment plans.

Stage C patients may be suitable for surgical interventions ranging from coronary stenting, coronary artery bypass surgery, valve repair/replacements to surgical re-modelling of the heart. Patients with rhythm problems can be treated with a variety of pacemaker type devices including those incorporating a defibrillator function.

Patients in Stage D typically require strong heart stimulating intravenous drugs (inotropes) and become candidates for mechanical assistance (MCS) or heart replacement therapy by transplantation or an artificial heart.

Patients in Stages C & D also commonly develop a number of comorbidities (other medical conditions) as a result of a chronic inadequate blood supply.

medications

At early stages (typically at classes I and II of the NYHA classification), treatment is essentially drug-based27 and, depending on the severity and symptoms, combines:

  • anticoagulants* and anti-platelet aggregation medica- tion* to prevent the formation of blood clots;
  • angiotensin-convertingenzyme inhibitors* to reduce vascular resistance;
  • betablockers which reduce the cardiac rhythm and out- put to decrease blood pressure;
  • diuretics to remove excess fluids and, in this way, lighten the burden on the heart to prevent pulmonary edema;
  • vasodilators* which relax the blood vessels to increase the flow of blood and oxygen to the heart without increasing its workload;
  • etc.

The complexity of treatment and the need for frequent adjustments leads to low patient compliance: 40% of patients do not take their treatment correctly after 3 months 28.

Positive inotropes* are generally also introduced at the most advanced stage of the disease. These are drugs, administered intravenously in the hospital setting, which increase the contractility of the cardiac muscle and that allow, at least temporarily, critical situations of low

  1. American Heart Association - Heart Failure Medications - http://www. heart. org/HEARTORG/Conditions/HeartFailure/PreventionTreatmentof HeartFailure/ Heart-Failure-Medications_UCM_306342_Article.jsp.
  2. Benner JS et al. Long-term persistence in use of statin therapy in elderly patients. JAMA. 2002 ; 288:455-61.

cardiac output in episodes of acute decompensated heart failure* or cardiogenic shock* to be resolved. Dependence on inotropes marks the terminal phase of heart failure with a mean survival of 3 and a half months 29.

Devices

From class III (NYHA classification), surgical options and the implantation of supporting medical devices are consi- dered, such as:

  • mono or biventricular pacemakers to prevent arrhythmias;
  • implantable defibrillators to treat ventricular tachycar- dia and prevent sudden death;
  • left ventricular reconstruction;
  • restrictive mitral annuloplasty*;
  • mechanical circulatory support systems (MCS), implan- table or not, and artificial hearts.

For the most part, these options pursue the objective of recovering the heart's natural function. For example, biventricular pacemakers aim to reeducate the ventricles by synchronizing their contractions.

Restrictive mitral annuloplasty aims to reeducate the left ventricle by affecting its geometry. However, if these approaches temporarily relieve some patients, they face important difficulties in selecting patients30 or technical implementation 31, which restrict their adoption and do not prevent the progression of the disease.

Finally, the use of stem cells to regenerate damaged heart muscle is a promising avenue of research, but remains relatively controversial 32, in particular due to difficulties in collection or generation, then in administration (a large number of cells "die" during the injection) and the lack to date of a clinical demonstration of long-term regeneration of the myocardium.

Mechanical Circulatory Support (MCS):

The mechanical circulatory support systems are the devices which could be considered as the closest, in function and indication, to the CARMAT artificial heart project. Their characteristics and evolution are detailed in Paragraph 1.2.2. « Technologies and market players ». However, in contrast to artificial hearts which replace both ventricles, the diseased heart is left in place and can continue to deteriorate.

  1. Hershberger RE et al. Care processes and clinical outcomes of continuous outpatient support with inotropes (COSI) in patients with refractory endstage heart failure. J Card Fail. 2003 ; 9(3):180-7.
  2. Marwick TH. Restrictive Annuloplasty for Ischemic Mitral RegurgitationToo Little or Too Much. J Am Coll Cardiol. 2008 ; 51(17):1702-1703.
  3. Strickberger SA et al. Patient Selection for Cardiac Resynchronization Therapy, Circulation. 2005 ; 111:2146-2150.
  4. Garbern J et al. Cell Stem Cell, Volume 12, Issue 6, 689-698, 6 June 2013.

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Patients with chronic or acute heart-failure who cannot be stabilized with OMT are candidates for MCS. The devices are used to unload the failing heart and maintain an adequate blood supply to key organs. Patients in acute cardiogenic* shock are typically initially treated with a short-term support device to enable a full evaluation to take place whilst a definitive therapy can be planned and implemented. These decisions are guided by a categorization established by the Interagency Registry for Mechanically Assisted Circulatory Support (INTERMACS). There are 7 categories of which the first 4 are amenable to MCS therapies :

Top Four INTERMACS Categories

Although LVAD is the most frequently recommended MCS intervention, up to 30% of these patients will have failure of both ventricles (Bi-Ventricular Failure), thus giving rise to inferior outcomes. There is currently no Bi-Ventricular (BiVAD) MCS device on the market and since the only current Syncardia® TAH device has relatively poor outcomes, surgeons tend to test solutions such as implementing two LVAD.

INTERMACS Level

NYHA Class

Description

Device

1.Cardiogenic

IV

Unstable despite of maximum drug support and/or

ECLS * LVAD **

Shock

short-term MCS

TAH ***

2. Progressive

Acceptable blood pressure but rapid deterioration

ECLS * LVAD **

decline despite Inotropic

IV

of kidney function and nutritional state

TAH ***

support

3. Stable but Inotrope

IV

Blood pressure stable but requiring

LVAD **

dependent

intermittent inotropes

4. Symptomatic at rest

IV

Temporary cessation of inotropes but frequent

LVAD **

treatment required for fluid overload

  • : ECLS - Extracorporeal Life Support (short-term system connected to patient by tubes)
  • : LVAD - Left Ventricular Assist Device
  • : TAH - Total Artificial Heart

The Criteria Committee of the New York Heart Association. Nomenclature and

Criteria for Diagnosis of Diseases of the Heart and Great Vessels. 9th ed. Boston, Mass: Little, Brown & Co; 1994:253-256.

MCS Strategies

MCS devices can be used for a number of different strategies:

Acronym

Description

Application

CPR

« Cardio-Pulmonary Resuscitation »

Short term devices used to

resuscitate and buy time

BTD

« Bridge to Decision »

Short or Medium-term devices used to evaluate

best therapeutic way forward

BTR

« Bridge to Recovery »

Medium term devices used to attempt functional

heart muscle recovery

BTT

« Bridge to Transplant »

Medium to long term devices used to support a

patient awaiting a transplant

DT

« Destination Therapy »

Long term device used for permanent heart repla-

cement therapy

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TRANSPLANTATION

Patients who have reached NYHA IV can currently only be definitively treated by a heart replacement therapy (transplantation or artificial heart).

Although some LVADs and the only currently available TAH (Syncardia), are approved (or awaiting approval) for this chronic Destination Therapy (DT), they have yet to achieve the results available from heart transplantation

Professor Christian Bernard performed the first heart transplant in South Africa on December 3, 1967. The first transplant patients, with few exceptions, did not survive more than a few weeks after the operation, notably due to rejection (reaction of the host against the transplant which it considered as a foreign biological body). Several important advances have allowed the improvement of patient survival:

  • the preservation of donor hearts thanks to refrigeration,

allowing the removal at a distance from the place of transplantation;

  • endomyocardial biopsy allowing the early diagno- sis of rejection: a probe is introduced, under X-ray control and under local anesthesia, into a large vein and pushed until it is in the right ventricle, permitting a small piece to be sampled which is then analyzed under a microscope;
  • finally, and above all, the arrival of ciclosporin, an immunosuppressant* the therapeutic use of which offe- red great hopes in organ transplantation from the early 1980s by preventing acute rejection.

Today some 4,500 transplants are carried out globally, with survival rates of 85% at 1 year and 69% at 5 years , in nearly 300 centers (see tables below). However, the attrition rates do not improve significantly.

Survival rate after transplantation: ISHLT Registry 2018

Number of transplant centers worldwide: ISHLT Registry 2018

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The hopes placed on this treatment continue to face major problems that limit its mainstreaming.

The first reason can be found in the very strict eligibility criteria both for the harvesting of the organ and for the transplant. Notably, the donor 33 must, in principle, be under the age of 61 years, brain dead, not a carrier of certain viruses such as HIV or hepatitis B and C, not be a drug addict or have a cancer and, of course, not be suffering from heart disease. This therefore limits the possibility of donation mainly to trauma deaths (in particular road acci- dents, which are constantly decreasing). Only 435 hearts were therefore harvested in France in 2012 and 397 were implanted 34.

In France, 41% of donors were over 60 years old in 2011 compared to 22% in 2007, which explains why not all of the transplants harvested can be used.

Considering this shortage of organs, the eligibility criteria of the recipient are even stricter 35 in order to ensure the greatest chance of success with each transplant. Blood groups must be identical, weight and size equivalent. Irreversible pulmonary hypertension, an active infection or a cancer are formal contraindications. Other relative contraindications are also taken into account such as dia- betes, advanced lung or liver disease, renal impairment and morbid obesity etc.

  1. Latrémouille C et al. Transplantation cardiaque. EMC - ©Elsevier, Techniques chirurgicales - Thorax, 42-748, 2006.
  2. Agence de la biomédecine - Synthèse nationale de prélèvement et de greffe
    2012 et annexe au bilan 2012.
  3. Mehra MR et al. Listing Criteria for Heart Transplantation : International Society for Heart and Lung Transplantation Guidelines for the Care of Cardiac Transplant Candidates. J Heart Lung Transplant 2006 ; 25:1024-42.

A psychological assessment is considered to ensure that the patient understands and undertakes to adhere to complex life-long medical treatment. Patients with psychiatric disorders, or addicted to alcohol or drugs are not considered.

Age of the patient, which must be usually below 65 years, even if there is no legislation in this area, is a particularly discriminating criterion. The organs are therefore reserved for the youngest patients, while the vast majority of chronic heart failure patients are over 60 years or suffering from comorbidities making them ineligible.

Furthermore, post-transplant survival decreases significantly with age. Only 80% of patients over 60 years are still alive after one month, and 67% after one year 36.

As a result the number of transplants has been stable or declining in all developed countries for over ten years, while the prevalence of heart failure has considerably increased.

Heart transplant waiting lists therefore do not reflect treatment needs, but simply the number of patients satisfying all the eligibility criteria, particularly age. The low diffusion of heart transplantation as treatment of choice for end-stage heart failure is shown in the following table where we can see the small number of patients who could expect to benefit (see following table).

36 Agence de la biomédecine - Rapport d'information au Parlement et au Gouvernement - septembre 2013 et bilan 2013 : http://www.agence- biomedecine.fr/annexes/bilan2013/donnees/organes/03-coeur/synthese.htm.

France

United States

Germany ****

UK ******

Transplantations

450 *

3,244 **

312

177

Patients on waiting list

364 *****

3,782 ***

703

246

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There is also a number of serious complications, associated with the transplantations.

Post transplant complication rate : Alba A Int J Tx Res and Med 2016.

CKD = chronic kidney disease ; CAV = coronary artery disease.

As patients require lifelong immunosuppression, they are susceptible to a range of side effects including an increased incidence of infection and malignancy, chronic rejection, development of graft coronary artery disease, hypertension and kidney disease.

Despite all of these issues, heart transplantation is

regarded as the « Gold Standard » for heart replacement therapy, so any potentially successful alternative needs to match or surpass its results. The International Society of Heart & Lung Transplantation (ISHLT) maintains a register and carries out extensive analysis of results, in order to guide recipient and donor selection, aimed at achieving the best outcomes with a limited resource.

However transplant rates are limited by the paucity of donors and it is unlikely that a figure exceeding 6,000 per annum will be achieved. The impact of changes to donation legislation, better donor management, innovative retrieval and storage techniques are offset by higher survival rates from road accidents and cerebral trauma.

Finally, a heart transplant is a heavy treatment at a very high price. The Milliman Institute has published a detailed report on the estimated cost of organ transplants in the United States. In terms of heart transplantation, its 2014 conclusions show a cost of 1,242,200 dollars, including

30 pre transplantation days and 180 post-transplanta- tion days. It is difficult to make international comparisons in view of the very different health funding systems and figures available covering different pre- and post-implan- tation periods.

1.2 markets and market players

1.2.1 addressable market figures

CARMAT intends to market an artificial bioprosthetic valve for patients in NYHA classification end stage class IV heart failure which is either chronic or ischemic heart disease (of which «acute myocardial infarction» is only a sub-group), in a the Bridge To Transplant indication, i.e. pending transplantation (refer to paragraph 1.2.2 « Technologies and market players ») and/or for the Destination Therapy (final treatment).

geographical area.

Referring to the indications obtained by similar devices, this artificial bioprosthetic heart could be indicated for patients suffering from acute or chronic end stage heart failure under 70 years old who cannot be transplanted, without obvious indication like cancer, reducing their life expectancy to less than 6 months.

Considering that:

The figures below refer to the indication for destination therapy.

Chronic heart failure affects approximately 15 million Euro- pean patients 37 and 5 million patients in the United States 38, i.e. a total of approximately 20.8 million patients in this

  1. ESC Guidelines for the diagnosis and treatment of acute and chronic heart failure 2008. European Heart Journal (2008) 29, 2388-2442 (sur les 900 millions d'habitants des 51 pays adhérents de la Société européenne de cardiologie).
  2. Heart Disease and Stroke Statistics - 2010 Update at a glance - American Heart Association and American Stroke Association.
  • 2.3% of these patients will reach the end stage of the disease annually - involving the first hospitalisation - i.e. a population of approximately 478,400 patients 39 ;
  • 38% of this population is under 70 years old, i.e. a popu- lation involving approximately 182,000 patients 40, 41 ;

39 Jhund PS et al. Long-term trends in fiirst hospitalization for heart failure and subsequent survival between 1986 and 2003 : a population study of 5.1 millions

people. Circulation 2009 ; 119:515-523.

  1. ESC Guidelines for the diagnosis and treatment of acute and chronic heart failure 2008. European Heart Journal (2008) 29, 2388-2442 (sur les 900 millions d'habitants des 51 pays adhérents de la Société européenne de cardiologie).
  2. Heart Disease and Stroke Statistics - 2010 Update at a glance - American

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  • around 5,000 eligible patients are transplanted per year; and
  • the anatomical compatibility of the CARMAT heart for men and women is 86% and 14% (with a weighting of 80/20 between men and women), it should be noted

Heart Association and American Stroke Association.

that the available clinical data indicate that these compatibility rates will increase in the near future.

There are therefore approximately 126,700 potential patients in Europe and the United States for the indication class IV end stage chronic heart failure.

1.2.2 Technologies and market players

The development of an artificial heart has long been the

  • holy grail » of medicine and early attempts go back to the late 1930's in Russia and then a series of developments in the USA, in the 1960's. The first BTT (Bridge to Transplant) was carried out by Cooley, in Texas in 1969 when an early device (Liotta Heart) was successfully used for 64 hours of support. One of the major innovators was Willem Kolff who assembled several teams to work on artificial heart development. One of the Kolff's designs was developed by Robert Jarvik and constituted the first successful clini- cal implant in 1982. The patient lived for 112 days and then followed a series of 4 further « permanent » implants of the Jarvik 7 TAH, but the program was abandoned when it became clear that the therapy was accompanied by too many complications and the equipment precluded a decent quality of life.

Attention then turned to a simpler univentricular approach when it became clearer that a significant number of ESHF patients could be adequately supported by just unloading the left ventricle, using a LVAD (left ventricule assistance device). These early partial success-stories and the large unmet need, stimulated a number of commercial efforts to develop LVADs and there was a steady improvement in engineering these devices, and patient selection and management.

While modern engineering has allowed much progress in pump design and fabrication. The weakness of these technologies remained the problem of the biological interface between the device and the patient, resulting in significant complications, particularly with regard to coagulation control and infection. The CARMAT PHRT design is aimed at overcoming these complications.

Although there have been many small companies involved in the development of these devices, today the principal market players are Thoratec® and Heartware® in the field of ventricular assistance, and Syncardia in the field of artificial hearts.

The key market players are Thoratec® and Heartware® in the field of ventricular assistance, and Syncardia in the field of artificial hearts.

These devices are indicated in two main cases:

  • pending transplantation (BTT: Bridge to Transplant)

The device is implanted temporarily until an organ is available or until the patient's condition improves sufficiently to tolerate the operation. Given the thromboem- bolic or infectious complications of the available devices, they were, until recently, used mostly for this short-term indication.

  • definitive treatment (DT: Destination Therapy)

This indication was, until recently, reserved for patients who were ineligible for a transplant, or who did not wish to have a transplant. However, under the pressure of a fast increasing prevalence and the shortage of organs, numerous patients temporarily implanted actually become destination therapy patients.

The aim of Destination Therapy is to offer a system providing a real quality of life to the patient. This should comprise a reasonable autonomy, a return to a home envi- ronment, a near normal social life and even a return to work. Complications and the burden of system management should be minimal. In terms of symptoms, this would represent an improvement of at least 2 NYHA classes.

Thoratec® obtained the first approval for the use of their HeartMate II in a Destination Therapy application in 2010. The use of these devices as a permanent solution has increased considerably in the USA and in other European countries, such as Germany, so that by 2015 more than 50% of LVAD implants were for a Destination Therapy strategy.

(N.B.: The following information concerning the other devices has been taken exclusively from public sources such as websites of the companies cited, publicly accessible presentations for investors or referenced scientific publications. Readers are encouraged to conduct their own research in order to form their own opinions. CAR- MAT accepts no liability concerning the accuracy of this information.)

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ventricular assistance devices 42

These devices are often and incorrectly referred to by the media as artificial hearts.

However, as their name indicates, they are implanted in parallel to the native heart, to assist it by supplementing its flow to meet the metabolic needs, but do not replace it.

Categories of Ventricle Assistance Devices (VAD)

These devices can be categorized depending to their connection to the patient's vascular system (extra-corpo- real, para-corporeal, or intra-corporeal) :

  • The extra and para-corporeal devices are used for short to medium term applications such as Rescue Therapy 5RT), Bridge to Decision (BTD) and possibly, post-sur- gical bridge to recovery ;
  • Modern VADs, used for BTT or DT applications are intra-corporeal and referred to as "durable" and implanted inside the body.

Extracorporeal :

  • Pump connected by long tubes
  • Short-termsupport

Paracorporeal

  • Pump position outside body
  • Medium-termsupport

Intra-corporeal

  • Long-term /chronic support
  • Intraventricular / Intra-pericardial / Abdominal Pocket

The historical leader in VAD category is the Thoratec® company with their HeartMate II® device, then their Heart- Mate III® device. The HeartWare® LVAD, now owned by Medtronic, is the main competitor.

42 The devices indicated awaiting recovery (Bridge to Recovery: BTR) are not mentioned here. Indeed, their indications and their technologies are very different. They can only provide limited assistance (approximately 2 liters / minute vs. 9 liters / minute for the CARMAT heart) for a very limited period (from a few hours to a few days) and are intended for patients without permanent ventricular deterioration, who need temporary hemodynamic support, for example after surgery or post-traumatic hemorrhage.

Thoratec® announced that it exceeded 18,000 implants for its HeartMate II® in 2014 (i.e. scarcely 5 years after its approval by the FDA for the destination treatment indica- tion) and it was on this basis particularly that in the middle of 2015 this Company was acquired by Saint Jude Medical, based on a value of 3.3 billion dollars. In October 2015, the Company announced that it had obtained the CE mark for its product HeartMate III®.

More recently, in April 2016, the Abbott Group and Saint Jude Medical announced their merger, thus valuing Saint Jude Medical at approximately $ 25.0 billion. The new group created as a result of this merger is positioned as a global leader in medical devices, with applications in the cardiac field, diabetes treatment, or vision disorders.

The products of Thoratec®, entity now belonging to the Abbott Group, can theoretically assist the left (Left Ventricular Assist Device - LVAD) or right (Right Ventricular Assist Device - RVAD) ventricle or both ventricles. In the latter case, they are called biventricular assist devices (BiVAD). To date, however, there are no implantable devices approved for the right ventricle or biventri- cular application, all the devices having been designed for the left ventricle.

Right ventricular failure is a major complication of LVAD treatment of the left ventricule. Reported incidence varies from 3.9% to 53% using diverse definitions. Howe- ver, BiVAD support outcomes are significantly worse than LVAD alone, (50% vs 80% survival). To our knowledge, only Medtronic, has expressed an intention to seek authorization for a right ventricular assist device (RVAD). The design of an RVAD or BiVAD is different from that of a LVAD. This is because the right ventricle operates in very different conditions than the left one. The operating pressures are much lower, the native muscle has much less resilience and unloading the left ventricle produces a change in the internal geometry of the heart. In addition, any BiVAD set-up requires the right and left flows to be carefully matched, to avoid damage to the lungs.

LVAD designs have evolved over time, from 1st generation designs with large pneumatic or electromagnetic pumping chambers incorporating mechanical valves used in open heart surgery, to 2nd and 3rd generation devices, smaller and larger sophisticated, described in the following paragraphs. They were connected to the heart via wide conduits and to an imposing control and power system, via a percutaneous cable. Improvements to external systems then allowed patients to be discharged from hospital while awaiting a transplant. However, these systems were relatively large, noisy, and associated with high levels of complications, including neurological events, infections, and device failures.

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The second-generation pumps were developed in the 1990's using rotary pump designs, after animal studies showed that the non-pulsatile flow and pressure profiles produced by this type of pumping action, is compatible with chronic survival. This allowed the pump size to be significantly reduced and avoided the inclusion of valves. The most frequently used device of this design was the HeartMate II. Results were significantly better than with first-generation devices and the small size made for an improved patient quality of life. However, chronic loss of a pulse proved to produce complications relating to coagulation and abnormal blood vessel development and there were still issues with infection.

Third-generation designs comprise even smaller devices, such as HeartMate 3 and HeartWare, that can be more easily implanted right next to the heart, require less power, and can be controlled to produce a pseudo-pulse. Early results suggest that these designs have resulted in overall better outcomes with fewer complication rates. However, a recent INTERMACS annual report had the following conclusion: « adverse events continue to affect the fiield, contributing to death and an unacceptable high incidence of hospital readmissions ».

total artificial heart: TAH

As in a heart transplant procedure, total artificial hearts replace both failing ventricles. Placement is called

  • Orthotopic » to distinguish grafts or implants which are placed elsewhere than at the position of the native heart in the thorax. The native ventricles are removed and TAH is connected to the remaining atria of the human heart, the blood of which fills the device, and to the main blood ves- sels carrying blood to the lungs (pulmonary artery) and the rest of the body (aorta) by two conduits.

Syncardia

The only total artificial heart currently on the market in Europe and the United States belongs to the eponymous private equity company Syncardia 43. After facing financial difficulties («Chapter 11»), the company received in Sep- tember 2016 the support of the private equity fund Versa Capital Management.

The Syncardia® device was designed in the 1970s and implanted for the first time in 1982 - under the name Jar- vik 7. The patient survived for 112 days. In 1985, a patient reached the transplantation stage for the first time after surviving for 9 days with the artificial heart. In 1990, the FDA closed the Symbion, Inc. company which held the rights for Jarvik 7 and stopped the ongoing clinical study (IDE*) because of breach of its regulations. The technology was taken up again by an Arizona University Centre under the name CardioWest™. A new clinical study started again in 1992 in the United States and lasted 10 years. This led to FDA approval in 2004 for a bridge to transplantation indication and the CE marking. Meanwhile, a new privately funded company, Syncardia Systems, Inc., was created in 2001 to prepare for and then proceed to marketing 44. Syn- cardia announced the 1000th implantation of its artificial heart in February 2012, which is 19 years after the first implant in December, 1982. Today, to our knowledge, the annual number of Syncardia implants is about 50.

This means that the only TAH on the market has a design which is 40 years old. The two polyurethane ventricles are actuated by pneumatic pressure, provided by a large hospital driver incorporating a compressor and independent right and left controllers. The air pressure actuates the internal flexible membranes which separate each ventricle into blood and air compartments. Forward flow is achieved with the use of four mechanical heart valves : two on the inlets and two on the outlets. The system requires manual control, but some degree of automatic response is provided by running the system so that it only partly fills, at rest. Two percutaneous (exiting the abdominal wall) plastic tubes, approximately 2 meters long connect the device to the hospital driver. There is now a portable ver- sion, the Freedom™ portable driver, which weighs 6.12 kg (13.5 pounds) excluding carrying accessories such as the backpack or sling bag This allows the patient some independence and the batteries provide for 3 hours of independent operation 45.

  1. www.syncardia.com - all information concerning Syncardia is taken from their website, unless specifically stated.
  2. Historical information on Jarvik 7 can be found on the Jarvik Heart website www.jarvikheart.com.
  3. Jaroszewski et al. The SynCardia freedom driver: A portable driver for discharge home with the total artificial heart. J Heart Lung Transplant 2011 Jul 30(7):844-845.

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Comparative table of different devices addressing heart failure

Total orthotopic

Total orthotopic

Ventricular assis-

Ventricular assis-

tance devices

artificial heart

artificial heart

tance devices

THORATEC

CARMAT

SYNCARDIA

HEARTWARE

(HeartMate III®)

Visual of the system

Company supported by

Acquired by Saint Jude

Listed company

Medical in 2015 for

the private equity fund

Corporate

$ 3.3 billion, Saint

Acquired by Medtronic in

€ 60 million last fund

Versa Capital Manage-

information

Jude Medical acquired

2016 for $ 1.0 billion

ment since

raising in September 2019

by Abbott in 2016 for

September 2016

$25.0 billion

Bridge to Transplant

Bridge to Transplant

Bridge to Transplant

approval: 2004 (USA) and

approval: 2017 (USA)

Non-marketed product

approval: November 2012

Market access

1999 (CE marking)

Destination Therapy

Pivotal study ongoing

Destination Therapy

Study for destination The-

approval: 2015 (CE mar-

approval: September 2017

rapy: Pending

king) and 2018 (USA)

Bioprosthetic artificial

Artificial heart, with

Technology

heart, biocompatible,

pneumatic technology

autoregulated, pulsatile,

designed in the 70's

hydraulic activation

(Jarvik 7)

Ventricular asistance

Ventricular asistance

device, with centrifugal

device, with centrifugal

rotary pump

pump

Biocompatible materials

Relatively simple

Small devices - large patient size compatibility.

technology.

reducing adverse events.

Simple implantation.

Advantages

Pulsatile.

Autoregulation matching

Better complication rates than earlier devices or

patient physiological

Product already on the

current TAH.

needs. Pulsatile.

market.

Left support only.

Some patient size

Relatively high complica-

Disadvantages

tion rates. Limited auto-

restrictions.

matic function. Noisy.

Complication rates still relatively high.

Native heart problems impact.

Non-pulsatile.

Minimal autoregulation.

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Other artificial hearts Projects

TAH research is a dynamic area of device innovation with, to our knowledge, 5 other devices in various stages of development, the most advanced of which is Bivacor:

CARMAT welcomes this investment by potential competitors as it underlines the belief in the potential and benefits of total artificial hearts.

CompanyReinHeart RealHeart SmartHeart Bivacor OregonHeart

Location

Aachen, Germany

Vâsteras, Sweden

Cleveland, USA

LA / Houston, USA

Seattle, USA

Stage

Design

Design

Bench testing,

Chronic

Design

modifications

modifications

animal studies

animals

modifications

Visual of the prosthesis

1.3 the first Physiological Heart Replacement Therapy (*)

1.3.1 positioning on the market

The CARMAT artificial heart is intended to offer a permanent solution to patients with terminal heart failure who are facing a therapeutic stalemate due to the lack of human organs or illegibity to transplant.

The constraints on the adoption of mechanical heart replacement, as a major therapy, for the reasons detailed above, stimulated the design and development of the CAR- MAT PHRT, with special emphasis on improving the biological interface, and subsequent reduction in thrombotic and hemorrhagic complications.

A logical approach was to use the same materials already widely and successfully used, in bioprosthetic heart val- ves. Incorporated into this design was also a novel elec- trohydraulic drive system, which simulates human physiological blood flow and pressure profiles, together with a control system which provides a normal response to exercise.

* : hereafter PHRT for « Physiological Heart Replacement Therapy »

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Hospital System

Hospital

Monitoring

System

Implantable Part

Connection

System

External Patient

System

Patient Monitoring

2 X Batteries

Adaptator

Connection to home electricity supply

Source CARMAT - The complete CARMAT system

1.3.2 description of the carmat prosthesis

As presented on the above chart, the system consists of:

  • an implantable part, the bioprosthetic artificial heart;
  • an external wearable equipment allowing patient auto- nomy and return to home;
  • a hospital system/monitor allowing system configura- tion and patient monitoring.

the implantable prosthesis

The CARMAT PHRT prosthesis is a single-unit device with bio-prostheticblood-contacting surfaces designed for orthotopic placement, with a connection to an electrical supply (batteries or domestic network) via a percutaneous driveline.

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Source CARMAT - Overview of

the full prosthesis

Actuation liquid

Hybrid

membrane

Electrohydraulic rotary pumps

Each ventricle consists of two compartments, separated by a hybrid membrane. The membrane consists of processed bovine pericardial tissue, on the blood-contacting surface, and a polyurethane layer at the hydraulic silicone fluid contacting surface.

Two electrohydraulic rotary pumps create systolic and diastolic phases by rapidly reversing the direction of silicon fluid-flow that alternately pushes and pulls the membranes.

Pressure sensors in each ventricle provide information on preload and afterload, while ultrasound transducers measure the position of the membranes.

At implant, and when required, the physician can adjust the beat rate (10-150 beats per minute), the left ventricular stroke volume (30-65ml) and the right to left stroke volume ratio (to correct for the bronchial (lung) circulation) and alarm thresholds. The resulting pulsatile blood flow can range from 2 to 9 l/min.

Once the patient is stable after implant, the device is switched to the Automatic mode, which automatically adjusts device performance to changing physiological needs.

The combination of membrane characteristics and hydraulic actuation provides for physiological pressure and flow profiles. Electronics and microprocessors are contained within the device.

Four Carpentier- Edwards® bioprosthetic valves (Edwards Lifesciences, Irvine, CA, USA) are located at the inlet and outlet of each blood compartment to maintain unidirectional flow.

The prosthesis is partially surrounded by a flexible polyu- rethane compliance bag that contains the hydraulic fluid.

Electrical Connection

The transfer of electrical energy from the monitoring console or portable batteries to the prosthesis is made via a flexible percutaneous driveline.

This small diameter (8mm) flexible percutaneous driveline delivers power to the CARMAT PHRT and retrieves information on device performance. The driveline connects to wearable system. These provide an electronic interface for displaying essential device data for the patient, and an uninterrupted power supply for the device. The clinician connects a hospital console to the controller for initial

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setup and subsequent device monitoring and changes to the settings of the CARMAT PHRT.

the WEARABLE SYSTEM

The wearable system provides for patient autonomy and mobility, and allows him/her to be discharged from hospital and return home with a good quality of life.

Once the patient is stable after implant, the wearable system is substituted to the hospital monitor. The patient then only uses the wearables, except during periods of outpa- tient reviews and for downloading data. Several ancillary bags and covers are available to use with the wearable equipment.

A stringent training and monitoring system are put in place to ensure that the patient and close companions fully understand the safe operating principles of the system.

The Wearable system comprising :

  • A controller,
  • Two battery packs,
  • A carry bag.

The complete system weighs 3 kg.

The batteries provide at least 4 hrs of support at a blood flow of 6l/min.

the HOSPITAL MONITORING SYSTEM

The hospital monitoring system is only used in implantation centers by certified medical staff. It allows the medical team to configure and pilot the prosthesis during implantation, and to perform the follow up during periodic control visits. It also allows, for example, the downloading of new functions or versions of the prosthesis' softwares.

The hospital monitoring system is used to:

  • Configure the prosthesis during device implantation,
  • Monitor prosthesis functions,
  • Display alarms,
  • Collect data from the prosthesis.

Source CARMAT - The

hospital system

Source CARMAT - The patient

wearable system

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1.3.3 innovations and competing advantages

The CARMAT PHRT incorporates a number of innovative design features which, to our knowledge, are currently unmatched by any other MCS system on the market or, planned for any device under development.

Hemocompatibility

The most original feature is the use of bioprosthetic materials similar to those used for tissue heart valves over the past 35 years. This material is on the inner layer of the flexible membrane. The static surfaces of the ventricles are covered with polytetrafluorethylene, a material used in vascular surgery. Carpentier-Edwards bioprosthetic heart valves are used for the two inflow and outflow valves.

PULSATILE

The pumping action of the two ventricles is achieved by a viscoelastic movement, actuated by the embedded hydraulic pumps. This produces flow and pressure blood profiles which closely mimic those of the natural heart. This preserves valve durability and ensures optimal ventricular flow characteristics avoiding damage to blood cells and proteins.

Key Features:

  • Biologic:

Hemocompatible : Biocompatible material for blood contact surfaces

  • Electronics:

Auto-regulated : Automated response to the patient's physiological needs (activity adjustment, circadian rhythm)

  • Mechanic:

Pulsatile : Hydraulic pumps mimic diastole & systole

AUToregulation

Embedded electronics, microprocessors and ultrasonic sensors allow precise control and responses to changing patient physiological needs. In addition, they maintain an optimum balance between right and left pump flows.

In summary:

  • All blood contacting surfaces are covered by proven biocompatible materials;
  • Biological valves, which have been in clinical use for years, provide unidirectional flow;
  • The pumping action closely mimics human heart dynamics;
  • Blood damage and the activation of pathological changes are avoided;
  • An automatic function responds to changes in patient activity and needs.

BIOLOGY

MECHANICS ELECTRONICS

Source CARMAT

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Evaluation of explanted clinical pumps has confirmed the efficacy of biocompatible surfaces (see picture below and refer to Section 1.4 - « Clinical trials »). Patients were managed with a minimal anticoagulation therapy which is likely to be reduced further in the future, to a level used for patients with vascular stents.

Biosynthetic membrane

Ventricle in micro-

Biosynthetic interface

Carpentier-Edwards®

porous PTFE

with the atria

pericardial valve

Source CARMAT - Hemocompatible materials

other competitive advantages

Compatibility to human thoraxes / implantability:

The shape and size of the CARMAT PHRT prosthesis have been adapted to the anatomy of the human thorax, in order to fit the largest number of patients. This involved making design adjustments which allow the ejection of a normal volume of blood with each beat, whilst taking up the minimum thoracic space.

An advanced virtual 3D implantation system has thus been developed, based on a sophisticated three-dimensional simulation. This has produced a reliable non-invasive method for patient selection.

3D virtual Transplant simulator

Segmentation of

3D organ

Insertion of the

Assessment of

CT image sections

reconstruction

CARMAT 3D model

compatibility

Source CARMAT - 3D virtual transplant simulator

Surgical Experience

An implantable device can only be a valid therapeutic solution if the implantation is simple and reproducible. Under the supervision of Professor Carpentier, the CARMAT teams have therefore worked in tight collaboration with several surgeons, anesthesiologists, perfusionists and nursing personnel of the surgical community, to design and develop a procedure that any experienced cardiac surgical team can perform, even in emergency situations.

Notably an original interface with the patient's atria (upper heart chambers) was especially developed, which allows the surgeon to have much more room to work, and ensure a better subsequent alignment of the prosthesis. Once this interface is sutured to the atria, the prosthesis can simply be clicked into place.

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Experience gained during the pivotal study also shows that the implantation times of the CARMAT prosthesis are similar to those encountered for a human transplant.

The implantation procedure is also greatly facilitated by the fact that there is no adhesion of the tissues to the prosthesis.

1.4 go-to market process

As an active implantable device, the CARMAT TAH (total artificial heart) needs to be approved by the Competent Authorities of the different countries where CARMAT is willing to sell it. The regulatory pathways differ from one country to the other but in all cases, for such a critical device, the manufacturer is required to demonstrate its

safety and efficacy through evidences collected in laboratory testing and clinical studies.

At this stage, CARMAT's objective is to get approval to commercialize its device both in Europe and in the United-States.

1.4.1 GO-TO MARKET PROCESS

FOR EUROPE

process overview

The active implantable medical device directive, or "MDD" (AIMDD 90/385/EEC, modified by the directive 2007/47) defines the requirements to be met in order for the device to get the CE mark.

Evidences of safety and efficacy of the device are

reflected in a Technical File (TF) that is reviewed and audited by a Notified Body. CE marking is granted by the Notified Body following the successful completion of the TF's review and audit.

The full process is described in the following chart: (refer to Section 2 of this universal registration document for a description of the risks associated to this process)

Full audit of the CARMAT quality system by the notified body

  • Preliminary
  • Production (management of the environment, process validation method, control tests)
  • Management of anomalies
  • Identification and management of risks
  • Procurement (contrats, manage- ment and monitoring sub-contrac- tors audits)
  • Information systems
  • Maintenance, metrology
  • Human resources (skills, training)

ISO CERTIFICATION

13485-9001 obtained in July 2011, then renewed successful- ly, the lastest in July 2017

Establishment of a technical file

Audit of the dossier by the

notified body

- File produced (design, choice and

validation of materials, plans, labels,

leaflets, manuals, implantation proce-

dures, etc)

- Analysis of the

- Verification file for the full system,

technical file

sub-assemblies and components

Declaration

- Biocompatibility

- Audit of the organization

of European

- Tests on test systems (functional,

Conformity

and all of the product-related

endurance, etc)

processes

- Electro-magnetic compatibility tests

- On site

Labeling

- Validation of sterilization

- Within the major

CE

- Industrial validation - on site and

sub-contractors

with the sub-contractors

- Risk management file (Analyse of

- Compliance opinion

types of failure and effects of their

criticality (AMDEC) of the product and

processes)

- Validation file: clinical studies

Source CARMAT - CE marking procedure

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The CE marking, authorizes the commercialization of the product throughout the European Union. However, certain member states have put in place additional conditions concerning, for example, the registration or notification of market introduction.

The Medical Device Directive (MDD) is going to be superseded by the Medical Device Regulation (MDR) from May 2020. This regulation strengthens the requirements to be met for a device to be granted the CE marking. If the certificate (CE Mark) is granted before May 26th, 2020, then it will remain valid until May 26th, 2024 as long as there are no significant changes in the design or intended purpose of the device during this so-called "Grace Period" ; and the Company complies with MDR requirements relating to post-market surveillance, vigilance, and registration of economic operators and devices.

CARMAT announced that it had submitted its technical dossier (including the intermediate results from the pivotal study as described on the following page) to the notified body (DEKRA) in July 2019, and continues to take, in conjunction with the notified body, all necessary steps to obtain the CE marking in 2020.

Sections 1.4.1.2 and 1.4.1.3 describe the design and summarize the results so far of the clinical studies performed by CARMAT as part of this CE mark process.

PREPARATION OF THE CLINICAL TRIALS

Before initiation of clinical trials, the potential benefit of the device has been assessed by literature research, aimed to compare the device to existing therapies for end- stage heart failure. Next, a serie of simulation tests, bench tests to assess device reliability, and animal implants have been performed - all to identify/reduce potential risks for the patient prior to clinical testing.

An overview of these steps is provided in the illustration below:

Clinical trials in Europe must be pre-approved before initiation by the Competent Authority in each participating country and the local Ethics/Patient-Protection Committees.

CLINICAL STUDIES

Feasability study

  1. first-in-man(FIM) study was conducted in France in 2013-2016, with a small cohort (n=4) of sick and elderly patients. During this early clinical experience, the surgi- cal technique of device implantation was validated and the anatomic compatibility of the device confirmed. Technical upgrades to the prosthesis were implemented following device failures in the first two implanted patients. The Car- mat TAH was capable of providing adequate blood flows, with a cumulative support duration of 618 days, allowing 2 patients to return home and recover an almost normal qua- lity of life. Results of the FIM study have been published in peer-reviewed medical journals such as The Lancet 46,, The Journal of the American College of Cardiology 47 and The Journal of Heart and Lung Transplant 48.

Pivotal study

The FIM study was followed by the pivotal study involving 20 patients (two cohorts of 10 patients). The objective of this study, whih is still in progress, is to demonstrate the safety and performance of the CARMAT TAH, in patients suffering from irreversible biventricular heart failure.

The pivotal study began enrolling patients in 2016 with authorizations in France (2016), Republic of Kazakhstan

46 Carpentier A, Latrémouille C, Cholley B, et al. First clinical use of a bioprosthetic total artificial heart: report of two cases. Lancet. 2015 Oct 17;386(10003):1556-63.

47 Smadja DM, Bioprosthetic Total Artificial Heart Induces a Profile of Acquired Hemocompatibility With Membranes Recellularization. Journal of the American College of Cardiology 2017;70:404-6.

48 Latrémouille C, et al. A bioprosthetic total artificial heart for end-stage heart failure: Results from a pilot study. J Heart Lung Transplant. 2018 Jan;37(1):33-37.

Risk Reduction

Literature

Human

Animal tests

Bench tests

Simulation tests

CE

Marking

Clinical Investigation is last step to demonstrate Device Safety and Performance

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(2017), Czech Republic (2017) and then Denmark (2018) for

more than 70% of their time.

an enrollment of 20 patients (ClinicalTrials.gov - Identifier:

NCT02962973). The primary endpoint of the study is survi-

Of the 11 patients enrolled in the interim results,

val on a Carmat device at 180 days post-implant, or survi-

5 transplant-eligible patients received donor hearts after

val to cardiac transplantation, if occurring before 180 days

109, 155, 243, 304 and 308 days of CARMAT support wit-

post-implant. The results are analyzed in the Clinical Eva-

hout any procedure-related complications. Notably, there

luation Report, which is an integral part of the Technical

were no tissue adhesions around the device body, a known

File for the CE marking dossier.

procedural challenge with other circulatory support

devices. Moreover, explant analysis confirmed the early

Interim results of the pivotal study

findings of ongoing endothelialization of all of the blood

contact surfaces, thus attesting to the utility of using

CARMAT plans to communicate on the overall progress of

these particular biocompatible materials.

the CE marking and on the completion of significant miles-

tones in the pivotal study. In accordance with good clinical

The experience and results of this cohort of 11 patients,

practice and subject to regulatory requirements or special

in the pivotal study, have demonstrated a positive safety

circumstances, CARMAT will not communicate individually

and performance profile, notably with the absence of hae-

on patient implantations and their health status.

mocompatibility-related complications. This device com-

pares favorably with the current TAH (Syncardia®) in terms

Thus, CARMAT presented an update of the pivotal study in

of 6 months survival (73% vs 64%), neurological compli-

January 2019, and then most recently in November 2019.

cations (0% vs 23%), non-surgical bleeding (0% vs 20%),

The interim analysis presented in November included

driveline infection (0% vs 22%), anticoagulation (low-dose

11 patients, recruited between August 2016 and August

vs complicated regimen), noise (quiet vs noisy pneuma-

2018. In total, the pivotal study foresees the inclusion of

tics), physiological response (near normal vs limited) and

20 patients with terminal biventricular heart failure.

has shown to facilitate safe and quick implant/explant

surgery.

Survival after implantation of the CARMAT TAH was 91% at

1 month, and 73% of patients achieved the primary objec-

Refer to the table below for a summary of the results

tive of the study corresponding to 6 months of survival

obtained at this stage by CARMAT compared to other the-

with the prosthesis or a successful heart transplant in the

rapies at 6 months follow up:

months following the implantation of the CARMAT device.

Nine patients were discharged from the hospital to either a

The overall cumulative experience in the pivotal study now

home-setting or to a rehabilitation unit, where they spent

exceeds 6.5 patient years. Out of the 6 patients supported

Survival rate

Bleeding /

Gastrointestinal

Percutaneous

Device

Stroke

cable-related

at 6 months

Reintervention

bleeding

infection

CARMAT prosthesis

Faisability study

50 %

0 %

75 %

0 %

0 %

(n=4)

CARMAT prosthesis

Pivotal study

73 %

0 %

36 %

0 %

0 %

(n=11)

SynCardia *

54 % - 62 %

23 %

41 %

20 %

22 %

BIVAD **

46 % - 68 %

7 %

na

7 %

7 %

  • : Arabia F et al, J Heart Lung Transplant, 2018; 37; 1304-1312. Demondion P et al, Eur J Cardiothorac Surg. 2013 Nov: 44(5):843-8
  • : Lavee J et al, J Heart Lung Transplant 2018; 37; 1399-1402

Source CARMAT - Intermediate results pivotal study (Cohort 1)

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for longer than 6 months, 3 were transplanted as indicated above, and 1 has now been supported for nearly 24 months. Moreover, the longest freedom-from-failure now exceeds 5 years on bench tests.

The analysis of all information gathered from the experience accumulated with the first cohort of the pivotal study and data recorded on test benches, prompted CAR- MAT to halt patient enrolment and production in Octo- ber 2018 in order to implement a number of changes to its manufacturing processes.

Subsequently, CARMAT restarted production in May 2019

and received approval to resume the Pivotal Study in Den- mark (August 2019), Czech Republic (November 2019) and Kazakhstan (December 2019), with an implant in Czech Republic in November 2019, marking the 12th patient enrolled.

The clinical experience to date suggests that the benefits of improved health status and life quality, enjoyed by CARMAT TAH patients and notably those who are transplant-eligible, outweighs the risks associated with the device and that it has the potential to provide a significant contribution to the field of heart replacement therapy.

1.4.2 GO-TO MARKET PROCESS FOR THE UNITED STATES

Selling CARMAT heart in the United-States of America is subject to obtaining an approval (PMA: Pre-Market Approval) awarded by the American Health Authority (FDA: Food & Drug Administration).

In order to submit a PMA application to the FDA, CARMAT is required to supplement its existing clinical evidences with additional clinical results from a new multicenter clinical study performed on a larger population. Conducting this study in the United States requires an authorization (IDE: Investigational Device Exemption) to be obtained from the FDA following a successful review of all of the pre-clinical data (technical studies, animal studies, etc.) and clinical data obtained in other countries.

In October 2013, the FDA published a guidance document on «Early Feasibility Studies» (EFS). This approach to feasibility studies was designed to allow for acquisition of initial clinical knowledge when additional non-clinical testing methods are not available or are not sufficient to initiate a pivotal study. These studies may be initiated before the design of the device is finalized and may be justified on the basis of less evidence than for other types of clinical

studies. This « EFS » approach was chosen by CARMAT. In 2014 the Company began preliminary work to support its regulatory strategy for the United States.

In August 2018, CARMAT submitted to the FDA, an application to start a feasibility study (EFS).

In September 2019, CARMAT received from the FDA a conditional approval to its application. This conditional approval allows CARMAT to initiate the patient enrollment process for its Early Feasibility Study in the United- States. The approval was granted for a study limited to 10 patients.

Upon successful completion of the EFS, CARMAT will submit another application to initiate a pivotal study in the USA, which results will support its PMA application. This strategy would allow for the integration of certain clinical data got in Europe into the PMA application, thus limiting the size of the pivotal study to be conducted in the USA.

Refer to Section 2 of this universal registration document for risks associated with getting a PMA from the FDA.

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1.5 Strategy of the company

1.5.1 regulatory strategy

CARMAT is currently seeking to obtain first the CE mar- king, which will allow it to market its prosthesis in Europe; and secondly, that of the PMA (pre-market-approval) which will allow the Company to market his prosthesis in the United-States.

The CE marking is issued by a « Notified Body » (in the case of CARMAT, it is the company DEKRA); while the PMA is issued by the American FDA (Food & Drug Administration).

The processes to obtain the CE marking and the PMA are specified in Section 1.4 of this document, as is CARMAT's progress in this area.

1.5.2 marketing strategy

In europe

The Company will be able to market its product throughout Europe as soon as the CE marking is obtained, subject to the application of national systems covering the cost of the device (refer to Section 2 of this document, for risks associated with reimbursement and taking charge of the system).

To date, the Company intends to market its prosthesis through a direct sales force in the main European coun- tries, and where appropriate distributors or agents rigorously selected in countries deemed less strategic, or when this modality seems to him more appropriate given the local context.

This choice for a direct sales force stems from two factors:

  • rigorous selection of the indications and the need for technical and clinical support for each implantation. This support is provided primarily by the Company in the training and launch phase;

Indeed, given the very limited number of human grafts, the number of truly active heart transplant centers - that is to say, which exploit their approval and perform a sufficient volume of transplants to keep teams available and trained

  • is very low, of the order of less than ten in each large country. For example, fewer than 10 centers in France and Germany perform more than 20 transplants per year.

The Company therefore considers that, to cover this target made up solely of centers of excellence, a direct sales force is the most appropriate response in the first phases of commercial development (3 to 5 years after commercial launch in Europe). In the longer term, when the Company has a larger clinical and medico-economic data base and has confirmed the adoption by the implantation cen- ters, an expansion of the number of centers may be gradually implemented.

Regarding the order in which the different European countries will be approached, it will depend on the prevalence of cardiovascular diseases, the size of the centers, and the national systems for covering the cost of the device. To date, taking into account these elements, the first market targeted by CARMAT for the marketing of its prosthe- sis after obtaining the CE marking, should be Germany.

  • a concentric approach strategy to the market involving focusing initially on the center of the target, i.e. the active heart transplantation centers (at least 20 car- diac transplants per year) followed by the less active centers, then the centres with teams dedicated to heart failure (surgery and cardiology) but who are not appro- ved for transplantation and finally, if the local regula- tions permit, all cardiac surgery centers.

The sales force will therefore initially consist of very clinical profiles to ensure the training and adoption of therapy by the medical and surgical community.

This approach should allow progressive investments.

With regard to the pricing policy, the price targets for the CARMAT bioprosthetic artificial heart are consistent with current reimbursement practices for available devices. For example, an implantable device for left mono-ventricular assistance is today reimbursed in Europe between €60,000 and €110,000 excluding taxes (approximately €90,000 excluding taxes in France)49. Since the CARMAT heart treats both parts of the heart, and being made up of a system that includes an implantable part, but also external parts and associated pre- or post-operative ser-

49 Liste des Produits et Prestations remboursables - LPP (ameli. fr) : le prix unitaire réglementé (arrêté du 29/11/2012) du HeartMate II® monoventriculaire est de 87 565 euros.

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vices, the pricing variables are numerous and could make it possible to adapt to the volume and reimbursement conditions specific to each center or each market, while maintaining overall price consistency at European level.

The reimbursement procedures are multiple and different for each country. The Company will therefore associate itself as necessary with local reimbursement experts in order to optimize and accelerate the management of its device. It also assembles the medico-economic data necessary to support the reimbursement and care procedures.

The Company considers that the absence of reimbursement would not be synonymous with the total absence of sales and income, in particular insofar as hospitals in certain countries have their own budgets to finance

innovation, but would not allow the development of sales in line with its financial objectives.

Finally, it should be noted that Stéphane Piat, who joined CARMAT in September 2016 as Managing Director, has considerable experience in the field of the marketing of medical devices, in particular within Johnson & Johnson Cordis and Abbott.

In the united-states

The development of a commercial approach to the Ame- rican market is premature at this stage. However, at this stage, CARMAT intends to apply the same fundamentals as for Europe both in terms of commercial structure and development, reimbursement and prices.

1.5.3 industrial strategy

choice of integration model

The Company designs or specifies all of the elements making up the CARMAT artificial heart, including its external elements as well as all the ancillary tools, packaging, systems and methods intended for the validation (test benches) and production of components, sub-assemblies and systems (clean room). It has also developed strong intellectual property rights concerning all of these ele- ments. Nevertheless, considering the very high number of specialties and expertise involved in each component and sub-assembly of the system, it was impossible to develop and to produce them all internally.

The Company has therefore adopted a model of integra- tion: it designs and specifies, but entrusts the manufacturing of most of the elements to specialized subcontractors, recognized in their domain of activity and selected following rigorous consultation - elements which it then integrates on its production site.

CARMAT integrates the components and sub-assemblies provided by manufacturers of very different sizes, methods and areas of expertise. Thus the Company has hundreds of manufacturers of elements or service providers linked to the CARMAT system.

The challenge for a company such as CARMAT involves federating these companies with different origins and methods (some are large sub-contracting groups in the space industry and others are very small specialist com- panies) with common strict processes as are required by the medical technologies field and regulatory authorities. This coordination relates to technical aspects, logistics and in particular, quality. Great efforts have been made by the Company to validate and qualify these suppliers, so

that each one of them conforms to the very high level of quality standards required by the active implantable medical device domain.

CARMAT's mode of operation, its methods, and its integration process are therefore identical to those of a large group in the management of a project as complex as that of the bioprosthetic artificial heart.

In parallel, the Company actively continues a strategy of developing a secondary source of supplies, in particular the transformation of critical raw materials or the supply of key components. To initiate a second source involves the selection of a new supplier, help in producing the first parts, then qualifying them while ensuring that each part comes from a source that is strictly identical to those coming from another source, including the documentation which comes with them in particular to satisfy the imperatives of quality and traceability. It is important work but vital to reduce the dependency of the Company with regards to their suppliers and also so that CARMAT can have materials and components in sufficient volumes, and at the level of quality required, to meet its needs both in the development phase and in the marketing phase of its prosthesis.

internalizeD production and production capabilities

In contrast, the Company has kept and retained the production of the biosynthetic elements of the prosthesis (ventricular biomembrane, ventricular coverings and atrial connection interfaces) internal, protected by numerous patents and by industrial secrets.

2017 year was marked by the construction of a new dedicated site to manufacture up to 500 units per year, site that was opened and certified in 2018. This site, with an area of ​1,600 m², located in Bois d'Arcy in the immediate

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description of activities

suburbs of Paris, has a 270 m² clean room complying with ISO 7 standards. The manufacture, integration and sterilization of prostheses are thus carried out in a controlled environment, by specialized and highly qualified person- nel. The entire production of prostheses is now from this site.

The manufacturing, particularly on a large scale, of a device as complex as the CARMAT core remains a

challenge. On the industrial level, in addition to its actions of securing supplies, the Company therefore constantly pursues the improvement of its information systems, and the adaptation of its production processes with an objective of reliability and better replicability, and in - fine qua- lity. These improvements also aim to increase production capacities, in particular with a view to marketing the prosthesis. In 2019, CARMAT successfully carried out more than 50 changes to its production processes.

1.5.4 Innovation and R&D management

application of skills

CARMAT benefits thanks to its history on the bioprosthetic artificial heart project and thanks to its teams, an exceptional and unique double know-how stemming from more than 15 years of development and collaboration between the medical world and the world of aeronautics and space, in the implementation of biomaterials and advanced technologies applied to the field of artificial bioprosthetic heart.

In addition, contributions specific to the medical world and to the world of aeronautics and space, the Company also knew how to bring together skills that had never used to collaborate together on such a complex project and acquire each of the know-how specific to these fields.

Emboldened by this unique capacity for creating synergies between skills from industry and from the medical world, CARMAT could eventually, beyond the field of

bioprosthetic artificial heart, tackle in the future the development of new applications of its know-how in the cardiovascular field. Original simple devices derived from research already carried out by CARMAT and the patents that it holds, in particular with regard to hemocompatible biomaterials, could also be developed. Products derived from patents which have already been submitted - particularly in the field of digital simulation and ancillary implantation materials - may also result in commercial marketing or sale of rights. Original services could also be commercialized.

However, at this stage, the Company does not plan to devote resources to these potential applications, and remains focused on finalizing the development and improving and improving the reliability of its artificial heart with a view to its future commercialization. On the other hand, it pursues an aggressive policy of protection of its intellectual property and ensures a permanent technological watch of the technologies and methods corresponding to its fields of activity.

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intellectual property

Patents and other intellectual property rights are of fundamental importance in the medical devices sector. CAR- MAT regularly files patent applications to protect its innovations.

- Patents:

CARMAT's portfolio of patents is made up of 11 patents held in the name of the Company, classified in two catego- ries: firstly, patents associated with the architecture of the bioprosthetic artificial heart project and secondly, patents linked to the hemocompatible materials and sub-assemblies of the prosthesis.

Details of these patents are set out below:

Title

Geographical area

Submission /

Date of

Status

publication no.

Submission

FR0605333

Granted on September 05,

France

June 15, 2006

2008

FR2902345

Expiring on June 15, 2026

« One-piece heart

EP07290725.6

Granted on July 15, 2009

prosthesis implantable in

Europe

June 11, 2007

an anatomical position »

EP1867352

Expiring on June 11, 2027

International

PCT/FR2007/000962

June 11, 2007

Published on December 21,

WO2007/144497

2007

Granted on January 22,

France

FR200800184

January 14, 2008

2010

FR2926223

Expiring on January 14,

« Implantable one-piece

2028

EP09290009.1

Granted on January 12, 2011

heart prosthesis »

Europe

January 07, 2009

Expiring on January 07,

EP2078533

2029

International

PCT/FR2009/000008

January 07, 2009

Published on September 17,

WO2009/112662

2009

Granted on January 22,

France

FR0511430

November 10, 2005

2010

FR2892939

Expiring on November 10,

« Composite hemocom-

2025

patible material and the

EP06291657.2

Granted September 23,

process through which

Europe

October 25, 2006

2009

this is obtained »

EP178515

Expiring October 25, 2026

International

PCT/FR2006/002471

November 07, 2006

Published on May 18, 2007

WO2007/054637

FR0604206

Granted on January 01,

France

May 12, 2006

2010

FR2900988

Expiring on May 12, 2026

« Reduced radial volume

EP7290571.4

Granted on January 28,

rotatory volumetric

Europe

May 07, 2007

2009

pump »

EP1855005

Expiring on May 07, 2027

International

PCT/FR2007/000778

May 07, 2007

Published on November 29,

WO2007/135261

2007

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description of activities

Title

Geographical area

Submission /

Date of

Status

publication no.

Submission

FR0605331

Granted on September 05,

France

June 15, 2006

2008

FR2902343

« Rapid connection

Expiring on June 15, 2026

device between a totally

EP07290723.1

Granted on September 24,

implantable cardiac

Europe

June 11, 2007

2008

prosthesis and natural

EP1867350

Expiring on June 11, 2027

atria »

International

PCT/FR2007/000959

June 11, 2007

Published December 21,

WO2007/144495

2007

FR0605332

Granted on September 05,

France

June 15, 2006

2008

FR2902344

« Connection device

Expiring on June 15, 2026

Granted on September 24,

between a cardiac

EP07290724.9

prosthesis and natural

Europe

June 11, 2007

2008

EP1867351

atria »

Expiring on June 11, 2027

International

PCT/FR2007/000960

June 11, 2007

Published on December 21,

WO2007/144496

2007

France

FR0703339

May 10, 2007

Granted on June 04, 2010

« Process for producing

FR2915903

Expiring on May 10, 2027

a hemocompatible item

Europe

EP08290405.3

April 28, 2008

Granted on May 06, 2015

with a complex configu-

EP1992369

Expiring on April 28, 2028

ration and item thereby

PCT/FR2008/000607

obtained »

International

April 28, 2008

Published on December 04,

WO2008/145870

2008

France

FR1001724

April 22, 2010

Granted on July 13, 2012

FR2959134

Expiring on April 22, 2030

« Process for obtaining

EP11161291.7

Granted on September 12,

a composite hemocom-

Europe

April 06, 2011

2012

patible material and

EP2380608

Expiring on April 06, 2031

material obtained »

International

PCT/FR2011/050768

April 06, 2011

Published on October 27,

WO2011/131887

2011

France

FR1152364

March 22, 2011

Granted on July 04, 2014

FR2972919

Expiring on March 22, 2031

« Process to ensure the

EP12158011.2

Granted on November 02,

connection of an anato-

Europe

March 05, 2012

2016

EP2502577

mical duct »

Expiring on March 05, 2032

International

PCT/FR2012/050449

March 05, 2012

Published on September

WO2012/127145

27, 2012

France

FR1500457

March 10, 2015

Granted on March 24, 2017

Expiring on March 10, 2035

« Tissue endoprosthesis

Published on September

and the process through

Europe

EP16159051.8

March 07, 2016

14, 2016

which this is produced »

International

PCT/FR2016/050525

March 07, 2016

Published on September

WO2016/142617

15, 2016

France

FR1756847

July 19, 2017

Granted on July 26, 2019

« Flexible barrier

Expiring on July 19, 2037

membrane and method

Published on January 23,

of manufacturing

Europe

EP18179971.9

June 26, 2018

2019

the flexible barrier

membrane »

International

PCT/FR2018/051562

June 26, 2018

Published on March 31,

2019

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- Exclusive licence agreements:

Exclusive licence contract with the Pierre et Marie Curie University

In the terms of an exclusive licence contract dated 17 June 1993, modified by amendment no. 1 of June 27, 1995 and by amendment no. 2 of November 12, 1997, the Pierre et Marie Curie University gave Matra Défense the rights to use patent no. 8800381 to plan studies and further development with a view to creating prototype artificial hearts implantable into human beings.

Although initially it was Matra Défense which used the intellectual property rights thus granted, the benefit of this license was subsequently assumed by CARMAT, to which the Université Pierre et Marie Curie consented by way of an agreement duly signed by the Université Pierre et Marie Curie, Matra Défense, the Scientific Research Association of the Alain Carpentier Foundation and CARMAT. Under this agreement (i) the Université Pierre et Marie Curie expressly waived any benefit from all intellectual property rights linked to or resulting directly or indirectly from the work on the bioprosthetic artificial heart project

and acknowledged that CARMAT was the sole owner of all the intellectual property rights that could have been attributed to the Université Pierre et Marie Curie; and (ii) in return, the Scientific Research Association of the Alain Carpentier Foundation granted at no cost, in its name and for its account and in the interest of Matra Défense, 400 CARMAT shares (equivalent to 10,000 CARMAT shares following the 25:1 stock split) to the benefit of the Université Pierre et Marie Curie.

Patent No. 8800381 has now expired since 2008. Howe- ver, the exclusive license agreement stipulates that it will be valid for five years from the date of the first marketing of the product implementing the patent claims for the European countries as well as other countries and will be tacitly renewable for two successive five-year periods, unless one or the other party cancels one year before each deadline.

- Trade marks:

The Company has registered the « CARMAT » trademark in the following countries or geographical zones

Registration

Statut

Date filed

Renewal date

Territories

Classes

number

023184827

Recorded

Sept. 23, 2002

Sept. 23, 2022

France

9, 10, 42

007374821

Recorded

Oct. 29, 2008

Oct. 29, 2028

Community

10, 42

(European Union)

International

1022720

Recorded

June 19, 2009

June 19, 2019

Designations: China,

9, 10, 42

Japon, Switzerland,

Russia

3663230

Recorded

January 07, 2009

August 04, 2019

United States

10, 42

(USA)

1442665

Recorded

June 25, 2009

Sept. 27, 2026

Canada

10, 42

200911637

Recorded

June 24, 2009

June 24, 2019

South Africa

10

200911637

Recorded

June 24, 2009

June 24, 2019

South Africa

42

1838058

Recorded

July 09, 2009

July 09, 2019

India

10, 42

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- Domain names:

The Company has filed the following domain names:

Domain name

Date reserved

Renewal date

aeson.eu

August 22, 2019

August 22, 2024

aeson.fr

August 22, 2019

August 22, 2024

aeson.uk

August 27, 2019

August 27, 2024

aeson-phrl.com

August 26, 2019

August 26, 2024

carmatsas.com

October 29, 2008

October 29, 2028

carmatsas.fr

October 29, 2008

October 29, 2028

carmatsas.eu

October 29, 2008

October 31, 2028

carmat.tel

February 20, 2009

March 22, 2019

carmatsa.fr

April 29, 2010

April 29, 2021

carmatsa.com

April 29, 2010

April 30, 2021

carmatsa.eu

April 29, 2010

April 29, 2021

1.5.5 PROVISIONAL project schedule

CARMAT made very significant progress in 2019, including:

  • In terms of access to the European market:
  • the submission of its CE marking technical file in July;
  • confirmation in November of the positive interim results of its pivotal clinical study, based on the first 11 implanted patients; with in particular 73% of the patients having reached the primary objective of the study, and the confir- mation of the very good profile of the device as regards safety (cf. details of the results in section 1.4.3 of this uni- versal registration document).
  • In terms of market access in the United States: the authorization (« conditional approval ») received in Sep- tember from the FDA (Food & Drug Administration) to start a clinical feasibility study (EFS - early feasibility study) in the United States.
  • On an industrial level: Finalization of the transfer of all production from the old Vélizy site to that of Bois d'Arcy, and the implementation of more than 50 process changes, intended to improve reliability and the qua- lity of production, as well as to facilitate the ramp-up.
  • In terms of transforming CARMAT into an industrial and commercial company: strengthening the Com- pany's information systems, continuing to prepare for the commercial launch, and strengthening the team, particularly in the areas of production and information systems.
  • In terms of financing: a fundraising of €60 million and the drawing of the first tranche (€10 million) of the loan granted in December 2018, under conditions, by the European Investment Bank .

In view of these advances, the CARMAT project calendar is updated as follows.

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The reader is invited to refer to chapter 2 (« Risk factors ») of this universal registration document, for an informed assessment of this schedule, as well as to the Company's regular press releases on the progress of the project.

SCOPE OF ACTIVITY

2020

2021

2022

EUROPEAN

Finalization of the pivotal study

Continued commercial

deve-

MARKET

Marketing in Europe

Obtaining CE Marking

lopment in Europe

ACCESS

US MARKET

Start of transplantations in the

Start of the pivotal study in

United States as part of the

Finalization of the EFS study

ACCESS

feasibility study (EFS)

the United States

Continuous improvement of

production processes

INDUSTRIAL

Continuation of the actions of

securing critical supplies

Production ramp-up

MARKETING &

COMMERCIAL

Preparation for commercial launch

Commercial launch in Europe

Product final commercial

Continuous improvement

PRODUCT

configuration

of the product

SUPPORT

Adaptation of the

organization and strengthening of information systems

Implementation of sales

FUNCTIONS

administration and sales logistics

FINANCING

Continuation of the actions of

financing of the Company

Source CARMAT - Provisional project schedule

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risks factors

risks factors

CARMAT

49

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risks factors

Caution:

Investors are invited to take into consideration all the information contained in this Universal Registration Docu- ment, including the risk factors described in this Chapter.

When preparing this registration document, the Company carried out a review of the risks which might have a significant unfavorable impact on its activity, its financial situa- tion, its performance, its development or its prospects,

and it considers that there are no other significant risks than those presented.

However, investors' attention is drawn to the fact that other risks which are unknown or whose materialization is not considered, at the date of filing this registration docu- ment, as liable to have a significant unfavorable impact on its activity, its financial situation, its performance, its development or its prospects, might or may exist.

2.1 Methodological approach

2.1.1 preamble

As part of the new Prospectus 3 regulations applicable from July 21, 2019, CARMAT has redesigned this Risk

Factors chapter, in order to simplify the presentation of information relating to risks and to continue to improve its readability.

2.1.2 Risks identification and classification

During 2019, the Company identified and ranked its risks. The result of this analysis was presented to the Audit Committee on February 5, 2020 and is reflected in this universal registration document.

Methodology and risk assessment:

The risks were identified with the assistance of all the members of the management committee. The risks fall into 5 categories:

  • Financial risks;
  • Industrial risks (supply chain);
  • Market access risks;
  • Human, organizational and non-compliance to the regu- latory environment risks;
  • IT, data and transaction risks.

The level of criticality of a risk is assessed on the basis of two criteria:

  • The impact, estimated on a scale 01 from 1 (not signifi- cant) to 5 (critical);
  • The probability of occurrence, estimated on a scale 02

01 Impact scale: 1 = not significant, 2 = minor, 3 = moderate, 4 = major and 5 = critical.

  1. Probability scale: 1 = almost zero probability, 2 = possible, 3 = probable and
  1. = very probable.

from 1 (almost zero probability) to 4 (very likely).

The combination of these two criteria makes it possible to give a score to each risk and thus to classify the risks into

4 levels of criticality 03 (criticality = impact x probability): Critical, Important, Moderate, Minor.

It is specified that the level of criticality is a «net» level, that is to say after taking into account the measures implemented by the Company, to prevent and mitigate the risk.

At a result of this analysis exercise, 12 risks were considered significant and specific by CARMAT, and are summarized in section 2.2.

CARMAT also assessed the trend for each risk. The trend can be positive, negative or neutral, depending on whether CARMAT considers that the risk level has increased, decreased, or has remained more or less the same, between fiscal year 2019 and fiscal year 2018.

03 A risk is considered critical if its score is equal to or higher than 16, as important if its score is between 10 and 15, as moderate if its score is between 7 and 9, and as minor if its score is between 0 and 6.

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2.2 summary of significant and specific risks

The table below summarizes the significant and specific risks of the Company. They are presented by category. Within each category, the most significant risk is mentioned first, if applicable.

For each risk are specified: its title, its probability and potential impact levels, its criticality (resulting from the two previous elements) and its trend.

Each of the risks is presented in more detail in section 2.3.

Probabi-

Potential

Criticality

Trend *

lity

impact

Critical

Important

Moderate

Minor

risk

risk

risk

risk

Financial risks

Financing risk

2

5

Important

+

risk

Risk of economic and financial

2

5

Important

=

unsustainability

risk

Industrial risks (supply chain)

Materials and components

4

3

Important

=

supply risk

risk

Risk related to production quality

2

5

Important

+

risk

Risk related to production volumes

3

3

Moderate

=

risk

Market access risks

Risk associated with obtaining

2

5

Important

=

CE marking in Europe

risk

Risk associated with obtaining

2

5

Important

+

PMA in the United States

risk

Risk related to reimbursement

2

5

Important

=

on European markets

risk

Risk related to reimbursement

2

5

Important

=

on the American market

risk

Human, organizational and non-compliance to the regulatory environment risks

Organizational and non-compliance to the

3

3

Moderate

=

regulatory environment risks

risk

Human resources risks

3

2

Minor

=

risk

IT, data and transaction risks

IT, data and transaction risks

2

4

Moderate

=

risk

* the + sign indicates a positive trend, i.e. a decrease in risk.

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2.3 Detailed presentation of significantand specific risks

2.3.1 Financing risk

Financial risks

Description of the risk

Risk that the Company does not have the financial

Financing risk resources required to carry out its development project at the desired pace or to its point of self-financing.

Potential impacts

Need to slow down or temporarily interrupt all or part of the activities of the Company.

At the final stage, need to end the activities of the Company.

Taking into account, on the one hand, the financial resources at its disposal (see section 3.1.1 of this docu- ment), and in particular the available cash position of € 55.5 million as of December 31, 2019, the fundraising of € 60 million carried out in September 2019, the balance of € 20 million of the loan granted under conditions by the EIB in December 2018, the degree of progress of its project, and all the information at its disposal, the Company estimates that at this stage, the probability that she will not be able to find the financing needed to complete her project is relatively low, but this possibility cannot be excluded.

Indeed, the financial resources available (as described in Section 3.1.1) allow the Company to finance itself until the third quarter of 2021; excluding the Kepler Cheuvreux equity line contracted in September 2018;

and the Company considers that by this deadline, the conditions, in particular in terms of the progress of the project, will be met to raise new funds, provided that unforeseen and significant events have not occurred.

The Company is constantly pursuing an active investor relations policy, and seeking new investors both in France and abroad and believes it can count on the support of certain existing shareholders for its next fundraising.

The Company has also carried out a specific review of its liquidity risk and considers that it is able to meet its maturities over a period exceeding 12 months.

2.3.2Risk of economic and

FINANCIAL unsustainability

Financial risks

Description of the risk

Potential impacts

Risk that the Company will not succeed (or will succeed later than expected) to be profitable and / or reach its point of self-financing. This could in particular be due to lower revenues than forecasted due to lower than expec-

Risk of economic and ted sales volumes, lower selling prices than expected, financial unsustainability failure of the system to cover the various reimbursement

systems, etc. This could also be due to costs or necessary investments higher than expected (research and development costs, cost of clinical trials, cost of production of the prosthesis, other operational costs, etc.).

Negative impact on the market valuation of the Company. Need to slow down or temporarily interrupt the activities of the Company. Need to find additional funding (fundraising, loans, etc.).

At the final stage, need to end the activities of the Company.

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CARMAT's ability to deliver positive cash flow and positive net income over time requires reaching a certain level of sales, controlling expenditure and investments, as well as controlling the production cost of the device. Although the Company considers its assumptions and estimates to be reasonable, it cannot be guaranteed that all of its objectives will be achieved within the expected timeframe.

The Company is still at clinical stage and has not yet obtained authorization to market its device in Europe and in the United States (see Sections 2.3.6 and 2.3.7). The device represents an expensive therapy, and there is no guarantee that it will be reimbursed at the levels expected by the Company (see Sections 2.3.8 and 2.3.9).

Furthermore, since the CARMAT heart is a unique and innovative therapy, there is no guarantee that the adoption by healthcare professionals and patients will be in line with CARMAT forecasts.

Finally, the profitability of CARMAT requires that it manages to produce its device at a competitive cost despite the complexity of the product and the level of quality required; and it is possible that CARMAT may have to face expenses and investments not anticipated to date, for example in the event that the authorities ask for additional clinical studies. This risk is further accentuated by the fact that CARMAT is only targeting the marketing of one product at this stage (namely its artificial heart) and is therefore dependent on its success.

2.3.3materials and components supply Risk

Industrial risks

Description of the risk

Potential impacts

(supply chain)

Materials and components

supply risk

Risk that the Company will not be able to obtain from its suppliers, in sufficient quantities / within the required time / to required quality standards, the various materials or components necessary for the production of prostheses. This can be linked in particular to the fragility of certain suppliers and / or to the limited capacity of certain suppliers, and / or to the fact that CARMAT is in single source on certain components or materials, and / or the obsolescence of sourced products. This may also be due to an insufficient quality of the CARMAT forecast.

CARMAT's inability to produce prostheses in sufficient quantities, which could lead to a delay or an interruption in its development, and

  • or an inability to meet the needs of the mar- ket; and therefore a negative financial impact.

As indicated in section 1.5.3 of this document, the Com-

In order to secure its supplies, CARMAT regularly conducts

pany depends for the manufacture of its device on a large

a review of its supplier portfolio and an assessment of

number of suppliers and subcontractors, of extremely

its needs in materials and components. In this context,

diverse sizes, some being more solid than others, and

a policy of « double-sourcing », modification of sourcing

some having a capacity to ramp-up quicker than others.

and / or capacity building at critical suppliers, is gradually

It cannot be excluded that certain components or mate-

implemented. However, despite the implementation of this

rials must be substituted or modified to answer questions

program, the risk of temporary insufficient supply of cer-

of obsolescence, or in the context of continuous improve-

tain components or materials remains a significant risk

ment of the artificial heart. In addition, the validation of a

for CARMAT, especially when the volume of prostheses

new supplier or subcontractor is a long and costly opera-

necessary to meet the needs of clinical trials and the com-

tion; and the quality requirements imposed by CARMAT

mercial phase is growing.

are high.

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2.3.4 Risk related to production quality

Industrial risks

Description of the risk

Potential impacts

(supply chain)

Risk that the Company will not be able to routinely

produce prostheses that meet the required quality

Risk related to

standards, in particular due to manual or sub-optimal

production quality

production processes and procedures, or due to the lack

of competent resources, or due to an inadequate infor-

mation system or organization.

CARMAT's inability to produce prostheses that meet the required quality criteria, which may cause a delay or an interruption in its develop- ment, and / or an inability to respond to market needs; and therefore a negative financial impact. Potentially, the patient's life is at stake in the event of an unexpected failure of an implanted prosthesis, with consequently a potential financial risk associated in the event of CARMAT being called into question.

CARMAT complies with the highest quality requirements and has set up a quality management system (QMS) certified ISO 13485-9001 in July 2011. The certification has been successfully renewed regularly since, and for the last time in July 2017. The Company considers, in particular on the basis of its internal audit results and on the basis of the audits carried out by the notified body DEKRA, that this system enables it in particular to quickly identify the quality defects which must be, and implement appropriate preventive and corrective actions.

However, and taking into account in particular the complexity of its artificial heart, the large number (several hundred) of materials and components used in its manu- facture, the number of operations necessary for the manufacture of the heart, and the very high degree of precision required, it cannot be excluded on the one hand that the Company has to face quality challenges likely to temporarily slow down its production, and on the other hand to deal exceptionally with a product incident due to a defect quality.

2.3.5 Risk related to production volumes

Industrial risks

Description of the risk

Potential impacts

(supply chain)

Risk related to

production volumes

Risk that the Company will not be able to produce a sufficient number of prostheses to meet its needs (in the pre-marketing phase or in the post-marketing phase), in particular due to manual or sub-optimal production processes and procedures, and / or the lack of production capacities and resources, and / or an inadequate information system; and also in the event of unavailability of the sole production site (due to a disaster for example).

CARMAT's inability to produce prostheses in sufficient quantities, which could lead to a delay or an interruption in its development, and / or an inability to meet the needs of the market; and therefore a negative financial impact.

In the MedTech segment in general, and more particu-

The Company has already made, in particular in 2019,

larly for a product as complex as the artificial heart deve-

several dozen of modifications to its production pro-

loped by CARMAT, the production of large series remains

cesses, and will continue its actions of continuous impro-

a challenge. Although the Company has an industrial tool

vement and automation in the coming years so as to make

(Bois d'Arcy production site) allowing it to produce seve-

production operations more reliable and to facilitate

ral hundred of devices per year, the production process

ramp-up.

remains complex, and is based in part on very high preci-

sion manual operations.

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risks factors

However, the Company considers it possible that the rate

prevent demand from exceeding its production capacities,

of ramp-up of its production may not be high enough to

particularly in the short term.

2.3.6Risk associated with obtaining CE marking in europe

Market access

Description of the risk

Potential impacts

risks

Risk that the Company will not obtain (or obtain later than expected) the CE marking, i.e. authorization to market its prosthesis in Europe. Risk that the indications

Risk associated with obtaining obtained are less broad than those anticipated. This may

CE marking in Europe in particular be due to clinical data deemed insufficient, and / or to a technical file and / or to audits deemed insufficiently satisfactory, and / or to changes in the regulatory framework.

Inability for CARMAT to market its prosthesis in Europe and in other countries recognizing the CE marking (or delayed marketing compared to forecasts), resulting in the absence of sales (or delayed or lower sales compared to forecasts) in these territories.

In order to be able to market its artificial heart in Europe, CARMAT must first obtain the « CE marking » (European declaration of conformity - CE marking), issued by a notified body. The process to obtain this CE marking is described in Section 1.5.1 of this document.

The Company considers that it has made considerable progress with this process, and in particular announced that it had submitted its technical file to the notified body DEKRA, in July 2019. Taking into account, in particular, these advances and the quality of its clinical results (see section 1.4.2), CARMAT considers reasonable to consider obtaining the CE mark for its artificial heart by the end of 2020.

However, the artificial heart being a unique device, and the decision to issue the CE marking being in the hands of the notified body, and therefore not controlled by the Company, CARMAT cannot guarantee that the CE marking will be obtained within this timeframe, or will even be ulti- matly obtained.

In addition, the entry into force in May 2020 of the MDR (Medical Device Regulation), which replaces the MDD (Medical Device Directive) can potentially delay obtaining this marking.

2.3.7 Risk associated with obtaining PMA in the United States

Market access

Description of the risk

Potential impacts

risks

Risk that the Company will not obtain (or obtain later than expected) the PMA, i.e. authorization to market its

Risk associated with obtaining prosthesis in the United States. This may in particular

PMA in the United States be linked to clinical data deemed insufficient, and / or to a technical file and / or audits deemed insufficiently satisfactory.

Inability for CARMAT to market its prosthesis in the United States (or delayed marketing compared to forecasts) resulting in the absence of sales (or delayed or lower sales compared to forecasts) in this territory.

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risks factors

In order to be able to market its artificial heart in the United States, CARMAT must first obtain a PMA (Pre-Market Approval), issued by the American health authority (FDA: Food & Drug Administration). The process to obtain the PMA is described in Section 1.5.1 of this document.

In September 2019, the Company announced that it had obtained the « conditional approval » to start an EFS (Early Feasibility Study) in the United States, which is the first step in the process of obtaining a PMA. Given, in

particular, this progress, the quality of its clinical results (see section 1.4.2), and its discussions with the FDA, CAR- MAT considers it reasonable to consider, within a few years, obtaining PMA in the United States.

However, as the decision to issue the PMA is in the hands of the FDA, and the process for obtaining it is at any early stage, CARMAT cannot guarantee that the PMA will be obtained within this period, or even in the long term.

2.3.8Risk related to THE reimbursement OF THE

prosthesis on european markets

Market access

risks

Risk related to the reimburse-

ment of the prosthesis on

European markets

Description of the risk

Risk that despite having obtained the CE marking, CAR- MAT will not obtain reimbursement for its prosthesis in one or more of the targeted European markets, or even that the level of reimbursement obtained will be lower than forecasted by the Company.

Potential impacts

Prosthesis sales levels may be much lower than forecast on the markets considered, with a potential impact on the economic viability of the Company.

The Company's ability to generate turnover with its arti-

Given various parameters, including the quality of its cli-

ficial heart depends in part on the conditions of reimbur-

nical results (see section 1.4.2) and the reimbursement of

sement in the countries where it intends to market its

existing devices and therapies (see section 1.5.2), CAR-

products, since many patients will not be able to finance

MAT considers it reasonable to obtain reimbursement

by themself this relatively expensive therapy.

levels in line with its hypotheses, in the European coun-

tries targeted for the marketing of its prosthesis (it being

The CARMAT artificial heart will be, in terms of price, at

recalled that Europe is the first geographic area in which

the top of the range of all medical devices in Cardiology.

CARMAT intends to market its prosthesis, and will remain

The Company's ability to reach acceptable levels of reim-

so for a few years).

bursement from government authorities, private health

insurers and any other organization will therefore have an

However, the Company cannot be sure of obtaining

impact on its ability to successfully market its products.

and maintaining optimal reimbursement in all the Euro-

In Europe, the processes for obtaining reimbursement

pean countries concerned, in particular because there is

and support, as well as their levels are different in each

constant economic, regulatory and political pressure to

country.

limit healthcare costs.

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2.3.9Risk related to the reimbursement of the

prosthesis on the American market

Market access

Description of the risk

Potential impacts

risks

Risk related to the reimburse-

ment of the prosthesis on

the American market

Risk that despite having obtained the PMA from the FDA, CARMAT will not obtain reimbursement for its prosthesis in the United States, or that the level of reimbursement obtained is lower to the forecasts of the Company.

Prosthesis sales levels may be much lower than forecast on the American market, with a potential impact on the economic viability of the Company.

The Company's ability to generate turnover with its artificial heart depends in part on the conditions of reimbursement in the countries where it intends to market its products, since many patients will not be able to finance by themself this relatively expensive therapy.

The CARMAT artificial heart will be, in terms of price, at the top of the range of all medical devices in Cardiology. The Company's ability to reach acceptable levels of reimbursement from government authorities, private health insurers and any other organization will therefore have an impact on its ability to successfully market its products.

Given various parameters, including the quality of its clinical results (see section 1.4.2) and the reimbursement of existing devices and therapies, CARMAT considers it reasonable to obtain reimbursement and management levels in accordance with its hypotheses in the United States, which to date represents the largest target market for the marketing of its prosthesis.

However, the Company cannot be sure of obtaining and maintaining an optimal reimbursement in this country, in which CARMAT intends to start marketing its prosthesis in a few years.

2.3.10Organizational and non-compliance to

the regulatory environment risks

Human, organizational

and non-compliance to

Description of the risk

Potential impacts

the regulatory environ-

ment risks

Risk that the Company will fail to set-up or maintain an

Organizational and non-com- organization, processes and systems (including informa-

pliance to the regulatory tion systems) sufficiently adapted and robust to support

environment risks its objectives and growth, and meet legal and regulatory requirements.

CARMAT's difficulty in achieving some of its objectives on time, with a possible negative financial impact. Failure to meet all legal and regulatory obligations, which may result in the delay in achieving certain objectives (for example obtaining CE marking or PMA in the United States, or even impossibility for the Company to be listed on the desired market), and / or financial penalties.

The Company plans to grow significantly, and is gradually expanding its activities, initially limited to research and development and clinical trials, to production, marketing and marketing of its artificial heart. It is also increasing its geographic presence and intends to continue to do so both in terms of clinical trials and in terms of marketing.

It must therefore constantly adapt its structure, organi- zation, procedures and processes, as well as its systems, which is a challenge and can potentially mobilize significant resources. At the same time, the Company is subject to strong operational pressure, linked to the delivery of its objectives, and to a binding and constantly evolving legal and regulatory framework (regulatory obligations linked to obtaining CE marking and PMA in the United States, regulatory obligations related to conducting clinical trials,

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quality-related rules, obligations related to its status of

calls on external consultants and specialists to assist it

listed company, GPRD regulations, so-called « Transpa-

on those matters and implement appropriate measures.

rency » law in France, etc.).

However, it cannot be excluded that CARMAT, on an ad

hoc basis, will experience organizational defects and / or

The Company strives to meet all of these imperatives by

does not comply with all of its legal and regulatory obli-

implementing the appropriate resources and systems. It

gations, which could have an unfavorable effect on the

implements constant legal and regulatory monitoring and

achievement of its operational and financial objectives.

2.3.11risks

Human resources

Human, organizational

and non-compliance to

Description of the risk

Potential impacts

the regulatory environ-

ment risks

Risk that the Company will fail to hire or retain the critical human resources required to achieve its objectives. This can in particular result from the departure of people

Human resources risks deemed to be key or difficult to replace, and / or the difficulty of the Company in acquiring certain skills or levels of experience due to the characteristics of the Company (for example, 'start-up' considered potentially risky).

CARMAT's difficulty in achieving some of its objectives on time, with a possible negative financial impact.

CARMAT's success is largely based on the quality of its management and its teams, which means being able to attract and retain the appropriate talent and human resources. CARMAT believes that it takes the necessary actions (recruitment policy, salary policy, etc.) to be and remain an attractive employer. The Company also uses, as required and on a regular basis, of external resources (consultants in particular).

However, CARMAT competes in the acquisition and retention of its human resources, with a number of other com- panies, some with more means or potentially certain assets (career development possibilities or work environment for example) than cannot guarantee CARMAT. In addition, certain skills, particularly technical (in electronics and IT for example) are in tension on the job market.

Finally, given the size of the Company, certain skills are based on a very limited number of employees, sometimes even one.

In this context, it is possible that the Company may temporarily have issues on certain positions to attract or retain the human resources necessary to achieve its objectives.

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2.3.12IT, data and transaction risks

IT, data and

Description of the risk

Potential impacts

transaction risks

Risk of vulnerability of the information system to com-

IT, data and

puter attacks, risk of loss or theft of sensitive data, risk

transaction risks

of unauthorized transactions or operations (by people

internal or external to the Company).

Direct financial losses (in the case of fraud for example) or indirect (in the case of unauthorized use of sensitive research or production data). Potentially negative consequences on the reputation of the Company.

The Company is highly dependent on its information system to carry out its activities, and manages a large amount of data (data relating to its research and clinical trials, data relating to its intellectual property, financial data, etc.), some particularly sensitive, which are stored physically and / or electronically.

Access to the IT resources of the Company is given, depending on their needs, to employees, but also where appropriate, to external service providers or consultants working for the Company, some of them remotely (for exa- mple, foreign centers in which clinical trials are carried out).

The loss or theft of sensitive and / or confidential information for unauthorized purposes, the carrying out of unauthorized transactions, or even the corruption of information or systems rendering them unfit for use, temporarily or definitive, are all events likely to cause operational (for example temporary production stoppage) and financial (for example in the event of a fraudulent transaction) damage to CARMAT. The impact of such an event could also be accentuated by the media exposure of CARMAT, in particular if patient data were at stake.

The Company implements a security, access and protection policy for its systems and data, such as to limit the above risks.

However, an external computer attack or uncontrolled acts, carried out by internal or external people, cannot be totally excluded.

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3

financial informations

financial

informations

CARMAT

61

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financial informations

3.1

notes on activity in the

2019 reporting period

3.1.1

selected financial

Informations

Income statement (simplified)

12 months

12 months

12 months

(in thousands of euros)

2019

2018

2017

Net revenue

0

0

0

Other revenues

702

722

28

Operating expenses

-43,096

-43,489

-31,063

Operating result

-42,394

-42,766

-31,035

Financial result

-1,787

-945

-472

EARNINGS BEFORE INTEREST AND TAX

-44,181

-43,711

-31,507

Extraordinary result

-104

-2

-56

Research tax credit

1,636

1,984

2,335

PROFIT OR LOSS

-42,649

-41,729

-29,228

Cash flow statement (simplified)

12 months

12 months

12 months

(in thousands of euros)

2019

2018

2017

NET RESULT

-42,649

-41,729

-29,228

Self financing capacity

-40,028

-39,863

-27,227

Cash flow from operations

-40,245

-38,174

-24,279

Cash flow from investment operations

-636

-2,308

-3,709

Cash flow from financing operations

71,085

5,059

57,547

Change in cash and cash equivalents

30,204

-35,421

29,560

opening cash and cash equivalents

25,302

60,723

31,163

closing cash and cash equivalents

55,505

25,302

60,723

Change in the Company's activity in the course of the reporting period

CARMAT recorded no turnover during the year 2019, its artificial heart being still in clinical development.

The operating loss for the year amounted to €42.4 million, a slight improvement compared to the previous year (ope- rating loss of €42.8 million in 2018).

During 2019, CARMAT devoted the main part of its operating resources to:

  • studies and tests carried out as part of the process of obtaining CE marking on the one hand, and obtaining authorization to start a clinical study in the United States (EFS - early feasibility study) on the other hand ;
  • the improvement of the reliability of its production pro- cesses and the preparation of the ramp-up in the Bois d'Arcy production site;
  • the further transformation of the Company into an indus- trial and commercial company.

This translates into operating expenses of €43.1 million, slightly down by €0.4 million compared to the previous year, CARMAT having made a major effort to rationalize its expenses, especially in the second half of the year.

The financial result (€ -1.8 million), down by €0.8 million compared to 2018 is explained by the increase in loan inte- rest, the Company having proceeded at the end of January 2019 to draw the first tranche (i.e. €10 million) of the €30 million loan granted under conditions by the European Investment Bank (EIB) in December 2018.

After taking into account the exceptional result (€-0.1 million) and the research tax credit of €1.6 million, the net result for the 2019 financial year translates into a loss of €42.6 million, compared to a loss of €41.7 million in 2018.

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financial informations

Industrialization and production

Access to the United States market:

During the first half of 2019, CARMAT finalized the trans-

Following the filing done in 2018, CARMAT received in Sep-

fer of all its production activities to its new industrial site

tember 2019, in accordance with its roadmap, the autho-

in Bois d´Arcy.

rization (« conditional approval ») from the FDA (Food &

Drug Administration in the United States) to start an early

Following the analysis of the information gathered from

feasibility study (EFS) in the United States. The implan-

the experience accumulated during cohort 1 of the pivo-

tation of the first patient, as part of this study, is planned

tal clinical study, and the data recorded on test benches,

for 2020.

CARMAT proceeded to review its production processes,

with aim to strengthen the reliability of his prosthesis. This

The authorization to start this clinical trial in the United

analysis and the implementation of the changes decided

States is the first step in the process which could ultima-

following this review were accompanied by a shutdown

tely allow CARMAT to obtain authorization to market its

of production from October 2018 to May 2019. Production

prosthesis in the United States.

resumed on the site in May 2019.

Transformation into an industrial and commercial

From now on, all the prostheses produced will come enti-

company

rely from the Bois d'Arcy production site, and the Com-

pany will focus both on continuous improvement of its

In view of the commercial launch of its prosthesis in

processes, on securing its supplies and on ramping up its

Europe (CE marking) and the necessary ramp-up of its pro-

production with a view to marketing its artificial heart.

duction, CARMAT also continued in 2019 the adaptation

Clinical development and market access

of its organization and its information systems, and the

preparation of the commercial launch, while expanding its

teams as necessary.

Access to the European market:

Thus were recruited in 2019, a new Industrial Director,

Following the resumption of production at the Bois d'Arcy

Alexandre Eléonore, who joined the CARMAT management

site in May 2019, and the authorizations received during

committee in November; and a Director of IT Systems.

the third and fourth quarters to resume recruitments as

Governance

part of the pivotal study in Denmark, the Czech Republic

and Kazakhstan, CARMAT announced in December 2019

that it had implanted a twelfth patient in the context of this

Professor Alain Carpentier left his duties as Director of

study (10 for the first cohort of 10 patients, and 2 for the

CARMAT at the end of the General Meeting held on March

second cohort of 10 patients).

28, 2019. He was appointed Honorary President of the

Company, and as such continues to be involved in the life

The positive results of the first cohort of the pivotal clini-

of the Company and to attend meetings of the Board of

cal study, presented in January 2019, were confirmed and

Directors, without however taking part in the votes.

reinforced with the presentation in November 2019 of the

results of the study on the first 11 implanted patients.

In June 2019, Mr. Karl Hennessee, Senior Vice-President

of Airbus, replaced Ms. Anne-Pascale Guédon, as perma-

73% of these patients achieved the primary objective of

nent representative of Matra-Défense (Airbus Group) on

the study corresponding to 6 months of survival with the

the board of directors.

prosthesis or a successful heart transplant within 6 mon-

ths of implantation of the device. The data collected from

STRENGTHENED FINANCIAL STRUCTURE

patients confirm the biocompatibility of the prosthesis and

in particular its very good safety profile, never achieved

As of December 31, 2019, the Company's cash stood at

by other technologies, with in particular the absence of

€55.5 million compared to €25.3 million as of December

stroke, gastrointestinal bleeding and related infection to

31, 2018.

the percutaneous cable.

This significant strengthening of cash flow can be

In parallel, the Company confirmed

having submitted in

explained in particular by:

July 2019 to the notified body DEKRA, its CE marking tech-

- a fundraising of €60 million carried out in September

nical file.

2019 through a private placement;

- the draw, at the end of January 2019, of the first tranche

Obtaining the CE marking is necessary to allow the Com-

of €10 million of the EIB loan;

pany to market its prosthesis in Europe.

- obtaining in June 2019 the last tranche of the €1.5 million

BPI repayable advance;

- the use of the flexible Kepler Cheuvreux equity line for €2 million in 2019;

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financial informations

while the cash flow from operations and investments of the Company was negative by €41 million during the year, the Company not yet generating commercial income.

In addition, CARMAT also has at its disposal:

  • two tranches of EIB loans of €10 million each, which can be drawn down when certain technical stages are reached;
  • a drawdown possibility of €21.9 million until the end of September 2020, on the flexible Kepler Cheuvreux equity line contracted in September 2018.

Combined, and excluding the Kepler Cheuvreux equity line, all of these financial resources allow CARMAT to finance its activities, according to its business plan, until the third quarter of 2021.

In addition, the fundraising carried out in September 2019 enabled the entry into the capital of renowned entrepreneurial shareholders, in particular the family offices of the Gaspard family, owners of the Lyreco group (Corely Belgium SPRL and Bratya SPRL) and Mr. Pierre-Edouard Stérin, founder of Smartbox (BAD 21 SPRL), who have indicated their intention to support CARMAT in the long term. Historical shareholders have also renewed their confidence in the CARMAT project by participating in the fun- draising, in particular the Airbus Group, the family offices of Mr. Pierre Bastid (Lohas) and Dr. Ligresti (Santé Holdings SRL), as well as the Therabel Group.

Given these elements, the Company is confident in its ability to carry out the clinical development of its prosthesis and the preparation of the commercial phase.

3.1.2 Investisments made and envisaged

Principal investments made in the last three financial periods

Over the 2019 fiscal year, the Company made €0.7 million in investments, distributed as follows:

  • €701 k in tangible fixed assets,
  • €36 k of intangible assets.

Investments are down compared to the previous two years, which were marked by the establishment of the Bois d´Arcy production site.

In the 2018 fiscal year, the Company had recorded €2.3 million in capital expenditure including €2.2 million in

property, plant and equipment related to the installation of the Bois d´Arcy site and €0.1 million in intangible assets.

In 2017, the Company recorded €3.5 million in capital expenditure, including €2.8 million in fitting out the new production site at Bois d'Arcy.

principal ASSETS underway

Tangible fixed assets in progress at the end of the 2019 fiscal year amount to €0.6 million and will be used for production once activated.

Main investments envisaged

The main investments to come in the short term concern production equipment and tools to further streamline the production process and increase capacity.

3.1.3 PROGRESS MADE AND DIFFICULTIES ENCOUNTERED

DURING THE REPORTING PERIOD

Following the analysis of the information gathered from the experience accumulated during the cohort 1 of the pivotal study, and the data recorded on test benches, CARMAT proceeded to review its production processes, in order to strengthen the reliability of his prosthesis.

This analysis and the implementation of the changes decided following this review were accompanied by a shutdown of production from October 2018 to May 2019. Production resumed on the site in May 2019. From now on, all the prostheses produced come entirely from the Bois d'Arcy production site.

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3.1.4 ANTICIPATED DEVELOPMENTS, OUTLOOK

AND SIGNIFICANT EVENTS AFTER THE END OF THE REPORTING PERIOD

CARMAT intends to continue to focus its efforts and resources on its strategic priorities:

- Finalization of the pivotal study with the short-term completion of recruitments for the second cohort of patients;

  • Obtaining CE marking in 2020;
  • The start of a feasibility study in the United States (EFS - early feasibility study), following the agreement received from the FDA (Food & Drug Administration) in September 2019;
  • Continuous improvement of its production processes;
  • The transformation of CARMAT into an industrial and commercial company, with a view to the commercial launch of the prosthesis by 2021.

Significant events after the end of the fiSCAL year

On February 5, 2020, CARMAT announced that it had received full approval from the FDA to launch its clinical feasibility study with its artificial heart in the United States and that the study population had been increased to 10 patients.

Main trends since the end of 2019 fiscal year

The Company does not have to report any significant change in its financial situation since December 31, 2019.

Profit forecasts or estimates

The Company does not intend to make any profit forecasts or estimates.

3.1.5 THE PAST FIVE PERIODS

FIVE PERIODS

STATEMENT OF RESULTS FOR

STATEMENT OF RESULTS FOR THE PAST

(in euros)

Dec. 31, 2019

Dec. 31, 2018 Dec. 31, 2017 Dec. 31, 2016 Dec. 31, 2015

Capital at the end of the periodShare capital

Number of existing ordinary shares

Maximum number of future shares to be created

  • by conversion of bonds
  • by exercise of subscription rights

Opérations and results

Revenue excluding VAT

Profit before tax, profit sharing, depreciation and amortization, and increases in provisions Corporation taxes

Profit sharing for the period

Profit after tax, profit sharing, depreciation and amortization and increases in provisions Distributed profit

Profit per share

Profit after tax and profit sharing, but before depreciation and provisions

Profit after tax, profit sharing, depreciation and amortization, and increases to provisions Dividend paid per share

Staff

Workforce at year end Wage bill for the period

Value of social benefits paid during the period

504,385.96

371,036.76

360,661.76

241,277.76

183,117.40

12,609,649

9,275,919

9,016,544

6,031,944

4,577,935

-

-

-

-

-

1,314,700

1,246,750

943,025

852,140

466,610

0

0

0

0

0

-43,339,319

-42,784,848

-30,020,856

-25,378,370

-20,229,406

1,636,019

1,983,916

2,334,690

2,817,116

3,148,534

-

-

-

-

-

-42,648,672

-41,729,066

-29,227,910

-22,980,178

-17,545,761

-

-

-

-

-

-3.31

-4.40

-3.07

-3.74

-3.73

-3.38

-4.50

-3.25

-3.81

-3.83

-

-

-

-

-

107

90

70

56

48

8,364,741

6,819,510

5,220,243

4,371,200

4,069,741

4,453,860

3,906,890

2,163,452

1,803,184

1,611,888

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financial informations

3.1.6 Proposed appropriation of the result

We propose approval of the annual financial statements (balance sheet, income statement and annex) as presented.

These financial statements show a net loss of €42,648,672.

We propose appropriation of this loss to Losses carried forward, taking the balance of that item from €-187,480,075 to €-230,128,747.

3.1.7 PARTICULARS OF DIVIDENDS

In accordance with the provisions of Article 243 of the General Tax Code, it is recalled that no distribution of dividends has taken place for the last three fiscal years.

There are no plans to adopt a policy of paying dividends in the short term, taking into account the Company's stage of development.

3.1.8 PROPERTY, PLANT AND EQUIPMENT

The Company carries out its activities on the premises of which it is a tenant at the end of leases concluded at prices and market conditions with companies which have no direct or indirect link with its managers. CARMAT does not own any property.

For the current fiscal year at the date of this universal registration document, the Company considers that it has suitable premises which should enable it to cope with the planned growth and its workforce.

Premises used by the Company as at December 31, 2019:

As a reminder, the transfer of production from the Vélizy site to the Bois d´Arcy site was finalized in 2019.

Environmental issues

As part of the search for non-thrombogenic materials *, CARMAT decided to follow an original path opened by the experience of biological valves of Professor Alain Carpen- tier, using chemically treated animal pericardium to make it inert and biologically stable, to avoid rejection by the human body.

Lessee

Address

Nature of

Surface area

Lease start

Lease expiry

premises

date

date

36, avenue de l'Europe

Immeuble l'Étendard

Business

January 31,

CARMAT SA

Energy III

1,053 m²

February 1, 2009

premises

2027

78140 Vélizy-Villacoublay

FRANCE

36, avenue de l'Europe

Immeuble l'Étendard

Business

September 30,

CARMAT SA

Energy III

595 m²

October 1, 2010

premises

2028

78140 Vélizy-Villacoublay

FRANCE

36, avenue de l'Europe

Immeuble l'Étendard

Business

March 31,

CARMAT SA

Energy III

595 m²

July 1, 2011

premises

2022

78140 Vélizy-Villacoublay

FRANCE

9, rue René Clair

Batiment G

Business

December 7,

December 6,

CARMAT SA

Sis parc Spirit Meliers III

1 558 m²

premises

2017

2027

78390 Bois d'Arcy

FRANCE

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In the design and manufacture of the bioprosthetic artifi-

CARMAT entrusts two specialized subcontractors with

cial heart, the Company is therefore subject to chemical

waste management, including the traceability of the

and biological risks. CARMAT therefore implements pre-

materials treated. In addition, a risk analysis is updated

vention and protection measures for its teams and to effi-

annually. Each risk situation is assessed according to

ciently manage waste in accordance with the regulations

quantified criteria of occurrence and severity, which gives

in force. CARMAT considers that it complies with these

rise to the implementation of appropriate prevention mea-

regulations, taking into account the use, storage, hand-

sures. Specific training is given to those exposed.

ling and disposal of hazardous materials.

particulars of payment

particulars of trade receivables

3.1.9 periods

payment periods

Particulars of supplier payment

Non applicable.

periods

In accordance with the provisions of Articles L.441-6-1 and

D. 441-4 of the French Commercial Code, we bring your

attention to the following details concerning supplier pay-

ment periods:

As at December 31, 2019, trade accounts payable totaled

€2,376,881. A comparison of the figures from the financial

statements is set out below:

(in euros)

December 31, 2019

December 31, 2018

Trade accounts payable and related payables shown under liabilities

5,345,899

7,615,547

Less: amounts receivable from suppliers shown under assets in balance sheet

0

0

Less: accrued charges included under this heading

-2,969,018

-4,334,470

Liabilities related to fixed assets and similar liabilities

0

0

Less: accrued charges included under this heading

0

0

TOTAL

2,376,881

3,281,077

The breakdown of this amount by maturity date is shown

below, based on the payment terms negotiated with

suppliers:

(in euros)

December 31, 2019

December 31, 2018

Due (including amounts receivable from suppliers)

316,519

404,414

Falling due on January 31

2,060,363

2,876,663

Falling due on February 28

0

0

Falling due on or after March 31

0

0

Detail of debts due at the end of the financial year:

Article D.441 I.-1 °: Invoices received not settled on the closing date of the financial year whose term has expired

(in euros)

0 day

1 to 30 days

31 to 60 days

61 to 90 days

> 90 days

Total

(A) Late payment part

Number of invoices concerned

50

Total amount of invoices concerned

170,625

0

0

0

0

0

(includ. VAT)

Percentage of the total amount of

0.50%

0

0

0

0

0

purchases for the year (includ. VAT)

(B) Invoices excluded from (A) relating to disputed

Number of invoices concerned

1 invoice for an amount of €145,894 includ. VAT

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3.1.10 IMPORTANT CONTRACTS

The important contracts to which the Company is a party are as follows:

  • a royalties agreement signed on June 24, 2008 and amended on February 5, 2010, between CARMAT, Pro- fessor Alain Carpentier and Matra Défense (an Air- bus Group subsidiary): please refer to Paragraph 5.6 « Regulated agreements »;
  • an exclusive license agreement with the Pierre and Marie Curie University relating to patent no 8800381: please refer to Paragraph 1.5.4 « Innovation and mana- gement of the R&D »;
  • an agreement with Edwards Lifesciences for an initial period of one year, renewable automatically each year, concluded in the 4th quarter of 2010 between CARMAT and Edwards Lifesciences, world leader in the segment of heart valves and in hemodynamic monitoring, for the use and the supply of Carpentier-Edwards biolo- gical heart valves in the CARMAT bioprosthetic artifi- cial heart project;
  • a 12-year agreement with Invibio Limited concluded in the 3rd quarter of 2012 between CARMAT and Invi- bio Limited for the supply and use of PEEK-OP-TIMA® polymeric material. This material is used by CARMAT for its biocompatibility characteristics, certified long-las- ting implantable, and for its mechanical properties. The structural subsets of the prosthesis are machined from this material ;
  • a framework aid agreement for the CARMAT Indus- trial Strategic Innovation (ISI) project and an agree- ment in support of the CARMAT project entered into on July 24, 2009 for a total sum granted by Bpifrance of €33 million ;
  • a non-dilutive financing agreement concluded in December 2018 with the European Investment Bank for an amount of €30.0 million.

These last two contracts are detailed below:

Framework agreement with

Bpifrance

Initial conditions of the agreement

On July 24, 2009, the Company signed a framework agreement with Bpifrance to secure aid for the CARMAT Strategic Innovation (ISI) project. Under the terms of the agreement, Bpifrance undertook to pay a total amount of €33.0 million, of which €18.5 million as subsidies and €14.5 million as refundable advances, payable upon achievement of the key milestones set out in the agreement.

The Company acts as project leader, thus receiving all of the refundable advances and €17.4 million in subsidies, i.e. €31.9 million, the remaining €1.1 million to be paid to the four partners in the project: Dedienne Santé, PaxiTech, Vignal Artru Industries (Pack'Aero Group) and Iréis (for- merly HEF R&D).

Under the Bpifrance Innovation framework agreement, each of the partners has undertaken to provide the resources necessary to complete the development project for the bioprosthetic artificial heart and its components. In return, Bpifrance will pay its subsidies and repayable advances as certain phases and milestones described below are executed.

Accounting and financial conditions

The subsidies accrue to the Company as of right and so will not be repayable in the event of success of the project.

Accordingly, they are accounted for in the « Subsidies » line of the income statement.

Repayable advances will have to be repaid by CARMAT according to the arrangement set out in the paragraphs below. Repayable advances are therefore accounted for on the liabilities side of the balance sheet under the « Other equity - Conditional advances » line.

The corresponding interest is shown on the liabilities side of the balance sheet under the « Sundry loans and financial debts » line.

By addendum to initial contract, signed in September 16, 2013, the Parties agreed to calculate the amount of the financial returns due by CARMAT based on thresholds of revenue generated by the products and services created by the project (reference products and services).

Threshold S1 (cumulative sales of reference products and services) is set at €38 million.

Threshold S2 (cumulative sales of reference products and services) is set at €2 billion.

If threshold S1 (as defined above) is reached, CARMAT will pay Bpifrance the following flat fees by June 30 of each year following the reference year:

Year 1 by June 30

€184,000

Year 2 by June 30

€368,000

Year 3 by June 30

€1,472,000

Year 4 by June 30

€2,784,000

Year 5 by June 30

€8,316,000

Year 6 by June 30

€11,300,000

The amounts will be reimbursed as indicated above, based on CARMAT's operating income from the project's pro- ducts, in light of the annual income statement.

Should threshold S1 not be reached, CARMAT will not pay Bpifrance the amounts above.

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From year 2 and for the remaining years, in case of a fall in sales exceeding 20% of the updated forecasts (in 2013), as defined in the amendment signed in September 2013, these amounts would be then capped.

In this scenario, CARMAT will generate new forecasts allowing it to draw up a new timetable for the reimbursements to Bpifrance.

Should sales of the reference products and services be in excess of the forecasts, the flat fees defined above will not be affected.

In any case, in the event that no reimbursement is due pursuant to this Article over a period of 10 years from payment of the last subsidy as set out in the agreement providing for a repayable advance, CARMAT will be released from any obligation to pay financial returns. Moreover, this agreement will be terminated ipso jure with no other for- malities, provided that CARMAT has complied with all its obligations. CARMAT will be bound to pay specific fees as defined above, should threshold S1 be reached before this date, and until said date is reached.

If the advance payment has been reimbursed in accordance with the provisions above, CARMAT will pay Bpifrance during the year after the date said reimbursement is completed and provided sales of the reference products and services (excluding taxes) have reached at least €2 billion, 2.5% of the yearly revenue generated the previous year by sales of the Project's products and services.

The corresponding amounts will be payable on any generated sales, subject to a maximum financial return of €50 million at nominal value, if achieved before the end of 8 years.

Amounts received and still to be received at December 31,2019

The Bpifrance agreements provides for the payment of a total of €17.4 million in grants, all of which was received at the end of the 2019 financial year.

It also provides for the payment of a total sum of €14.5 million for repayable advances, all of which were received at the end of 2019 (the last €1.5 million due having been paid in June 2019).

EUROPEAN INVESTMENT BANK (EIB) FINANCING AGREEMENT

The financing agreement signed with the EIB allows CAR- MAT to borrow up to €30 million via three tranches of €10 million each.

Within the context of the positive interim results of the first part of the pivotal study, published by CARMAT on January 15, 2019 the Company carried out the drawdown on the first tranche of the EIB loan, i.e. €10 million, on January 31, 2019.

The drawdowns on the second and third tranches are subject to certain technical and financial milestones, including the successful execution of clinical trials and/or the raising of additional funds.

The amounts borrowed bear an average fixed interest rate of 8% for the first tranche, 8% for the second tranche and 5% for the third tranche. The reimbursement of each tranche will take place at the end of the loan period (bul- let payment), i.e. five years from the date of the drawdown on this specific tranche.

The loan contract provides for certain information and operational commitments (such as limits on authorized debt, approval for external growth operations, etc.). Failure to comply with these conditions would give the EIB the right, if deemed necessary, to demand an early reimbursement of the loan.

The occurrence of certain changes in the shareholding structure or a change in management not approved beforehand by the EIB would also allow the latter, if deemed necessary following discussions with the Company, to demand an early reimbursement of the loan.

The loan is not secured. Any new Group subsidiary becoming material with respect to the financial contract would be personally liable for the Company. To date, CARMAT has no subsidiaries.

Furthermore, the Company has signed a royalty agreement with the EIB that provides for the payment to the latter of additional remuneration depending on the commercial performance of the Company. This agreement is valid for 13 years from the year during which the cumulative sales of CARMAT reach €500,000. The Company can decide to terminate the royalties contract at any time by paying a lump sum (net of any royalties already paid), which depends on the amount borrowed and the year during which the decision is taken.

Upon the occurrence of certain events (in particular should the EIB demand the early repayment of the loan or should a new shareholder reach 33% of the voting rights of CARMAT), the EIB could, if deemed necessary, demand from CARMAT an advance payment of royalties up to a certain percentage of the amount of the loan effectively used (this percentage would range from 100% of the borrowed amount if the event occurs during the first four years of the financial contract to 160% if the event occurs after the eleventh year).

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financial informations

Financial statements as

3.2at december 31, 2019

2019 annual

3.2.1 statements

income statement

Income statement

December 31,

December 31,

2019

2018

(in euros)

France

Export

Total

Total

OPERATING INCOME

Sales of merchandise

Sales of finished

goods

Sales of finished services

NET REVENUE

Production left in stock

Fixed asset production

Subsidies (note 3.2.2.5)

14,000

14,000

Write-backs of amortization/depreciation and provisions, and transfers of expenditure

688,472

708,481

Other revenues

TOTAL OPERATING INCOME (I)

702,472

722,481

OPERATING EXPENSES

Purchases of merchandise

Change in inventory (merchandise)

Purchases of raw materials and other supplies

7,397,143

6,523,753

Change in inventory (raw materials and other supplies)

Other purchases and external expenditure

20,901,665

24,148,661

Taxes, fees and similar payments

365,293

372,399

Wages and salaries

8,364,741

6,819,510

Social security costs

4,453,860

3,906,890

Amortization/depreciation and impairments

- of fixed assets: amortization/depreciation (note 3.2.2.4)

1,163,537

919,829

- of fixed assets: impairments

- of current assets: impairments

Provisions (note 3.2.2.4)

382,592

716,786

Other expenses

67,452

81,059

TOTAL OPERATING EXPENSES (II)

43,096,284

43,488,886

1 - OPERATING RESULT (I - II)

-42,393,812

-42,766,405

SHARES IN RESULTS OF JOINT OPERATIONS

Profits allocated or loss transferred (III)

Loss or profit transferred (IV)

FINANCIAL INCOME

Financial income from equity interests

Income from other securities and fixed asset receivables

Other interest receivable and similar income

Write-backs of impairments and provisions, transfers of expenditure

Positive exchange differences

40,786

41,149

Net proceeds from sales of marketable securities

TOTAL (V)

40,786

41,149

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Income statement

December 31,

December 31,

2019

2018

(in euros)

France

Export

Total

Total

FINANCIAL EXPENSES

Amortization/depreciation, impairments and provisions

Interest expenses and similar charges

1,782,149

937,512

Negative exchange differences

45,572

48,425

Net expenses from sales of marketable securities

TOTAL (VI)

1,827,721

985,937

2 - FINANCIAL RESULT (V-VI)

-1,786,935

-944,788

3 - EARNINGS BEFORE INTEREST AND TAX (I-II+III-IV+V-VI)

-44,180,747

-43,711,193

EXTRAORDINARY INCOME (NOTE 3.2.2.5)

Extraordinary income from management operations

Extraordinary income from capital operations

46,794

60,198

Write-backs of impairments and provisions, transfers of expenditure

TOTAL (VII)

46,794

60,198

EXTRAORDINARY EXPENSES (NOTE 3.2.2.5)

Extraordinary expenses from management operations

2,513

3,424

Extraordinary expenses from capital operations

60,767

58,564

Amortization/depreciation, impairments and provisions

87,458

TOTAL (VIII)

150,738

61,987

4 - EXTRAORDINARY RESULT (VII-VIII)

-103,944

-1,789

Employee profit-sharing (IX)

Income taxes (X) (note 3.2.2.5)

-1,636,019

-1,983,916

TOTAL INCOME (I+III+V+VII)

790,052

823,829

TOTAL EXPENSES (II+IV+VI+VIII+IX+X)

43,438,724

42,552,895

5 - LOSS (total income - total expenses)

-42,648,672

-41,729,066

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financial informations

Balance sheet

December 31,

December 31,

Assets

2019

2018

(in euros)

Amortiza-

Gross

tion and

Net

Net

depreciation

UNCALLED SHARE CAPITAL (TOTAL I)

Fixed assets

Intangible fixed assets (note 3.2.2.4)

- Start-up costs

- Development costs

- Licenses, patents and similar rights

2,014,253

1,986,534

27,718

89,777

  • Goodwill *
  • Assets under construction
  • Advances and payments on account Property, plant and equipment (note 3.2.2.4)
  • Land
  • Buildings

- Technical plant, equipment and tooling

9,670,507

6,590,283

3,080,224

2,327,214

- Other property, plant and equipment

2,810,222

1,394,484

1,415,737

1,629,202

- Assets under construction

614,209

614,209

1,606,508

  • Advances and payments on account Financial assets ** (note 3.2.2.4)
  • Holdings accounted for on an equity basis
  • Other holdings
  • Other equity investments
  • Loans

- Other financial assets

473,503

473,503

485,877

TOTAL II

15,582,693

9,971,301

5,611,392

6,138,578

Current assets

Stocks and work in progress

- Raw materials, supplies

- Work in progress - goods

- Work in progress - services

- Semi-finished and finished products

- Merchandise

Advances and prepayments on orders

494,132

494,132

375,721

Debtors ***

- Trade accounts receivable

- Other accounts receivable (note 3.2.2.4)

2,943,016

2,943,016

4,579,872

- Subscribed capital - called, not paid up

Marketable securities

Cash instruments

Cash

55,505,492

55,505,492

25,301,658

Deferred charges *** (note 3.2.2.4)

121,610

121,610

433,318

TOTAL III

59,064,250

59,064,250

30,690,569

ADJUSTMENT ACCOUNTS

Bond issuance costs to be amortized (IV)

Bond redemption premiums (V)

Unrealized foreign exchange losses (VI)

GRAND TOTAL (I+II+III+IV+V+VI)

74,646,944

9,971,301

64,675,643

36,829,147

*

including lease rights.

**

of which less than one year.

127,386

141,359

  • of which more than one year.

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financial informations

Liabilities

December 31,

December 31,

2019

2018

(in euros)

EQUITY (notes 3.2.2.3 and 3.2.2.4)

Capital (of which, paid in: 504,386)

504,386

371,037

Issue, merger and acquisition premiums

254,053,133

194,560,697

Excess of restated assets

Reserves

- Legal reserve

- Statutory or contractual reserves

- Regulatory reserves

- Other reserves

38,476

29,840

Losses brought forward

-187,480,075

-145,751,009

Result for the period (profit or loss)

-42,648,672

-41,729,066

Capital grants

Regulatory provisions

TOTAL 1

24,467,248

7,481,498

OTHER EQUITY

Proceeds of issues of participating stock

Conditional advances (note 3.2.2.6)

14,507,309

13,056,577

TOTAL II

14,507,309

13,056,577

PROVISIONS

Provisions for risks

Provisions for charges (notes 3.2.2.4 and 3.2.2.5)

685,560

991,440

TOTAL III

685,560

991,440

DEBTS *

Financial debts

- Convertible bonds

- Other bonds

- Loans from credit institutions

10,733,333

- Bank overdrafts

- Sundry loans and financial debts (note 3.2.2.4)

5,681,519

4,651,634

Advances and payments on account received for current orders

Accounts payable (note 3.2.2.4)

- Trade accounts payable and related payables

5,345,899

7,615,547

- Tax and social liabilities

3,254,774

2,985,907

Liabilities secured to property and related liabilities

Other debts

46,544

ADJUSTMENT ACCOUNTS

Deferred income *

TOTAL IV

25,015,525

15,299,631

Unrealized foreign exchange gains

TOTAL V

-

-

GRAND TOTAL (I+II+III+IV+V)

64,675,643

36,829,147

*

debts and deferred income of less than one year.

8,600,673

10,647,998

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financial informations

cash flow statement

December 31,

December 31,

Cash flow statement

2019

2018

(in euros)

Net result

-42,648,672

-41,729,066

Amortization/depreciation and provisions

1,546,129

1,636,615

Write-backs of amortization/depreciation and provisions

-688,472

-708,481

Gains or losses on asset sales

Investment subsidies transferred to income

Other income and expenses with no impact on cash flow

1,763,219

937,484

SELF-FINANCING CAPACITY

-40,027,796

-39,863,448

Tax and social liabilities

268,867

866,933

Trade accounts payable

-2,269,648

1,790,159

Other debts

-46,544

46,544

Deferred income

Stocks and work in progress

Advances and prepayments on orders

-118,411

-194,015

Other accounts receivable

1,636,856

-754,231

Trade receivables

Deferred charges

311,708

-65,826

CHANGES IN CASH POSITION (CHANGE IN WORKING CAPITAL)

-217,172

1,689,564

CASH FLOW FROM OPERATIONS

-40,244,968

-38,173,884

Acquisition of property, plant and equipment

-613,158

-2,176,599

Acquisition of intangible fixed assets

-35,568

-116,780

Acquisition of financial

fixed assets

12,374

-13,335

Proceeds from financial

fixed asset disposals

CASH FLOW FROM INVESTMENT OPERATIONS

-636,352

-2,306,714

Increase in capital

133,349

10,375

ORA/BSA

Issue premium and reserves

59,501,072

5,048,893

Capitalization of current accounts

Loans and conditional advances

11,450,732

CASH FLOW FROM FINANCING OPERATIONS

71,085,154

5,059,268

CHANGE IN CASH AND CASH EQUIVALENTS

30,203,834

-35,421,330

OPENING CASH AND CASH EQUIVALENTS

25,301,658

60,722,988

CLOSING CASH AND CASH EQUIVALENTS

55,505,492

25,301,658

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3.2.2Annex to the financial statements

Annex to the balance sheet for the year ended December 31, 2019, totaling €64,675,643, and to the income statement for the year ended December 31, 2019, presented in list form and showing zero revenue resulting in a loss of €42,648,672.

The financial year commenced on January 1, 2019 and ended on December 31, 2019, a duration of 12 months which is identical to that of the comparative period.

The notes and tables presented in the following are an integral part of the financial statements for the period ended on December 31, 2019 as approved by the board of directors on February 10, 2020. They are presented in euros unless otherwise stated.

3.2.2.1 Features of the fiscal year

The Company's activity is devoted to the development of an artificial heart that responds to the challenges of terminal heart failure. The product is currently in the pivotal study phase.

During the year, the Company raised funds decided by the Board of Directors on September 18, 2019 on delegation of authority from the combined general meeting of March 28, 2019. This transaction resulted in a capital increase of €126,316, with a gross issue premium of €59,873,689, for a total amount of issue proceeds of €60,000,005.

This capital increase led to the creation of 3,157,895 new ordinary shares, with a nominal value of €0.04. Taking into account the costs related to the capital increase, in the amount of €3,044,708, which are deducted from the share premium in application of the preferential accounting method, the net amount of the share premium of this capital increase is €56,828,981 (or €56,955,297 including the capital increase).

As part of the equity line contract concluded with Kepler Cheuvreux in September 2018, fourteen subscriptions were made between January and December for a total of 105,000 BSA, allowing the capital to be increased by €4,200, by issue of 105,000 ordinary shares with a par value of €0.04, issued at an average unit price of €21.46, with an issue premium of a gross amount of €2,269,980. Taking into account the costs related to the capital increase, amounting to €43,035, which are deducted from the share premium in accordance with the preferential accounting method, the net amount of the share premium for this capital increase is €2,226,945 (or €2,231,145

including the capital increase).

Fifteen BCE exercises were carried out between January and December for a total of 1,245 BCE 2009-2, making it possible to increase the capital by an amount of €1,245, by issuing 31,125 ordinary shares with a par value of €0.04, issued at a unit price of €8.00, or with an issue premium of €7.96 per share.

A exercise of 904 BSA was carried out on June 10, 2019, making it possible to increase the capital by an amount of €904, by issuing 22,600 ordinary shares with a nominal value of €0.04, issued at a unit price of €8.00, or with an issue premium of €7.96 per share.

Three capital increases totaling €684.40 were noted between January and December, as a result of the final allocation of 17,110 AGAP which had provisionally been allocated in 2018.

All of the capital increases carried out during the fiscal year made it possible to increase the share capital by an amount of €133,349, by creating 3,333,730 new ordinary shares. The share capital of the company was thus increased from €371,037 to €504,386. The total amount of issue premiums was increased from €194,560,697 to €254,053,133.

The Company proceeded at the end of January 2019 to draw the first tranche of €10 million from the loan granted under conditions by the EIB (European Investment Bank) in December 2018. This loan for a total amount of €30 million consists of three tranches of €10 million, two of which therefore remain to be drawn provided that the technical and financial conditions provided for are met.

The Company received, on June 28, 2019, a total amount of €1,450,732.07 from BPI France, as a repayable advance, recognized on the « Conditional advances » line of liabilities on the balance sheet.

The Company maintains the option for the Research Tax Credit for the year 2019. The first option was exercised for the calendar year 2009 and renewed each year until 2019. The Research Tax Credit relating to the year 2019 has been recorded for €1,636,019 on the « Income tax » line in the

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income statement (details in note 3.2.2.5 of this appen- dix) and appears on the « other receivables » line of the balance sheet.

The status of the project and the significant activities of the Company are detailed in section 3.1 « Notes on activity in the 2019 reporting period » of this document.

3.2.2.2 Significant events after the end of the reporting period

No event occurring after the end of the financial year is liable to alter the presentation or the valuation of the accounts as decided by the Board of Directors.

3.2.2.3 Accounting rules and methods

The valuation methods for this period have not been changed from those used in the previous financial year.

General principles and conventions

The accounts for the period have been prepared and presented in accordance with the accounting regulations and the principles laid down in Articles 120-1 et seq. of the General Chart of Accounts.

The basic valuation method for the items shown in the accounts is that of historical cost.

The accounting conventions have been applied in accordance with the provisions of the French Commercial Code, the Accounting Decree of November 29, 1983 and the CRC regulations concerning the redrafting of the General Accounting Plan applicable as at the end of the period.

The general accounting conventions have been applied in accordance with the prudent person rule, on the basis of the following assumptions:

  • the business is a going concern;
  • the accounting methods are consistent from one year to the next;
  • there is a clear cut-off between accounting periods.

The board of directors has assumed that the business is a going concern, having taken the following points in particular into account:

  • the level of cash and cash equivalents available as of December 31, 2019, for a total amount of €55.5 million;
  • the possibility of using the flexible equity financing set up in September 2018 with Kepler Cheuvreux, whose balance at December 31, 2019 is equal to €21.9 million;
  • the obtaining non-dilutive financing from the Euro- pean Investment Bank (EIB) granted under conditions on December 17, 2018, and of which the amount remaining to be drawn on December 31, 2019 amounts to €20.0 million.

The Company's clinical, industrial and commercial deve- lopment, even beyond obtaining the CE marking, will generate additional financial needs: financing of current operations, continuation of R&D efforts, commercial launch, clinical studies to United States, the working capital requirement linked to the development of sales and investments (especially in production). The Company believes, to date, that these additional needs could exceed €100 million. Fundraising will therefore be necessary beyond the use of the available balance of the Kepler equity financing lines and the EIB loan.

Supplementary information

  • Applied research and development costs

Research and development costs are accounted for as expenses in the year in which they are incurred.

  • Intangible fixed assets

Patents, licenses and other intangible fixed assets have been valued at their cost of acquisition, excluding the expenses incurred in acquiring them.

The methods and periods of amortization used are as follows:

Category

Mode

Term

Straight line

1 to 3 years

Licenses and software

Patents

Straight line

15 years

  • Property, plant and equipment

The gross value of property, plant and equipment corresponds to their initial book value, inclusive of any expenditure required to render the items usable but excluding costs incurred in their acquisition.

The methods and periods of depreciation used are as follows:

Category

Mode

Term

Straight line

9 to 10 years

Fixtures and fittings

Technical plant

Straight line

3 to 10 years

Equipment and tooling

Straight line

2 to 6 years

Furniture

Straight line

8 years

IT equipment

Straight line

3 years

  • Financial assets

OTHER SECURITIES CLASSIFIED AS FIXED ASSETS

In 2010, the Company entered into a liquidity contract, the purpose of which is to improve the liquidity of transactions and regularize the CARMAT share price, without impeding the normal operation of the market and without misleading

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third parties. To this end the Company made an amount of €300,000 available.

On May 19, 2016, the Company transferred the liquidity contract to Gilbert Dupont for a period of 12 months, renewable by tacit agreement.

Treasury shares acquired through the implementation of this liquidity agreement are recorded under financial assets at their purchase price. If necessary, a depreciation is made for impairments based on the average official stock market price for the final month prior to the end of the reporting period.

OTHER FINANCIAL ASSETS

These comprise:

  • guarantee deposits paid, which are shown at face value; and
  • the unused balance of sums made available under the liquidity agreement for the acquisition of own shares.
  • Receivables and liabilities

Receivables and payables are shown at face value. If necessary, impairments are recorded against receivables to take account of difficulties with recovery that are likely to occur. Any provisions for impairments are determined by comparison between the acquisition value and the likely realization value.

Receivables and payables in foreign currencies are converted into euros on the basis of the exchange rate at the date of the invoice.

  • Stocks

The equipment in stock is not valued at the end of the financial year as these are intended to be integrated into the prostheses used for the pivotal study, their net realizable value is therefore nil.

  • Cash in euros

Cash on hand or at bank is recorded at face value.

  • Cash in foreign currencies
  • Cash and cash equivalents

For the purposes of the cash flow statement, cash and cash equivalents are defined as being the sum of the

  • Cash instruments » and « Cash on hand » items under the assets, less the current bank overdraft liability item, to the extent that cash instruments are available in the very short term and do not present a risk of a loss in value in the event of a change in interest rate. An analysis of cash according to this definition is provided at the foot of the cash flow statement.
  • Repayable advances made by public bodies

Advances received from public bodies to finance the research activities of the Company and which are subject to repayment are shown under liabilities under « Other equity - Conditional advances ». The corresponding interest is shown in balance sheet liabilities under Sundry loans and financial debts.

  • Operating subsidies

Subsidies are recorded as soon as the corresponding receivable becomes certain, taking account of the conditions set at the time the subsidy was granted. Subsidies are recorded under income taking account, if necessary, of the corresponding rate of expenditure in order to adhere to the principle of matching of expenses with revenue.

  • Retirement indemnities

Future payments for benefits to members of staff are valued according to an actuarial method based on assumptions concerning changes in salaries, retirement age and mortality; the resulting valuations are then discounted to their present value. These commitments are the subject of provisions in the balance sheet liabilities.

  • Sub-contractingexpenses

The progress of third-partysub-contract agreements for certain research services is assessed at the end of each reporting period in order to allow the cost of services already rendered to be recorded under accrued charges.

  • Share issue costs

Cash in foreign currencies is converted to euros at the exchange rate ruling on the balance sheet date. Gains and losses on conversion are recognized immediately in the profit or loss for the period as exchange gains and losses.

  • Cash instruments

In application of the reference method (ANC 2018-01), share issue costs are recorded in the balance sheet as deductions from the issue premium.

These comprise time deposit accounts, shown under assets at their acquisition cost, plus accrued interest at the closing date of the reporting period.

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3.2.2.4 Supplementary information on the balance sheet

  • Schedule of fixed assets

(in euros)

Gross value at

Additions

Line to line

start of period

Acquisitions

transfers

Licenses, patents and similar rights *

1,978,684

35,568

Assets under construction

TOTAL

1,978,684

35,568

Technical plant, equipment and industrial tooling **

8,068,236

1,199,230

490,499

General plant, sundry fixtures and fittings

2,430,861

Office and IT equipment, furniture

376,175

3,185

Assets under construction

1,606,508

245,684

TOTAL

12,481,781

1,202,415

736,183

Other financial fixed assets ***

485,876

2,515,417

TOTAL

485,876

2,515,417

GRAND TOTAL

14,946,342

1,237,983

3,251,600

(in euros)

Reductions

Gross value

Revaluation of

Line to line

Disposals

at end of

original value at

period

end of period

transfers

Licenses, patents and similar rights *

2,014,252

Assets under construction

TOTAL

2,014,252

Technical plant, equipment and industrial tooling **

87,458

9,670,508

General plant, sundry fixtures and fittings

2,430,861

Office and IT equipment, furniture

379,360

Assets under construction

1,237,983

614,209

TOTAL

1,237,983

87,458

13,094,938

Other financial fixed assets ***

2,527,791

473,503

TOTAL

2,527,791

473,503

GRAND TOTAL

1,237,983

2,615,248

15,582,693

  • This item includes a sum of €411,284, accounted for as the share of the contribution in kind made on September 30, 2008, with a total value of €960,000, relating to the contribution of patents.
  • This item includes the commissioning of the clean room at a total cost of €943,582. The item also includes a sum of €548,716 representing the proportion of the contribution in kind of €960,000 made on September 30, 2008 that related to the contribution of equipment and tooling.
  • This item includes the 4,170 own shares held in connection with the liquidity contract, valued at €74,201, and (i) the liquidities not invested in own shares as at the end of the period under the liquidity contract of €53,185 and (ii) guarantee deposits of €346,117, mainly comprising deposits under premises lease contracts.

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  • Schedule of depreciation and amortization

Statements and movements for the period

Value at start

Allowances

Reductions

Value at end

(in euros)

of period

for the period

Write-backs

of period

Licenses, patents and similar rights

1,888,907

97,627

1,986,534

TOTAL

1,888,907

97,627

1,986,534

Technical plant, equipment and industrial tooling

5,741,430

849,261

6,590,691

General plant, sundry fixtures and fittings

855,287

200,839

1,056,126

Office and IT equipment, furniture

322,140

15,811

337,950

TOTAL

6,918,857

1,065,910

7,984,767

GRAND TOTAL

8,807,764

1,163,537

9,971,301

Schedule of provisions

Provisions

Value

Increases

Reductions

Reductions

Value at end

at start

Amounts

Amounts not

(in euros)

of period

Allowances

used

used

of period

Sundry risks

Pensions and similar commitments *

302,968

110,938

413,906

Social charges on free preferential shares **

688,472

271,654

688,472

271,654

TOTAL

991,440

382,592

688,472

685,560

Impairment of other equity investments

TOTAL

0

0

0

0

GRAND TOTAL

991,440

382,592

688,472

685,560

Including operational allowances and write-backs

382,592

688,472

Including financial allowances and write-backs

  • See note 3.2.2.6
  • See note at the end of section 3.2.2.4
    • Schedule of maturities of receivables and liabilities

Schedule of receivables

Gross amount

Up to 1 year

More than

(in euros)

1 year

Staff and related accounts

5,132

5,132

Social security and other social bodies

32,380

32,380

Income taxes *

1,715,376

1,715,376

Value added tax

1,110,898

1,110,898

Sundry debtors

78,730

78,730

TOTAL

2,943,016

2,943,016

*

The receivable corresponds to:

  • the CIR for the year 2019 for an amount of €1,636,019;
  • the balance on the CIR for the year 2018 for an amount of 79,357 euros (collective deduction of 4% collected by Predirec as part of the CIR 2018 mobilization)

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Schedule of liabilities

Gross

Up to 1 year

1 to 5 years

More than

(in euros)

amount

5 years

Loans from credit institutions *

10,733,333

10,733,333

Sundry loans and financial debts **

5,681,519

5,681,519

Accounts payable

5,345,899

5,345,899

Staff and related accounts

1,707,234

1,707,234

Social security and other social organizations

1,412,384

1,412,384

Value added tax

31,717

31,717

Other taxes, charges and similar

102,939

102,939

TOTAL

25,015,525

8,600,673

16,414,852

  • Loan from the European Investment Bank (EIB): the EIB loan contract provides for certain information and operational commitments (such as limitations on authorized debt, authorized external growth operations, transfers of assets etc), the non-compliance of which would allow the EIB, if it deemed it necessary, to declare the early payment of the credit. The occurrence of certain changes in shareholders and in a change of management not approved in advance by the EIB, would also allow the EIB if it deemed it necessary and after discussion with the Company, to declare the early payment of the credit. To date, CARMAT complies with all of the commitments required by the EIB.
  • This amount corresponds to the accrued interest expected at year-end on the repayable advances from Bpifrance (details in 3.2.2.6).

Capital

Composition of the share capital

Categories of

Nominal

Number of shares

value in

shares

Opening

Created

Redeemed

Closing

euros

Ordinary shares

0.04

9,275,919

3,316,620

12,592,539

Preferential shares

0.04

17,110

17,110

TOTAL

9,275,919

3,333,730

12,609,649

The capital increase, following the fundraising car-

The capital increase, through the exercise of BSA, which

ried out in September 2019, resulted in the creation of

took place during the 2019 fiscal year, resulted in the crea-

3,157,895 ordinary shares, with a par value of €0.04.

tion of 22,600 ordinary shares, with a par value of €0.04.

The capital increase, through the exercise of BSA

The capital increase, resulting from definitive allocations

on the part of Kepler Cheuvreux, which took place

of free preferential shares (AGAP), which took place during

during the 2019 fiscal year, resulted in the creation of

the 2019 fiscal year, resulted in the creation of 17,110 pre-

105,000 ordinary shares, with a par value of €0.04.

ferential shares, with a par value of €0.04.

The capital increase, through the exercice of BCE during

the 2019 fiscal year, resulted in the creation of 31,125 ordi-

nary shares, with a par value of €0.04.

Changes in equity

EQUITY AT THE START OF THE PERIOD

7,481,498

Capital increase following the fundraising carried out

56,955,297

Increase in capital through exercising of BCE warrants

249,000

Increase in capital through exercising of BSA warrants

180,800

BSA subscription

18,180

Increase in capital through exercising of Kepler BSA warrants

2,231,145

Result for the period

-42,648,672

EQUITY AT THE END OF THE PERIOD

24,467,248

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Stock-options

2018 stock-options

On the authorization of the combined general meeting of April 27, 2018, the board of directors decided, on December 3, 2018, to grant 46,000 options to subscribe for common shares, distributed as follows: 23,000 Options A and 23,000 Options B. These options entitle holders to subscribe to 46,000 new shares, representing the achievement of attendance and / or performance criteria, representing 0.37% of the existing capital as of December 31, 2019, at unit price of €20.35, issue premium included.

2019 stock-options

On the authorization of the combined general meeting of March 28, 2019, the board of directors decided, on April 1, 2019, to grant 46,000 options to subscribe for common shares. These options entitle holders to subscribe to 46,000 new shares, representing the achievement of attendance and / or performance criteria, representing 0.37% of the existing capital as of December 31, 2019, at unit price of €22.70, issue premium included.

Preferential shares («AGAP»)

2017 plan:

On the authorization of the combined general meeting of April 27, 2017, the board of directors' meeting decided, on May 15, 2017, to allocate provisionally 5,250 preferential shares, distributed as follows: 270 AGAP 2017-01, 1,800 AGAP 2017-02, 3,180 AGAP 2017-03, and on Sep- tember 25, 2017, to allocate provisionally 560 preferential shares, distributed as follows: 50 AGAP 2017- 01, 200 AGAP 2017-02, 310 AGAP 2017-03.

These preferential shares may be converted based on the achievement of the performance criteria into a maximum of 421,000 ordinary shares: 32,000 ordinary shares under AGAP 2017-01, 40,000 ordinary shares under AGAP 2017- 02, and 349,000 ordinary shares under AGAP 2017-03.

2018 plan:

On the authorization of the combined general meeting of April 5, 2018, the board of directors'meeting decided, on April 16, 2018, to allocate provisionaly 12,080 preferential shares, distributed as follows: 580 AGAP 2018-01 and 11,500 AGAP 2018-02; then on September 27, 2018, to allocate provisionaly 370 preferential shares (AGAP 2018-03); then on February 11, 2019, to allocate provisionaly 370 preferential shares (AGAP 2018-03).

of 301,500 01 ordinary shares: 58,000 ordinary shares under AGAP 2018-01, 169,500 ordinary shares under AGAP 2018-02, and 74,000 ordinary shares under AGAP 2018-03.

2019 plan:

On the authorization of the combined general meeting of March 28, 2019, the board of directors'meeting decided, on April 1, 2019, to allocate provisionaly 11,900 preferential shares, distributed as follows: 4,760 AGAP 2019-01, 4,760 AGAP 2019-02 and 2,380 AGAP 2019-03; then on September 23, 2019, to allocate provisionaly 4,700 preferential shares, distributed as follows: 2,240 AGAP 2019- 01, 2,240 AGAP 2019-02 and 220 AGAP 2019-03; then on December 2, 2019, to allocate provisionaly 3,000 preferential shares, distributed as follows: 1,000 AGAP 2019-01, 1,000 AGAP 2019-02 and 1,000 AGAP 2019-03;

These preferential shares may be converted based on the achievement of the performance criteria into a maximum of 193,000 02 ordinary shares: 78,800 ordinary shares under AGAP 2019-01, 78,800 ordinary shares under AGAP 2019-02, and 35,400 ordinary shares under AGAP 2018-03.

Stock warrants

BSA 2009-1

At the general meeting and the meeting of the board of directors of July 8, 2009 and following the board of direc- tors' meeting of September 8, 2011, 3,096 BSA 2009-1 warrants were issued; of these 556 were canceled following the resignation of one of the directors and 2,540 have been exercised.

BSA KEPLER CHEUVREUX

In accordance with the board of directors' decision of December 9, 2014, as authorized by the combined general meeting of April 2, 2014, then in accordance with the board of directors' decision of December 12, 2016, as authorized by the combined general meeting of June 28, 2016, a total number of 900,000 BSA warrants were issued, 742,600 of which had been exercised as at July 20, 2018, expiry date of the contract. The 157,400 BSA warrants not exercised on the same date became lapsed.

By decision of the board of directors on September 27, 2018, as authorized by the combined general meeting of April 5, 2018, 400,000 BSA warrants were issued, of which 139,000 BSA warrants were exercised on December 31, 2019.

These preferential shares may be converted based on the achievement of the performance criteria into a maximum

01 these figures take into account on the one hand the departure of an AGAP 2018-02 beneficiary and on the other hand the non- achivement of a performance criterion attached to AGAP 2018-02.

02 these figures take into account the departure of an AGAP 2019- 01, 2019-02 and 2019-03 beneficiary.

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The 261,000 BSA warrants not exercised on the same date confer subscription right to 261,000 new shares, representing 2.07% of the existing capital as at 31 December 2019, at unit price defined contractually between CARMAT and the Kepler Cheuvreux, the holder of the BSA warrants, as being equal to the average share price at the time of the drawdown, less a discount of not more than 6%.

BSA 2017

By decision of the board of directors dated May 15, 2017, 12,000 warrants were issued pursuant to a delegation of authority granted by the combined general meeting of April 27, 2017, none of which had been exercised as at December 31, 2019. 12,000 warrants not exercised on the same date entitle them to subscribe for 12,000 new shares, representing 0.10% of the existing capital as at December 31, 2019, at unit price of €30.10.

SUMMARY TABLE OF BSA WARRANTS

BSA 2018

By decision of the board of directors dated June 11, 2018, 10,000 warrants were issued pursuant to a delegation of authority granted by the combined general meeting of April 5, 2018, none of which had been exercised as at December 31, 2019. 10,000 warrants not exercised on the same date entitle them to subscribe for 10,000 new shares, representing 0.08% of the existing capital as at December 31, 2019, at unit price of €20.93.

BSA 2019

By decision of the board of directors dated June 24, 2019, 6,000 warrants were issued pursuant to a delegation of authority granted by the combined general meeting of March 28, 2019, none of which had been exercised as at December 31, 2019. 6,000 warrants not exercised on the same date entitle them to subscribe for 6,000 new shares, representing 0.05% of the existing capital as at December 31, 2019, at unit price of €20.21.

Issued

Subscri-

Lapsed

Reserve

Exercised

Balance

Lapsing on

bed

BSA 2009-1

3,096

3,096

556

0

2,540

0

July 8, 2019

GM of July 8, 2009

BSA Kepler Chevreux

900,000

900,000

157,400

0

742,600

0

July 20, 2018

(old tranches)

BSA Kepler Cheuvreux

400,000

400,000

0

0

139,000

261,000

Sep. 26, 2020

(new tranches)

BSA 2017

12,000

12,000

0

0

0

12,000

May 15, 2027

BSA 2018

10,000

10,000

0

0

0

10,000

June 11, 2028

BSA 2019

6,000

6,000

0

0

0

6,000

June 24, 2029

Start-up company stock warrants (BCE)

BCE 2009-1

At the general meeting and the meeting of the board of directors of July 8, 2009 and following the board of direc- tors' meeting of September 8, 2011, 3,108 fully assigned and subscribed BCE-2009-1 warrants were issued, exercised.

BCE 2009-2

At the general meeting and the meeting of the board of directors of July 8, 2009 and following the board of direc- tors' meeting of September 8, 2011, 7,566 fully assigned and subscribed BCE-2009-2 warrants were issued, 4,475 of which have been exercised and 3,091 of which have lapsed and been canceled.

BCE 2012-1

In accordance with the board of directors' decision of June 27, 2012, as authorized by the combined general meeting of April 26, 2012, 56,500 fully assigned and subscribed BCE-2012-1 warrants were issued, of which 45,000 have lapsed and been canceled. The 11,500 BCE-2012-1 warrants subscribed and not exercised as at December 31, 2019 confer subscription rights to 11,500 new shares, representing 0.10% of the existing capital as at December 31, 2019, at unit price of €108.483.

BCE 2012-2

In accordance with the board of directors' decision of November 8, 2012, as authorized by the combined general meeting of April 26, 2012, 6,700 fully assigned and subscribed BCE-2012-2 warrants have been issued. The

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6,700 BCE-2012-2 warrants subscribed and not exercised as at December 31, 2019 confer subscription rights to 6,700 new shares, representing 0.06% of the existing capital as at December 31, 2019, at unit price of €122.003.

SUMMARY TABLE OF BCE WARRANTS

Issued

Subscri-

Lapsed

Exercized

Balance

Lapsing

bed

on

BCE 2009-1

3,108

3,108

0

3,108

0

Sept. 9, 2019

GM of July 8, 2009

BCE 2009-2

7,566

7,566

3,091

4,475

0

July 8, 2019

GM of July 8, 2009

BCE 2012-1

56,500

56,500

45,000

0

11,500

June 27, 2022

GM of April 26, 2012

BCE 2012-2

6,700

6,700

0

0

6,700

Nov. 8, 2022

GM of April 26, 2012

  • Other balance sheet details Conditional advances

The conditional advances item comprises repayable advances received from Bpifrance, the total amount of which was €14,507,309 as at the end of the financial year. Note 3.2.2.6 below specifies the repayment conditions of these advances.

They are interest-bearing at the contracted rate of 5.59%. The interest accrued, calculated using the capitalization method, stood at €5,681,519 at the year end and appears in liabilities under Sundry loans and financial debts.

Accrued income

Value of accrued income included in

Value

the following balance sheet items

Other debtors

76,111

Total

76,111

Accrued charges

Deferred income and charges

Deferred

Value

charges

Operating expenses

121,610

Total

121,610

Deferred charges comprises the share of subscriptions, software license royalties and insurance premiums for the period after December 31, 2019, totaling €121,610.

Deferred

Value

income

Operating income

None

Total

None

Information on related enterprises

The following balance sheet items include sums in connection with related enterprises:

Value of accrued charges included in the following balance sheet items

Loans from credit institutions

Sundry loans and financial debts

Trade accounts payable and related payables Tax and social liabilities

Total

Value

733,333

5,681,519

2,968,394

2,547,493

11,930,739

Trade accounts payable and related payables

145,818

Provision for expenses

Four preferential share allocation plans, as at February 11, 2019; April 1, 2019; September 23, 2019 and December 2,2019, allowed for the provisional allocation of 19,970 preferential shares, which can be converted based on the achievement of the performance criteria to a maximum of 233,000 ordinary shares. The definitive vesting dates for these preferential shares are fixed at February 11, 2020 for 370 preferential shares, at April 1, 2020 for 11,900 preferential shares, at September 23, 2020 for 4,700 preferential shares and at December 2, 2020 for 3,000 preferential shares. At the end of the year, the Company booked a provision for expenses corresponding to the amount of

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the employer contributions of 20% to be due in 2020, on a porata basis of the vesting period and based on the estimate of the value of the ordinary shares that could be converted at the end of the vesting period.

The calculation assumptions made were as follows:

  • Determination of a percentage of achievement of each of the performance criteria;
  • Value of a ordinary share of €19.70;
  • Employer contribution rate of 20%.

3.2.2.5 Supplementary information on the income statement

  • Operating subsidies

The Company received the sum of €14,000 as an operating subsidy from the Association nationale de la recherche et de la technologie (national research and technology asso- ciation) for employment of 1 PhD student.

  • Applied research and development costs

Research and development costs are accounted for under expenses. They amounted to €29,368,163 in 2019, compared to €27,193,406 in the previous year.

  • Research tax credit

The income statement for the year shows a research tax credit amounting to €1,636,019, corresponding to the amount calculated for the year 2019.

  • Extraordinary income and expenses

Type

December

December

31, 2019

31, 2018

Extraordinary income

- Property disposal

- Disposal of own shares

46,794

60,198

Total

46,794

60,198

Extraordinary expenses

- Property disposal

- Disposal of own shares

60,767

58,564

- Fines and penalties

2,513

3,424

- Exceptional depreciation charges

87,458

Total

150,738

61,987

The extraordinary income result is relative to:

  • disposals of own shares carried out under the liquidity contract;
  • an allowance for exceptional depreciation relating to the scrapping of equipment that is not fully depreciated.
  • Information on associates

The following income statement items include sums in connection with associates:

Other purchases and external expenditure

506,888

In addition, CIR's claim for 2018 was sold to Prédirec, which collected it at the end of 2019. This operation generated a cost for CARMAT of €36,930 in 2019 (including commissions and interest).

  • Auditors' fees

The total amount of auditors' fees paid over the year is €112,000 excluding taxes and disbursements and breaks down as follows:

Total amount (€)

PWC

LCA

Total

Account certification fees

50,500

35,000

85,500

Other Services fees

- Other Services required by law

3,500

3,500

7,000

- Other Services

9,750

9,750

19,500

Total

63,750

48,250

112,000

3.2.2.6 Financial commitments and other information

  • Financial commitments Commitments made

Repayable advances totaling €14,507,309 have been received at the end of the fiscal year from the BPI, of which €1,450,732 obtained in June 2019 corresponding to the last tranche. The corresponding accrued interest amounts to €5,681,519 at the end of the financial year. This amount is repayable subject to achieving cumulative revenue of at least €38,000,000. The Bpifrance agreement provides for supplementary payments if certain conditions are met, so that the total amount repayable could exceed the amount of the advance initially granted, up to a ceiling of €50,000,000.

On June 24, 2008 the Company signed a royalties agreement with Professor Alain Carpentier and Matra Défense, who still held shareholdings as at December 31, 2019. Under this Agreement, the Company undertakes to pay Professor Alain Carpentier and Matra Défense 2% of the net proceeds from sales of the CARMAT Artificial Heart

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produced and distributed by CARMAT SA, with this sum being shared between the two beneficiaries in proportion to their respective shares in the capital of the Company on the date it was established. These royalties will be payable every six months within 30 days of the end of each six-month period, commencing after the first marketing of the CARMAT Artificial Heart post CE marking in Europe and FDA marketing authorization in the United States, and ending upon expiry of the patents shown in Annex to the agreement.

The Company is also authorized to repurchase at any time the right to benefit from these royalties for a sum of €30,000,000 less any royalties already paid under the agreement, with this total sum being shared between the two beneficiaries in proportion to their respective shares in the capital of the Company on the date it was established. This sum of €30,000,000 is index-linked to the Indice du Prix à la Production de l'Industrie des Services aux Entreprises - Matériel médicochirurgical et d'or- thopédie-exportation zone euro [Index of Prices for the Industrial Production of Services to Businesses - Medico -surgical and orthopedic equipment - for export within the Eurozone].

The rights allocated to Professor Alain Carpentier and to Matra Défense in this way are non-transferable.

As at December 31, 2019, since the marketing of the CAR- MAT Artificial Heart had not started, no royalty had been paid by the Company under the agreement.

In addition, the Company has signed a royalty agreement with the EIB providing for the payment of additional remuneration to the EIB depending on the commercial performance of the Company. This agreement runs for 13 years from the year in which the cumulative sales of CARMAT will reach €500,000. At any time, the Company may decide to terminate the royalties contract by paying a lump sum (net of royalties already paid), depending on the amount borrowed and the year of the decision.

In the event of the occurrence of certain events (in particular in the event of the declaration of the anticipated repayment of the credit by EIB or if a new shareholder were to hold 33% of the voting rights of CARMAT), the EIB could, if it considered it necessary, ask the Company for the advance payment of royalties up to a certain percentage of the amount of the credit actually drawn (this progressive percentage ranging from 100% of the amount borrowed if the event occurs during the first four years of the financial contract, to 160% if the event occurs after the eleventh year).

Commitments received

None.

Pension and retirement commitments

The Company has not signed a specific agreement on retirement commitments. These are therefore limited to the agreed retirement lump-sum payment.

In application of the reference method (ANC 2018-01), the provision for retirement commitments has been booked as at December 31, 2019.

The calculation assumptions made were as follows:

  • time-apportionedrights method in accordance with Regulation 2003 R-01 of the CNC;
  • retirement on the initiative of the member of staff, at 62 years (non-management) or 65 years (management);
  • salary increases of 2% per annum;
  • low staff turnover;
  • discount rate of 0.77% per annum (as against the rate of 1.57% used as at December 31, 2018 and 0.77% as at June 30, 2019).

The overall amount of the provision was €413,906 at the end of the period, an increase of €110,938 on the previous period.

  • Other information Information on the management
    ADVANCES AND LOANS TO MANAGEMENT

No loans or advances were made to the management of the Company during the financial year, in accordance with the provisions of Article R.123-197 of the French Commercial Code.

MANAGEMENT REMUNERATION

Total directors' fees recognized in respect of 2019 amounted to €69,839 (amounts entered under « Other expenses » in the income statement).

The total remuneration paid to the management bodies was €650,135 for the financial year and breaks down as follows:

Type

2019

2018

Gross salaries

465,396

471,295

Benefits in kind

7,793

5,270

Bonuses

176,946

160,912

Total remuneration

650,135

637,477

Increases and reductions in future tax liabilities

Type of temporary differences

Value

Allowable loss carry-forwards

268,500,634

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financial informations

This amount comprises:

  • the tax loss carried forward made during previous periods and available as at January 1, 2019, in the sum of €221,385,242;
  • the tax loss made in the 2019 fiscal year in the sum of €47,115,392.

End of period staffing levels

Salaried staff

2019

2018

Managers

80

66

Supervisors and technicians

18 *

15 ***

Employees

9 **

9 *

Total

107

90

*: including 1 trainee

**: including 3 trainees

***: including 2 trainees

auditors' report on the 2019 financialstatements

profession of auditor.

CARMAT SA

36, Avenue de l'Europe

JUSTIFICATION OF OUR ASSESSMENTS

Immeuble l'Etandard energy III

78140 Vélizy-Villacoublay

Pursuant to the provisions of Articles L. 823-9 and R.823-7

of the French Commercial Code relating to the justification

OPINION

of our assessments, we inform you that the most impor-

tant assessments that we have made, in our professio-

In execution of the mission entrusted to us by your general

nal judgment, have the appropriateness of the accounting

meeting, we have audited the financial statements of CAR-

principles applied and the reasonableness of the signifi-

MAT for the year ended December 31, 2019, as attached

cant estimates used and the overall presentation of the

to this report.

accounts.

We certify that the annual accounts are, in the light of

The assessments thus made fall within the context of the

French accounting rules and principles, fair and accurate

audit of the annual financial statements taken as a whole

and give a true and fair view of the results of the opera-

and the formation of our opinion expressed above. We do

tions of the past financial year and the financial position

not express an opinion on items in these separate annual

and assets of the company at the end of the year.

accounts.

FOUNDATION OF THE OPINION

SPECIFIC VERIFICATIONs

Auditing framework

In accordance with the professional standards applicable

in France, we have also performed the specific verifica-

We conducted our audit in accordance with professional

tions required by legal and regulatory texts.

standards applicable in France. We believe that the evi-

dence we have collected is sufficient and appropriate to

Information provided in the management report and

provide a basis for our opinion.

other documents on the financial position and the annual

accounts sent to shareholders

Our responsibilities under these standards are set out in

the «Auditors' Responsibilities for Auditing the Annual

We have no matters to report as to the fair presenta-

Accounts» section of this report.

tion and the consistency with the financial statements

of the information given in the management report of the

Independence

Board of Directors and in the other documents with res-

pect to the financial position and the financial statements

We carried out our audit mission in accordance with the

addressed to the shareholders.

independence rules applicable to us, from January 1,

2019 to the date of our report, and in particular we did not

We certify the fairness and consistency with the finan-

provide services prohibited by the code of ethics of the

cial statements of the information relating to the payment

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periods mentioned in Article D.441-4 of the French Commercial Code.

Corporate governance information

We certify the existence, in the section of the management report of the Board of Directors devoted to corporate governance, of the information required by Article L.225- 37-4 of the French Commercial Code.

Other information

In application of the law, we made sure that the various information relating to the identity of the owners of the capital or the voting rights were communicated to you in the report of management.

RESPONSIBILITIES OF THE MANAGEMENT AND THE PERSONS CONSTITUTING CORPORATE GOVERNANCE RELATING TO THE ANNUAL ACCOUNTS

It is the responsibility of the management to prepare annual accounts presenting a true and fair view in accordance with French accounting rules and principles and to set up the internal control that it deems necessary for the preparation of annual accounts that do not contain any significant anomalies, that they come from fraud or result from errors.

When preparing the annual accounts, it is the responsibility of management to evaluate the ability of the Company to continue operating, to present in these accounts, as the case may be, the necessary information relating to the continuity of operations and to apply the going concern accounting policy unless it is intended to wind up the company or cease its business.

The annual accounts have been adopted by the Board of Directors.

RESPONSIBILITIES OF THE AUDITORS RELATING TO THE AUDIT OF THE ANNUAL ACCOUNTS

It is our responsibility to prepare a report on the annual accounts. Our objective is to obtain reasonable assurance that the financial statements taken as a whole do not contain any material misstatements. Reasonable assurance corresponds to a high level of assurance, but does not guarantee that an audit performed in accordance with the standards of professional practice can systematically detect any significant anomaly. Anomalies may arise from fraud or error and are considered significant where it can reasonably be expected that they, taken individually or cumulatively, may influence the economic decisions that account users take in their business based on these.

As specified by Article L.823-10-1 of the French Commercial Code, our mission of certification of accounts is not to guarantee the viability or the quality of the management

of your company.

As part of an audit conducted in accordance with the professional standards applicable in France, the statutory auditor exercises his professional judgment throughout this audit.

In addition :

  • it identifies and assesses the risks that the annual accounts contain material misstatements, whether due

to fraud or error, defines and implements audit procedures to address such risks, and collects considers it sufficient and appropriate to base its opinion. The risk of not detecting a significant anomaly from fraud is higher than that of a significant misstatement resulting from an error, as the fraud may involve collusion, falsification, voluntary omissions, misrepresentation or circumventing internal control;

  • it becomes aware of the internal control relevant to the audit in order to define appropriate audit procedures in the circumstances, and not to express an opinion on the effectiveness of the internal control;
  • it assesses the appropriateness of accounting poli- cies used and the reasonableness of accounting esti- mates made by management, as well as the information concerning them provided in the annual accounts;
  • it assesses the appropriateness of management's appli- cation of the going concern accounting policy and, depending on the elements collected, the existence or otherwise of significant uncertainty related to events or circumstances likely to causes the company's abi- lity to continue as a going concern. This assessment is based on the information gathered up to the date of its report, but it is recalled that subsequent circumstances or events could jeopardize the continuity of operations. If it concludes that there is significant uncertainty, it draws the attention of the readers of its report to the information provided in the annual accounts about this uncertainty or, if this information is not provided or is not relevant, it formulates a qualified certification or a refusal to certify;
  • it assesses the overall presentation of the annual accounts and assesses whether the annual accounts

reflect the underlying transactions and events so as to give a true and fair view.

Signed in Neuilly-Sur-Seine and Paris,

Thursday March 12, 2020,

The statutory auditors

PRICEWATERHOUSCOOPERS

LISON CHOURAKI

AUDIT

AUDIT

THIERRY CHARRON

LISON CHOURAKI

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3.4 Internal control and risk management procedures relative to the prepara-

tion and processing of accounting and financial information

One of the objectives of internal control is to prevent and control the risks of error and fraud in the accounting and financial fields. In this context, CARMAT did set up a system aimed at providing reasonable assurance of the reliability of its accounting and financial information produced and published.

The accounting and financial processes correspond to all the activities enabling the economic operations of the Company to be translated into accounting and financial information.

The two key processes that affect the reliability of CAR- MAT's accounting and financial information are:

  • the process of producing accounting and financial information (including the accounting closing process);

production of accounting information

Accounting is carried out by CARMAT's accounting team, assisted by an accounting firm that has been supporting the Company for many years.

Payroll is provided by an external firm. And CARMAT is also assisted as needed by renowned specialist firms, particularly for legal and tax matters.

For the production of its accounts, CARMAT relies mainly in terms of information systems on its ERP (Enterprise Resource Planning), and on more specific software used by its accounting firm; as well as a set of policies, operating procedures and calendar of operations, which are updated regularly.

  • the process of publishing accounting and financial information.

The Company's objectives in this area are:

  • the production of reliable information that complies with legal and regulatory requirements;
  • prevention and detection of accounting and financial fraud or irregularities;
  • the preservation of the assets of the Company;
  • the application of the guidelines given by the Board of Directors;
  • the reliability of the information used internally for monitoring and control purposes;
  • the reliability of the accounts and other financial infor-

mation communicated to the financial markets.

The organization set up aims in particular to ensure segregation of duties, thereby limiting the risk of error and fraud; and to allow an appropriate level of control, especially on the most sensitive points. It is specified that CARMAT draws up its accounts according to French accounting standards and does not draw up any consolidated accounts.

The accounts are closed and reviewed monthly by the finance department, with the accounting firm. A summary of the financial results, including a comparison with the budget approved annually by the Board of Directors, is presented monthly to the management of the Company. The operational departments also receive a monthly statement of their expenses, with comparison with the bud- get, which is prepared by management control. A financial update is presented by the CFO at each Board of Directors meeting.

CARMAT is still in the clinical phase and does not yet generate revenues, so a particular attention is paid to the financing plan of the Company, its cash flow forecasts and the liquidity risk. In this context, the Company's business plan is updated and presented to the Board of Directors, at least once a year (and more frequently if necessary), and the financing strategy and options regularly shared and discussed with the Board of Directors.

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publication of accounting and financial information

The Company publishes its financial calendar for the current year in January.

The Company publishes its results semi-annually and annually. The annual financial report is integrated into the Universal Registration Document (formerly Registration Document) which is made available to shareholders and the public, within the legal deadlines.

The accounting and financial information published semi-annually and annually is prepared by CARMAT's administrative and financial department, under the control of the CEO and is then subject of an examination by the audit committee, then by the Board of Directors.

In addition, CARMAT's annual accounts are certified by the Company's Statutory Auditors, while the half-yearly accounts are subject to their limited review.

All press releases published by the Company, whether or not they are of an accounting or financial nature, are validated beforehand by the CEO of the Company.

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corporate

governance

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corporate governance

4.1 composition of the company's administrative and management bodies

4.1.1 composition of the board of directors

The Board of Directors now consists of 9 members, including 5 independent directors. Mr. Jean-Pierre Garnier is Chairman.

As a reminder, CARMAT had announced on December 3, 2018 the cooptation of Mr. Jean-Pierre Garnier to the Board of Directors of the Company to replace Mr. Jean-Claude Cadudal, Chairman of the Board of Directors resigned, for the remainder of his mandate, and his appointment as new Chairman of the Board. The appointment of Mr. Jean-Pierre Garnier as Director of the Company was ratified by the general meeting of March 28, 2019.

At the end of this same meeting, Mr. Alain Carpentier left his position as Director of CARMAT and was appointed Honorary President of the Company. As such, he remains

invited to all board meetings, without however taking part in the votes.

On June 6, 2019, Mr. Karl Hennessee succeeded Ms. Anne-Pascale Guédon as permanent representative of Matra-Défense on the Board of Directors of the Company.

As a reminder, the general meeting of April 5, 2018 appointed Mr. Pierre Bastid as Director, for a period of 6 years expiring at the end of the ordinary general meeting to approve the accounts of the year ended December 31, 2023.

The table below details the information concerning each of the members of the Board of Directors (it being specified that the information on the other mandates of the directors are those of which the Company is aware and that the companies marked with a * are listed companies):

Full name or

Functions

Previous other positions

registered name

fulfilled

Other positions currently held

and functions in other

of the member

Term of office

within the

in other companies

companies over the last

and business

Company

five years

address

First appointed:

December 3, 2018

Mr. Jean-Pierre

Chairman of

- Chairman of Idorsia*

- Chairman of Actelion *

- Director at Radius Health*

Garnier

Term of office: Until

the board of

(til its acquisition by

(french & american

- Director at United Technology*

GM to approve the

directors

Johnson and Johnson in 2017)

citizenship)

accounts for year

- Director at Fondation Paul Newman

ending December

31, 2021

Mr. Stéphane Piat

First appointed:

April 27, 2017

(french citizenship)

Chief Executive

Division vice-president, Global

CARMAT

Term of office: Until

Officer **

Board member of

Market Development, at Structural

Member of

Heart Division - Abbott Vascular -

36, avenue de l'Eu-

Triflo Cardiovascular Inc.

GM to approve the

San Francisco

the Board of

rope

accounts for year

Directors

78 941 Velizy

ending December

Villacoublay

31, 2021

Matra Défense

First appointed:

- Senior Vice President of Projic 9

Represented by

March 20, 2015

- Senior Vice President of Matra Défense

Mr. Karl Hennessee

- Managing director of Matra

(american citizenship)

Term of office: Until

Director

- Member of the executive

Holding GmbH

GM to approve the

committee of Projic 9

Airbus Group

accounts for year

- Board member of Shiny T BV, Sunny T BV,

42, avenue Raymond

ending December

Perpetual Ltd, Fast Express Investment Ltd

Poincaré

31, 2021

and Aeropart

75016 Paris

**: in accordance with the articles of association, the board of directors appoints the Chief Executive Officer, fixes the duration of his mandate, determines his remuneration and fixes the limits of his powers if necessary.

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corporate governance

Full name or

Functions

Previous other positions

registered name

fulfilled

Other positions currently held

and functions in other

of the member

Term of office

within the

in other companies

companies over the last

and business

Company

five years

address

- Member of the supervisory board of

Mr. Henri Lachmann

First appointed:

Norbert Dentressangle SA*

- Chairman of the board of directors of

- Director of various companies in

(french citizenship)

December 23, 2010

the Centre chirurgical Marie Lannelongue

the Schneider Electric Group*

Association Marie

Independent

(Marie Lannelongue Surgical Center) (an

- Honorary vice-Chairman of the

Term of office: Until

association under the law of 1901)

Lannelongue

supervisory board at Vivendi SA*

GM to approve the

director

133, avenue de la

- Chairman of the Institut Télémaque (an

- Vice-chairman and treasurer of

accounts for year

Résistance

association under the law of 1901)

the Institut Montaigne (an associa-

ending December

92 350 Le Plessis

- Director of the Fondation Entreprendre

tion under the law of 1901)

31, 2021

Robinson

- Chairman of the campaign committee of

the Strasbourg University Foundation

In a personal capacity:

- Chairman of the board of directors of

Abivax SA*

- Manager at Nakostech SARL

- Chief executive and director of

Truffle Capital

Truffle Capital

- Honorary chairman and director

- Director at Vexim SA* until 2017

of France Biotech (an association

First appointed:

- Director of Neovacs SA* until 2014

under the law of 1901)

May 7, 2010

Represented by

- Director at Plasmaprime SAS

As representative of Truffle Capital:

Dr Philippe Pouletty

until 2015

Term of office: Until

Director

- Director at Biokinesis SAS

(french citizenship)

GM to approve the

- Director at Immune Targeting

- Director at Pharnext SA*

Systems Ltd (UK) until 2015

accounts for year

Truffle Capital

- Director at Deinove SA*

ending December

- Director at Altimmune, Inc.

5, rue de la Baume

31, 2021

- Director at Carbios SA*

(United States) until

75 008 Paris

- Director at Affluent Medical SA

December 2016

- Chairman of the board of directors of

Skinosive SASU

- Director at Holistick Medical SASU

- Director at Artedrone SASU

- Chairman of the board of directors of

Diaccurate SASU

Mr. Pierre Bastid

First appointed:

April 5, 2018

- Chairman of Babalia

(french citizenship)

Hougou

Term of office: Until

Independant

- Director at Hougou SA

None

GM to approve the

Director

- Director at Cellectis

480, avenue Louise

accounts for year

1050 Brussels

- Director at Pharnext

ending December

Belgium

31, 2023

Santé Holdings SRL

First appointed:

Represented by Mr.

April 12, 2016

Antonino Ligresti

Term of office: Until

- Sole shareholder of Immobiliare Cosio

(italian citizenship)

Director

SRL, Iniziative Immobiliari Due SRL and

None

GM to approve the

Iniziative Immobiliari Tre SRL

NCTM

accounts for year

ending December

Via Agnello 12

31, 2021

20121 Milano Italy

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Full name or

Functions

Previous other positions

registered name

fulfilled

Other positions currently held

and functions in other

of the member

Term of office

within the

in other companies

companies over the last

and business

Company

five years

address

Mr. Jean-Luc

First appointed:

Lemercier

January 2, 2017

(french citizenship)

Term of office: Until

Independent

Corporate officer

None

Edwards Lifesciences

GM to approve the

director

Edwards Lifesciences

Chemin du Clusel 1

accounts for year

1261 Le Vaud

ending December

Switzerland

31, 2021

Dr Michael Mack

First appointed:

(american citizenship)

January 2, 2017

The Heart Hospital

Term of office: Until

Independent

Baylor Plano

None

None

GM to approve the

director

1100 Allied Drive

accounts for year

4708 Alliance - S. 500

ending December

TX 75093 Plano

31, 2021

USA

As far as the Company is aware:

  • there is no family link between the Company's directors;
  • no director has been convicted of fraud in the last five years;
  • no director has been associated with any bankruptcy, sequestration of assets or liquidation in the last five years;
  • no director has been found guilty of any offense or any official public sanction pronounced by the statutory or

regulatory authorities (including designated professional bodies) in the last five years; and

  • no director has been prevented by a court from acting as a member of an administrative, management or supervisory board of an issuer or from taking part in the management or conduct of the affairs of an issuer over the past five years.

It should be noted that no strategic and/or historical investors acts together with others in relation to CARMAT.

4.1.2 Backgrounds of the members of the board of directors

KARL HENNESSEE

Karl Hennessee, Senior Vice-President of Airbus, has 25 years of experience in law, economics and regula- tion. He worked, in Europe and in the United States, as a business lawyer on some of the most important files for a very large company in the energy sector, then as Secretary General of this same company.

In addition to his management functions at Airbus, Karl Hennessee is the Chairman of the Board of Directors of the International Arbitration Tribunal within the International Chamber of Commerce. He also sits on the Board of Directors of many other non-profit organizations. He also lectures and regularly publishes articles on law and regulations.

DR JEAN-PIERRE GARNIER

Scientist and business leader, Jean-Pierre Garnier graduated from Louis Pasteur University (PhD in Pharma- cology) and Stanford University (Master in Business Administration). He started his career in 1975 at the pharmaceutical company Schering-Plough where he held a number of management positions in Europe before becoming President of their American division. In 1990, he joined Smithkline Beecham Laboratories as President of the Pharmaceuticals Division and became President and CEO in 1999.

In 2000, Jean-Pierre Garnier achieved the merge of two of the largest pharmaceutical groups (Smithkline Beecham and Glaxo Wellcome), to create GlaxoSmithKline (GSK), which he chaired until 2008. He was also Chairman of Actelion from 2011 to 2017.

The Best Practice Institute has nominated Jean-Pierre Garnier as one of the world's top 20 CEOs. He is an Officier de la Légion d'Honneur (Officer of the Legion of Honour) and Knight Commander of the Order of the British Empire.

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corporate governance

Dr PHILIPPE POULETTY

Dr Philippe Pouletty is a pioneer in biotechnology and medical devices. He founded SangStat in 1988, a company specialising in organ transplant therapy, listed on the NAS- DAQ, then Conjuchem in 1993, a biotech firm specialised in developing next-gen medicines from therapeutic peptides, listed on the Toronto Stock Exchange.

He is the co-founder and CEO of Truffle Capital, founder and Chairman of Deinove, a biotech company that develops compounds for industry from rare microorga- nisms, and Abivax, an innovative biotech firm that targets the immune system to eliminate viral and inflammatory diseases. Dr Pouletty is also founder of Carbios, a green chemical company developing innovative enzyme processes to reshape the lifecycle of plastics, co-founder and board member of Pharnext, a leading biopharma company in combinatorial medicine, and Vexim, an innovative medical devices company, Chairman of Diaccurate, a biotech company specialising in immunomodulation, and board member at Myopowers, Biokinesis, Kephalios and all other companies in the Truffle Capital portfolio.

Dr Pouletty graduated as a doctor of medicine from the University of Paris VI and holds master's degrees in immunology and virology from Institut Pasteur. He is also a post-doctoral research fellow at Stanford University, the 1999 laureate of the American Liver Foundation and Chevalier de la Légion d'Honneur. Dr Pouletty is the former Chairman and Honorary Chairman of France Biotech, the French biotech industry association, former Vice Chairman of Europabio and the author of 29 patents.

HENRI LACHMANN

Henri Lachmann began his career in 1963 as an auditor at Arthur Andersen. Seven years later, he joined French metal company Strafor-Facom and became the company's CEO in 1981. He has been a member of the board at Sch- neider Electric since 1996 and became the company's CEO in 1999. He also held the position of Chairman of the Supervisory Board from 2006.

Mr Lachmann graduated from HEC business school and is a qualified chartered accountant.

He is Director and Vice-President of the Saint Joseph hospital / Marie Lannelongue hospital foundation.

PIERRE BASTID

Former manager at Schneider Electric then Valeo, Pierre Bastid becomes in 1998 Vice President of Thomson Television Components France (Thomson Multimedia Group). In 2004, via the Magenta Participations structure, it successfully participated in the acquisition of Alstom Power Conversion, a group that later became Converteam Group, sold to General Electric in 2011.

Since that date, Pierre Bastid manages his assets resulting from the sale of his shares of Converteam.

DR ANTONInO LIGRESTI

Dr Antonino Ligresti began his career in the Medical Clinic at Milan University and at the city's Fatebenefratelli Hospital. In 1979, following the gradual acquisition of several high-profile establishments in Lombardy, he created Italy's first private hospital group, acknowledged for the quality of its services and patient-centric care, as well as its ties with teaching and academic research. Dr Ligresti joined the Générale de Santé board of directors in 2003 and became its chairman a year later. He was also instrumental in creating the European Oncology Institute.

Dr Ligresti is a qualified physician and surgeon, specialising in cardiology and internal medicine.

Jean-luc lemercier

Jean-Luc Lemercier draws on more than 30 years' experience and acknowledged leadership in medical devices. During his career, he has held a number of key positions in the field of cardiology, notably at Johnson & Johnson Cor- dis from 1996 to 2008, where he created and headed the Structural Heart Disease division. Since 2017, he has been Corporate Vice President EMEA, Canada & Latin America at Edwards Lifescience.

Mr Lemercier graduated in pharmacy from Claude Bernard Lyon 1 University.

dR michael mack

Michael Mack is an internationally renowned cardiac surgeon with extensive experience in the introduction of medical devices and innovative procedures for cardiovascular disease. He has authored more than 650 scientific publications and has received the Presidential Citation from the American College of Cardiology (ACC) and the Transcatheter Cardiovascular Therapeutics (TCT) Lifetime Achievement Award.

Dr Mack is a graduate of Boston College, St Louis University and the University of Texas Southwestern Medical School. He is also the Director of the Cardiovascular department for pharmaceutical firm Baylor Scott & White Health, a Director on the American Board of Thoracic Surgery and a member of the FDA Medical Device Epidemiology Network Initiative (MDEpiNet) Advisory Committee.

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STEPHANE PIAT

Stéphane Piat is an acknowledged specialist in the medical device business, particularly in the field of cardiology. He joined Carmat as Chief Executive Officer in September 2016.

Mr Piat started his career at Becton Dickinson Euro- pean Headquarters as a Market Researcher in 1995. He was appointed European Platform Leader for Locoregio- nal Anaesthesia five years later. In 2002, he joined Cor- dis, a Johnson & Johnson company, where he spent five years in several management positions ranging from Business Director France to European Marketing Director

for Cardiology. In 2007, he moved to Abbott Vascular as General Manager for mid-size countries, EMEA, and two years later oversaw the integration of Evalve as the com- pany's General Manager EMEA, heading clinical and commercial development of a new interventional cardiology product, Mitraclip. In 2014, he led Global Market Development of the Abbott Vascular Structural Heart Division in San Francisco as Division Vice President.

Mr Piat holds a master's degree in Management Science from IAE Dijon School of Management, and a post-graduate degree in Quantitative Marketing from ESA business school in Grenoble.

4.1.3 members of the management team

STEPHANE PIAT

See above.

Dr PIET JANSEN

Dr Petrus "Piet" Jansen has 20 years management experience in the circulatory support device industry. He began his career in 1997 as Director of Clinical Research for the Novacor Division of Edwards Lifesciences, a US company specializing in patient-focused medical innovations for structural heart disease. In 2001, he was appointed Vice President at Jarvik Heart Inc in New York, where he was responsible for the clinical programs. From 2004 to 2009, he was Chief Medical Officer with World Heart Corporation.

Dr Jansen holds a PhD in medicine from the University of Amsterdam and graduated as medical doctor from Radboud University Nijmegen, both in the Netherlands.

ÉRIC RICHEZ

Eric Richez joined CARMAT in September 2014 after a career in the European medical device industry.

He has over 13 years' experience in sales & marketing with Thoratec, a global leader in ventricular assistance devices, where he served as Sales & Marketing Director from 2002 to 2011 and Sales Director EMEA from 2011 to 2013. He then joined CircuLite, a company developing a circulatory support system to treat chronic heart failure, as Sales Director for Southern Europe.

Mr Richez holds a degree in Mathematics and training in Business & Management and Sales Force Management.

PASCALE D'ARBONNEAU

A graduate of the ESCP business school and holder of a DEA in Management Control and a Postgraduate Diploma in Finance and Accounting, Pascale d'Arbonneau is also a lecturer at Paris Diderot University.

She began her career in 1989 as an auditor at Coopers

  • Lybrand (now PWC) before entering the pharmaceuti- cal industry as Head of Finance & IT France at Johnson
  • Johnson - MSD (1995-1999). She spent most of her career (1999-2016) at GlaxoSmithKline (GSK). She joined as Director, Head of Controlling & Finance Partnering, and then held a number of senior positions within the Group (Vice President & Finance Controller, Pharma Europe from 2006 to 2010, Vice President & Area Finance Direc- tor, Western Europe from 2010 to 2014) before becoming Vice President Compliance and Control Integration for all business units worldwide. Before joining CARMAT at the end of 2018, Pascale d'Arbonneau was Executive Director of the Econocom International B.V. family office.

MARC GRIMME

Since 1996, Marc Grimmé has been the technical lead on the programme to develop the Carmat bioprosthetic heart.

He began his career in 1991 at MBDA France, where he worked on a range of issues linked to the development of mission-critical electronics, from upstream studies and the design phase to production commissioning.

Marc Grimmé is a graduate of the Institute Supérieur d'Electronique et du Numérique (ISEN).

THIERRY DUPOUX

Thierry Dupoux is a seasoned medical device professional with a strong and large expertise in Quality Assurance

  • Regulatory Affairs and R&D. Engineering Graduate from Ecole Centrale de Lyon (France), he has worked most of

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his career for Life Sciences companies such as General Electric where he became Supply Chain Quality & Compliance Manager for the plant of Buc (France) in his last position. In 2006, he joined Sorin Group, now named Liva- Nova, a world leader in Cardiac Surgery and Neuromodu- lation. Over the past 12 years at LivaNova, he held several senior positions in Quality Assurance, Regulatory Affairs and R&D. Prior to joining CARMAT, he was Vice President of Quality Assurance at LivaNova where he led the integration of the Quality Systems following the merger between Sorin Group and Cyberonics. He joined CARMAT in July 2018 as Director of Quality.

Alexandre eleonore

Alexandre Eleonore is a confirmed industry expert with a strong background in operational management. He graduated from the Sevenans Polytechnic Institute, now UTBM (Université de Technologie Belfort-Montbéliard), and spent the first part of his career in leading automotive equipment manufacturers such as Faurecia and Plastic Omnium. After 10 years in this sector, he joined the Sorin group in 2009, which became Microport CRM, one of the world's leading players in the treatment of cardiac rhythm disorders. He became Vice President Operations & Customer Service and implemented cost improvement plans, thanks to his knowledge of lean manufacturing and industrial process automation. He joined CARMAT as Industrial Director in November 2019.

francesco arecchi

A marketing professional with strong experience in

global leading companies within the healthcare indus- try, Francesco Arecchi joins Carmat in September 2017. Francesco Arecchi spent most of his career in Life Sciences companies such as Johnson & Johnson and Abbott, where he holds a number of positions from sales to marketing in Cardiology breakthrough technology products such as Cypher and MitraClip.

Prior to joining Carmat, he stood as Product Manager EMEA Structural Heart at Abbott. Francesco Arecchi is a biomedical engineer and graduated from Politecnico di Milano (Italy) with an MBA from Rotterdam School of Management (Netherlands).

RAOUIA BOUYANZER

Raouia has almost 16 years of experience in payroll and human resources management. She began her career in an accounting firm in 1998. In 2001, Raouia joined Mor- gan Stanley, where she held more than 9 years in several positions in social management control, payroll and human resources. Raouia joined CARMAT at the 'development' stage of the Company in February 2011 as an Administrative and Financial Manager, and implemented a human resources policy in 2012.

Raouia holds a master's degree in HR from ESSEC Business School and holds a degree in accounting and finance (2001).

4.2 CONFLICTS OF INTEREST IN THE GOVERNING, MANAGEMENT AND SUPERVISORY BODIES

AND THE EXECUTIVE BOARD

4.2.1 Potential conflicts of interest

At the date of this universal registration document and as far as the Company is aware, there are no current or potential conflicts of interest between the private interests of the Company's board of directors and the interests of the Company.

Similarly, as at the same date, the Company has no knowledge of any current or potential conflicts of interest between the private interests of the members of the audit committee, the compensation committee or the scientific

committee and the interests of the Company.

As far as the Company is aware, there are no current or potential conflicts of interest between the duties of the members of the board of directors towards the Company and their private interests and/or other duties.

As at the date of this universal registration document, there were no service contracts linking the members of the board of directors and the general management of the Company, nor any business relationship binding the independent directors and the Company. All regulated agreements are disclosed within section 5.6.1.

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4.2.2Commitments of the directors and executive

members to preserve shareholdings

No lockup commitment by directors and members of general management was in force on December 31, 2019, with the exception of the obligation for the CEO, Mr. Stéphane

Piat, to hold a certain percentage of the shares in registered form, ordinary shares which have resulted or which will result, where applicable, from the conversion of the preferential shares granted free of charge in 2017, 2018 and 2019 (see section 4.5.1 of this document).

SPECIALIZED

4.3 COMMITTEES

As at the date of this universal registration document, the

Company had set up the following committees:

Audit

quarterly accounts before their examination by the

4.3.1 committee

Board of Directors, financial position, cash position

By decision of the board of directors of July 8, 2009 the

and commitments of the Company;

Company set up an audit committee for an unlimited

- evaluate, in consultation with the auditors, the

duration.

appropriateness of the choice of accounting prin-

Under the exclusive and collective responsibility of the

ciples and methods;

members of the Board of Directors of the Company and

- consult the members of the board responsible for

in order to ensure the quality of internal control and the

the financial

aspects as well as the administrative

reliability of the information provided to shareholders and

and financial

director if he is not a member of the

financial markets, the Committee assume the matters

board between the end of any financial year and

relating to the preparation and control of accounting and

the date on which the Committee decides on the

financial information and, to this end, shall in particular:

draft annual accounts, the adequacy of the accoun-

follow-up on the process of developing information and

ting principles and methods used, the effective-

ness of the accounting control procedures and any

financial communication;

other appropriate matters;

monitor the effectiveness of the internal control and

- issuing a recommendation on the auditors pro-

risk management systems and in particular:

posed for appointment by the shareholders' mee-

- evaluate the internal control procedures and any

ting and to review the terms of their remuneration;

measures taken to remedy any significant internal

monitor the independence of the auditors and in

control dysfunctions;

particular:

- review the annual work programs of the auditors;

- propose the establishment of rules for recourse

- evaluate the adequacy of the risk monitoring

to auditors for work other than auditing in order to

guarantee the independence of the audit services

procedure;

provided by auditors in accordance with the laws,

monitor the statutory audit of the annual and conso-

regulations and recommendations applicable to the

Company, and verify its proper application;

lidated financial statements by the auditors and in

- authorize the use of auditors for work other than

particular:

auditing;

- reviewing the assumptions used for the prepara-

- examine the conditions of use of derivatives;

tion of the annual financial statements of the Com-

pany and the half-yearly and, where applicable,

- execute periodic review of the status of significant

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litigation;

review the Company's procedures for the receipt, retention and treatment of claims relating to accounting matters and accounting internal controls, audit matters and documents transmitted by employees on a anonymous and confidential basis and which would call into question accounting or auditing practices; and

generally, provide advice and make any appropriate recommendations in the above areas.

During the 2019 financial year, the audit committee met twice, in particular to review the 2018 financial state- ments, to analyse CARMAT's cash needs and financing options, and to review the financial statements relating to the first half of 2019.

As at the date of this universal registration document, the audit committee comprises Mr. Henri Lachmann, independant director and chairman of the audit committee.

4.3.2Appointment and compensation committee

The Company has also established an appointment and compensation committee which as at the date of this universal registration document is comprised of four members, including two independant members, appointed by the board of directors for an unlimited term:

  • Truffle Capital, represented by Dr Philippe Pouletty, director and chairman of the appointment and com- pensation committee;
  • Matra Defense, represented by Mr Karl Hennessee, director and member of the appointment and compen- sation committee;
  • Mr Jean-luc Lemercier, independent director;
  • Santé Holdings SRL, represented by Mr Antonino Ligresti, independant director.

The main objectives of the appointment and compensation committee are:

  • to recommend to the Board of Directors the persons who should be appointed to the general management, the board of directors and the main functions of the Company, as the case may be;
  • review the remuneration policies for managers and high-potential staff within CARMAT, propose the remuneration of the officers and, where applicable, the members of the board of directors and prepare any report that the Company must present on these subjects.

It reports to the board of directors on its activities at regular intervals.

4.3.3Boards of observers

Article 17-VI of the Articles of Association gives the ordinary general meeting the power to appoint, at its discre- tion, up to three persons or legal entities, who may or may not be shareholders, for a term of office of one year expiring at the general meeting of shareholders called to decide on the accounts for the year just ended and held during the year in which their terms of office expire. This term of office may be renewed an unlimited number of times. The duty of the observers is to ensure the strict application of the Articles of Association and to present their observations at the meetings of the board of

directors. The observers perform a general and permanent duty within the Company to advice and monitor. In connection with their role they may make observations to the board of directors.

Observers must be invited to each meeting of the board of directors in the same way as directors. Observers have only consultative powers on an individual or joint basis and have no voting rights on the board.

As at the date of this universal registration document, no observer has been appointed.

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4.4 STATEMENT ON CORPORATE GOVERNANCE

4.4.1 Corporate governance

The Company is refering to the recommendations of the code of corporate governance for quoted companies issued by the AFEP-MEDEF, to the extent that these principles are compatible with the organization, the size, the resources and the ownership structure of the Company.

To this end, the Company regularly proceeds with a review

of its corporate governance in respect of the recommendations of the code of corporate governance for quoted companies issued by the AFEP-MEDEF and updated in June 2018 *. The principal recommendations not applied are as follows:

*: The Company did not yet take into account the modifications made to the AFEP-MEDEF code in January 2020.

Exclusions

Reasons

There is no formal system to measure the individual contribution of each director.

Assessment of the board of

directorsReason: All board members gave positive feedback on the board's operation as a collective body, which is only possible if individual contributions are satisfactory.

The Company's Articles of Association provide for terms of office of the directors of six years, whereas

the AFEP-MEDEF recommends a limit of four years.

Term of office of directors

Reason: When the Company was established, it was deemed that a longer term would ensure the stabi-

lity of the Company's governance.

Composition of the appointments and compensation committee

The appointments and compensation committee does not include

2/3 of independent directors.

Reason: In each of the 2018 and 2019 financial years, an independent director was added to the com- mittee, so that the independent directors now represent 50% of the committee. The Company intends to continue increasing this proportion in the future.

Evaluation of the work of the board of directors and committees

It is not systematically carried out every year, within the board of directors,

a debate on its functioning and that of the committees.

Reason: Special attention will be given to this point during the next exercises.

Desirable balance in board

composition in terms of

The Company, which is not bound by the diversity obligations provided for by the French Commercial

diversity (representation of

Code as its shares are not listed on a regulated market, intends in the long term to further diversify the

women and men, nationali-

composition of its board, particularly in terms of of feminization.

ties, etc.)

To the extent that the contracts concluded between the Company and its employees do not include

Conclusion of a non-com-

non-competition clauses, the Company wished to align the condition of executive corporate officers with

petition agreement with

that of its employees. The Company therefore does not benefit from the protection of this type of clause,

corporate officers

even if it also intends to maintain and develop a retention policy by allocating securities giving access to

capital to its executive corporate officers.

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Apart from setting up the board of auditors and the appointment and compensation committee, and in order to meet the standards of corporate governance that the

Company has set itself, the elements described below have now been put in place.

internal rules of the

and within the scope of the Company's purpose, it shall

4.4.2board of directors

consider any matter affecting the proper functioning

In 2011, the board of directors adopted bylaws, the pur-

of the Company and shall, by its deliberations, resolve

matters affecting it,

pose of which is to define the ways in which it is organized

and operates over and above the legal and statutory pro-

appoint the chairman of the Board, the chief executive

visions in force. These rules were reviewed during 2016

year. It is available on request from the registered office

officer and the deputy chief executive officers, deter-

mine their duties and remuneration,

of the Company.

In addition to respecting the legal, regulatory and sta-

authorize the agreements and commitments referred

tutory provisions applicable to the Board, the Board of

to in Articles L.225-38 and followings of the Commer-

cial Code,

Directors:

determine the orientations of the Company's activity

authorize the decisions and commitments listed in the

Annex to the Rules of Procedure. It ensures the qua-

and ensure their implementation. Subject to the capa-

lity of information provided to shareholders and the

bilities expressly granted by shareholders' meetings

markets.