I’ve been told that this company does not really belong on this board, so I’ll be posting in the future on the TMDX specific Motley Fool board. I’m posting one last message here (hopefully it does not get deleted) because I know some of you have invested in this company. 2021 has been good so far, and there are several significant catalysts still to come this year. TMDX started the year at $19 and is currently at $44 - up 130% in 2021.
This is a cut/paste of what I already posted on the TMDX board (with a few edits). It is a summary of main points from the ER and from a presentation they did the next day at the Cowen Health Care conference.
FYI - if you are interested, anyone can view the Cowen presentation. Just go to the investor relations part of the Transmedics website under “Events” and there is a link to the video from the conference. Most conferences only keep the videos up for a short amount of time, so watch it soon or risk not having access.
Transmedics Q4 2020 earnings report and Cowen Healthcare Conference presentation
3/3 and 3/4 2021
These are my combined notes from both the earnings report and the Cowen presentation. I’m not going to talk much about the financial stuff because it’s just not that meaningful right now. If you are investing in this company, you are investing for the future possibilities - not the financial results from 2020.
TMDX talked about five major catalysts for the year 2021:
The upcoming heart panel in April for DCD hearts. The CEO talked about this quite a bit more in the Cowen presentation. He stated that Transmedics is completely confident in the quality of the data from the study and in their ability to explain and defend any points related to the data. He talked at length about preparedness and that they are ready to go. He seemed very confident in both the ER and the Cowen presentation. Not positive about this, but I think he might have said that getting the actual decision from the FDA might not happen for 60 days after the panel date. (I’m not sure about that point - it was not real clear.)
Liver OCS FDA Panel. TMDX completed the first liver study last year and submitted all the paperwork to the FDA. They are currently in discussions regarding setting a target date for the liver panel review. They think it should be in the June/July timeframe. During the Cowan interview the CEO was asked if he thought there would be enough DCD livers in the original liver trial in order for that to be approved along with DBD livers in the first FDA review. The CEO said yes, he believes that will be the case. (This is good news. I was expecting that they would have to do a separate DCD trial for liver like they did for heart and lung. If they get both DBD and DCD livers qualified from the same study that is great.)
Publications in medical journals. The only specific example that he gave in either presentation of this was related to the liver study. I’m not sure if there are going to be other published reports, or if the liver is the only one. He did not give a timeframe for when the liver publication will come out, but I have to assume it will be before the FDA panel review - so that would mean sometime in the next few months. He said there are three specific things to look for in the publication when it comes out. 1. The rate of utilization of livers on OCS versus control. 2. He said this was a “first of its kind study” with regard to proving mechanistic reasons why the outcomes were as good as they were. 3. The positive impact of adding an ex-vivo assessment tool for clinical decision-making.
Expansion of the National OCS Program. I will talk about this more below.
Read out of the heart DCD study results in Q3. He said that he expects commercialization for DCD hearts to be sometime in 2022. They have started a Continued Access Program for DCD heart that will allow them to keep selling some amount of heart OCS units for DCD while they wait for the FDA review. This CAP has already started and is active in 25 transplant centers.
There was no update given at any point regarding plans or timing for kidney OCS.
During the Cowan interview he was asked if there would be any significant international news in 2021. The CEO said that he is optimistic that there will be a significant announcement regarding support of the OCS platform in Europe this year. He said they have been working on it for many years with Europe. I know they are commercial in England already and have been selling there longer than in the US. I think what he was referring to was more related to approval of reimbursement in Europe. The Transmedics devices are very expensive and I don’t think Europe has agreed to pay for them up to this point.
During the earnings report they said that they have recently initiated clinical use of OCS lung and heart in Taiwan.
Revenue will be a little bit lower in Q1 because they will have no sales on the Liver due to the fact that they are in between tranches of the CAP program for liver.
They said expenses will be higher in 2021 because they are building out the service program and scaling up for growth. They said that expenses will be around $13 million in Q1 and increasing from there.
National OCS Program
He talked pretty extensively about this in both the ER and the Cowen presentation. It is still pretty much in line with what I have written previously, so I’m not going to repeat that part of it. I will state a few highlights.
- They are currently have the program established and running in four major regions. Two of these were just set up and started in the second half of the fourth quarter.
- They are planning to ramp up to having the program set up in 10 major regions by the end of 2021.
- The program will eventually support all three organs - lung, heart, liver.
- The foundation that they have laid with the service organization is going to streamline the rollout for heart and liver OCS once they get FDA approval for those indications. This will eliminate most of the roadblocks they ran into when they first started commercializing lung OCS. They have basically worked out all the kinks in the regions they have already set up and it’s going to make everything go a lot smoother from now on. They refer to it as a “scalable foundation” - I like that.
- They have set up a national network of surgical expertise as contractors for the national OCS program. He did not clearly define this, but my understanding is that there will be some full-time employees of Transmedics who are basically the technicians that run the units and manage the organs on the OCS. In addition to that, they will have surgeons who are not full-time employees but who they contract with when they need someone to do the actual surgical removal of the organ from the donor.
- Over the last year they have engaged in an awareness campaign for all parts of the organ transplant network to educate people on the presence of the national OCS program and the benefits of it. This has helped a lot in getting their foot in the door with new transplant centers.
- During the Cowan interview the CEO gave a little bit more detail in how the process unfolds. He said that Transmedics is now being involved at the very beginning in screening potential donors to determine if they think they are suitable for transplant using the OCS system. In the past, this would have been done by the transplanting hospital surgeons. Now, Transmedics is starting to take on that role. If they determine that the donor is a good candidate, then they tell the Organ Procurement Organization that they have a set of suitable lungs for donation and the OPO sends out an offer to various hospitals to see if anyone wants to take them. If a hospital accepts the offer, then Transmedics is given the go-ahead for their team to go out and collect the organ and deliver it to the transplant center.
- In the past the transplant center would have to send out their own team to collect the organ and bring it back to the hospital. Now Transmedics takes care of all of that for them. The transplant center no longer has to worry about logistics, teams, who is going to retrieve the organ at 3 o’clock in the morning. In the past the transplant center might have had to send a team from the South to Boston if that is where the donated organ was located. Now, Transmedics sends their own team to wherever the organ is located and they personally deliver it to the transplant center. This removes a tremendous amount of work from the surgical team at the transplant center. (Transmedics is becoming the Amazon of organ delivery.)
- If the transplant center relies on Transmedics to do all of this, another benefit is that the transplant center no longer has to worry about maintaining a group of people trained on how to use the OCS equipment.
- Transmedics is not trying to make this service into a profit center for them. They said they are not pricing it in a way to try to earn a lot on the service. They will be earning all of their profit from the expansion of use of the OCS systems. The goal is to use the service to expand the OCS more and more to the point that it eventually becomes the standard of care and is used on all organ transplants.
- They get a 15%-20% lift in revenue with the service program vs. just selling the OCS consumables. This will reduce gross margin I believe, but will accelerate revenue growth.
Final thoughts. Total revenue last year was only $26 million. They did not give projections for 2021, but I could easily see this increasing 50%-80% this year and then 100% next year when they have all three organs approved and the national OCS program deployed in more cities. Plus potential for international growth in Europe and Asia.
The main risks that I see are if they have a surprise rejection from the FDA, or if they do a secondary offering. Other than that, I think the next two years are going to be very good. This is my second largest investment - second only to bitcoin.
p.s. - Canaccord Genuity recently increased their price target for TMDX to $79. They stated that they believe the OCS will become the Standard Of Care for organ transplants. The stock jumped 20% the day of the announcement. Growth stocks have been falling, TMDX has been rising.