TransMedics TMDX

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I’m new here - a guy I follow on StockTwits recommended this board and I see that I own many of the stocks that are being talked about. I have a large position in LVGO, medium position in CRWD, and small positions in DDOG and AYX (just trimmed AYX - it was medium before).

I have not seen TMDX referenced on this board, and I would like to share a summary I put together on it to see what all of you think. It’s probably a little higher risk than the SaaS stuff that seems popular here, but I think it has higher potential reward. I’m trying to link to a document on OneDrive because it’s kind of long. This is my second largest holding. Any feedback is welcome and appreciated.

Thanks

https://urldefense.proofpoint.com/v2/url?u=https-3A__1drv.ms…

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Thanks for putting together such a big bull case, AnalogKid!

Definitely worth watching TransMedics, although your suggestion that 10x growth should be easy is… as yet… undemonstrated. At least in my mind. :slight_smile:

I think there might be a nice opportunity to see a sales stagnation or even a drop in sales since US elective surgeries have been largely on hiatus due to the virus. For now, I suspect I will wait for a further drop in share price. Given the CV upset to the global medical scene… and the relatively modest growth shown in recent quarters… I think there is no rush. Yet.

Of course… I am wrong amazingly often. :slight_smile:

Good luck. I imagine more Fools who are more knowledgeable than me will chime in.

Rob
Rule Breaker / Supernova Starshot Home Fool & STMP/MTH Maintenance Coverage Fool
He is no fool who gives what he cannot keep to gain what he cannot lose.

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AnalogKid70-

Thank you for bringing TMDX to this board. It looks very promising at first look. And thank you very much for sharing your detailed analysis on this stock documented in a 15-page write-up. That’s tons of work!

I still need to digit the information provided in your write-up. At first glance, though, I noted the sequential drop in revenue growth in the last 4 quarters, from 94% → 78% → 71% → 61%. Do you have an explanation for the significant drop? Your projected revenue growth for the next few years of 70% - 100% appears too optimistic considering the growth rate of 61% in the last Q along with a decreasing trend. I understand you factored in the pending FDA approval of OCS Lung and OCS Heart.

Thank you

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Thanks for bringing this to our attention. I am in the medical field but in emergency medicine and without firsthand experience in organ transplant. I also own a significant amount of LVGO (it’s my #4 position) and I wish I had bought even more. I understood the market position and potential for LVGO and knew the risk/reward was quite positive. As for TMDX, it looks legit with likely the best technology (my quick take after perusing a few sources) and promising. It looks like it has probably a couple years of growth priced in and it looks like that growth will naturally be slowing a bit. Growth has been choppy with growth coming purely from heart transplants. Add in Covid and there will be some increased uncertainty. It’s also a riskier cash burning micro cap with newer technology. The market while significant is not anywhere the potential of a LVGO so its hard to get as excited. But at its size, it could grow revenue 100 fold and still have only a minority of the market. I will keep it on my watch list and see how it performs over the next year.

Dave

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Replying to TMFRob

“Definitely worth watching TransMedics, although your suggestion that 10x growth should be easy is… as yet… undemonstrated. At least in my mind. :)”

Response - I agree. If I said “easy”, then I was not thinking clearly. 10x growth is never easy and there are many things that could prevent it. I’m just saying it’s easier for TMDX to 10x (if their approvals come through as expected) than it is for the SaaS companies bc TMDX is starting from a much smaller base.

“I think there might be a nice opportunity to see a sales stagnation or even a drop in sales since US elective surgeries have been largely on hiatus due to the virus.”

Response - Transplants are not typically classified as elective. In fact, many people are at immanent risk of death if they do not get the transplant. And, the donated organs have to be used when they are available - you can’t just hold on to the organ for a better time. Transplants were halted at many centers during the shutdowns, but they have all largely resumed and their numbers are ramping up. Part of the slow down was also due to transplant organizations needing to develop protocols for how to properly test donated organs to ensure that they were not transplanting an infected organ. All of those protocols are now in place. Finally, transplants are some of the most lucrative procedures for hospitals - so they will be given priority over most other procedures as far as restarting them quickly.

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Replying to Klav2

Yes, it’s a long write up. I’ve been working on it for over 6 months. I originally did it for myself to help make sure I was thinking through things thoroughly. It’s got some risk, and I was making the 2nd largest investment in a single company I’ve ever made - so I wanted to try to be disciplined. I’ve also shared it on StockTwits, and it’s been through several iterations. I don’t typically do that much work - but this was a special case.

In answer to your question about revenue growth, yes it’s a little lumpy. Much of the revenue in the last year is from OCS disposables sold for the trials - insurance companies have been paying TMDX for the disposables even when it was part of a trial. Since the trials have ups and downs, that makes the revenue a little variable. The Lung OCS has been fully commercial since around the middle of 2019, but uptake has been slow for a couple reasons. First, there was a ramp-up period where TMDX had to work with the hospitals and OPOs to train everyone in the procedures and policies for reimbursement from insurance and Medicaid. It was a longer process than they expected. There is also training that hospital transplant staff has to go through before they can start using the OCS devices. Third, TMDX has only just started rolling out their “Perfusion Services” division - I go into detail on this in the document and explain why it will be a catalyst. Finally, in the latest quarter the low growth is all due to COVID. TMDX had to delay international expansions, and there was a period of complete shut down at some transplant ceters that started in March.

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Replying to remmdawg.

Yes, the TAM is much smaller than a LVGO or TDOC - it’s a niche company. But, it’s currently available for below its IPO price, and even though the TAM is not huge, it’s big enough for many years of high % growth.

To clarify one thing - their revenue has been coming from all three OCS devices - heart, lung, and liver. Lung is the only fully commercial one, but they get paid by insurance for the units they are providing for the different trials they are running on heart and liver.

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TMDX is interesting, but their cash nur seems worrisome. I also don’t like that they have high interest debt on their balance sheet.
They have worked on their tech for a long time and they cumulated losses are higher than their market cap. That tells us already how difficult it is to penetrate the market. I find it interesting and the company Is somewhat local to me, but because of aforementioned reasons, I have not invested.

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Replying to spekulatius - “TMDX is interesting, but their cash nur seems worrisome. I also don’t like that they have high interest debt on their balance sheet.
They have worked on their tech for a long time and they cumulated losses are higher than their market cap. That tells us already how difficult it is to penetrate the market. I find it interesting and the company Is somewhat local to me, but because of aforementioned reasons, I have not invested.”

All valid points. They recently had a shelf registration, so I expect dilution at some point.

High risk = high (potential) reward IMO.

It takes a very long time to bring something like their product to market due to the nature of the transplant procedure and regulations surrounding it. But - TMDX is right at the finish line. 20 years of investment were required to get here, but now they are here. They have a revolutionary product in a field that is slow to change. They are also implementing a service organization that will solve many issues that are currently present in the existing system. The service organization was just started to be deployed this year. It’s all in my summary, so I won’t re-type it here.

NOTE - they will be publishing the results of their latest trial (Liver OCS) sometime in the next few weeks. If the results are stunning, the stock could start to run.

They also should get FDA approval for Heart OCS sometime in the next 3-4 months. When that comes through, it will be another catalyst for the stock. Heart OCS results were solid in the US trials, and heart OCS has been sold commercially in Europe for years with great results (on both DBD and DCD hearts btw).

They are also about to perform the first transplant of a DCD liver using OCS and that could be another stock price catalyst (smaller catalyst than the 2 items mentioned above).

A final catalyst is that hospitals have started doing transplant procedures again in the northeast and northwest (they had been halted for a while in these areas due to COVID).

I realize this stock is not for everyone. It’s more on the speculative side at this point. I’m just presenting it here as one for the board to keep an eye on. If/when some of the things I mentioned above start to play out, you may want to get in at that point. 2019 revenues were ~$25M. I personally believe there is a path to $250M - $300M in revenue in fiveish years. 10x bagger potential does not come without risk.

Full disclosure - my dad is a lung transplant recipient, so I’ve got some emotional attachment also.

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“2019 revenues were ~$25M. I personally believe there is a path to $250M - $300M in revenue in fiveish years. 10x bagger potential does not come without risk.“

Revenues growing from $25M to $250M is just revenues doesn’t necessarily translate the stock will be a ten bagger.

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“Revenues growing from $25M to $250M is just revenues doesn’t necessarily translate the stock will be a ten bagger.”

True, but you could say the same for almost all of the unprofitable companies that are popular on this board. The assumption is that profitability will eventually come with higher revenues.

I did not give more detail in that post because I didn’t want to re-state everything I’ve already put into the document I originally posted.

  • Revenue growth is “usually” correlated to stock price growth.
  • Gross margins for the last 3 quarters have been 57%, 62%, 65% - and that is based on very small volumes. GM should get much higher as their volumes ramp up.
  • They will not need a large sales force or marketing budget based on the nature of this product, so SG&A will not increase too much as revenues ramp.
  • Lastly, they have stated in their S-1 that they have plenty of excess manufacturing capacity and are currently only running 1 shift of production - so there should not be a need for large capital investments any time soon.

So, my assumption based on all of this is that profitability will be strong as volumes/revenues ramp up.

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