$TMDX - TransMedics

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$TMDX - TransMedics

Customer website: TransMedics.com

Investor relations: Investors.TransMedics.com

Stock price: $26.00

Market cap: $706 million

Enterprise value: $610 million

Shares outstanding: 27.16 million


Headquarters: Andover, Massachusetts, USA

Founded in: 1998

Founder & CEO: Waleed Hassanein [click here]

Employees: 115+

Funding: $259 million [click here]

Phone: 978-552-0900

Email: info@transmedics.com


TransMedics on Twitter [click here]

TransMedics on YouTube [click here]


TransMedics 2020 Q3 earnings [click here]

TransMedics 2020 Q2 earnings [click here]

TransMedics 2020 Q1 earnings [click here]

TransMedics Investor Presentation [click here]


2018 revenues: $13 million

2019 revenues: $23 million

2020 revenues: $24 million (est.)

2021 revenues: $46 million to $62 million (est.)


TransMedics Organ Care System for hearts [click here]

TransMedics Organ Care System for lungs [click here]


$TMDX writeup on Seeking Alpha, June 2020 [click here]

Organ donation statistics [click here]

$TMDX saving lives in the field [watch video]

$TMDX transporting lungs from Texas to Chicago [click here]


$TransMedics or $TMDX is a fascinating company which is on a mission to revolutionize solid organ transplantation. When I recently learned about this company I was shocked and quite frankly disappointed that our healthcare industry has not adopted this technology faster however it’s finally coming and as it does this stock is going to be a strong performer for shareholders.

Think about all the amazing technologies that we use every day to make our lives better. The pace of innovation is remarkable however when it comes to life saving organ transplants and the transportation that goes with it, the current process is simply unacceptable. Without $TMDX vital organs such as lungs, hearts and livers are being transported in a plastic bag, on a bunch of ice, inside of a picnic cooler. When I found this out I was actually angry because it’s clearly an archaic and inferior way of doing something.

Now I’d like to introduce you to the better way of transplanting and transporting organs and it’s called TransMedics or $TMDX.

$TMDX is a machine that replicates the human body which allows organ transplant specialists to keep vital organs alive much longer so they have the time needed to get to the recipient patient. Prior to $TMDX when the donor patient died the organs would be harvested but then the time clock would start ticking because as soon as those organs go into the plastic bag and onto the ice and into the cooler… they start dying. This meant the doctors only had a couple hours to get the old organs into the new bodies before the organs were considered unusable. Tens of thousands of life saving organs were going to waste every year. $TMDX is here to change all of that because now we have a machine that can keep these organs alive and functioning 5x longer.

When the donor is identified; the transplant surgical team travels to the hospital where the donor is located. They will harvest the organ and transport the organ back to the hospital where the recipient is located. Sometimes the donor and recipient are several miles apart and sometimes they are hundreds of miles apart. With the old way of doing this (the cooler), the distance between donor and recipient was limited but now with the $TMDX machine there is almost no limit on distance which means more matches and more life saving organ transplants.

There are no advantages to using the cooler except cost however and as we’ll discuss soon the organ transplants from the cooler transport process have a much higher failure rate than the organs transported with $TMDX and this because those organs started dying as they were sitting on ice in that cooler. $TMDX is keeping these organs alive, keeping them warm, feeding them nutrients, keeping them oxygenated — as if they were still in the donor patients’ body.

$TMDX also allows the organ transplant specialists to monitor the organs in real time and make adjustments as needed — clearly this not happening if the organs are sitting in a bag on ice in a cooler.

Here are some stats on the number of people who are likely in need of organ transplants — $TMDX is one of the companies that can help save these people and make sure they’re getting their donated organs in the best condition possible.

Currently $TMDX has has OCS (organ care system) for heart, lungs and liver.

OCS Heart [click here] - the only device currently under FDA review for utilized and unutilized donor hearts

OCS Lung [click here] is a portable perfusion, ventilation, and monitoring system that maintains the organ at a near-physiologic state – allowing physicians to assess and improve the condition of lungs between the donor and recipient sites.

OCS Liver [click here] - currently being evaluated for utilized and unutilized donor livers

Right OCS Lung is the only one that’s FDA approved but every cardiologist and expert I spoke with over the past 4 days expects $TMDX to receive FDA approval for OCS Heart in 2021 and then OCS Liver in late 2021 or early 2022. The pandemic in 2020 did slow down the review/approval process.

OCS solves so many of the current problems with cooler transport. The utilization of organs goes up to 80% and there is practically no limit on how far the surgical team can go to harvest the organ because there’s no practically no time limit to get back to the recipient. This alone could increase the number of organ transplants every year by 50-200%. It’s a tragedy that so many patients are dying every year waiting for suitable donors.

As you can see below the $TMDX unit is fully contained, self-powered and easy to transport. Inside of each unit is everything the specialists need to keep these organs alive and ready for the recipient.

BENEFITS OF ORGAN TRANSPLANT:

In my research I came across a stat that said a heart transplant costs $1.5 million which sounds insane but then I read someone with a chronic heart condition could end up costing the healthcare system twice that so organ transplant is often times the cheaper alternative which means the insurance companies are on board.

COLD STORAGE vs ORGAN CARE SYSTEM:

I’m not going to spend much time on this because it’s just so obvious that transporting organs in bags on ice in coolers should no longer be done and that $TMDX with their warm perfusion technology should be the new norm ie standard of care.

The cardiologists that I spoke with wanted to emphasize the better patient outcomes with organs that were transported with $TMDX using warm perfusion versus cold storage transport which starts killing the organs before they can even be used. Organ transplants are always complex and risky surgeries but those recipients have a much better chance of survival if we are giving them an organ that was in great shape when they received it and $TMDX is critical to this.

MARKET OPPORTUNITY:

$TMDX estimates the current TAM (total addressable market) in the US is about $8 billion although most people I spoke with thought this number could double or triple as $TMDX provides the ability for more organ transplants to happen every year. No longer will someone on the East Coast die because the only donor match was on the West Coast.

GROWTH STRATEGY:

As mentioned above, the biggest growth driver going forward is FDA approval for OCS Heart then OCS Liver — OCS Kidney is still going through development. It’s also about educating and training the medical professionals. $TMDX works off the “razor and blades” model or “disposables models” so they are selling the units but then also selling the solution for the units.

$TMDX already has 200+ issued patents with more in the pipeline. As far as I can tell there is no other company in the US that has a similar product. The only company I came across is in Europe but their product is inferior because it’s not self-contained so it doesn’t work for off-premise transports.

$TMDX is focused on the largest hospitals that perform the most organ transplant surgeries every year which is basically your 30 largest metro areas.

OCS is good for all three stakeholders involved — patients, surgeons and hospitals. I could even throw in the insurance companies since organ transplant is cheaper than long term chronic care. Due to the device, more organs will be transplanted safely; more organs which otherwise would go waste would be utilized, more patients will get new lives, and surgeons will be able to help more patients. 

At least 5 patients die each day in the U.S. waiting list for lung, heart, and liver transplants due to inadequate supply. $TMDX can help fix this.

156 million people over the age of 18 in the U.S. have registered as organ donors but only 3 in 1,000 people die in a way that allows for organ donation.

According to $TMDX there are 67,000 potential donors each year for lung, heart and/or liver transplant. However, the current transplant guidelines only allow for donation of these primary organs from donors after brain death, which only accounts for 19,000 potential donors. The remaining 48,000 potential donors experience circulatory death, and their primary organs are deemed not-viable for transplant by the current standard of care. Organ health, patient suitability, geography and time constraints further reduce the available donor pool from this initial 19,000 figure. The actual utilization rates per the current standard of care are just 7.2%, 8.7% and 24.9% for lung, heart and liver, respectively

FUNDING:

$TMDX came public via IPO in May 2019 [click here]. Prior to that the company had raised $259 million from a prolific group of 24 institutional investors including Kleiner Perkins, Flagship and Fayerweather [click here].

FINANCIALS:

Not only do I love the underlying mission and lifesaving potential of $TMDX but the fundamentals should be very strong for the next 5-10 years. Last year was a flat year for the company but that’s mainly because of the pandemic and only having one FDA approved OCS machine in the market. With the pandemic coming to an end and FDA approval for OCS Heart on the horizon, I expect growth for $TMDX to remain very strong for the next few years. The consensus estimates for 2021 are calling for 90% revenue growth from last year but the high end of the range is looking for 2.5x growth. I suspect that high estimate is assuming OCS Heart gets FDA approval in the first half of 2021. Like most MedTech companies $TMDX has very strong gross margins at 68%. They are not profitable yet and likely won’t be for 2-3 years but that doesn’t worry me. $TMDX should be in hypergrowth mode for the next 3-5 years which means grabbing as much market share as possible and getting as many OCS units into the hospitals. $TMDX does have approximately $100M on their balance sheet but it’s still possible we see a secondary offering in the next few months to raise more cash, especially if the stock performs well (which I expect it will). 90% of the time these secondary offerings create a small pullback which usually turns into a great buying opportunity for long term investors (like me).

CHARTS:

I wish I had caught this stock last week when it pulled back to the 20 day moving average around $21 per share — that would have been an incredible buying opportunity. Yesterday we saw a big move higher after the stock closed above the 10 day moving average last Friday.

I believe Fidelity and Blackrock have also been accumulating shares so that might account for some of the recent buying. After this writeup goes out I’m expecting strong demand for $TMDX so I doubt we see the stock in the $20s anytime soon. When you’re dealing with small cap stocks, you have to expect more volatility and big price swings, it’s just part of the game.

SHAREHOLDERS:

When I first saw this chart I was surprised that insiders owned less than 5% of the company but when you consider $TMDX raised $260 million in the private markets and spent many years doing expensive R&D and developing IP, it’s not surprising the insiders got diluted way down on their equity. This is quite common from companies that take 15+ years to go public.

MANAGEMENT:

I spoke to two people this past week that know the Founder & CEO personally, they both said he’s amazing guy and super shareholder friendly. They said if I sent him an email he’d probably respond because he wants to be transparent and treats everyone fairly. I have not had the opportunity to send him an email but I believe my two contacts are being truthful. He received a 70/100 approval rating which is decent.

You can listen to all $TMDX earnings calls including the CEO at [click here].

The $TMDX management team is impressive and has a wealth of experience across the medical/healthcare industry. I have no concerns with this team. Full team and bios [click here]

CONCLUSION:

It’s a horrible tragedy when someone loses their life but if that person is an organ donor we owe it to them to save as many lives as possible with their organs and the only way that happens is with $TMDX.

I didn’t know much about the organ transplant market before I started diving into $TMDX but now I find it fascinating and ripe for disruption given the old way of doing things. As a society with a multi-trillion dollar healthcare system we should be outraged that life saving organs are still be transported in picnic coolers. This is a disgrace.

Not only do I think $TMDX will deliver strong returns for shareholders over the next decade but I love that we get to support a company that is literally in the middle of saving lives every day. Thankfully I don’t have any loved ones suffering from chronic organ failure or needing an organ transplant but if I did I’d want to know that the organ that might save their life was being transported with a $TMDX machine and not in a plastic bag on some shaved ice.

I’ve seen different reports that the OCS machines cost somewhere between $45,000 and $75,000 although that price tag seems insignificant when someone’s life is on the line. Let’s give our medical professionals the equipment they need to do their jobs.

I know that $TMDX was up big yesterday and will probably be up again today and maybe for the next few days but this is a longer term hold for me. Just like $DMTK is going to save lives with their genomics smart patches for early skin cancer detection, $TMDX is going to save lives with their OCS machines. These are the types of companies I like to identify and invest in as early as possible. It’s much easier to invest in a company like $DMTK or $TMDX that is making the world a better place for humanity rather than another app for sending text messages.

Yesterday I started a 4% position in $TMDX which means I was also forced to chase this stock higher compared to where it closed last Friday. When it comes to small caps you’re not always going to get the perfect entry price sitting right on a moving average. Sometimes it’s alright to chase a little, especially if you are a longer term investor. In the case of $TMDX, when I look back in 3 years it won’t matter if I paid $32 per share or $36 per share because I expect this stock to be substantially higher.

I can see from recent filings that Fidelity and Blackrock are buying $TMDX — these are not short term investors. These are the two biggest asset managers on the planet so when they get into a stock like this it’s usually with the purpose of holding for many years or forever.

I hope within a few years we never have to worry about any organs being transported through any means other than $TMDX — if this comes to fruition we will all be very happy shareholders.

I hope you enjoyed this writeup and I look forward to your comments. I encourage everyone to signup for the webinar I’ll be doing with Dr. Anil Pandit who first brought $TMDX to my attention and helped me get started with this writeup. You can follow him on Twitter at @a_p2014 and subscribe to his Substack at [click here].


Signup for the webinar on Wednesday at 7pm EST with Jonah Lupton and Anil Pandit to discuss $TMDX in more detail. Here’s the link to join: https://zoom.us/j/93624193765?pwd=QkRTZFh4Vks3SjlTdmNxUmh5aGl6Zz09

This webinar will be limited to the first 500 people — it will be recorded and sent out via email on Wednesday night or Thursday morning.



Disclaimer:  The stocks mentioned in this newsletter are not intended to be construed as buy recommendations and should not be interpreted as investment advice. Stocks mentioned in this newsletter should only end up in your own portfolio after you conduct your own research and due diligence. Many of the stocks mentioned in my newsletter have smaller market capitalizations and therefore can be more volatile and should be considered more risky. I encourage everyone to do their own research and due diligence before buying any stocks mentioned in my newsletter. Please manage your own portfolio and position sizes in accordance with your own risk tolerance and investment objectives.