TransMedics Group Inc (NASDAQ:TMDX) creates organ transplant technologies that help improve the results of patients in need of a new heart or lungs. It’s in a commercial stage for its Organ Care System (OCS), which essentially keeps organs working in simulated body environments during transport.
It has an innovative medical technology, but is TransMedics stock a Buy?
The old way of transport was simply cold storage. Putting an organ on ice in a cooler and hiring a courier isn’t out of the ordinary. But the company’s technology is designed to keep hearts beating and lungs breathing in transport, reducing the physical trauma on the organs and patients.
It’s addressing a real need that hasn’t had much innovation over our lifetimes. This breakthrough could be a profitable opportunity for investors, if hospitals, clinics, and private practices can afford it.
Will TransMedics leave portfolios deflated or enable them to keep on pumping to profitability?
TransMedics Preserves Hearts and Lungs Longer
TransMedics is a Boston, Massachusetts-based biotechnology company focused on organ health during transplant. It developed its OCS platform to preserve organs like hearts, lungs, and livers while moving between people.
In doing so, the technology could improve patient outcomes while reducing costs, according to the company’s website.
The Food and Drug Administration (FDA) approved the company’s OCS for lung transport in 2018. This premarket approval is enough for it to generate revenue, but it’s still waiting for approval on its heart transport.
Clinical trials in these technologies will ultimately make or break them, but the results look positive so far. In fact, trial data looks so good that many analysts are bullish on the stock and rated it a Buy. The company’s management is out presenting at healthcare conferences, and the feedback is great.
This has some investors wondering if the stock is a worthwhile purchase.
Is TransMedics Stock A Buy?
TransMedics kicked off 2021 with a market capitalization of approximately $500 million, which quickly grew to over $820 million before Q1 was in the mirror.
TMDX share price rose from a 52-week low of $10.10 during the March 2020 crash to more than triple that number on optimism for its value add to all stakeholders: patients, doctors, and hospital systems.
In the third quarter of 2020, the company generated $7.1 million in net revenue. That’s a 36 percent year-over-year improvement from the same quarter in 2019. The company continued its clinical trials for heart transplants and should have further approvals in 2021.
The company’s U.S. revenue comes from heart ($4.3 million), liver ($1 million), and lung ($600k). Despite these impressive sales, they’re outweighed by $9.6 million in operating expenses. TMDX spent heavily on marketing over the past year.
This gave TransMedics a $5.1 million net loss for the quarter, which is up from an $8.3 million loss in the same quarter of the prior year.
Once it has final FDA approval (which it expects in 2021), revenue streams should grow quickly as it becomes the new standard for hospital organ transport. That brings up some of the inherent risks of investing in this stock.
Risks Of Buying TransMedics Stock
TransMedics is as-yet unproven, and it needs to wait for transplant patients. The company’s business model depends on people needing organ transplants and going to the hospital for the procedures.
Many of these procedures dropped during the COVID-19 pandemic. As of the company’s third quarter revenue call, none of its three key markets reached pre-pandemic levels.
And because of the reduced number of surgeries, hospitals prioritized ventilators and other coronavirus-related equipment over this purchase. As useful as it may be, the cost is extraordinary – one single-use OCS heart perfusion set costs about $40,000. That’s a big ask for a struggling industry.
This is a big problem with the medical technology industry. Even if it’s proven effective, it doesn’t guarantee mass adoption. And prohibitively high costs could keep hospitals and clinics relying on the competition.
Can TransMedics Competitors Win?
Although it’s a breakthrough technology, TransMedics isn’t without competition. The OCS platform has rivals in the form of XVIVO Perfusion and OrganOx. Both companies are working on similar artificial transport environments to keep organs alive.
Each is involved in clinical trials in the U.S., as well as in Europe and Canada. Regulatory approval is the first step, and the companies are jockeying for position in a relatively small market.
Approximately 35,000 (and rising) organ transplants are performed in the U.S. each year. This puts a relatively small cap on the number of possible annual machine sales – at least at first glance. At $40,000 per unit, you’re looking at a $1.4 billion domestic market split three ways.
With a market capitalization over $800 million, TransMedics needs to take a big market share in the U.S. while expanding quickly into other countries. Considering it was founded in 1998, it’s already been a long road to get here, and there’s still plenty left to go.
Nevertheless, Transmedics claims a higher potential opportunity that spans into the billions, particularly when considering the possible expansion to other organs and international growth.
Is TransMedics Stock A Buy? The Bottom Line
TransMedics is an innovative medical technology company that creates a portable artificial body to keep livers, lungs, and hearts alive in transport. The traditional method involved simply putting an organ on ice in an insulated cooler to avoid bacterial growth.
But hearts need to beat, and lungs need to breathe. These systems keep organs in a living state while outside the body hoping to improve clinical results.
While the company moves through FDA clinical trials, it’s competing with other similar solutions. Each has research and data to convince government regulators around the globe to commence testing. But until they reach the end of the road, there’s no telling which company (if any) will dominate the market.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.