I am responding to a separate thread of discussion on this topic but thought it might be better separated out as a new thread. The question and debate is around how big is the TAM really for this company. Here are some thoughts on this topic in response to points raised in the other thread.
- Kidney OCS (under development – testing not yet started – several years to commercialization probably) - I agree with the caution around how much this will add to the TAM.
o I think TMDX will not be able to charge as much for Kidney as with other organs. I’m pretty sure they also charge less for Liver than for Heart or Lung. Some organs justify higher costs more than others.
o I assume kidneys don’t typically have to go long distances to find a match. So, I don’t think there is going to be a huge need to store them for long periods of time.
o Someone already mentioned this, but many kidney donations are from living donors and those will never require OCS.
o IF TMDX can prove some type of significant medical benefit using OCS for kidney, then that might change the cost/benefit analysis.
o I think it will be easier for competition to develop a competing device for kidney.
o I do think Kidney will add to the TAM, but I remain cautious for now on the magnitude of the increase.
- Yearly increase in the number of transplants – this is hard to estimate at this time. The limiting factor here might end up being how many transplants can all the US hospitals perform in a year. I expect this number to go up pretty significantly, but there will eventually be a plateau.
o I think NOP will help increase hospital capacity to do more transplants because hospital staff will not have to go out on trips to collect organs. There is a lot of wasted time that will be freed up with TMDX doing all of that work for them.
o I think use of the OCS device itself will make it possible for hospitals to do more transplants because it reduces postoperative complications so patients are discharged more quickly requiring less overall time from doctors and staff. So hospitals will have a higher turnover rate.
- International expansion. It is hard to guess how much it will be utilized in other countries around the world. I think this will add substantially to the TAM eventually, but I would not want to guess how much.
- Transportation system – this doesn’t necessarily need to require TMDX to purchase their own airplanes. I know I have mentioned that as a possibility, but there’s a lot of different ways they could set this up and we don’t really know for sure what their plans are. It could be that they just set up a nationwide network of contracts with private jet operators and a side of their business dedicated to managing that network.
- NOP itself. I think they are pricing this service low for now and that there will be TAM expansion possibility (just based on price increase) once they get more established and they can raise the price they charge for it.
- “Standard of Care” - I’m not exactly sure how this works, but I have seen comments from different analysts that cover TMDX stating that the OCS system could eventually become the “standard of care” for organ transplants. I believe this means that, if that were to happen, that basically all transplants would have to use the OCS system or the hospitals put themselves at legal risk for not following the generally accepted standard of care. So, if something like this were to occur it would just ensure that TransMedics would have almost all of the market share in the US. (Medical people please correct me if I have this wrong.)
- Take over for existing organ procurement organizations (OPOs). This possibility has been brought up by analysts on some of the earnings report conference calls or during industry conference presentations. Whenever it is brought up the CEO has dodged the question and not directly answered if this is something TMDX envisions for the future. OPOs are governmental organizations responsible for helping match organs with recipients. They historically have been criticized a lot by the industry as not being very efficient. If OCS becomes the standard of care, and if TMDX is doing the majority of organ collection through the NOP, then TMDX could eventually take over the responsibility for what the OPOs currently do. This just further deepens their moat and expands the TAM.
- Next Generation OCS – TMDX has said that they are working on the next generation of the OCS device. I’m not exactly sure what they hope to achieve, but what if they are able to find ways to further improve the health of the organ during storage and transplant? Maybe they could charge more? Maybe it just extends the length of their patent protection? I’m not sure, but there may be additional things they can do to increase the TAM through technology.
I do think there will be a plateau in their growth rate. But I think there is potentially several years of solid YoY growth before that happens.
I am not an expert. I could be wrong about any of these. These are just my opinion based on what I have heard and read. There are many risks for this company.