TMDX - Morgan Stanley Conf Notes

TMDX had an interview at a Morgan Stanley Conference yesterday and it was very good. There were several new points of information that I had not heard previously.

Here is a link to the TMDX website where you can find a link to the conference. These interviews are usually only available to watch for a short time after the event. So, listen soon if interested.
https://investors.transmedics.com/events/event-details/morga…

Here are some quotes and summaries of the points I found most interesting:

“We are growing extremely rapidly and with solid demand far outpacing our ability to supply at this time….the demand is at all time high”. TMDX is in the process of tripling (possibly quadrupling) production capacity to keep up with the demand.

“Our goal is that NOP will be 100% of our US business by end of next year (2023). All new accounts (for heart, liver or lung) are only going through NOP. We are no longer offering direct acquisition as an option.” Initially, TMDX sold their OCS systems to hospital staff and trained them to use it themselves – that is the “direct acquisition” model. NOP stands for “National OCS Program – this is the full service program where TMDX has their own staff that goes out to collect donated organs and then deliver them to the hospital. Under this program the hospital does not stock OCS systems and they do not have any staff trained on it’s use. TMDX says they are transitioning 100% to NOP. Basically, if you want to utilize OCS technology you have one option – NOP. I like this because it removes the requirement for TMDX to have to train staff at all transplant centers. With NOP TMDX has complete control of the quality of the personnel doing the organ collection and delivery. This will lead to more consistent and reliable results and will remove a distraction (training hospital staff who are constantly turning over) from the TMDX business model. I like this move a lot – I did not see this coming.

They are teaming up with numerous organizations with the goal of doubling (in the next 3-5 years) the number of yearly lung transplants in the US. He talked about how COVID has negatively impacted lung transplants and how TMDX has a strategy to focus on expanding lung utilization in the coming years.

The CEO said that NOP adds an incremental $15k to $20k over the cost of the OCS disposable. This is the first time I have heard them quote a cost for the NOP service. They later said NOP has low margin compared to the OCS consumables. The strategy is to use NOP to accelerate uptake of the OCS consumables which are much higher margin. They are not trying to make huge profits from NOP. My 2 cents – in the future I think they will be able to charge more for NOP once everyone is used to this model. I think they are taking a short term margin hit to get hospitals hooked on the service.
The CEO said the selling price of the OCS consumable is $65k to $70k per patient (this is about $10k higher than the last time I remember him quoting a price). I believe this price is for the heart and lung consumables – in the past liver consumables were much cheaper than heart or lung.

“The price is no a hindrance to out ability to grow NOP”. Hospitals (and insurers) are willing to pay the upcharge – to the point that TMDX can’t keep up with demand even with these prices.

“We know we are on a pace to doubling our revenue in 2022 over 2021. We want to be in the same situation in 2023 and 2024 – or very close to it.” The context in which he stated this made it sound like they are expecting this growth in the next 2 years.

Charter flights for delivering organs – this was brought up as a risk to growth – that TMDX could possibly use up all available charter flight capacity in the near future. Their strategy to address this – “step one is to enter into contracts with specialty transplant logistic companies to enter into an exclusive arrangement with them to be covering NOP 100%. Working with those companies on beefing up their assets or access to airplanes…… and then as we mature from there, step 2 would be to potentially acquire that entity into Transmedics – 2 to 3 years out. If the growth is there, and the business justifies, we might be more aggressive.” In one of my posts in the last couple years I referred to TMDX as the “Amazon of transplant organ delivery”. Prescient. I did not anticipate that they might buy a delivery service – TAM expansion. They are thinking big.

The CEO talked about how things progress when they are beginning a relationship with a new transplant center. It starts by the center using TMDX for the harder cases – DCD donors or donors farther away. But after the hospital uses TMDX a couple times and sees the benefits to their workflow, the transplant center starts using TMDX also for their local (easier) donors also. It becomes a “workflow decision” for the hospital instead of a “clinical decision”. Basically, the hospital loves the TMDX NOP product so much that they start using it for all cases. It allows the hospital staff to sleep at night and schedule the transplants in the morning – instead of having to go get the organ themselves and perform urgent surgeries in the middle of the night. And there is really no negative for the hospital because insurance is paying the extra cost for NOP and OCS consumables. There is minimal friction for hospitals to switch to NOP.

Staffing has not been an issue for TMDX as they grow NOP launch points. They have been able to attract medical personnel who are burned out from working in hospitals through COVID. In this case, COVID may be benefiting TMDX. They currently have 14 launch points and are planning on scaling up to ~20 in the next 18 months. They think that # should enable them to cover the entire US efficiently.

They expect the Kidney OCS trial to launch in the 2nd half of 2023. Kidney transplants are much larger volume than all other organs and represent a significant TAM expansion.

Next Generation OCS development is in process – we should expect “something” late 2023 or early 2024. They did not provide a lot of details here, so I’m not sure what this is exactly. Probably incremental improvement to maintain their patent moat.

International markets – good opportunity, but depends on reimbursement negotiation timelines with governmental agencies. Could take 2 years + to see much movement.

A very encouraging update. I encourage people to do their own research – all investments have risks. If they continue to succeed like they are, this could be a very good multi-year investment. There is a lot of growth to (potentially) come in the next couple years.

Peace

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AnalogKid70 -

Thanks for the continued TMDX updates. This is a very interesting company.

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