TransMedics’ OCS Revitalizes an $8 Billion Market
Healthcare

TransMedics’ OCS Revitalizes an $8 Billion Market

When TransMedics stock debuted May 2019 on the Nasdaq stock exchange, it was an instant hit. The company offered 5.7 million shares at $16 per share. The opening price surged to $19.80. Only three days later, shares reached $28.

But then the honeymoon faded fast.

Managers reported solid revenue gains and gross margins in November. Sales ballooned to $7.2 million during the third quarter, a 78% increase over a year ago. Margins increased 600 basis points to 59% on the strength of higher average selling prices and improved efficiencies. However, the stock cratered all the way back to $16.


 

Like many smaller companies, TransMedics is struggling with costs as it makes the transition to pubic life. The inspirational corporate story is also getting lost in the daily deluge of financial news.

The first successful human heart transplant was on Dec. 3, 1967. Typically, heart transplants are harvested from patients after brain death. After the patient is declared deceased, the still beating heart is removed, packed in ice and routed to a transplant recipient.

52 years later — almost to the day — TransMedics achieved a breakthrough previously thought impossible in organ transplants. On Dec. 2, 2019, doctors at Duke University Medical Center completed the first U.S. trial of a heart transplant using a heart that had stopped beating, known as donation after circulatory death, or DCD. TransMedics staff collected the heart and placed the organ it its Organ Care System.

The magic of OCS is that it flips conventional wisdom about transporting donor organs. The system, two decades in the making, doesn’t slow functionality. A robotic device attempts to replicate normal human physiology. Sensors keep the organ warm and feed it nutrients. Tubes pump air into lungs, and blood into hearts and livers.

The Duke University heart was successfully reanimated by OCS.

While the transplant was the first of its kind in the U.S., these procedures are commonplace in Australia and the United Kingdom. Royal Papworth hospital in the U.K. has performed 74 procedures, according to a report from CNN Health. Royal Papworth doctors use the TransMedics OCS.

Reanimation makes transplantation a viable option to many more possible donors. There was a total of 39,000 transplants done in 2019 under the current system. Compared to the 112,838 people in the U.S. in need of an organ transplant, analysts have estimated that donations after circulatory deaths could increase the donor pool and thus the number of transplants by 30%.

Source: Organ Procurement and Transplantation Network, based on data from Jan. 7, 2020.

It’s a story worth telling.

TransMedics managers will have an audience Jan. 15. They will be presenting at the J.P. Morgan Healthcare conference. This is a major gathering of institutional investors and analysts. It should be a good opportunity to reinvigorate the corporate story.

The company claims preserving and transporting human organs for transplant is an $8 billion addressable market in the U.S., Canada, Australia and the European Union.

The investment opportunity is the entire organ transplant segment is on the cusp of transformation. There are smaller competitors, but TransMedics is the biggest player, and best capitalized.

Keep a close eye on this promising opportunity. Over the course of the next week or so, we should know if investors are willing to pay attention again.

Best wishes,

Jon D. Markman

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